Stocks Finish Higher, Boosted by Road&Rail, Construction, Biotech and Commodity Shares

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Stocks Higher into Final Hour on Short-Covering, Lower Commodity Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Software longs, Medical longs and Computer longs. I covered all my (IWM)/(QQQQ) hedges this morning and then added them back, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 6.5% and is above-average at 23.82. The ISE Sentiment Index is very low at 93.0 and the total put/call is high at 1.09. Finally, the NYSE Arms has been running below average most of the day and is currently .58. The Euro Financial Sector Credit Default Swap Index is unch. today at 92.50 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is unch. at 142.88 basis points. The TED spread is unch. at 1.17 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.95%, which is down 67 basis points in just over seven weeks and at the lowest level since August 2003. The BankRate.com average 30-year fixed rate mortgage has now dropped 36 basis points in three days to 5.79%. It has plunged 72 basis points since July 23^rd, which is a large positive. Mortgage Applications surged 9.5% this week, the most in 13 weeks. Oil continues to trade very poorly given the OPEC production cut, a larger-than-expected inventory decline, hurricane worries and Iranian shipping sanctions. Refinery Utilization is now at 78.3%, the lowest since the historic hurricanes in 2005 wreaked havoc with the Gulf energy infrastructure. The US Dollar continues to trade very well. The Citi eurozone economic surprise index is now -162.50 versus +63.20 for the US economic surprise index. Nikkei futures indicate a -21 open in Japan and DAX futures indicate a +38 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as lower commodity prices and short-covering offset global growth worries.

Today's Headlines

Bloomberg:
- The International Energy Agency, an adviser to 27 nations, cut its forecast for global oil demand in 2008 and 2009 as high crude prices and the economic slowdown reduce U.S. consumption. ``A combination of weak economic prospects and persistently high prices appears to be having an impact on consumer behavior and choices,'' David Fyfe, the head of the IEA's oil industry and markets division, said in a telephone interview. There is evidence of a ``marked shift to more efficient vehicles, changing mobility and driving habits, signs that suburban living is gradually losing its appeal and ongoing modifications in business practices,'' it said. OPEC pumped 32.5 million barrels a day last month, 195,000 barrels a day less than in July because of field and pipeline outages in Iraq, Angola, Libya and Nigeria, according to IEA estimates. Global oil supply fell about 1 million barrels a day to 86.8 million barrels a day because of North Sea field maintenance and the shutdown of the BTC pipeline from Azerbaijan to Europe, according to the report.
- Commodity index investors, blamed for record oil prices, sold $39 billion worth of oil futures between their July record and Sept. 2, causing crude to plunge, according to a report released today. The work by Michael Masters, president of the Masters Capital Management hedge fund, blames investors who buy and hold an index of commodities for driving prices to records, and for their subsequent drop. It comes a day before the U.S. Commodity Futures Trading Commission is set to discuss its own study of energy trading with a congressional committee. Masters testified three times before Congress this year, arguing that limits on traders would cut oil prices to $65 to $70 a barrel. Congressional pressure on the CFTC to step up enforcement and restrict anonymous trades has pushed index traders out of their positions, Masters said. ``The speculators that drove prices up basically deflated the bubble,'' said Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York. JPMorgan Chase and Co., Goldman Sachs Group Inc., Barclays Plc and Morgan Stanley control 70 percent of the commodities swaps positions, and swaps dealers are the largest holders of Nymex crude oil futures contracts, Masters said. Masters earlier this year reported that index speculators such as those that trade on Standard & Poor's GSCI accounted for $260 billion of assets, up from $13 billion in 2003. As of Sept. 2 that number was down to $223 billion, Masters said. ``For the supply and demand people, what I would like for them to explain is how from the supply-and-demand rationale you could have oil at $95 in January, at $150 in June and back to $100 in September,'' Masters said.
- The US dollar rose to an 11-month high against the euro as crude oil declined and Lehman Brothers Holdings Inc.'s plan to sell assets assured investors. The yen fell the most in two week versus the dollar on bets the Wall Street firm's attempt to shore up capital will encourage traders to buy higher-yielding assets funded by loans in Japan. ``Today's price action is an unequivocal vote of confidence for the U.S. dollar,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.
- The European Commission cut its growth outlook for the euro area for the rest of this year and predicted a recession for Germany, the region's largest economy.
- European Central Bank President Jean-Claude Trichet said the euro-region economy is likely to recover from the current slump toward the end of the year and that bringing down inflation remains the bank's primary focus.
- Russia's RTS Index had its biggest two-day drop in more than seven years as equity funds sold because of redemptions from investors and margin calls from their brokers. OAO Surgutneftegaz, Russia's fourth-biggest oil producer, sank 8.8 percent to the lowest in almost five years. The dollar-denominated RTS dropped 4.4 percent to 1,334.33. Combined with yesterday's 7.5 percent decline, it marked the biggest two-day drop for the index since December 2000. ``We see little support for Russian equities today with redemptions and forced selling due to margin calls dictating the market,'' JPMorgan strategist Peter Westin in Moscow wrote in a note to investors. JPMorgan today reiterated its ``underweight'' recommendation on Russian equities, saying the country's economic outlook is replacing geopolitical risk and politics as the primary concern for investors. Russia's economic growth slowed to an annual 7.5 percent in the second quarter, compared with 8.5 percent in the previous quarter, the Federal Statistics Service announced today. Inflation from the beginning of the year through Sept. 8 rose to 9.8 percent, the government said today.
- Kenneth Heebner, manager of the top-ranked U.S. stock mutual fund, is seeking as much as $5 billion for his first hedge fund. Heebner, who has worked in the mutual-fund business almost four decades, formed a private investment partnership in June called Wayfarer Capital LP, according to Aug. 14 regulatory filings. The size of the fund, which had raised $73 million from wealthy investors and institutions, may vary from the target, Wayfarer Capital said in the filings.
- Fannie Mae(FNM) raised $7 billion in its largest individual sale of senior debt, after a government takeover of the company led to a record drop in yields relative to benchmarks.
- RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30 percent last month amid falling copper and aluminum prices, according to an investor with the firm.
- Oil futures fell to a five-month low in New York following a U.S. government report that showed fuel demand declined and refinery production dropped after Hurricane Gustav shut plants along the Gulf Coast. Operating rates declined to 78.3 percent of capacity in the week ended Sept. 5, the lowest since 2005, when hurricanes Katrina and Rita struck the Gulf, the Energy Department said today in a weekly report. Demand for fuels averaged over the past four weeks declined 3.8 percent, the department's report showed.
- Gold tumbled to the lowest price since October on speculation a drop in commodity costs and a stronger dollar will reduce demand for the metal as a hedge against inflation. Silver plunged to the lowest since 2006. The Reuters/Jefferies CRB Index of 19 raw materials dropped for a ninth straight session and is down as much as 24 percent from a record reached in July. Gold has declined 26 percent from an all-time high in March and the euro is trading 13 percent below its July peak against the dollar. ``Gold's diseased,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``A lot of the inflationary fear has eased because we've seen energy and commodity prices come spiraling down. The dollar has not given up a lot of its gains. That's leaving traders up in the air about what to do with gold. I wouldn't want to touch it with at 10-foot pole.''
- Lehman Brothers Holdings Inc.(LEH), reporting the biggest loss in its 158-year history, said it will sell a majority stake in its asset-management unit, spin off real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence.

Wall Street Journal:
- Credit Suisse will start charging some new clients to speak to their stock analysts, in the latest effort by a Wall Street firm to squeeze more value out of its stock-research division.
- Palin Will Close Congress’s Favor Factory, Says DeMint.

NY Times:
- RAB Capital, which recently removed its chief executive from his post, announced Wednesday that it wanted to freeze redemptions in an effort to restructure its flagship hedge fund, which has plunged in value by nearly half this year, with a 22 percent drop in August alone.

FINalternatives:
- Hedge funds are off to the worst start in more than 20 years after posting their third straight down month in August. The worst performers in August included emerging markets—last year’s best performing strategy fell another 3.31% on the month, as is the year’s second-worst performing strategy, down 10.01%—and two emerging regions, Latin America (down 2.65% in August, down 0.53% YTD) and Asia-Pacific (down 2.41%, down 12.72% YTD, the worst performing strategy of 2008). Short-biased funds, the year’s best-performing strategy by far, its 9.37% return more than triple that of its closest competitor, also had a difficult month as equities rallied in August, pushing short funds down 2.61%.

Washington Post:
- The Best Deals in Bank Stocks.

Die Zeit:
- The International Monetary Fund said a recession in German, Europe’s largest economy, is “possible” this year, citing a draft of the fund’s World Economic Outlook, due to be published in October. Next year, the German economy will grow less than 1% on average.

Interfax:
- Russia will probably increase oil production this year to 10.04 million barrels a day, citing Deputy Prime Minister Igor Sechin. Several new fields are close to coming online, including Verkhnechonskoye, Sechin said. Russian oil production declined .9% in August from a year earlier to 9.82 million barrels a day.

Etemade Meli:
- A top Iranian cleric, Hassan Rohani, attacked President Mahmoud Ahmadinejad’s government for failing to take advantage of “golden opportunities” since coming to power three years ago. Ahmadinejad’s administration hasn’t made use of the “exceptional” revenue from high oil prices and it is unclear where the funds have gone, Rohani said.

Bear Radar

Style Underperformer:

Mid-cap Value (+.01%)

Sector Underperformers:

Airlines irlind (-5.09%), Gaming (-2.03%) and Telecom (-2.02%)

Stocks Falling on Unusual Volume:

TSO, LVS, WBS, PHTN, SSRI, CLNE, SVVS, DRIV, CTCM, GROW, CLMS, TWTC, OI, PAY, SLV and GT

Stocks With Unusual Put Option Activity:

1) EQIX 2) CX 3) NWS 4) CCJ 5) HMY

Economic Releases

- None of note

Bull Radar

Style Outperformer:

Mid-cap Growth (+.52%)

Sector Outperformers:

Computer Services (+1.87%), HMOs (+1.69%) and Construction (+1.63%)

Stocks Rising on Unusual Volume:

DNR, SFY, IMCL, SNY, QCOM, NMR, SF, KB, AVAV, KCAP, UTHR, GIII, FWLT, AMAG, CSGP, ZEUS, AAWW, BJRI, LRCX, RSCR, JOYG, STLD, FSLR, ABMD, ENER, TBSI, SIG, MYL, CVH, IRF and SF

Stocks With Unusual Call Option Activity:

1) KR 2) CVH 3) AU 4) BQI 5) XLNX