Stocks Finish Sharply Higher, Boosted by Transportation, Financial, Gaming, REIT, Homebuilding, Commodity and Alt Energy Shares

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Stocks Soaring into Final Hour on Easing Economic Fear, Technical Buying, Short-Covering, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Retail longs, Medical longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling .76% and is very high at 35.08. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running very low most of the day, hitting .29 at its intraday trough, and is currently .40. The Euro Financial Sector Credit Default Swap Index is rising .92% today to 146.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 2.88% to 159.90 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.11% to 83 basis points. The TED spread is now down 380 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.18% to 58.50 basis points. The Libor-OIS spread is falling .06% to 79 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 3 basis points to 1.43%, which is down 121 basis points since July 7th. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .18%, which is up 3 basis points today. The heavily-shorted (XLF) is soaring 7.2% today ahead of the bank stress test results later in the week. The Transportation Index is jumping 6.1% and looks headed to its 200-day moving average in short order. The S&P 500 is breaking through the 875-880 level of technical resistance. Many large funds that are short or underexposed to US stocks had pointed to this level as an area that would prove daunting to penetrate. I suspect this will result in further short-covering and vanilla buying later this week as portfolio managers scramble with the S&P 500 heading into positive territory for the year. One of my longs, (DISCA), is surging 9% today after its earnings report, to a 10-month high. I still think the shares have significant upside from current levels over the intermediate-term. Nikkei futures indicate an +333 open in Japan and DAX futures indicate an +1 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, easing financial sector pessimism, technical buying, investment manager performance anxiety and diminishing credit market angst.

Today's Headlines

Bloomberg:

- Short sellers, the bane of Wall Street executives last year, are back. The number of Citigroup Inc.(C) shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock. Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed. The increase in short selling occurred as the S&P 500 Financials Index posted its best two months since 1989, when Standard & Poor’s started keeping records. The 80-member index has surged 41 percent since Feb. 27. Short sellers were accused last year by Wall Street chief executive officers, including Lehman’s Richard S. Fuld and Morgan Stanley’s John J. Mack, of using abusive tactics to attack firms. Fuld, 63, told congressional investigators on Oct. 6, less than a month after Lehman filed the biggest bankruptcy in history, that short sellers played a role in a “storm of fear” that led to the demise of the 158-year-old firm. Mack, 64, helped persuade government officials in the days following Lehman’s collapse to suspend short selling, which he said was sending his New York-based firm’s shares into a free fall. The SEC will convene a meeting May 5 to discuss proposals for restricting short sales, including an outright ban when a stock’s price declines. Short interest rose after Feb. 27 for 14 of the 18 publicly traded companies under review by the Fed, according to Bloomberg data. Citigroup’s increase was the biggest at 509 percent, followed by New York-based insurer MetLife at 66 percent, American Express at 44 percent and Bank of America at 42 percent. The average increase for the 18 companies was 47 percent. It was 201 percent excluding Citigroup. The total short interest for the 18 firms as of April 15, the last date for which New York Stock Exchange data are available, was 2.1 billion shares, or 7.1 percent of those available for trading. That compares with 1.05 billion shares on July 15, or 4 percent of those available for trading. The number of shares sold short in Morgan Stanley totaled 52 million on April 15. While that’s down 12 percent since Feb. 27, it’s higher than the 45.3 million shares on Sept. 15, when Mack was lobbying lawmakers and regulators for a ban.

- Pending sales of U.S. existing homes in March posted their first back-to-back gain in almost a year and construction spending ended a six-month slide, spurring a rally in stocks and sell-off in Treasuries. The number of Americans signing contracts to buy previously owned homes jumped 3.2 percent after a 2 percent gain in February, the National Association of Realtors said today in Washington. Construction unexpectedly rose 0.3 percent as gains in commercial and government projects overshadowed a continued drop in homebuilding, Commerce Department data showed. Economists forecast the pending sales index would be unchanged, according to the median of 32 projections in a Bloomberg News survey. NAR’s affordability index, which tracks mortgage rates, home prices and incomes, surged in February to the highest level in 20 years of data.

- US investors should stick with stocks and ignore the axiom of “sell in May and go away,” according to David Bianco, UBS AG’s chief equity strategist. “Hold for further gains in May,” Bianco wrote in a recent report. Seasonal patterns are “a weak force” by comparison with the economy, which is showing “clear signs of improvement,” the report said. He repeated a year-end estimate of 1,100 for the S&P 500.

- Ever since the Standard & Poor’s 500 Index peaked in October 2007, six of eight strategies -- which are supposed to make money whether stocks rise or fall -- failed, according to back-testing data compiled by Bloomberg. As the bear market erased $11 trillion from the value of U.S. equities, buy and sell signals from those six technical indicators produced losses of as much as 49 percent, the data show. “Technical analysis on its own as a discipline does not work,” said Diane Garnick, the New York-based investment strategist at Invesco Ltd., which oversees $348 billion. Using it in isolation is “the fastest way to lose money,” she said. Of the eight strategies, stochastics, Bollinger bands, relative strength, commodity channels, parabolic systems and the Williams %R indicator generated buy and sell signals that resulted in losses between the S&P 500’s peak of 1,565.15 on Oct. 9, 2007, and its March 9 trough, the data show. They did worse as the index then rallied 30 percent through last week.

- The European Union cut its forecast for the euro-area economy to show a contraction twice as deep as it projected just three months ago, and said the region’s budget deficit will swell to more than double the EU limit. The economy of the 16 countries sharing the euro will shrink 4 percent in 2009 and 0.1 percent in 2010, the European Commission, the EU executive in Brussels, said today, revising a January estimate for a contraction of 1.9 percent this year. The region’s average budget deficit will swell to 6.5 percent of output next year, when unemployment will rise to 11.5 percent, the commission said. “We are no longer in free fall, but even if some positive signals appear, we don’t have the critical mass of data to say we are out of the woods,” EU Monetary Affairs Commissioner Joaquin Almunia told a news conference in Brussels. Euro-area inflation will slow to 0.4 percent this year before accelerating to 1.2 percent in 2010, the commission projected. That follows a report from the commission last week showing consumers expect prices to decline over the next 12 months, the first time the price-outlook gauge has been negative since at least 1990.

- General Motors Corp.(GM) may be more likely to end up in bankruptcy based on the Obama administration’s willingness to place Chrysler LLC into court protection to safeguard union health-care benefits. Chrysler filed for protection April 30 after the U.S. was unable to persuade secured lenders to swap $6.9 billion in claims for $2.25 billion in cash. A union retiree health-care trust was offered a 55 percent stake in Chrysler. “This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders,” Fridson said. “It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.” GM bondholders proposed April 30 they get a 58 percent ownership stake in the Detroit-based automaker in exchange for their $27 billion in unsecured claims. Bondholders are objecting to GM’s proposal they get a 10 percent share of GM equity while a union health fund would get $10 billion in cash and as much as a 39 percent stake for $20 billion in unsecured claims.

- Remember the good old days of the late 1990s, when the stock market was buoyant and big technology companies like Microsoft Corp. and Cisco Systems Inc. led the way? Those days are here again -- at least for a while. There is a time near the end of recessions when the tech sector usually does very well. It is the half-lit-dawn period, when the stock market has started to recover, but the economy hasn’t yet. Statistics from Ned Davis Research Inc. covering the past five recessions show that information-technology stocks are usually the best performers during such times. And the pattern is holding true again this year.

- Citigroup Inc.(C), girding for results of the Federal Reserve’s bank stress test, may try to wring capital from private investors instead of U.S. bailout funds as a way of bolstering equity without ceding control to the government, people briefed on the matter said. Regulators have indicated to the New York-based bank, which got a $52 billion rescue last year, that another taxpayer-funded cash infusion won’t be required, according to one of the people, who asked not to be identified because the talks aren’t public. Discussions now center on how much of the government’s preferred shares in the firm must be converted into common stock, the person said. Under a plan set in February, the government would convert as much as $25 billion of its stake, for a 36 percent voting interest. Getting money from private backers may help Citigroup dissuade the Treasury Department from converting all or part of its remaining $27 billion investment -- a step that may increase the government’s ownership to more than 50 percent and nationalize what was once the biggest U.S. bank. One likely solution for the company would be to convert $10 billion of privately held securities that could easily be added to the pending exchange, said Kevin Starke, who analyzes bank capital structures for hedge-fund clients of CRT Capital Group LLC.

Wall Street Journal:

- The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group(GS) Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after. During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value. Mr. Friedman also was overseeing the search for a new president of the New York Fed, an officer who has a critical role in setting monetary policy at the Federal Reserve. The choice was a former Goldman executive. Jerry Jordan, a former president of the Fed bank in Cleveland, says Mr. Friedman should have stepped down once Goldman became a bank holding company in September and thus fell under the Fed policy barring stock ownership by certain directors of Fed banks. "Any kind of financial transaction at all by any of the directors is always a problem," Mr. Jordan said. "He should have resigned." Goldman was one of nine big banks the Treasury aided with capital injections in early October. The prior month, the government decided, partly at the urging of New York Fed officials, to bail out insurer American International Group Inc. The initial $85 billion provided to AIG enabled it to pay a portion of $8.1 billion it owed to Goldman, stemming from past trading agreements. By the end of the year, Goldman had gotten all of the $8.1 billion as AIG received more government aid.

- The first exchange-traded fund whose managers pick its stocks is making its debut Monday. Unlike other ETFs, which mainly track indexes, the "actively managed" Grail American Beacon Large Cap Value ETF will be comprised of names that the ETF's managers choose based on research aimed at finding good, cheap stocks.

- The last time Amazon (AMZN) held a press conference in New York City was in February, when it introduced the Kindle 2.0. Now it is scheduling one for Wednesday morning at Pace University in lower Manhattan. Expect a new, large format device that’s optimized for reading newspapers and magazines.

- President Barack Obama Monday unveiled a far-reaching crackdown on offshore tax avoidance, targeting many U.S.-based multinational corporations and wealthy individuals. The sweep of the administration's plan took some tax experts by surprise, and foreshadows potential fights with big businesses later this year over some of their most cherished breaks, particularly as Congress looks for revenue to pay for new initiatives. Many of Mr. Obama's proposals will require congressional approval. And while Democrats control both houses of Congress, many members of his own party have expressed reluctance about raising taxes, so prospects for the proposals are uncertain, even though none would take effect until 2011. A senior Republican aide termed the proposals a "revenue grab," predicting they could end up driving more corporate operations overseas. "If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S....and to compete against our foreign competitors who are not subject to this U.S. tax," said John Earnhardt, a Cisco Systems Inc. spokesman.

- President Barack Obama, in seeking to strike a balance between being fair to workers and business during negotiations over Chrysler LLC, gave an early indication of how he might treat organized labor. The president, who won November's election in part due to labor's support, also has started to use the regulatory apparatus to address worker concerns. But his relationship with labor could grow more complex when debates peak over issues such as trade and overhauling labor law. Mr. Obama is "walking a fine line," said Gary Chaison, an industrial-relations professor at Clark University in Worcester, Mass. "He is clearly supportive of labor, but he's trying not to appear to be too supportive, because then Republicans will make the case that what he's doing is a payoff for labor bosses with taxpayer money." Addressing Chrysler's bankruptcy filing Thursday, Mr. Obama emphasized the sacrifices made by the United Auto Workers union and other stakeholders. Under the bankruptcy-reorganization agreement, which would culminate in Fiat SpA taking over Chrysler, workers will see cuts in pay and benefits, but the union's retiree health fund will end up with a 55% equity stake in the company to help pay for retiree benefits. Cerberus Capital Management LP, which struck a $7.4 billion deal to buy control of Chrysler two years ago, will lose all of its equity in the company.

- Regulators, academics and representatives from major companies will converge at the Securities and Exchange Commission Tuesday morning to discuss the agency's five proposed rules to limit short-selling.

- Unions already are the big winners of the Chrysler bankruptcy. But, Wall Street bankers warn that companies with large union work forces may end up being losers in the future. Many investment bankers, bankruptcy experts and investors are worried about the precedent being set by the government’s preferential treatment of Chrysler’s unions at the expense of Chrysler’s secured lenders, who are supposed to be the first to be paid off in bankruptcy proceedings and who typically get the best recovery. In the government-led plan for Chrysler, the UAW pension fund will end up owning 55% of the auto maker, while the secured lenders were forced to take just 29 cents on the dollar for the debt they hold. To financiers, that represents a troubling signal that union interests will supercede financial interests in future cases. ““You can imagine banks, hedge funds, are going to think twice about lending to a company with union exposure,” said a banker who helps companies raise money. “If you don’t know what the rules are going to be, the amount of debt that companies are going to be able to raise is going to drop for unionized companies and their cost of capital is going to get much higher as well.”

- Mobile advertising growth has slowed sharply over the past few months but is expected to reaccelerate next year, just as a growing number of cellphones built with Google Inc.'s (GOOG) Android software are expected to hit the market. U.S. advertisers are seen spending $229 million on mobile ads this year, up 26% from $169 million in 2008, according to a report by Brian Wieser, global director of forecasting for Magna. Magna predicted that mobile ad spending could nearly double by 2011, reaching $409 million. Chief Executive Eric Schmidt said last month he expected Android to have a "very, very strong year," adding that a number of wireless carriers and hardware makers will be making "significant" announcements by the end of the year.

CNBC:

- BlackRock Inc.(BLK) is maintaining its 1,000 estimate for the S&P 500 for this year, Bob Doll, vice chairman and chief investment of the financial company, said. The recovery will be “subpar,” Doll said, in part because the government hasn’t made an “exit plan” from its interventions in the economy.

MarketWatch:
- The New York Times Co.(NYT) has reached tentative agreement with a number of unions at The Boston Globe, and has agreed to hold off on a threat to shut the Globe down in two months, according to a published report Monday.

Mass. High Tech:

- American Science and Engineering Inc.(ASEI) reports it has landed $4.7 million from an unnamed law enforcement agency for its cargo screening vans. Under the contract, the Billerica-based company will deliver multiple Z Backscatter Vans to an unnamed law enforcement agency. AS&E said the vans will be used to scan vehicles at border crossings and other checkpoints to detect illegal drugs and other contraband. The Z Backscatter Van system comprises a mobile X-ray screening system built into standard commercial vans to allow for “drive-by” inspection. One or two operators can conduct X-ray imaging while the ZBV drives past suspicious vehicles and objects.

Politico:

- President Barack Obama’s ambitious first-year agenda has some House Democrats fearing a repeat of 1994, when the priorities of a new president collided headfirst with the prerogatives of senior leaders on Capitol Hill and the party lost control of both the House and the Senate. While few leaders would predict a similar collapse at this early stage in his presidency, those fears provided the backdrop for a leadership meeting Thursday in the speaker's Capitol conference room, people present said. In the run-up to the meeting, Democratic Congressional Campaign Committee Chairman Chris Van Hollen (D-Md.) argued in several newspaper interviews that the House should move cautiously on a cap-and-trade bill if it doesn’t look like the Senate will approve it. Van Hollen doesn’t want vulnerable House Democrats — especially the freshmen under his care — to be forced to take difficult votes on the measure if it’s not going to pass anyway. But Energy and Commerce Committee Chairman Henry Waxman, a 34-year veteran of the House who knocked off his longtime predecessor last fall to push an ambitious climate change bill, took umbrage with Van Hollen’s public stance during Thursday’s leadership meeting, people present said. Brandishing an issue of that day’s CQ in which Van Hollen laid out the merits of holding off, an agitated Waxman reminded his junior colleague that raising procedural concerns in public didn’t make it any easier for the Energy and Commerce Committee chairman to broker a compromise with the members of his committee — or help him pass an ambitious bill in the House.

The Detroit News:

- The all-electric car -- which had a brief heyday less than a decade ago before the car companies killed it -- is about to make a comeback. Charged up with lighter, more efficient batteries and competitively priced with gasoline-driven vehicles, the new offers will be marketed and sold primarily as second cars. These silent electric autos will be plugged into home outlets and will be able to travel 100 miles or more without stopping for a charge. Nissan said recently it has developed a mass-market electric car, due out by the end of next year, that will seat five and can have its battery charged to 80 percent of capacity in 26 minutes. It will have all the amenities buyers want, Nissan says, such as navigation, super stereo and heated seats, and will cost between $20,000 and $30,000. The company is not alone. Ford, Mitsubishi, Chrysler and Subaru, among others, are planning to introduce electric vehicles over the next year, according to the Electric Drive Transportation Association, a trade group. "The electric car is clearly on its way back," said Ron Cogan, editor and publisher of the magazine Green Car Journal, which covers the alternative-energy-auto industry. "Every automaker and battery company has been making incremental breakthroughs" in technology.

AP:

- A solid majority of Jewish Israelis worry that President Barack Obama's outreach to the Arab and Muslim world will come at their expense, a new poll showed Monday. Israelis also strongly back stopping Iran's nuclear program, even if Israel has to attack Iran without American approval, according to the survey. The poll found that 63 percent of those questioned believe Israel will suffer from Obama's declared intention to reconcile with the Muslim and Arab worlds.

Reuters:
- Iran will not suspend its disputed nuclear programme even if the United States imposes sanctions targeting companies that ship fuel to the Islamic Republic, a Foreign Ministry spokesman said on Monday. Twenty-five U.S. senators from both parties have proposed giving President Barack Obama new leverage in the dispute over Tehran's nuclear ambitions. The bill gives Obama the authority to sanction companies supplying petrol to Iran.

- Bank of America Corp(BAC) said on Monday it does not have plans to raise $10 billion in common equity, as the Financial Times had reported.

- Research In Motion (RIMM) is planning a next-generation version of its touchscreen BlackBerry Storm smartphone as part of a continuing push into the retail market, its co-CEO said on Monday. "We see this very large and untapped consumer market," Jim Balsillie said during a presentation to analysts and investors, adding that more than half of RIM's 25 million subscribers now fall into the non-corporate category. Asked about whether the Storm -- which debuted to mixed media reviews last year -- has been a hit, Balsillie said "that product was a huge success in terms of sales and adoption."

- A wave of hedge funds are being launched this year by traders as the financial crisis fuels a shakeout of talent from Wall Street banks and big investment firms, an industry executive said.

- Global manufacturing activity contracted at its slowest pace in seven months in April helped by signs of improvement across the euro zone and the Unites States, a survey showed on Monday. The global index, produced by JP Morgan with research and supply management organizations, rose to 41.8 in April from 37.3 in March, its highest in seven months. The rise in the PMI was helped by the biggest month-on-month gains in the survey's 12-year history in the output, new orders, new export orders and employment indices.

Financial Times:
- The European Union’s attempt to regulate hedge funds will affect other classes of alternative investment such as real estate funds and investment trusts, lawyers studying the fine print of the new rules have warned.

The Globe and Mail:

- After months of upheaval, Alberta's energy companies are rolling out new project cost estimates low enough that the hard-hit province could see a spending revival worth billions of dollars. The dramatic retreat in oil sands development, forced by last year's oil price freefall, punished the Alberta economy and resulted in thousands of layoffs. Now, labor and material costs have been lowered enough that the prospect of new life in the oil sands has become a topic of discussion in a province that just a few months ago watched as more than $200-billion in oil sands projects were either shelved or outright cancelled. "Rather than needing $80- to $100-a-barrel [U.S.] to make projects work, all of a sudden you're looking at these and saying maybe they are economic in a $60 world, and fairly competitive globally," said UBS Securities analyst Andrew Potter.

Etemaad:
- Mohsen Rezai, a former commander of Iran’s Revolutionary Guards who’s running in presidential elections, said President Mahmoud Ahmadinejad is “adventurous” and leading the country to a precipice. Ahmadinejad’s rhetoric over the country’s nuclear program is putting Iran’s national interests at risk, Rezai, who is secretary of the Expediency Council, an advisory body to Supreme Leader Ayatollah Ali Khamenei, was cited as saying.

Bear Radar

Style Underperformer:
Large-cap Growth (+1.69%)

Sector Underperformers:
Education (-1.91%), Software (-.13%) and Utilities (+.01%)

Stocks Falling on Unusual Volume:
PHI, DV, THO, DTV, QDEL, CMTL, ADBE, HAE and CCC

Stocks With Unusual Put Option Activity:
1) ONNN 2) DTV 3) PTEN 4) CLWR 5) WY

Bull Radar

Style Outperformer:
Small-cap Value (+3.53%)

Sector Outperformers:
Homebuilders (+8.38%), Steel (+7.45%) and Banks (+5.79%)

Stocks Rising on Unusual Volume:
KB, STI, CRZO, WFC, CEO, PTR, CHL, CHU, BGFV, LMDIA, JRCC, EBIX, NAFC, GMCR, SOHU, TBSI, ATLS, JRJC, HSIC, DISCA, VLCCF, HSII, NILE, RAIL, AMSC, GTLS, LOGI, EL, EMG, ASF, KND, GMR, FRO and VMC

Stocks With Unusual Call Option Activity:
1) AET 2) BDK 3) CSIQ 4) NIHD 5) ELN

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