Bear Radar

Style Underperformer:
Small-cap Value (-3.76%)

Sector Underperformers:
Banks (-6.10%), Gaming (-5.31%) and Homebuilding (-5.03%)

Stocks Falling on Unusual Volume:
GEOY, PVTB, RTP, TIN, LUK, WFC, STI, FCX, AIPC, QSFT, TTEC, SWSI, ARST, NUAN, FSYS, PZZA, TSRA, CATY, SNDK, APC, GXP, PFG, USB and MR

Stocks With Unusual Put Option Activity:
1) ATVI 2) CY 3) ADSK 4) LRCX 5) MBI

Bull Radar

Style Outperformer:
Large-cap Value (+.45%)

Sector Outperformers:
Drugs (+2.42%), Medical Equipment (+1.15%) and Telecom (+.56%)

Stocks Rising on Unusual Volume:
TWTC, PDA, PFE, VIP, LIHR, GSK, E, RDS/A, CIB, STEC, WINN, CTRP, KNXA, HMIN, FOSL, MTXX, TLEO, JRCC, PRSC, MDCO, APEI, CGRB, MYGN, CWCO, USNA, FCL, PDA, BMA and FLR

Stocks With Unusual Call Option Activity:
1) CTRP 2) STEC 3) ODP 4) AMD 5) USB

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Federal Reserve Chairman Ben S. Bernanke said he’s encouraged by U.S. banks’ plans to raise capital after government stress tests and indicated firms need to conduct further internal exams to identify other risks. The banks, especially those with “trading and investment banking businesses,” should keep monitoring “operational, liquidity and reputational risks,” which weren’t addressed by the exam concluded last week, Bernanke said in a speech today at a Fed conference in Jekyll Island, Georgia. The remarks signal that the Fed and other U.S. regulators will keep a closer eye on firms such as Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) after last year’s collapse of Lehman Brothers Holdings Inc. and near-failure of Bear Stearns Cos.

- MBIA Inc.(MBI), the largest bond insurer by total guarantees, posted its second profit in seven quarters as its plunging creditworthiness created an accounting gain. The first-quarter net profit of $696.7 million, or $3.34 a share, compared with a loss of $2.4 billion, or $12.92 a share, a year earlier, the Armonk, New York-based company said today in a filing with the U.S. Securities and Exchange Commission. The shares rose 18 percent to $8.24 at 6:33 p.m. in late trading.

- Investors should be on weakness in both the Canadian and Australian dollars by buying on-year digital options versus the greenback, according to Deutsche Bank AG, the world’s biggest currency trader. The increased demand for riskier assets tied to growth will probably fade as the global economy recovers slowly, pushing down Canada’s loonie and the Aussie, said Adam Boyton, currency strategist at Deutsche Bank in New York.

- Mexico’s credit rating outlook was cut to negative from stable by Standard & Poor’s as the country’s first recession in eight years swells the budget deficit. “Mexico’s fiscal and external positions have deteriorated,” S&P wrote in a statement. This “heightens underlying structural fiscal vulnerabilities, such as a budgetary dependence on oil revenue, the absence of significant fiscal savings and a low non-oil tax base,” S&P said. S&P kept Mexico’s foreign debt rating at BBB+, the third- lowest investment grade rating. The negative outlook means the rating may be lowered. S&P has only cut Mexico’s foreign debt rating once since it initiated coverage 17 years ago -- in February 1995 following the peso devaluation that sparked capital outflows across Latin America.

- Alcoa Inc.(AA), the largest U.S. aluminum producer, said restarting Chinese smelters would harm a market still struggling to cope with a global surplus of the metal. “There are rumors of smelter restarts in China,” Executive Vice President Bernt Reitan said today in an interview at the CRU World Aluminium Conference in Dubai. “There is no need for restarts when you look at the global supply and demand balance. We’re still in a situation of significant oversupply.” China is the world’s largest producer of aluminum. Prices of the metal, used in cars, planes and drinks cans, have fallen 48 percent in the past year as stockpiles monitored by the London Metal Exchange more than tripled to a record 3.9 million metric tons. A government stimulus package may deliver “modest growth” in demand this year in China, the largest consumer, compared with a projected 7 percent drop in world aluminum use, Reitan said. European and North American demand will slide 15 percent.

- Copper fell for a third day on speculation that Chinese import demand may drop, helping to erode a rally that’s boosted the price of the metal used in pipes and wires by almost half this year. “We expect imports to slow in coming months,” Citigroup Inc. analysts led by Alan Heap, wrote in a report today, saying some Chinese demand, especially speculative buying, may not be sustainable. Copper prices may drop “on falling Chinese buying interest,” according to a report from Societe Generale SA. China imported 748,281 metric tons of refined copper in the first three months of the year, 92% more than in the same period last year, according to customs data from the world’s third- largest economy. The surge in overseas shipments had been driven by purchases by China’s State Reserve Bureau, shortages of scrap and the rebuilding of inventories, Citigroup’s Heap wrote. “Some of the copper recently imported has gone into speculative stockpiles, encouraged by the arbitrage and the recent credit expansion,” said Citigroup’s Heap. “This portion of offtake growth is not sustainable.”

- A bipartisan group of lawmakers is reviving legislation that would push China to raise the value of its currency, the yuan, by threatening to raise tariffs on imports.

- China’s export slump worsened in April, making it harder for the government to revive the world’s third-biggest economy. Overseas sales declined 22.6 percent to $91.94 billion from a year earlier, the official Xinhua News Agency said. Imports fell 23 percent. The collapse of world trade has cost millions of jobs in China and dragged growth to its weakest pace since at least 1999. Surging lending and a 4 trillion yuan ($586 billion) stimulus package are yet to establish solid foundations for an economic recovery, the central bank said last week. “The export outlook remains highly uncertain and downbeat,” said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.

Wall Street Journal:

- Sounding a note of cautious optimism, Honda Motor Co.'s finance chief said the company plans to increase output slightly this quarter. Anticipating that once-bloated inventories probably will ease to appropriate levels by July, Honda plans to increase production at its Japanese factories, Chief Financial Officer Yoichi Hojo said in an interview at the company's headquarters here.

- The number of homes listed for sale in many U.S. cities continued to fall in April in what some analysts see as a sign that the market may be nearing a bottom. But the picture is clouded by uncertainty over how many foreclosed properties will hit the market. The supply of homes for sale in 29 major metropolitan areas at the end of April was down 3.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The ZipRealty data cover all single-family homes, condominiums and town houses listed on local multiple-listing services in metro areas where the firm operates. On a national basis, inventories typically increase in April as for-sale signs bloom for the spring home-shopping season. Since 1982, the average increase in April from the prior month has been 4.8%, according to Zelman & Associates, a research firm. Compared with the year-earlier month, the April inventory in the 29 metro areas was down 21%.

- How ObamaCare Will Affect Your Doctor. At the heart of President Barack Obama's health-care plan is an insurance program funded by taxpayers, administered by Washington, and open to everyone. Modeled on Medicare, this "public option" will soon become the single dominant health plan, which is its political purpose. It will restructure the practice of medicine in the process. Republicans and Democrats agree that the government's Medicare scheme for compensating doctors is deeply flawed. Yet Mr. Obama's plan for a centrally managed government insurance program exacerbates Medicare's problems by redistributing even more income away from lower-paid primary care providers and misaligning doctors' financial incentives. Like Medicare, the "public option" will control spending by using its purchasing clout and political leverage to dictate low prices to doctors. (Medicare pays doctors 20% to 30% less than private plans, on average.) While the public option is meant for the uninsured, employers will realize it's easier -- and cheaper -- to move employees into the government plan than continue workplace coverage. The Lewin Group, a health-care policy research and consulting firm, estimates that enrollment in the public option will reach 131 million people if it's open to everyone and pays Medicare rates, as many expect. Fully two-thirds of the privately insured will move out of or lose coverage. As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty.

- The Obama administration has backed off plans to bring U.S. Postal Service worker benefits in line with those of other federal workers. A line item in Obama's preliminary budget released in March showed the government would save $752 million in fiscal year 2010, or $9.4 billion over the next decade, by modifying USPS worker benefits.

- Madison Avenue is plowing more resources into a new marketing medium: Apple Inc.'s iPhone. In the past several months, companies such as Burger King Holdings Inc., Zippo Manufacturing Co. and Lions Gate Entertainment Corp. have experimented with promotional software applications that can be downloaded onto the iPhone, or they have created ads that are placed within other popular applications for the device. At the most basic, marketers are taking advantage of the iPhone's advanced video and screen capabilities by creating streaming video ads. But some are taking things further by offering ads disguised as apps.

- Ford Motor Co.(F) will offer 300 million common shares in a public offering designed to shore up the car maker's cash reserves and keep the company out of bankruptcy as its crosstown rivals struggle to restructure. Ford's move -- which could raise $1.7 billion to $2 billion -- indicates the company believes investors will pin their hopes on it as General Motors Corp. and Chrysler LLC are consumed by uncertain reorganizations.

- The Pentagon ousted its top general in Afghanistan and appointed a new leadership team, in an attempt to jump-start a new war strategy that relies more on counterinsurgency tactics and less on conventional warfare.

- Congratulations, taxpayers. Soon GMAC LLC, the money-burning auto and mortgage lender, will likely join Fannie Mae, Freddie Mac, American International Group and Citigroup in your investment portfolio. By the time all the checks have cleared, you may have sunk upward of $20 billion into this former ward of General Motors, an amount equivalent to $210,000 for each of the nation's public schools. GMAC differs from other companies under the government thumb because it isn't too big to fail. So the government doesn't need to save GMAC to safeguard the financial system.

- Target Corp.(TGT), under pressure from an activist shareholder, is using fresh foods and other recession-proof groceries as the cornerstone of a plan to quiet criticism and reverse a slide in sales. The Minneapolis-based retailer, best known for its fashionable merchandise and jazzy marketing savvy, is pinning its rebound hopes on a distinctly unchic notion: transforming a corner of its discount department stores into a grocery store.

NY Times:

- As walk-in clinics at stores like CVS and Wal-Mart offer convenient alternatives to doctors’ offices and hospital emergency rooms, some hospitals are fighting back — with walk-in clinics at some of those same retailers. Around the country, hospitals are now affiliated with more than 25 Wal-Mart clinics. The Cleveland Clinic has lent its name and backup services to a string of CVS drugstore clinics in northeastern Ohio. And the Mayo Clinic is in the game, operating one Express Care clinic at a supermarket in Rochester, Minn., and a second one across town at a shopping mall.

- It’s unlikely that any group of professionals is happier to highlight the dullness of their work than small-town bankers. At a recent conference held here by the Indiana Bankers Association, attendees said it over and over: our business is plodding and boring and we would not have it any other way. “Banking should not be exciting,” said Clay W. Ewing, president of retail financial services at German American Bancorp, a community bank in Jasper. “If banking gets exciting, there is something wrong with it.”

IBD:

- Synaptics (SYNA) makes touch interface devices for notebook PCs, mobile phones and consumer electronics. It has more than 60% of the market for trackpads for notebook computers, and it's the leading provider of capacitive touch-screens — that is, screens that detect the electrical current in the human body — for mobile phones.

CNNMoney:

- Dolby’s(DLB) Sweet Sound.

Wealth Bulletin:

- Funds of funds are facing their biggest challenge. On average, funds of hedge funds returned -21% last year – worse even than their underlying managers, with single hedge funds returning -19%, according to figures from Hedge Fund Research, the data provider. “Going forward, the successful fund of hedge funds is going to look different. It’s going to evolve. You’ll see consolidation around the quality leaders.” Below, Financial News lists some possible solutions for funds of funds to save their businesses.

Washington Post:

- Robert C. Murtha Jr. has made a sizable living for years working with companies that rely on Pentagon contracts over which his uncle, Rep. John P. Murtha (D-Pa.), holds considerable sway. He has maintained that his uncle played no role in his defense-related work, much of it secured without competition. Newly obtained documents, however, show Robert Murtha mentioning his influential family connection as leverage in his business dealings and holding unusual power with the military. The documents add to mounting questions about Rep. Murtha, whose use of federal earmarks to help favored defense companies and his relationship with a former lobbying firm are under scrutiny by federal investigators. The congressman has used his control over Pentagon funds to build a hub of defense-related industry in his congressional district and has also won generous campaign donations from the companies.

Forbes.com:

- Are Short Drug Patents Hurting Patients? Developing drugs takes longer than ever, but patient laws don’t recognize that.

Financial Times:

- The completion of US banking “stress tests” has unleashed a fee bonanza for Wall Street, with financial institutions set to earn more than $500m in just a few weeks for helping rivals raise equity to plug capital shortfalls and repay federal aid. The spike in underwriting fees, which touched a record low in the first quarter of 2009, will boost profits of banks’ securities units at a time when they have been hit by the slump in lucrative markets such as securitizations and mergers. With a number of smaller banks expected to announce equity raisings in the coming weeks, the current quarter could become the biggest on record for underwriting fees from US banks. Morgan Stanley(MS) and Goldman Sachs(GS) - two of Wall Street’s traditional equity powerhouses - are set to gain large slice of the fees as they are underwriting several deals.

- According to the Depository Trust & Clearing Corporation, investors hold $34bn in CDS on GM. Once off-setting positions are considered, the DTCC estimates CDS holders would make a net profit of $2.4bn if GM were to default. The opposition of 10 per cent of bondholders is enough to derail the proposal, which has already triggered protests from investors who argue it unfairly rewards the UAW at the expense of bondholders. “You have every incentive not to agree,” said one bondholder, a large credit hedge fund. “You would be locking in a loss if you did. It isn’t only the ‘shark’ capital; it will be the mom and pop mutual funds who will oppose this deal. ”Prices for GM’s debt and CDS indicate investors believe a bankruptcy filing is highly likely. GM’s bonds are trading at between 6 and 12 cents on the dollar.

- World shipping markets face at least two years of serious problems as excess ship orders depress rates, one of the world's most important shipping executives has said. Tor Olav Troim, a key aide to John Fredriksen, the world's most important shipowner , said it remained "too early" to start buying ships cheaply to prepare for a market recovery.

Frankfurter Allgemeine Zeitung:

- BASF SE’s first-quarter sales fell 34% in China, year over year, and fourth-quarter sales fell 24%, citing the chemical company’s Asia-Pacific head, Martin Brudermueller. Sales may drop more in the coming months as a result of increasing unemployment in developed countries, which will lead to a decline in consumption and demand for products made in China, citing Brudermueller. The company closed two facilities in Korea and one in Japan and may make further cost cuts in the region, he said.

China Daily:

- Beijing authorities quarantined 264 people, including 70 foreigners, after the first A(H1N1) case was confirmed on the mainland, officials said yesterday. A total of 161 people, including 61 foreigners, were placed under medical observation as of 9 pm last night at Beijing's Guomen Hotel, Yu Debin, deputy chief of Beijing municipal tourism bureau, told China Daily.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (PCLN), raised estimates, raised target to $130.

- Reiterated Buy on (ADP), target $44.

- Reiterated Buy on (DISH), target $22.

- Reiterated Buy on (UNFI), raised target to $29, added to Top Picks Live list.

Night Trading
Asian Indices are -1.50% to +.25% on average.
S&P 500 futures -.37%.
NASDAQ 100 futures -.34%.

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Who’s Speaking?
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Earnings of Note
Company/EPS Estimate
- (WRC)/.74

- (FOSL)/.16

- (BMC)/.63

- (AMAT)/-.10

Economic Releases

8:30 am EST

- The Trade Deficit for March is estimated at -$29.0B versus -$26.0B in February.

2:00 pm EST

- The Monthly Budget Deficit for April is estimated at -$20.0B versus $159.3B in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Rosengren speaking, weekly retail sales reports, IDB/TIPP Economic Optimism Index, Bank of America Healthcare Conference, UBS Global Financial Services Conference, CSFB Basic Materials Conference, UBS Industrials Conference, (MMM) shareholders meeting, (PRU) shareholders meeting, CSFB Aerospace & Defense Conference, Merrill Pharma/Biotech/Medical Conference and the (INTC) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Lower, Weighed Down by Financial, Commodity and Insurance Shares

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In Play

Stocks Falling into Final Hour on Profit-Taking, Rising Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Technology longs, Medical longs and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is heavy. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 1.34% and is very high at 32.48. The ISE Sentiment Index is slightly above average at 155.0 and the total put/call is above average at .94. Finally, the NYSE Arms has been running high most of the day, hitting 4.19 at its intraday peak, and is currently 1.64. The Euro Financial Sector Credit Default Swap Index is rising 2.70% today to 120.79 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 rising 2.82% to 147.94 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .17% to 76 basis points. The TED spread is now down 387 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .54% to 46.75 basis points. The Libor-OIS spread is falling 2.63% to 72 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.52%, which is down 112 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 1 basis point today. Today’s losers are mainly concentrated in shares that saw the sharpest gains last week, which is a large positive. This is the type of action that is necessary to keep the recent uptrend in tact. The MS Tech Index is unch. on the day, with gains seen in Software, Semi, Telecom and Computer Service shares. As well, Education, Gaming, Hospital and Biotech stocks are all rising on the day, despite losses in the major averages. Many other “growth” stocks are also rising today. I suspect retail and technology shares could lead the major averages higher later this week. Nikkei futures indicate a -96 open in Japan and DAX futures indicate an +6 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety and lower long-term rates.