Bear Radar

Style Underperformer:
Mid-cap Growth (+.54%)

Sector Underperformers:
Homebuilders (-1.95%), Semis (-.78%) and Computer Hardware (-.60%)

Stocks Falling on Unusual Volume:
PAAS, GNTX, SSRI, PALM, SNDK and AGO

Stocks With Unusual Put Option Activity:
1) ETFC 2) XLV 3) ATHR 4) COH 5) AMKR

Bull Radar

Style Outperformer:
Large-cap Value (+1.15%)

Sector Outperformers:
HMOs (+4.86%), Hospitals (+2.88%) and Insurance (+2.27%)

Stocks Rising on Unusual Volume:
ING, LNC, WPI, PRXL, MRK, VOD, ACL, NTT, MSTR, OVTI, STEC, ORCL, HLTH, APWR, LEAP, CYOU, ENOC, ODFL, PWRD, SJM, CCL and WPI

Stocks With Unusual Call Option Activity:
1) DHI 2) UNH 3) BMC 4) CCL 5) AET

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Thursday Watch

Late-Night Headlines
Bloomberg:

- Treasury 30-year bond yields have returned to a two-decade down “trend channel” patter after touching an almost 20-month high, according to UBS AG analysts who study patterns in charts to predict future moves. The bond yield remains “in this long-term channel of the secular down-trend in yields, with the top at about 5% and bottom at 2.5%.”

- The cost of protecting financial company bonds from default jumped, extending the biggest increase in credit-default swaps since April, as Standard & Poor’s downgraded 18 U.S. banks. Contracts tied to the debt of Wells Fargo & Co. and Capital One Financial Corp. rose to the highest in more than a month after S&P lowered the banks’ ratings. FedEx Corp. credit-default swaps climbed the most since May 12 after the second-largest U.S. package-shipping company forecast a quarterly profit that trailed analysts’ estimates.

- U.S. government bonds found in the false bottom of a suitcase carried by two Japanese travelers attempting to cross into Switzerland are fake, a Treasury spokesman said. “They’re clearly fakes,” said Stephen Meyerhardt, a spokesman for the U.S. Bureau of the Public Debt in Washington. “That’s beyond the fact that the face value is far beyond what’s out there.” Italy’s financial police last week said they asked the U.S. Securities and Exchange Commission to authenticate the seized bonds, with a face value of more than $134 billion.

- U.S. lawmakers including Senate Banking Committee Chairman Christopher Dodd said they have reservations about the Obama administration’s proposal to expand the Federal Reserve’s powers to regulate all firms that pose a threat to financial stability. “The debate about who the systemic-risk regulator should be is still an open question,” Dodd, a Connecticut Democrat, said today in an interview on Capitol Hill. President Barack Obama is proposing the biggest overhaul in financial regulations since the Federal Deposit Insurance Corp. and the Securities and Exchange Commission were created during the Great Depression. The president’s plan gives the Fed “authority and accountability” for regulating companies that pose a risk to the economy in the event of failure. Dodd, whose panel oversees the Fed, will play a key role in guiding the Senate’s review of Obama’s proposal. He has previously faulted the Fed for not using its authority to write rules strengthening consumer protections in mortgage and credit- card lending. Republicans including Senator Richard Shelby of Alabama, the ranking member of the Banking Committee, also are wary of expanding the Fed’s authority. “They were the regulator of our holding companies, and they didn’t do a very good job,” he said. “They utterly failed the American people as a regulator.”

- DirecTV Group Inc., the largest U.S. satellite-television provider, will allow some subscribers to access applications such as the Flickr photo-sharing site through their televisions starting this week. The company will test the feature with as many as 20,000 customers starting June 19, Eric Shanks, executive vice president of entertainment, said today in a phone interview. If the trial is successful, the applications will become available to all DirecTV on Demand subscribers as of Aug. 1, he said

- Sirius XM Radio Inc.(SIRI), the unprofitable satellite radio company, rose 23 percent after Reuters reported the service will be available on Apple Inc.’s iPhone and iPod Touch starting June 18.

- General Motors Corp., operating in bankruptcy since June 1, is consulting daily with President Barack Obama’s auto task force on plans to sell the company’s best assets, Chief Executive Officer Fritz Henderson said. Henderson, who met today in Detroit with Edward Whitacre Jr., GM’s next chairman, also said the automaker appears ready to meet the bankruptcy court’s timetable to exit Chapter 11. GM is preparing for a June 30 hearing on the sale of assets such as its Chevrolet, Cadillac and Buick brands to a new, government- backed company. Selling those brands will separate the valuable parts of GM from assets such as unwanted dealer contracts, allowing a new automaker to be operating by the end of August.

- Buyout firms and hedge funds, “Read my lips: You’re going to have regulation.” So says Poul Nyrup Rasmussen, the Socialist Party president who conducted a two-year campaign for the first European Union regulations governing so-called alternative investors. Hedge funds and private-equity firms, which manage 2 trillion euros ($2.8 trillion) in the region, are in line for some of the world’s strictest rules, and potentially billions of dollars of compliance costs, under an EU measure proposed in April.

- Teva Pharmaceutical Industries Ltd., which bought Barr Laboratories Inc. for $7.4 billion last year, is ready for another “major” acquisition and may look beyond generic drugs for the purchase, Chief Executive Officer Shlomo Yanai said. Teva is seeking targets to diversify in patented medicines as well as increase its market share in generic drugs, Yanai, 57, said in an interview yesterday at the company’s headquarters in Petah Tikva, Israel. Teva may be interested in companies including King Pharmaceuticals Inc. and Endo Pharmaceuticals Holdings Inc., said Ken Cacciatore, an analyst at Cowen & Co.

Wall Street Journal:

- New regulations for hedge funds aren't nearly harsh enough to cause U.S. hedge funds to take their business elsewhere. In fact, they might not be harsh enough to change much at all. Many hedge-fund managers in the U.K. said this month they would leave the country if they were forced to register and comply with other regulations, such as reporting how much money they were borrowing. New efforts to regulate U.S. hedge funds, unveiled Wednesday as part of a sweeping plan aimed at overhauling financial regulation, also would require advisers to the funds to register with the Securities and Exchange Commission. The Obama administration said its plan would allow for data collection that, among other things, would help determine whether funds "have become so large, leveraged or interconnected that they require regulation for financial stability purposes." More than half of U.S. hedge-fund managers are already registered with the SEC, according to a Hedge Fund Research Inc. study released in February. Moreover, hedge-fund managers that manage more than $100 million already have to report their quarterly holdings to the SEC, regardless of whether they're registered.

- The parent of the New York Stock Exchange plans to establish a clearinghouse for fixed-income investments that could position the trading venue to gain business from a regulatory push to clear more derivatives. In a move expected to be announced this week, NYSE Euronext has agreed with Depository Trust & Clearing Corp. to establish a clearinghouse for U.S. interest-rate derivatives.

- Consumer prices in May posted their largest annual decline in 59 years, as the sharp drop in demand for goods continued to keep inflation in check. The Labor Department said Wednesday its consumer-price index rose 0.1% in May from April. Compared to a year earlier, the CPI was down 1.3%, the largest decline since 1950.

- Long-term mutual funds saw net inflows for the 13th week in a row as the pace into stock funds increased from the previous three weeks, according to figures released Wednesday from the Investment Company Institute. Total estimated inflows were $12.48 billion in the week ended June 10, bringing the total inflows for the past 13 weeks to almost $140 billion.

MarketWatch.com:
- Investors are wondering whether BlackBerry maker Research In Motion will surprise again with healthy earnings. The smart-phone market is still far from saturated, says Citi analyst Jim Suva. Stacey Delo reports.

- Shares of online DVD rental pioneer Netflix Inc.(NFLX) rallied Wednesday after getting upgraded to buy from hold by Wedbush Morgan Securities.

CNBC.com:
- Public approval of President Obama's job performance has dropped slightly this spring as Americans have grown increasingly concerned about unemployment and the federal budget deficit, according to a new NBC News/Wall Street Journal poll. The poll shows that 56 percent of Americans give Obama a thumbs-up on his performance as president, down from 61 percent percent in April. The proportion expressing disapproval rose to 34 percent from 30 percent.

- US banks could become less competitive—and less profitable—from President Obama's proposed financial overhaul, analysts say. As details of the sweeping plan emerged, there was worry among investors that the sector—which has been recovering in recent months from last year's financial crisis—could take another hit.

NY Times:

- On Wednesday, President Obama proposed creating a federal agency that would require banks, mortgage lenders and credit card companies to provide consumers with a more nutritious diet, financially speaking. But what is good for consumers may not always square with what is good for banks. And the banking industry — which says it stands to lose billions of dollars — is bracing for a fight as the administration’s plan to overhaul the way the industry is regulated heads to Capitol Hill. Banks “are really dumbfounded by the scope of this agency,” Edward L. Yingling, the president of the American Bankers Association, said. “It’s not like the current regulators don’t have all the authority they need. You don’t have to blow up the system.”

- All of these changes make it much harder to resist the iPhone on intellectual, feature-counting grounds. The new iPhone doesn’t just catch up to its rivals — it vaults a year ahead of them.

- In the overhaul of financial regulation proposed by the Obama administration on Wednesday, rating services — which, during the boom, stamped high ratings on many subprime securities — will avoid the radical changes their detractors have urged. While the administration is proposing some modest changes, none addresses what many see as the central problem: Services like Moody’s and Standard & Poor’s are paid by the companies whose securities they are evaluating. It is as if Hollywood studios paid movie critics to review their would-be blockbusters.

IBD:

- Santa Paula, Calif.-based Calavo Growers (CVGW), the largest avocado marketer and distributor in the world, is doing its best to meet demand.

Business Week:
- More evidence has emerged that China intends to favor its own companies as it spends money to boost its economy, including through its $586 billion stimulus package. As I blogged last Friday, there is growing concern amongst foreign companies that Beijing has been quietly instructing local governments and ministries to ‘buy Chinese’ as they implement new infrastructure projects.

CNNMoney.com:

- Gas prices have risen for 50 days in a row and the pain at the pump is taking a toll on household budgets across the nation. Nationwide, gas prices now average $2.679, motorist group AAA said Wednesday. Prices have risen every day since April 29, when the national average stood at $2.05 a gallon. Drivers in every U.S. state, with the exception of South Carolina, now pay an average of at least $2.50 a gallon. The runup in gas prices comes at a time when drivers are already struggling with record high unemployment and an abysmal housing market. "The rise is gas prices is putting a large dent into our household budget at a time when we are already feeling some pain," said Michael Clark, a technologies business analyst in Phoenix. Many economists worry that consumers like Clark will be forced to cut back on spending on other items to make up for higher pump prices. That could pose a serious threat to the already battered economy, since consumer spending makes up the bulk of U.S. economic activity.

- House Republicans on Wednesday presented what they called a "sorely needed" alternative to Democrats' proposals to overhaul health care. Republicans want to make sure all Americans have access to affordable coverage, Rep. Eric Cantor, the House minority whip, said Wednesday. "We do so by making sure we keep down costs and incorporate the ability for folks to pool together to access lower costs, to bring private sector into the game and keep government out," Cantor said. House Republicans on Wednesday planned to release a two-page summary of Camp's proposal, which CNN Radio obtained. Some highlights include:

Forbes:

- President Obama's plan to overhaul 80 years worth of financial regulation, closing gaps that allowed some firms to sidestep supervision and create the current financial crisis, is not without some ironies. We count five.

LA Times:

- June is typically the time of year when the broadcast networks ring up billions of dollars in commercial sales for the coming television season. But this hasn't been a typical year. Declining audiences, an extremely fragile economy and bankruptcy filings by cash-strapped U.S. automakers -- traditionally among the biggest TV advertisers -- have made it more difficult for network advertising executives this spring to sell commercial time. In preliminary negotiations, advertisers have demanded the networks slash their rates by as much as 15% compared with last year, according to people familiar with the discussions. Network executives have balked, hoping to hold the line on last year's prices. The stalemate is responsible for delaying the kickoff of the important market known as the upfront. Networks typically sell as much as 80% of their commercial inventory for the coming year during the auction.

Politico:

- Health care reform hit a serious setback Wednesday, with the Senate Finance Committee blowing its own deadline for a bill and the Health Committee breaking sharply along partisan lines — developments that place President Barack Obama’s August deadline for passing a bill in doubt. After weeks of relative calm on the issue, over the last 72 hours, the process hit its roughest stretch all year. It started Monday when the Congressional Budget Office returned a $1.3 trillion pricetag on Sen. Ted Kennedy’s bill – a number that far exceeds what most lawmakers are willing to pay.

- Senators Chuck Grassley (R-Iowa) and Claire McCaskill (D-Mo.) are continuing their quest for more information about President Barack Obama's decision to fire the inspector general of Americorps, Gerald Walpin, though McCaskill now appears much more supportive of the White House action than she did yesterday. Grassley's latest missive on the issue, directed to White House Counsel Greg Craig Wednesday evening, poses a dozen questions about Walpin's dismissal. Some queries explore the White House's attention-grabbing claim that the internal watchdog for the Corporation for National and Community Service was "confused" and "disoriented" at a corporation board meeting on May 20. Many of Grassley's questions address the thoroughness of the inquiry Obama ethics adviser Norman Eisen conducted into Walpin's performance.

- Signing a small expansion of federal benefits for gays and lesbians, Obama reasserted his opposition to the Defense of Marriage Act and promised more to come.

USA Today.com:

- In the nearly two years since the iPhone burst onto the scene, the competition for handheld computers has grown fierce. Apple crushes all comers when it comes to third-party applications — the iPhone App Store has 50,000-plus applications and counting, all the more remarkable because it just opened in July. But though the iPhone broke ground with visual voice mail, smart sensors, multitouch display, true-to-life Web browser and more, it was a laggard in other respects. You couldn't record video, dial by voice (without a third-party app), send MMS messages, copy and paste text, or easily search across the device. Apple (AAPL) catches up on these features and adds others through the new iPhone OS 3.0 software upgrade that arrived Wednesday for free (or $9.95 for iPod Touch owners), and through the new 3G S phone that goes on sale at 7 a.m. in local markets on Friday.

Reuters:

- Deutsche Bank, which has navigated the crisis better than many large rivals, plans to hire more investment bankers in the Americas as it readies for an eventual turnaround, a top executive said on Wednesday. The bank has already hired about 40 investment bankers in the past few months, said James DeNaut, head of global banking for the Americas.

- Prudential Financial Inc (PRU) said it plans to sell to Wells Fargo & Co (WFC) its 38 percent stake in the brokerage now known as Wells Fargo Advisors, a transaction it has estimated is worth $5 billion.

Financial Times:

- Willie Walsh, chief executive of British Airways, warned on Wednesday night that the worst of the recession was “still ahead” for the global airline industry, in a bleak assessment that chimed with the grim mood at this week’s Paris air show. The stark comments from one of Europe’s top airline executives came amid a dearth of new orders at the show that underscored the scale of the crisis facing the commercial aerospace and aviation industries. Jim McNerney, chief executive of Boeing, added to the gloom in Paris, saying: “I think it will be a long extended recession. I don’t see anything that will push a quick recovery. I fear a U-shaped recession. I have to plan for continuing difficult market conditions.” Mr Walsh said the current trading environment was “the harshest this industry has ever faced”. More airlines would go out of business, especially as the price of oil was rising again.

- The city of Beijing is planning to hire thousands of internet censors in a fresh sign of the authorities’ attempts to tighten their grip on cyberspace. The city will seek to employ at least 10,000 “internet volunteers” before the end of this year to monitor “harmful” websites and content, said an official at the municipal authority’s information office. Chinese local governments and Communist party branches often pay web commentators to influence online opinion. But it is unusual for officials to admit the practice and the big recruitment drive gives a rare view of the resources China uses to try to control the internet. The move comes amid an outcry over the national government’s attempt to ensure that every new personal computer sold in China is equipped with web filtering software. Information technology industry organizations have appealed to China to drop the initiative. Testing by independent software engineers has found that besides protecting children from pornographic content, Green Dam is also capable of filtering and blocking political content, and carries serious security risks for those who install it. Solid Oak, a Californian software company that sells Cybersitter, a program allowing parents to block pornographic and violent content when their children use the internet, says Green Dam infringes its intellectual property rights. It says it sent “cease and desist” letters to Hewlett-Packard and Dell on Monday, warning them they would face damages claims if they installed Green Dam. International concerns over Beijing’s move have been matched by an outcry among Chinese internet users. After initially reporting criticism of Green Dam, the state media have toned down coverage following an appeal by propaganda officials to concentrate on “positive” reporting.

- Forget green shoots; think gold-plated ones. Some of the most powerful executives in the luxury sector say consumer confidence is already re-emerging. “I expect consumers to return to shops by Christmas,” said Diego Della Valle, chairman of Tods Group, the Italian group, who spoke at the Financial Times’ Business of Luxury summit in Monaco earlier this week. “I can already feel the change in their thinking.”

- Hillary Clinton, the US secretary of state, clashed face to face with her Israeli counterpart on Wednesday as the two countries remained at loggerheads over the expansion of settlements in occupied territory. In what appeared one of the most tense encounters between the sides for several years, Mrs Clinton and Avigdor Lieberman, Israel’s foreign minister, disagreed on both the US call for a complete freeze on settlement growth and Israel’s contention that the administration of George W. Bush, the former president, had signalled that some expansion was permissible. The meeting at the state department in Washington confirmed that the countries remain at odds on settlements, in spite of the decision of Benjamin Netanyahu, Israel’s prime minister, to endorse the goal of a Palestinian state. His declaration, which was subject to conditions, followed sustained US pressure.

Yomiuri:

- North Korea may launch a long-range ballistic missile that passes over Japan’s Aomori prefecture, citing analysis from the Japanese defense ministry. The launch from the Tongchang-ri base in North Korea’s northwest may occur as soon as early next month.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (SLAB), raised target to $46.

Night Trading
Asian Indices are -1.50% to +.25% on average.

Asia Ex-Japan Inv Grd CDS Index -.80%.
S&P 500 futures +.24%.
NASDAQ 100 futures +.07%.

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Earnings of Note
Company/EPS Estimate
- (SJM)/.62

- (CCL)/.29

- (JW/A)/.43

- (DFS)/-.11

- (PRGS)/.38

- (RIMM)/.94

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 604K versus 601K the prior week.

- Continuing Claims are estimated to rise to 6840K versus 6816K prior.

10:00 am EST

- Leading Indicators for May are estimated to rise 1.0% versus a 1.0% gain in April.

- Philly Fed for June is estimated to rise to -17.0 versus -22.6 in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Treasury’s Geithner testifying before the House, weekly EIA natural gas inventory data, Jeffries Healthcare Conference, Fox-Pitt Kelton Small/Mid-cap Bank Conference and the (AAP) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and automaker stocks in the region. I expect US equities to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Finish Mixed as Strength in Healthcare, Tech, Education, Airline and Homebuilding Stocks Offset Weakness in Commodity and Financial Shares

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In Play

Stocks Slightly Higher into Final Hour on Healthcare Reform Troubles, Tech Sector Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs, Medical longs and Commodity/Emerging Market shorts. I covered all my (IWM)/(QQQQ) hedges this morning and then added them back this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is heavy. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling 4.77% and is very high at 31.12. The ISE Sentiment Index is low at 101.0 and the total put/call is very high at 1.14. Finally, the NYSE Arms has been running very high most of the day, hitting 2.56 at its intraday peak, and is currently 1.55. The Euro Financial Sector Credit Default Swap Index is rising 5.42% today to 115.0 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 rising 6.22% to 142.51 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.15% to 44 basis points. The TED spread is now down 420 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.59% to 43.31 basis points. The Libor-OIS spread is falling 4.04% to 38 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to 1.77%, which is down 87 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is unch. today. The most economically sensitive stocks are underperforming substantially again today. Breadth has been relatively poor throughout the day. Market-leading stocks are mostly weaker. Healthcare-related stocks are substantially outperforming on the hopes of scaled-back government reform. The total put/call hit an extraordinarily elevated 1.41 this morning, the highest level since Dec. 15^th, which is also a positive. “Growth” stocks are substantially outperforming “value” stocks again. Tomorrow’s economic data could surprise on the downside. Nikkei futures indicate a -30 open in Japan and DAX futures indicate an +14 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising economic worries, china trade barrier concerns, rising credit market angst and greater financial sector pessimism.