Bear Radar

Style Underperformer:
Large-cap Growth (-1.36%)

Sector Underperformers:
Road & Rail (-2.32%), REITs (-2.30%) and Oil Service (-1.87%)

Stocks Falling on Unusual Volume:
AGO, CBEY, BLKB, TNE, DDRX, ASTE, AMAG, ADTN, PWRD, CETV, ENER, RGS and KMT

Stocks With Unusual Put Option Activity:
1) AET 2) AIG 3) CIT 4) PBR 5) XRT

Bull Radar

Style Outperformer:
Small-cap Growth (-.66%)

Sector Outperformers:
HMOs (+4.82%), Hospitals (+2.75%) and Drugs (+.12%)

Stocks Rising on Unusual Volume:
CI, AET, OVTI, CYH, MKSI, CVH, PSMT, KGC, CTL, LFUS, SAIA, LEAP, ABFS, NWPX, VECO, CYOU, STLD, PLCE, ODFL, CFSG, AEIS, SNDA, AFAM, YPF, OSK, TKG, HUM, K, CEC, TWP and WLP

Stocks With Unusual Call Option Activity:
1) GFI 2) CIT 3) CEPH 4) NTAP 5) CRM

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- European Union finance ministers said the region’s economy remains at risk even as signs emerge that the worst of the recession may have passed. “There are some positive signals but at the same time, still the situation is worrying,” EU Monetary Affairs Commissioner Joaquin Almunia said before a regular monthly meeting of euro-area finance chiefs in Brussels today. “We have to work on it.”

- Goldman Sachs Group(GS) and Morgan Stanley(MS) had their profit forecasts raised by Doug Sipkin at Pali Capital, who cited an improved outlook for trading and asset management. The analyst boosted his 2009 earnings estimate for Goldman Sachs to $15.10 a share from $14.12 and boosted his 2010 projection to $15.57 from $14.81. He raised his 2010 forecast for Morgan Stanley to $2.99 a share from $2.88, while cutting his 2009 estimate to 51 cents from 75 cents. “Morgan Stanley is probably the most attractive long-term investment we cover,” the NY-based analyst wrote in a note to clients today, citing the firm’s “stronger capital position” and increased distribution from newly formed retail brokerage joint venture, Morgan Stanley Smith Barney.

- Orange-juice prices jumped 8.6 percent, the most since October 2006, on a surprising surge in futures demand. “There are no fundamental reasons for prices to spike,” said Joe Nikruto, a senior broker at RJO Futures in Chicago. “Large orders from unknown sources” triggered preset bids, driving the price close to its 40-day moving average of 86.84 cents a pound.

- California’s credit rating was cut for the second time in as many weeks by Fitch Ratings after a stalemate over how to close a $26 billion budget deficit forced the most-populous U.S. state to pay some bills with IOUs.

- London dropped from third to sixteenth place in a survey of the world’s most expensive cities, taking it out of the top ten for the first time since 2001, after the pound declined against the U.S. dollar and rental prices in the U.K. capital fell. Tokyo replaced Moscow as the world’s most expensive city for expatriates and Osaka moved to number two after the yen “strengthened considerably” against the dollar, according to Mercer LLC’s Cost of Living Survey.

Wall Street Journal:

- Chinese security forces clamped down on large parts in this city of 2.4 million Monday, a day after long-simmering ethnic tensions erupted in rioting that authorities said left 156 dead and more than 1,000 injured. The number of fatalities, if confirmed, would represent one of the deadliest outbreaks of violence in China in decades. The government said more than 20,000 security personnel were deployed in Urumqi, capital of the Xinjiang region in northwestern China. Armored cars patrolled the city's streets and squads of paramilitary People's Armed Police marched through narrow alleyways where rioting had occurred. Late Monday, many streets were cordoned off and largely deserted. The violence grew out of protests by Uighurs, a Turkic-speaking and mainly Muslim ethnic group, against what they see as discrimination against them by the Han Chinese majority.

- Sarah Palin resigned as Alaska's governor because the volume of state investigations and public-record requests scrutinizing her activities kept her from doing what she wanted, said one of her closest confidantes. Kristan Cole, who has been friends with Gov. Palin since both were in the same elementary school nearly 40 years ago, said she heard personally from the governor over the Fourth of July weekend. She was one of the few to speak with Gov. Palin, who stunned the political world when she announced Friday she was resigning, effective July 26. The governor gave no specific reason for her exit, beyond citing relentless complaints into her affairs that were hampering her ability to do her job. In an interview with The Wall Street Journal, Ms. Cole said the investigations and scrutiny kept Gov. Palin from doing what she loved, which was interacting with Alaskans on issues such as her belief that there should be smaller government.

- European Central Bank policy makers are worried the design of some European government bank-rescue plans is discouraging commercial banks from tapping public funds and could fail to resuscitate lending across the 16-country bloc. Central bankers' concerns are rising as euro-zone private-sector loan growth hovers at record lows. Year-over-year growth in loans to the private sector slowed to 1.8% in May, down from 2.3% in April and the lowest since records began in 1992. Both ECB and national euro-zone officials fret that banks' reluctance to lend could worsen the recession. At a meeting Monday in Brussels, European finance ministers expressed concern about the region's banking system. European banks have been slower than their U.S. counterparts to write down the value of impaired assets.

- A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap. Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July. Ms. Mills of the CBA said some banks were concerned that there aren't processes in place to accept IOUs, and also worried about fraud issues. She noted that not all banks have set a July 10 deadline, and that dozens of credit unions in the state will keep accepting IOUs.

- Metals prices, which have risen 39 percent this year in London, will decline this quarter as re- stocking in China nears completion, according to UBS AG. “China’s re-stock appears complete, whereas the Western World is unlikely to experience similarly strong restocking activity ahead of its seasonal summer slowdown,” UBS analysts led by Sydney-based Glyn Lawcock said in a report dated yesterday. “The magnitude of the recent metal price recovery has in our view been exacerbated by the re-entry of commodity index, Chinese and speculative funds.” The price of copper will drop 17 percent this quarter, nickel 15 percent and zinc 10 percent ahead of an “economic recovery,” later this year, UBS said.

- ABB Grain Ltd., Australia’s largest exporter of barley, cut its full-year profit forecast because of slower demand for malt in Asia and for farm chemicals in Australia.

- The White House signaled a willingness Monday to compromise on details of a public plan to compete with private insurance companies as negotiators sought ways to advance health-care legislation. A senior administration official said one way to meet President Barack Obama's goals would be a mechanism under which a public plan is introduced only if the marketplace fails to provide sufficient competition on its own. Mr. Obama has pushed hard for a public option, saying it will keep the insurance industry honest, but he has also said he won't draw a "line in the sand."

CNBC.com:
- Bryan Marsal, CEO of Lehman Brothers Holdings, said the government should have acted to prevent the damage the firm's collapse caused to the financial markets. "It should have been an orderly wind-down or a bailout. It should not have been a freefall," he said. Marsal has been unwinding Lehman Brothers since the firm's historic collapse. He discusses the process with CNBC. (video)

- Bing is doing a good job of generating ad revenue – for Google(GOOG).

NY Times:

- Byron R. Wien, the chief investment strategist of Pequot Capital Management, is known for his list of “10 Surprises” at the beginning of every year. One event he didn’t predict in this year’s list: that his own firm would be forced to shut down. On Monday, Mr. Wien penned a swan song of sorts for his business partner and fellow hedge fund guru Arthur J. Samberg, the founder of Pequot. Mr. Samberg was forced to close what was once the largest hedge fund in the business in May after regulators reopened a long-simmering investigation into insider trading at the firm. Mr. Wien, who joined Pequot in December 2005 after two decades as Morgan Stanley’s chief strategist, wrote about Mr. Samberg’s dream to continue the firm he started in 1986 long past his retirement. He blames the reopening of the Securities and Exchange Commission’s investigation for leading, in large part, for shattering that vision. “I will never believe he has done anything wrong,” Mr. Wien wrote in the letter.

IBD:

- True Religion Apparel's (TRLG) namesake jeans continue to strike a chord with consumers, despite a price tag of $172 to more than $300.

CNNMoney.com:

- America’s fastest-growing small public companies.

Politico:

- Vice President Joe Biden is expected to announce Wednesday that three major hospital associations have agreed to provide $160 billion in savings to pay for a health care overhaul, according to sources close to the negotiations. The timing of the announcement is aimed at sustaining momentum for health reform as Democratic congressional leaders embark on a critical five-week period in which they hope to pass bills out of the Senate and House by the August recess.

BNET Technology:

- iPhone Running Away With Smartphone Market. I just got a look at a summary of Piper Jaffray analyst Gene Munster’s report to clients, which includes the incredible fact that 38 percent of 3GS customers were upgrading from the original iPhone, validating the idea that the only way for a customer to upgrade from an iPhone is to buy another iPhone.

Reuters:

- A restructured General Motors Corp will get the remaining $20 billion in government bankruptcy financing over the rest of this year and could be ready to launch an initial public stock offering in early 2010, a senior U.S. official said on Monday.

Financial Times:

- How Obama could introduce a petrol tax.

- The adoption of tough European restrictions on hedge funds would provoke a transatlantic regulatory war, one of the sector’s leading figures has warned. Stanley Fink, the former chief executive of Man Group known as the “godfather” of the British hedge fund industry, said that the European Commission’s proposed regulation would be “very restrictive” for non-EU funds and some styles of investing. “That could, and probably would, lead to retaliatory action whereby European hedge funds will be stopped from marketing in other jurisdictions [such as the US] – and that could be very bad for the industry,” he told the Financial Times in a video interview. Asked if the restrictions could spark an international hedge fund war, he said: “I think that could be one of the unintended consequences.”

Nikkei English News:

- Mizuno Corp., a Japanese maker of sporting goods, will close about 200 of its 902 retail sites in China this year because of disappointing sales.

Inquirer.net:

- Thirty-eight bomb attacks that the military blamed on the Moro Islamic Liberation Front (MILF) Special Operations Group have rocked various parts of Central Mindanao since January, records from the Armed Forces of the Philippines headquarters showed. Of these, 19 targeted civilians, 15 were aimed at the military and four at vital installations. Government troops have also recovered 18 unexploded bombs, records showed. But Sen. Rodolfo Biazon wants the government to explain the spate of bombings in the country, including Central Mindanao. Citing newspaper accounts, he said 57 bombings and attempted bombings had been reported since the start of the year. The latest was Sunday’s explosion near the Cotabato Immaculate Conception Cathedral in Cotabato City, killing five people and wounding 52 others.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Top Pick Buy on (CME), target $375.

Night Trading
Asian Indices are -.25% to +1.0% on average.

Asia Ex-Japan Inv Grade CDS Index +.89%.
S&P 500 futures -.18%.
NASDAQ 100 futures -.16%.

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Earnings of Note
Company/EPS Estimate
- (ISCA)/.31

- (RT)/.20

Economic Releases

- None of note

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports could also impact trading today.

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

Stocks Finish at Session Highs, Boosted by REIT, Airline, Insurance, Utility, I-Banking and Drug Shares

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In Play

Stocks Lower into Final Hour on Rising Economic Concerns, More Shorting, Profit-Taking

BOTTOM LINE: The Portfolio is mixed into the final hour as losses in my Technology longs and Medical longs offset gains in my Index hedges and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 6.55% and is high at 29.78. The ISE Sentiment Index is around average at 137.0 and the total put/call is about average at .83. Finally, the NYSE Arms has been running high most of the day, hitting 1.78 at its intraday peak, and is currently 1.30. The Euro Financial Sector Credit Default Swap Index is rising 2.41% today to 109.0 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 2.29% to 140.78 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.37% to 40 basis points. The TED spread is now down 424 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.13% to 39.63 basis points. The Libor-OIS spread is down 4.37% to 34 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.62%, which is down 102 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is unch. today. The broad market is weaker than the major averages. Small-cap and the most economically sensitive shares are significantly underperforming. Despite a flat US dollar, increasingly hawkish rhetoric regarding Iran, Nigerian pipeline attacks and a better-than-expected ISM Non-manufacturing report, crude oil is falling another 4%. While this is a short-term negative as it pressures energy related names and boosts economic worries, a significant fall in oil from current inflated levels would be a large broad market positive. As well, it is a large positive to see long-term rates remain subdued despite this week’s coming supply. Finally, many market leading stocks are performing much better today than the broad market. Nikkei futures indicate an +80 open in Japan and DAX futures indicate an +14 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, stable long-term rates and bargain hunting.