Stocks Finish Near Session Highs, Boosted by Airline, Education, Hospital, HMO, Biotech and Disk Drive Shares

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Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs, Financial longs and Commodity/Emerging Market shorts. I added to my (ILMN) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising 4.04% and is very high at 25.26. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running around average most of the day, hitting 1.59 at its intraday peak, and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising 3.89% today to 78.27 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 1.46% to 117.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .63% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .31% to 40.94 basis points. The Libor-OIS spread is rising .34% to 30 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.85%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The bears remain unable to gain any meaningful downside traction despite potential catalysts and the market’s overbought technical state. Disk Drive, Biotech, Hospital, HMO, Education and Airline stocks are all posting significant gains today. As I said last week, the US Dollar continues to trade as if it has begun a tradable rally, which should hold commodity prices in check. Gold is breaking below its 50-day moving average today and looks poised for a move back towards $880-$900. One of my longs, (DISCA), is breaking to a new 52-week high today on news of a joint venture in China with Bidu(BIDU). The short interest ratio for (DISCA) has moved from .84 at the beginning of the year to a near-record 3.61 currently. The stock is still very attractive at current levels, in my opinion. Nikkei futures indicate a -67 open in Japan and DAX futures indicate an +39 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, diminishing government healthcare reform worries, less economic fear, lower energy prices and earnings optimism.

Today's Headlines

Bloomberg:

- Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

- General Electric Co.(GE) sees financial- regulation measures being debated in Washington as “increasingly unlikely” to force a separation of the GE Capital unit from the parent company, executives said. The parent company has lost about 56 percent of its market value in a year, punished by investors concerned that the finance arm may harbor potential losses in real estate and consumer divisions. GE Capital is shrinking its asset base to $400 billion to $450 billion from about $637 billion at the end of last year. Credit-default swaps protecting against a default by GE Capital fell 20 basis points to 315 basis points, according to broker Phoenix Partners Group.

- American International Group Inc.(AIG), the insurer dismantling itself to repay U.S. loans, used $2.4 billion from asset sales to shore up a property-casualty unit instead of paying down its government credit line.

- Petroleum marketers citing distortions in oil and gas prices are calling on the Commodity Futures Trading Commission to impose limits on speculators rather than leaving the market to set rules for itself. The Petroleum Marketers Association of America and Intercontinental Exchange Inc., the second-largest U.S. futures market, plan to say they want the CFTC to set position limits in energy markets. “It is abundantly clear that large-scale, institutional investors speculating in the energy markets continue to act as the driving force behind energy prices,” Sean Cota, treasurer of the Arlington, Virginia-based Petroleum Marketers Association, said in his prepared testimony to the CFTC. CFTC Chairman Gary Gensler is considering imposing federal limits on speculative trading on markets of “finite supply,” particularly crude oil, natural gas and other energy products, according to a July 7 statement. Lawmakers and consumer advocates blamed speculators for last year’s rise in crude prices to a record $147.27 a barrel and called for CFTC action. Cota said in his testimony there are “unwitting speculators” he termed “investulators” who are “so large and lacking in fundamental knowledge of commodities trading that they have dramatically distorted these markets.” Cota’s association represents about 8,000 marketers and resellers of petroleum products, including gas stations, heating-oil companies and bulk storage facilities.

- Gold fell the most in almost three weeks as the dollar rebounded against the euro, eroding demand for the metal as an alternative investment. “It is rather painful to describe the moves in gold solely in terms of the euro-U.S. dollar, but that is all that seems to be driving the gold price at the moment,” John Reade, UBS AG’s head metals strategist in London, said in a report. “Jewelry, physical investment and ETF flows remain very quiet.” “Not having gold at $1,050 at a time when the greenback is scraping the floor of 2009’s index levels is not too good,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a report. “We are having to lean with the projections that call for a possible $100 break in the gold price following this rubber-band congestion and the metal’s inability to sail smoothly higher.” In July, gold held in 15 ETFs has tumbled 26 tons, heading for the largest monthly outflow since April 2008, according to Barclays Capital.

- BP Plc(BP), Europe’s second-biggest oil company, said profit fell 53 percent on lower energy prices and there is “little evidence” of a recovery in demand.

- The Libor-OIS spread, a gauge of banks’ reluctance to lend, dropped below 30 basis points for the first time in 18 months, adding to evidence that the two-year freeze in credit markets is thawing. The spread dropped half a basis point to 29 basis points today, the least since January 2008, taking this year’s decline to more than 90 basis points. It soared to 364 basis points Oct. 10 after Lehman Brothers Holdings Inc. collapsed in September. Former Fed Chairman Alan Greenspan said in June last year that he wouldn’t consider credit markets back to “normal” until the Libor-OIS spread narrowed to 25 basis points.

- International Business Machines Corp.(IBM), the world’s biggest computer-services provider, agreed to buy SPSS Inc. for about $1.2 billion in cash to gain software that helps businesses analyze and predict trends. The per-share price is $50, the companies said today in a statement. That is 42 percent more than Chicago-based SPSS’s closing stock price yesterday.

Wall Street Journal:

- The chairman of the U.S. Commodity Futures Trading Commission said Tuesday he believes the agency must "seriously consider" setting "strict" new limits on traders who place bets on energy contracts.

- When Blue Dog Democrats revolted over the cost of ObamaCare 10 days ago, the White House quickly came up with a plan to give them political cover: a government board that would tell Congress how to restrain costs. Well, so much for that, as the Congressional Budget Office has now exposed this idea as another false economy. But it’s worth understanding the reason because it also exposes the core problem with government-run health care.

CNBC:

- U.S. single-family home prices rose in May from April, the first monthly increase in nearly three years, suggesting prices may be stabilizing, according to Standard & Poor's/Case Shiller home price indexes Tuesday.

MarketWatch:
- Making a bigger foray into the fast-growing prepaid market, Sprint Nextel Corp. on Tuesday said it will buy Virgin Mobile USA Inc. in a stock deal valued at $483 million.

NY Post:

- Goldman Sachs'(GS) uncanny ability to make money during the recession has drawn the attention of a bipartisan group of House members who suggest the investment bank took taxpayer dollars and ratcheted up the risk in order to pay fat bonuses. The congressional members, including Reps. Alan Grayson, (D-Fla.), Ron Paul (R-Texas), Maxine Waters (D-Calif.) and Walter B. Jones (R-NC), wrote a two-page letter yesterday asking the Federal Reserve to explain why it granted a special exemption allowing Goldman to take on more risk over the past few quarters. "The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big," said the letter. Goldman sought bank-holding company status late last year because the move would offer the financial institution easier access to taxpayer funds. In exchange for that access, the firm would face more oversight from the Fed and stricter rules that would require it take less risk. However, the Fed granted Goldman, along with Morgan Stanley, temporary exemptions that allowed them to take on the same risky bets an investment bank would have. That risky stance helped Goldman post a second-quarter profit of $2.7 billion on revenues of $13.76 billion -- a performance that could see every Goldman employee's bonus amount to $772,858, the representatives' letter noted.

- Call it the "Bo-tax." Lawmakers have discussed slapping a 10 percent excise tax on cosmetic surgeries such as face-lifts, tummy tucks and hair transplants to help foot the bill for health-care reform. Procedures that would be eligible for the new tax are those not considered medically essential, including nose jobs, liposuction, teeth-whitening procedures and Botox injections. Lawmakers were also weighing a tax on video games to discourage a sedentary lifestyle, sources said. Malcolm Roth, a plastic surgeon at Maimonides Medical Center in Brooklyn and an official with the American Society of Plastic Surgeons, told the National Journal, which first broke the story, that the Bo-tax "would be a discriminatory tax against women." He said that 86 percent of patients are female and 91 percent are of working age, between 19 and 64. Roth rejected the claim that it would be a "tax on the wealthy," saying most patients earn less than $100,000 a year. "People put money aside for years, sometimes weekly under-the-mattress deductions" to get the surgery they want, he told the National Journal.

WashingtonTimes:

- During the worst economic downturn in decades, the federal program that provides free legal help to impoverished Americans has spent tax dollars on a decorative natural-stone wall, no-bid contracts for consultants, alcohol for a congressional party and more than 100 casino hotel rooms that were never occupied, government documents show. The Legal Services Corp. - which stirred national controversy a few years back by paying for limousines, first-class airfare and $14 Death by Chocolate pastries for its executives - has created new symbols of excessive spending in recent months, according to federal audit reports and congressional correspondence obtained by The Washington Times.

Washington Post:

- For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement. President Obama's primary goal is to extend formal health insurance to those low-income individuals who are currently uninsured despite the nearly $300-billion-a-year Medicaid program. Doing so the Obama way would cost more than $1 trillion over the next 10 years. There surely must be better and less costly ways to improve the health and health care of that low-income group. Although the president claims he can finance the enormous increase in costs by raising taxes only on high-income individuals, tax experts know that this won't work. Experience shows that raising the top income-tax rate from 35 percent today to more than 45 percent -- the effect of adding the proposed health surcharge to the increase resulting from letting the Bush tax cuts expire for high-income taxpayers -- would change the behavior of high-income individuals in ways that would shrink their taxable incomes and therefore produce less revenue. The result would be larger deficits and higher taxes on the middle class. Because of the unprecedented deficits forecast for the next decade, this is definitely not a time to start a major new spending program. A second key goal of the Obama health plan is to slow the growth of health-care spending. The president's budget calls explicitly for cutting Medicare to help pay for the expanded benefits for low-income individuals. But the administration's goal is bigger than that. It is to cut dramatically the amount of health care that we all consume. A recent report by the White House Council of Economic Advisers claims that the government can cut the projected level of health spending by 15 percent over the next decade and by 30 percent over the next 20 years. Although the reduced spending would result from fewer services rather than lower payments to providers, we are told that this can be done without lowering the quality of care or diminishing our health. I don't believe it. To support their claim that costs can be radically reduced without adverse effects, the health planners point to the fact that about half of all hospital costs are for patients in the last year of life. I don't find that persuasive. Do doctors really know which of their very ill patients will benefit from expensive care and which will die regardless of the care they receive? In a world of uncertainty, many of us will want to hope that care will help. At a time when medical science offers the hope of major improvements in the treatment of a wide range of dread diseases, should Washington be limiting the available care and, in the process, discouraging medical researchers from developing new procedures and products? Although health care is much more expensive than it was 30 years ago, who today would settle for the health care of the 1970s?

- Two influential Senate committee chairmen were told they were getting special VIP deals when they applied for mortgages, an official who handled their loans told Congress in closed-door testimony. Democratic Sens. Christopher Dodd and Kent Conrad had denied knowing they were getting discounts when they negotiated their loan terms. Robert Feinberg, who worked in the VIP section of Countrywide Financial Corp., testified about the loan terms before the Senate Ethics Committee, and provided the same information in an interview with Republican investigators of the House Oversight and Government Reform Committee.

TheBusinessInsider:

- Yesterday the SEC announced a pair of rules on short selling. Here's the surprise: they're not bad! The only note of caution we would raise here has to do with harrassment and litigation risk. These rules add "red tape" to short selling, making it more difficult than it would be otherwise. This will be to the advantage to institutional short-sellers, such as hedge funds, but discourage smaller investors by making it more costly. You'll note that hedge funds did not fight hard against these rules.

HousingWire.com:

- The origination market in the Las Vegas region swelled in June as home sales in the area climbed to the highest monthly level since December 2006. A total 5,519 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (or Clark County) in June, up 21.7% from may and up 44.1% from a year ago, according to real estate data provider MDA DataQuick. It’s the highest sales volume recorded there since 5,780 units sold in December 2006.

USA Today:

- The road to Todd Allen's farm wends past irrigation canals filled with the water that California's hot Central Valley depends on to produce vegetables and fruit for the nation. Yet not a drop will make it to his barren fields. Three years into a drought that evokes fears of a modern-day dust bowl, Allen and others here say the culprit now isn't Mother Nature so much as the federal government. Court and regulatory rulings protecting endangered fish have choked the annual flow of water from California's Sierra mountains down to its people and irrigated fields, compounding a natural dry spell. "This is a regulatory drought, is what it is," Allen says. "It just doesn't seem fair." For those like Allen at the end of the water-rights line, the flow has slowed to a trickle: His water district is receiving just 10% of the normal allocation of water from federal Bureau of Reclamation reservoirs. He says he's been forced to lay off all his workers and watch the crops die on his 300 acres while bills for an irrigation system he put in are due. "My payments don't stop when they cut my water off," Allen says. Although some farmers with more senior water rights are able to keep going, local officials say 250,000 acres has gone fallow for lack of water in Fresno County, the nation's most productive agriculture county. Statewide, the unplanted acreage is almost twice that. Unemployment has soared into Depression-era range; it is 40% in this western Fresno County area where most everyone's job is dependent on farming. Resident laborers who for years sweated in fields to fill the nation's food baskets find themselves waiting for food handouts. "The water's cut off," complains Robert Silva, 68, mayor of the farm community of Mendota. "Mendota is known as the cantaloupe capital of the world. Now we're the food-line capital."

- It's a sign of a lagging economy: American pro and college sports teams seeking new revenue through increasingly bold marketing relationships with gambling interests. It's why team logos have begun appearing on state lottery tickets and why some basketball games have been played at casino hotels. Now officials in Delaware and New Jersey, facing their own budget problems, say it's time for a bolder move: full-scale, legalized sports betting in states other than Nevada, currently the only place such activity is allowed. They are pushing hard to add legalized, in-casino sports betting to their states' gambling offerings, which include horse racing, lotteries, slot machines and — in Atlantic City — table games.

Reuters:
- The U.S. Commodity Futures Trading Commission (CFTC) is planning to issue a report next month that suggests that wild swings in oil prices were significantly driven by speculators, the Wall Street Journal reported on its website on Tuesday. A 2008 report by the main U.S. futures-market regulator that attributed oil-price swings primarily on supply and demand was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, told the paper in an interview on Monday.

Financial Times:
- Robert Gates, the US defense secretary, on Tuesday praised the security conditions in Iraq, almost one month after US combat troops completed their ­withdrawal from Iraqi –cities. Mr Gates, who was visiting the country for the first time this year, said there was a “real sense of Iraqi empowerment by the Iraqis”.

Al-Hayat:
- Saudi Arabia plans to maintain a spare oil production capacity of 1.5 to 2 million barrels a day, citing an interview with Saudi Aramco Chief Executive Officer Khalid al-Falih. The kingdom has now a spare production capacity of about 4 million barrels a day, as its total output capacity reached 12 million barrels a day in June, al Falih said.

Bear Radar

Style Underperformer:
Large-cap Value (-.88%)

Sector Underperformers:
Gold (-4.70%), Oil Service (-3.57%) and Oil Tankers (-3.15%)

Stocks Falling on Unusual Volume:
SONO, TMK, MBT, QDEL, IMA, BW, ING, PFWD, KIRK, PCAR, MELI, BEAV, WGOV, AXE, AME, ORB, NTG, OLN, ACI, TBH, RSC and FPL

Stocks With Unusual Put Option Activity:
1) TWX 2) MYL 3) AGO 4) EWJ 5) MTW

Bull Radar

Style Outperformer:
Small-Cap Growth (-.11%)

Sector Outperformers:
HMOs (+6.04%), Hospitals (+3.34%) and Airlines (+1.68%)

Stocks Rising on Unusual Volume:
EVVV, AET, MRX, CNC, HITK, MSA, GD, MO, UVV, SPSS, VECO, AMED, ENOC, BWLD, MYL, ZRAN, CHKP, AMGN, CPLA, ADPI, SOHU, RBCN, RCII, SIVB, SHLM, LECO, TEVA, TY, FDP, TXT, MAS, RKT, SAH and CVH

Stocks With Unusual Call Option Activity:
1) ODP 2) TXT 3) COH 4) CI 5) ADSK

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