Stocks Finish Sharply Higher, Boosted by Commodity, Road & Rail, Gaming, Insurance and Hospital Shares

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Stocks Surging into Final Hour on Less Economic Fear, Short-Covering, Technical Buying, Earnings Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs, Steel longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is above average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is rising .62% and is very high at 26.08. The ISE Sentiment Index is low at 109.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running above average most of the day, hitting 1.20 at its intraday peak, and is currently 1.15. The Euro Financial Sector Credit Default Swap Index is falling 1.14% today to 74.0 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 .88% to 111.46 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.47% to 30 basis points. The TED spread is now down 436 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 13.1% to 39.90 basis points. The Libor-OIS spread is falling 3.41% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 6 basis points to 1.87%, which is down 77 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is down 1 basis point today. The MS Cyclical Index is soaring another 3.2% today. Road & Rail, Gaming, Hospital, Steel and Oil Service stocks are all surging 3.75%+ today. The NYSE Arms is high again today, given the gains in the major averages, which is a positive for the third day in a row. The US sovereign debt credit default swap is plunging another 13.3% today to 26.0 basis points, which is a new low and a large positive. While US stocks remain technically extended short-term, I continue to believe pullbacks will be relatively mild and short-lived in nature. Nikkei futures indicate an +165 open in Japan and DAX futures indicate an +11 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, less economic fear, technical buying and more earnings optimism.

Today's Headlines

Bloomberg:

- Linde AG, the world’s second-biggest maker of industrial gases, said business will improve in the second half as the global economy shows signs of recovery.

- Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, is under Justice Department scrutiny for potential anticompetitive practices ranging from requiring customers to buy bundled services to restricting which trades can be cleared in the $26 trillion credit-default swap market.

- Copper in London, Shanghai and New York jumped to the highest in 10 months, leading an advance in industrial metals, as the U.S. economy shrank less than expected and a Chinese manufacturing index climbed to a one-year high. Copper for three-month delivery surged as much as 4 percent, bringing the gain this year to more than 90 percent.

- Crude oil traded above $71 a barrel for the first time in a month on signs that industrial activity is picking up and may trigger a recovery in fuel demand.

- Ford Motor Co.(F) said July U.S. sales rose 2.3 percent, its first monthly gain since 2007, as the government’s so-called cash-for-clunkers incentive may have helped the auto industry to the strongest pace this year.

- A gauge of financial-market stress dropped to the lowest level in more than two years amid evidence that financial institutions are emerging from the worst of the global credit seizure. The TED spread, the difference between what banks and the Treasury pay to borrow for three months, narrowed to 29.6 basis points today, the first time it slid below 30 basis points since March 26, 2007, when it was at 29.2 basis points. The measure has declined 434 basis points since peaking in October last year after the September collapse of Lehman Brothers Holdings Inc.

- Manufacturing shrank less than forecast, and construction spending unexpectedly rose, as overseas demand and the Obama administration’s stimulus help resuscitate U.S. factories from their worst slump in 28 years. The Institute for Supply Management’s factory gauge rose to an 11-month high of 48.9 in July, according to the Tempe, Arizona-based group. Readings below 50 signal contraction; the gauge has risen every month since hitting a low of 32.9 in December. The Commerce Department reported that construction gained 0.3 percent in June, helped by government spending. The factory slump is abating as leaner inventories, smaller cutbacks in business investment and an end to the slump in homebuilding indicate the worst recession since the Great Depression is ending. The federal “cash-for-clunkers” program also is boosting demand for cars, analysts said. The ISM’s production index rose to 57.9, the highest level since June 2007, from 52.5. A gauge of export orders increased to 50.5, indicating the first expansion since September, from 49.5 in June. The reading for new orders rose to 55.3, the highest since July 2007, from 49.2 a month earlier. The inventory index rose to 33.5 from 30.8, which was the lowest level since 1982. A figure below 50 means manufacturers are reducing stockpiles. The employment index rose to 45.6 from 40.7. The index of prices paid increased to 55 from the breakeven point of 50 in June. The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 52 from 50.6. The measure of orders waiting to be filled rose to 50 from 47.5.

- Some of the largest U.S. electricity companies, including Duke Energy Corp.(DUK) and American Electric Power Co.(AEP), are fighting what may be a $100 billion battle with smaller cooperatives, community providers and state regulators over the right to pollute. As the Senate writes a bill to control greenhouse gases, the groups are swarming over a pot of free permits that cap carbon emissions and create a trading system of pollution rights.

- Panasonic Corp., the world’s largest maker of plasma televisions, raised its earnings forecast for the fiscal first half, citing a stabilizing global economy, increased savings and a more favorable currency exchange rate.

- Deflation is helping U.S. companies get back on their feet, convincing some investors that stocks are poised to rise. Wholesale costs declined by 4.6 percent last quarter, outpacing the drop in consumer prices by the most in seven years, according to data compiled by Bloomberg. The gap, a gauge of company pricing power, is more than double the six-decade average and the widest since September 2002, a month before stocks rebounded from a 2 1/2-year bear market and began a rally that doubled the value of U.S. equities. “Input costs have come down dramatically and it’s going to be one of the real engines that fuels this recovery,” said Burt White, Boston-based chief investment officer at LPL, which oversees $234 billion. “You could easily see an explosion in earnings that surprises and drives this market much, much higher.” White says the S&P 500 could “easily” reach 1,200 by year-end as raw materials fall and the economy recovers. The projection implies a 22 percent advance from last week’s close of 987.48.

Wall Street Journal:

- Did Pulte Homes(PHM) call the bottom of the housing market? It would certainly seem that way.

- Afghan insurgents killed nine foreign soldiers -- six of them Americans -- on Saturday and Sunday, in one of the deadliest weekends in Afghanistan for the U.S. and its allies since the fall of the Taliban in 2001. The bloody opening to August came after the most lethal month for the coalition in the nearly eight-year Afghanistan campaign. In July, 75 foreign troops were killed, more than 40 of them Americans.

CNBC:

- Bank of America(BAC) has agreed to pay $33 million to settle charges that it made false and misleading statements to investors about bonuses at Merrill Lynch, the U.S. Securities and Exchange Commission said on Monday. In a lawsuit in Manhattan federal court, the SEC said Bank of America claimed that Merrill had agreed not to pay year-end performance bonuses or other incentive compensation to Merrill executives before the Jan. 1, 2009, without Bank of America's permission.

- You can learn a lot about the retail sector by looking Stores Media’s “Hot 100 Retailers” list. Stores Media is the publishing and communications of the industry trade group the National Retail Federation and the list ranks all public companies with more than $300 million in retail sales, and it provides a good snapshot of who's growing and why.

New York Post:

- Forget the Securities and Exchange Commission -- large investors are starting to turn to private eyes to make sure the professionals investing their cash are on the up and up. In the wake of the massive and long-running frauds run by money managers Bernie Madoff and allegedly R. Allen Stanford -- and the failure of the SEC to catch either person -- large investors are starting to buy "Madoff insurance," independent research provided by savvy gumshoes. "One fund of funds is asking us to look into the social aspects of one of their money managers, issues like drug use and divorce," said David Matesanz, of Veracity Worldwide, a market intelligence firm.

Rassmussen:

- Just 16% of U.S. voters believe that tax increases help the economy. A new Rasmussen Reports national telephone survey finds most voters (54%) say tax increases hurt the economy, a number that has been fairly consistent for more than a decade. The survey was taken late last week, prior to Sunday TV appearances by top White House officials who, for the first time, refused to rule out middle class tax increases as a way to pay for the health care reform plan now working its way through Congress.

- Forty-eight percent (48%) of U.S. voters now rate the U.S. health care system as good or excellent. The latest Rasmussen Reports national telephone survey shows that just 19% rate it as poor. These figures reflect a significant increase in support for the health care system over the past few months.

Politico:

- House Minority Leader John Boehner has predicted a “very, very hot summer.” House Speaker Nancy Pelosi is bracing for what she calls “the fight of our lives.” If ever there was a time for a curtain raiser on an intermission, this is it. So here are five things to watch over the most consequential August recess in recent history:

- Before rank-and-file House Democrats bolted for summer break last week, Speaker Nancy Pelosi gave them each a three-by-eight-inch pocket card and told them never to leave home without it. For Pelosi and her top aides, the two-sided, blue-and-maroon glossy — a personalized cheat sheet to help Democratic members tell their constituents what they’ll gain from health care reform — is the key to winning the critical month of August. Republicans have their own summer strategy: With Americans growing wary of plans for health care reform, GOP leaders are telling their members to take the fight straight to the Democrats. “You have to capitalize on the anxiety in the voter base,” a House GOP leadership aide said. “How are [Democrats] going to defend a health care bill that the American people hate? You just ram it down their throats and knock their teeth in.”

Reuters:
- China's big four state banks extended about 165 billion yuan ($24 billion) in new loans in July, marking a sharp fall from previous months, banking sources told Reuters. Industrial and Commercial Bank of China, the largest bank, made just 30 billion yuan in new loans last month, while Agricultural Bank of China reported a net drop, according to a banker who declined to be named. The four banks accounted for about 45 percent of total loans in the first half of the year. Local media reported earlier that total new loans in July fell to about 500 billion yuan last month, a steep drop from the monthly average of 1.23 trillion yuan in the first six months of 2009. Banks issued 7.37 trillion yuan in new loans in the first six months, equivalent to about 25 percent of the country's GDP. The central bank is due to publish July's lending figures next week.

- Member nations approved the first budget rise above inflation for the U.N. atomic watchdog in six years on Monday after heavy U.S. lobbying for more resources to shore up the fight against stealthy nuclear proliferation. Analysts say the non-proliferation regime is at risk from Iran's uranium enrichment drive and stonewalling of an agency probe into Western suspicions Tehran is seeking nuclear weapons, not energy; follow-on demand for nuclear power elsewhere in the volatile Middle East; and North Korea's nuclear bomb tests. Diplomats said France, Germany and Canada were among major donors who held out for zero real growth, but finally bowed to U.S. arguments that a bigger infusion was urgent to help the IAEA upgrade sagging infrastructure. The United States, the IAEA's biggest financier, broke ranks with zero growth advocates after President Barack Obama took office, boosting its own contribution by 20 percent and calling for IAEA funding to be doubled over the next four years.

- Energy major BP(BP) plans to invest $2 billion over the next 5 years in the oil and gas contracts it operates in Algeria, the head of the company's Algerian unit said in an interview. The investments will include drilling three new exploration wells at a promising gas field, maintaining production at two large gas fields that BP operates jointly, and operating the world's first industrial-scale project to capture and store the carbon dioxide released from a gas field.

- Troubled insurer American International Group Inc has chosen former MetLife chief Robert Benmosche as its new CEO, The Wall Street Journal reported, citing people familiar with the matter. In total, AIG has been given a taxpayer lifeline of up to $180 billion over the course of three successive bailouts. The company is expected to report second-quarter results this week. It has reported billions of dollars in losses in each of the previous five quarters.

- Google Inc (GOOG) Chief Executive Eric Schmidt is resigning from Apple Inc's (AAPL) board of directors, the companies said, citing increased competition between the two leading technology companies.

Financial Times:
- Wages in Japan have suffered their sharpest drop since tracking began almost two decades ago, fuelling concerns that the economy will remain under pressure from depressed consumer spending. Labour Ministry figures showed monthly wages, including overtime pay and bonuses, slid 7.1 per cent from a year earlier in June to Y430,620, the 13th consecutive decline but the biggest since the data series started in 1990. The steep June decline stemmed in large part from deep cuts to bonuses as manufacturers in particular continued to suffer from weak demand.

TimesOnline:

- Iran has perfected the technology to create and detonate a nuclear warhead and is merely awaiting the word from its Supreme Leader, Ayatollah Ali Khamenei, to produce its first bomb, Western intelligence sources have told The Times. The sources said that Iran completed a research program to create weaponised uranium in the summer of 2003 and that it could feasibly make a bomb within a year of an order from its Supreme Leader.

Telegraph:

- Apple’s(AAPL) tablet computer will be ‘home media center and games console’. An analyst who claims to have seen Apple's rumored touch-screen tablet computer says it will fulfill a variety of multimedia functions. The unnamed analyst told Barron's that he had seen a prototype of the device, and believes it will be available in November following an official September launch. The source said that the wider computer industry had slowed production on their own touch-screen tablet devices to see what kind of gadget Apple produced.

Lusa:

- Macau’s casino revenue rose 3.1% in July from a year earlier, citing data from the casino operators. For the first seven months of this year, revenue declined 10% from the year-earlier period.

Bear Radar

Style Underperformer:
Small-Cap Growth (+.80%)

Sector Underperformers:
Telecom (-.21%), Biotech (+.13%) and HMOs (+.35%)

Stocks Falling on Unusual Volume:
NTT, RSG, CLX, HURN, SVNT, GENZ, GMCR, DCO, VVC and HAE

Stocks With Unusual Put Option Activity:
1) SVNT 2) ASML 3) XL 4) BX 5) BEN

Bull Radar

Style Outperformer:
Small-Cap Value (+1.38%)

Sector Outperformers:
Steel (+4.38%), Oil Service (+3.80%) and Road & Rail (+3.11%)

Stocks Rising on Unusual Volume:
BRY, BCS, FCX, SU, WTI, VMED, HBC, TKC, CLF, PBR, NCI, JCP, CXW, HUM, FMX, HANS, WATG, SYNA, MLNX, SIRO, EZCH, HMSY, TNDM, GTIV, EBIX, JST, HAYN, IBOC, CISG, CTRP, CTRN, CETV, EBAY, WYNN, WTFC, WPPGY, MTR, ERJ, CNA, IHG, BGH and RPG

Stocks With Unusual Call Option Activity:
1) OSK 2) MFA 3) RCL 4) WYN 5) BEN

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