Bear Radar

Style Underperformer:
Large-Cap Growth (-.76%)

Sector Underperformers:
Oil Service (-2.13%), HMOs (-1.63%) and Oil Tankers (-1.16%)

Stocks Falling on Unusual Volume:
RDC, EEP, PTNR, FMR, BAM, UBS, AIXG, ACOR, STEC, PTRY, IPHS, TXRH, SMSI, MASI, PPL, GB, HLF and FCN

Stocks With Unusual Put Option Activity:
1) CHRW 2) WFMI 3) LLTC 4) TXT 5) EK

Bull Radar

Style Outperformer:
Small-Cap Value (+.75%)

Sector Outperformers:
Airlines (+4.36%), Gaming (+2.0%) and REITs (+1.17%)

Stocks Rising on Unusual Volume:
UTR, OB, PAS, PBG, DISH, EGO, CAT, CNH, LBTYA, PAAS, BW, OFG, FTT, CS, HURN, WMGI, SVVS, CTSH, LOPE, WATG, HMIN, POWL, SYKE, HGSI, EBIX, EXBD, DWSN, CPHD, WYNN, WIRE, AGNC, BRKR, MIDD, CPL, PEP, TRW, NPO, BKD, WMS and NTG

Stocks With Unusual Call Option Activity:
1) NUAN 2) MBI 3) AGN 4) ALL 5) LLTC

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Chinese stocks may fall by as much as 18 within the next three months as the benchmark Shanghai Composite Index’s plunge on July 29 is a “warning” to investors of steeper declines, said Carter Worth, chief market technician at Oppenheimer & Co. The Shanghai index is rising at an “unjustifiably steep angle” and recent declines in the benchmark, including the 5% drop last week, are occurring in unusually heavy volume, he said today from New York. Worth is recommending clients reduce their holdings in Chinese stocks by as much as half. “The market does not go higher from here,” Worth said. “There has been virtually no pullbacks and it needs to pull back to be healthy.” Worth said the odds of China stocks falling or “trading sideways” in the next 10 to 154 weeks are 90%.

- A third of Russia’s 42,000 clothing retailers will close by the end of this year after the economic crisis hurt local spending, according to the head of the European Fashion and Textile Export Council. The likely retail failures and order cutbacks in Russia mean companies in fashion-exporting nations such as Germany will deliver less apparel for the winter season, said Reinhard Doepfer, who leads the Brussels- and Stuttgart-based industry group. He said the Council surveyed German clothing makers and found an average of 35 percent of their deliveries to Russia would be unsold this summer.

- Macau casino billionaire Stanley Ho underwent brain surgery after suffering a head injury in a fall and is in intensive care in a Hong Kong hospital, Apple Daily reported today, citing people it didn’t identify.

Wall Street Journal:

- Stocks powered their way to two new milestones Monday amid a growing belief that the recession is over and better days lie ahead. Eleven days after the Dow Jones Industrial Average surpassed 9000, Standard & Poor's 500-stock index broke through 1000, and the Nasdaq Composite Index passed 2000.

- Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting. The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf. Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair. Friday's roughly hourlong meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies. Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators. "You are talking about tremendous regulatory power being invested in whatever this entity is going to be," Ms. Bair told the Senate Banking Committee last month. "And I think, in terms of checks and balances, it's also helpful to have multiple views being expressed and coming to a consensus." Officials from the Federal Reserve and the Office of the Comptroller of the Currency, meanwhile, have questioned the creation of a new federal agency to oversee consumer regulations, a move that would take away powers from both institutions. In addition to Mr. Bernanke, Ms. Bair and Ms. Schapiro, other attendees at Friday's meeting were: Fed Governor Daniel Tarullo, Comptroller of the Currency John Dugan, Commodity Futures Trading Commission Chairman Gary Gensler and Office of Thrift Supervision Acting Director John Bowman. The top Republicans on these committees, Sen. Richard Shelby (R., Ala.) and Rep. Spencer Bachus (R., Ala.), have also expressed skepticism over ceding too much power to the Fed."A rush to judgment where they basically throw these things together without any consensus is going to be a disaster," Rep. Bachus said.

- Robert Mueller deals in chemicals for a living -- things that can unstick glue, thin paint, make plastic -- but he'd never seen an order like the one he got for sodium silicate. The compound is typically used to repel bugs or seal concrete, but this buyer's online order form betrayed a whole different intent: "To Kill Car Engines." "That worried me a little, so I picked up the phone and called the gentleman," recalls Mr. Mueller, an owner of chemical-firm CQ Concepts Inc. in suburban Chicago. What Mr. Mueller discovered is that sodium silicate is the designated agent of death for cars surrendered under the federal cash-for-clunkers program. To receive government reimbursement, auto dealers who offer rebates on new cars in exchange for so-called clunkers must agree to "kill" the old models, using a method the government outlines in great detail in its 136-page manual for dealers: Drain the engine of oil and replace it with two quarts of a sodium-silicate solution. At dealerships across America, mechanics accustomed to fixing engines are battling for the chance to ruin them. "Everybody wants to go first, so I'm probably going to have to make them draw straws," says Jim Burton of Randy Curnow Buick Pontiac GMC in Kansas City, Kan. As service manager, however, he might reserve that thrill for himself. "I can't wait," he says.

- Hospitals are costly places. Andrew Thompson hopes his company can help keep people out of them. His Silicon Valley start-up, Proteus Biomedical Inc., is testing a miniature digestible chip that can be attached to conventional medication, sending a signal that confirms whether patients are taking their prescribed pills. A sensing device worn on the skin uses wireless technology to relay that information to doctors, along with readings about patients' vital signs.

- With plenty of videogames available for downloading, gamers no longer have to leave their bedrooms. But investors should beware pulling the plug on GameStop(GME).

- Placement agents’ worst nightmares have come true, as the Securities and Exchange Commission Monday released the full, 114-page documentation supporting proposals on ending pay-to-play problems at public pension funds that it made last month. The documentation affirms what many placement agents had feared after reading the short initial proposal from the SEC, which was somewhat vague: under the new rules, private equity firms would be banned from using placement agents to solicit business from government pension fund clients.

- China's banking regulator may limit a popular capital-boosting technique in a way that could put a crimp on loan growth, a person familiar with the situation said Monday. The China Banking Regulatory Commission may deem subordinated bonds issued by a bank ineligible as capital if those bonds are held by another bank, the person said. The banking regulator estimates about half the subordinated bonds in circulation are held by other banks. Already this year, Chinese banks have issued 210.9 billion yuan ($30.87 billion) of subordinated bonds, nearly triple the 72.4 billion yuan issued in all of 2008. Analysts said any curb on how subordinated debt can be used would likely slow lending, because it would limit the appetite of the market's biggest investors, which are banks. She Minhua, an analyst at Haitong Securities, said, "Changing the rules would effectively cause a further decline in banks' capital adequacy ratios, so the fastest way for them to maintain a healthy ratio would be to cut loans." Analysts say Chinese authorities have grown concerned that high levels of lending this year will result in an increase in bad debt. Chinese banks extended 7.4 trillion yuan in new loans during the first half of this year, equivalent to half of the country's gross domestic product for the period.

- Lilly Ventures, the venture capital arm of Eli Lilly & Co., has spun out from its parent in an effort to compensate its members more like a traditional venture firm.

Barron’s:

- ONLINE-FINANCIAL-SERVICES COMPANY E*Trade Financial (ticker: ETFC) has seen egregious losses during the recession, as the stock has fallen from the high $20s in 2006 to below a dollar this year on its subprime exposure. But one hedge fund seems to see glimmers of hope for the overlooked technology aspects of the businesses and is now a 5% owner. On July 29, Coatue Management disclosed that it owns 56,057,572 shares, or a 5.03% stake in E*Trade.

CNBC.com:
- Frustrated with the pace of bipartisan talks, Democratic leaders on Monday promised to push a sweeping health care bill through the Senate whether they get Republican support or not. Sen. Chuck Schumer, D-N.Y., the third-ranking Senate Democrat, raised the prospect of the leadership crafting a bill to Democratic specifications and using a rare legislative procedure to expedite legislation fulfilling President Barack Obama's top domestic priority. Schumer said Democratic leaders continue to look at invoking a procedural maneuver that would allow them to pass the health bill with 51 instead of 60 votes. A spokesman for Senate Minority Leader Mitch McConnell, R-Ky., scoffed at Schumer's complaints. He noted that Schumer himself hasn't committed to supporting whatever the Finance negotiators produce and that other Democrats have also criticized the plan that's taking shape.

NY Times:

- A small placenta can endanger a fetus by limiting the delivery of food and oxygen. Now researchers at Yale have developed an easy method of measuring the volume of the placenta during pregnancy.

- An extremist Shiite group that has boasted of killing five American soldiers and of kidnapping five British contractors has agreed to renounce violence against fellow Iraqis, after meeting with Iraq’s prime minister. The prime minister, Nuri Kamal al-Maliki, met with members of the group, Asa’ib al-Haq, or the League of the Righteous, over the weekend, said Ali al-Dabbagh, a spokesman for the prime minister, confirming reports. “They decided they are no longer using violence, and we welcome them,” he said in a telephone interview.

CNNMoney.com:

- Does General Electric(GE) need to put aside more cash to handle bad loans at its finance arm? GE says it doesn't -- it even insists it has higher loan loss reserves than the biggest US banks. But investors aren't fully convinced. And a look at just one small slice of GE Capital's $650 billion of assets suggests why they are right to be skeptical.

Forbes:

- Analysts don't anticipate that The IntercontinentalExchange(ICE) will be hurt by possible upcoming regulatory changes. Meanwhile, ICE continues to try to build a transparent market place for derivative securities and credit default swaps.

Rasmussen:

- A new Rasmussen Reports national telephone survey finds that only 22% expect the situation there to get better, down seven points from a month ago. The plurality (41%) says things will get worse in the coming months, an increase of two points since the beginning of July.

USA Today.com:

- The stock market may be roaring, but mutual fund investors are snoring. The Dow Jones industrial average has soared 9.9% since June 30, and gains like that usually attract big inflows to stock funds. Not this time. In fact, fund investors are far more interested in bonds than stocks. Investors bought a net $2.3 billion of stock funds the week ended July 22, according to the Investment Company Institute, the funds' trade group. Net purchases for July 1 through July 22, the latest figures available: $4.1 billion. But investors remain far more interested in bonds, which have fared far better than stocks the past decade. Total purchases for bond funds from July 1 through July 22: $28.8 billion. TrimTabs.com, which tracks fund flows, estimates that another $5.2 billion has flowed into stock funds the past five days — more than in the previous four weeks combined. But even that figure is dwarfed by TrimTabs.com's estimate of $12.3 billion that sloshed into bond funds the past five days.

Reuters:

- A U.S. bank regulator is expected to move quickly in finalizing guidelines on private equity investments in failed banks, possibly easing one of its most controversial proposals, sources said on Monday. The rules could be finalized as soon as this month and could see a key measure that is being proposed for banks to be bought by private equity, the Tier 1 leverage ratio, reduced from a proposed 15 percent to around 10 percent, industry sources said. Uncertainty over the Federal Deposit Insurance Corp's rules has stalled plans by investors to buy banks, and slowed some deals already in the works, sources previously told Reuters.

Financial Times:

- Market traders and investors will get a chance to express their views on proposed new short-selling rules in Europe next month, when the Paris-based Committee of European Securities Regulators holds a public hearing on its planned two-tier disclosure system. Under the CESR proposals, outlined in July, hedge funds and other short sellers could be obliged to reveal short positions of as little as 0.1 per cent of a company’s outstanding equity to the regulator of the most liquid market for the stock. These disclosures would remain private – between the investor and the regulator – but a short position which reached 0.5 per cent of more of the outstanding stock would have to be publicly disclosed. Market participants would also need to take account of any position that amounted to an “economic exposure” to a particular share – so that exchange-traded and over-the-counter derivatives would also be covered by the proposed rules. US regulators have also said they are watching international developments closely and would consider amending their plans if an international consensus begins to develop.

- The prices of the most traded risky European and US loans have reached their highest levels for more than a year, in a further sign of improving conditions in credit markets. Over the past week, European leveraged loan prices reached 89.11 per cent of face value, a high not seen since July 10, 2008, according to Standard & Poor’s LCD and Markit. The same is true for riskier US loans, for which the average price bid rose above 90 per cent of face value for the first time since June 24, 2008. Growing confidence in an economic recovery was further highlighted by a fall in a key barometer of financial stress, the spread between three-month dollar Libor – the rate banks charge each other to borrow – and three-month US Treasury bills. This so-called TED spread fell to its lowest level for two years on Monday – 29.3 basis points – having reached a high of 464bp last October. The rally in loan prices above a key threshold of 80-85 per cent of face value will also reduce pressure on collateralised loan obligations, complex funds that pool loans, which at the height of the credit boom accounted for 60 per cent of the demand for leveraged loans. As the price of their assets fall below 85 per cent, or more commonly 80 per cent, of face value, CLO managers have to mark-to-market those loans, which can lead to them breaching collateral tests and cutting off management fees. Rating agencies have warned about the potential systemic risk posed by CLOs because many of them were exposed to the same borrowers. Moreover, the rising loan prices should reduce the risk of a growing number of zombie CLOs – funds where managers have reduced management operations owing to the lack of fees, which threatened to make restructuring corporate debt difficult. The recovery in prices has led to an “outstanding” year for loan funds, according to one loan investor. Returns to European loan funds were up 22 per cent, and up 32 per cent for US loan funds during the first half of 2009, according to Standard & Poor’s. Loan funds in the US and Europe were down by about 30 per cent in 2008.

Shanghai Securities News:

- Property transactions in the Chinese cities of Beijing, Shanghai, Guangzhou and Shenzhen fell last month from June because of high prices, citing analysts.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (DOW), target $27.

William Blair:

- Rated (MYGN) Outperform.

Night Trading
Asian Indices are +.50% to +1.50% on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.15%.
NASDAQ 100 futures -.15%.

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Earnings of Note
Company/EPS Estimate
- (THC)/-.03

- (SPG)/1.37

- (HSIC)/.76

- (MLM)/.77

- (UPL)/.46

- (HEW)/.60

- (IT)/.17

- (MVL)/.32

- (JOE)/-.20

- (PPL)/.39

- (DBD)/.33

- DHI)/-.21

- (DUK)/.25

- (DISCA)/.32

- (EMR)/.57

- (ADM)/.44

- (CAM)/.47

- (CVS)/.64

- (KFT)/.54

- (CEPH)/1.31

- (ERTS)/-.14

- (WFMI)/.20

- (BMC)/.49

- (JACK)/.57

- (ED)/.50

- (PZZA)/.34

- (ICE)/1.13

- (CNO)/.22

- (ONXX)/.20

- (RDC)/.74

- (OPEN)/.04

- (DNR)/.17

Economic Releases

8:30 am EST

- Personal Income for June is estimated to fall 1.0% versus a 1.4% gain in May.

- Personal Spending for June is estimated to rise .3% versus a .3% increase in May.

- The PCE Core for June is estimated to rise .2% versus a .1% gain in May.

10:00 am EST

- Pending Home Sales for June are estimated to rise .7% versus a .1% gain in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Tarullo speaking, weekly retail sales reports, ABC Consumer Confidence reading and the (CAT) analyst event could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares 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 Sharply Higher, Boosted by Commodity, Road & Rail, Gaming, Insurance and Hospital Shares

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In Play

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.