Stocks Rising into Final Hour on Less Eurozone Debt Angst, Short-Covering, More US Economic Optimism, Investor Performance Angst

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 15.38 -.77%
  
• ISE Sentiment Index 89.0 -8.25%
  
• Total Put/Call .79 -18.56%
  
• NYSE Arms .54 -19.80%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.02 -1.44%
  
• European Financial Sector CDS Index 218.07 -.98%
  
• Western Europe Sovereign Debt CDS Index 266.15 -1.09%
  
• Emerging Market CDS Index 242.09 -1.08%
  
• 2-Year Swap Spread 25.50 +.5 basis point
  
• TED Spread 40.75 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.0 +.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 basis point
  
• Yield Curve 187.0 -1 basis point
  
• China Import Iron Ore Spot $147.60/Metric Tonne unch.
  
• Citi US Economic Surprise Index 15.0 -3.9 points
  
• 10-Year TIPS Spread 2.37 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +46 open in Japan
• DAX Futures: Indicating a +41 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Tech, Retail and Medical sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs and at a multi-year high despite mixed US economic data, recent strong equity gains, euro weakness and global growth fears. On the positive side, Steel, Coal, Energy, Oil Service, Ag, Hospital, Construction, Education and Road & Rail shares are especially strong, rising more than +1.5%. The Transports have traded well throughout the day. Copper is gaining +2.44% and Lumber is gaining +.54%. Major Asian indices were mixed overnight as a +.76% gain in South Korea was offset by a -.88% loss in Taiwan. Major European indices were mostly higher today, led by a +1.85% gain in the UK. Italian shares did not participate, falling -.2% on the day. The Bloomberg European Financial Services/Bank Index rose +.4% today and is down -3.3% ytd versus a +22.9% gain in (XLF) ytd. The Germany sovereign cds is down -2.26% to 72.0 bps, the Spain sovereign cds is down -1.26% to 431.16 bps, the Italy sovereign cds is down -2.48% to 386.93 bps and the Ireland sovereign cds is down -2.0% to 560.0 bps. On the negative side, Homebuilding, Alt Energy and Oil Tanker shares are under pressure, falling more than -.75%. Gold is rising +.5%, the UBS-Bloomberg Ag Spot Index is rising +.67% and oil is gaining +2.1%. The 10Y Yld is falling -1 bp to 2.19% despite today's equity rally and more economic optimism. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to early-Nov. levels. Lumber is -8.5% since its Dec. 29th high despite the better US economic data, dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -18.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. Despite mixed economic data in the US and overseas today, investors continue to ignore almost all negatives as the major averages still trade very well into the new quarter. Homebuilders are not participating in today’s rally, which is a red flag for the broad equity market. The biggest underperforming sectors over the last few weeks are leading today. For the recent equity advance to maintain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less eurozone debt angst, more US economic optimism and investor performance angst.

Today's Headlines

Bloomberg:

• Euro-Region Unemployment Surges to 14-Year High, Nears Record. Euro-region unemployment rose to the highest in more than 14 years and manufacturing contracted for an eighth month, adding to signs the economy probably slipped into a recession in the first quarter. The jobless rate in the 17-nation euro area rose to 10.8 percent in February from 10.7 percent a month earlier, the European Union’s statistics office in Luxembourg said today. That’s the highest since June 1997 and close to the record of 10.9 percent. A manufacturing gauge, based on a survey of purchasing managers, fell to 47.7 in March from 49, Markit Economics said. “Unemployment is lagging economic developments and the situation on the labor market will likely remain difficult through 2012,” said Jens Kramer, an economist at NordLB in Hanover, Germany. “Domestic demand is hurt by the difficult labor market and tougher austerity measures. The first and second quarters will show a contraction followed by a slight recovery.” In Italy, the jobless rate rose to 9.3 percent from 9.1 percent based on provisional data. Spain had the highest rate at 23.6 percent. Markit’s euro-area manufacturing gauge dropped to a three- month low in March. A German indicator fell to 48.4 from 50.2 the previous month, while in France the number slipped to 46.7 from 50. “There were further signs that the manufacturing malaise already exhibited at the periphery of the currency bloc was spreading to the core,” Markit said in today’s report. “Demand was weaker in both domestic and export markets.”
• Sovereign, Corporate Bond Risk Falls, Credit-Default Swap Show. The cost of insuring against default on European sovereign and corporate debt fell, according to BNP Paribas SA. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell 7.5 basis points to 262.5 at 8:39 a.m. in London, the lowest in almost two weeks. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 10.5 basis points to 601.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 2.75 basis points to 122.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell four basis points to 216 and the subordinated index declined 4.5 to 355.5.
• Fed's Pianalto Sees 2.5% Economic Growth in 2012, 3% Next Year. Federal Reserve Bank of Cleveland President Sandra Pianalto said that the economic expansion is continuing and that she expects growth of 2.5 percent this year and around 3 percent next year.
• Construction Spending in U.S. Unexpectedly Drops in February. Construction spending in the U.S. unexpectedly fell in February, reflecting broad-based declines that indicate the building industry will take time to stabilize. The 1.1 percent decrease, the biggest in seven months, followed a revised 0.8 percent retreat in January that was larger than previously estimated, Commerce Department figures showed today in Washington. The median estimate of 45 economists surveyed by Bloomberg News called for a 0.6 percent increase.
• Manufacturing in U.S. Grew at Faster Pace in March: Economy. Manufacturing in the U.S. expanded at a faster pace in March, driven by gains in employment and production that signal the world’s biggest economy is underpinning global growth. The Institute for Supply Management’s factory index climbed to 53.4 last month from 52.4 in February, the Tempe, Arizona- based group’s report showed today. Readings greater than 50 signal growth. The median forecast in a Bloomberg News survey called for a gain to 53.

Wall Street Journal:

• The Endless Spending Spree. America's debt is $15.6 trillion and growing. Instead of raising taxes, here's an idea: Let's try capitalism.

CNBC.com:

• No More Easing, But No Rate Hikes Either: Fed's Fisher. While saying "it's a little bit premature to talk about tightening," Dallas Fed President Richard Fisher also believes it's time for the central bank to stand down on any more stimulus.
• Apple's(AAPL) Stock Gets First $1,000-Plus Price Target.
• As Foreclosure Problems Persist, Fed Seeks More Fines. Federal regulators are poised to crack down on eight financial firms that are not part of the recent government settlement over home foreclosure practices involving sloppy, inaccurate or forged documents.
• Greek Economy to Slump 5% This Year: Think Tank.
  

Business Insider:

• OECD: The US Officially Has The Highest Corporate Tax Rate In The World.
• Are You Sitting Down? Check Out The Latest Youth Unemployment Number In Spain.
• CHART OF THE DAY: THE TRUTH ABOUT EUROPE.

Zero Hedge:

• Italian Banks Underwater On LTRO2 After Just One Month.
  
• From All-In To All-Out: Are Macro Hedge Funds The Canary In The Stockmine? (graph)
• Meet The Uber-Kommissar: Germany Expands European Domination Plan; Will Enact European Budget Supervision Panel.

AppleInsider:

• Apple(AAPL) Working on Physical Game Controller for iPads and Other iOS Devices.

Reuters:

• US EPA Delays Rule On Natgas Drilling Emissions. The U.S. environmentregulator and conservation groups have agreed to a two-weekextension on finalizing rules that aim to slash smog-formingemissions from hydraulic fracturing, or fracking, operationswhere natural gas and oil are drilled, an agency spokeswomansaid. The rules, which have now been delayed for the fourth timesince September, are now expected to be finished on April 17instead of April 3.

Guardian:

• Muppets Strike Back at Goldman Sachs. In a new Funny or Die video, the puppets lash back at the banking giant in the wake of Greg Smith's infamous op-ed.

Bear Radar

Style Underperformer:

• Small-Cap Growth +.73%

Sector Underperformers:

• 1) Oil Tankers -1.87% 2) Homebuilders -1.35% 3) Alt Energy -.55%

Stocks Falling on Unusual Volume:

• GRPN, YPF, WIFI, ELGX, ASIA, BODY, FSYS, JVA and GPN

Stocks With Unusual Put Option Activity:

• 1) FSIN 2) STD 3) BX 4) GRPN 5) LOW

Stocks With Most Negative News Mentions:

• 1) GRPN 2) NUE 3) GM 4) TXN 5) LL
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.73%

Sector Outperformers:

• 1) Coal +2.58% 2) Gold & Silver +2.18% 3) Steel +1.76%

Stocks Rising on Unusual Volume:

• IOC, NOR, DNR, ESRX, THRX, SHPGY, AFFY, LGND, CALL, Z, PETS, AVP, RNDY, WOR, DDD, RGR and ATK

Stocks With Unusual Call Option Activity:

• 1) AVP 2) DPZ 3) TJX 4) WLP 5) TEX

Stocks With Most Positive News Mentions:

• 1) PETS 2) BA 3) GPS 4) MA 5) RGR
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines
Bloomberg:

• OECD’s Padoan Sees Euro Area as Biggest Threat to Growth. The euro area remains the biggest threat to global growth as imbalances still need to be addressed, Organization for Economic Cooperation and Development Chief Economist Pier Carlo Padoan said. “The weaknesses of the euro area are still a source of concern,” Padoan said in a Bloomberg Television interview today in Cernobbio, Italy. “We can have a way out in Europe having reforms taking place not only in the debt countries but in all of the countries, including Germany, which should invest and open more.” European finance ministers agreed yesterday in Copenhagen to boost a firewall against the region’s debt crisis by 500 billion euros ($667 billion) on top of the 300 billion euros already committed. Europe is counting on those funds, plus the European Central Bank’s extra lending and bond-buying programs. The decision to increase the firewall “provides time, but more needs to be done, especially by governments in sensitive countries, to carry on the reform programs,” Padoan said.
• Spain Record Home Price Drop Seen With Bank Pressure: Mortgages. Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings. Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages. “There will be more serious price drops this year because of the government decree,” said Fernando Rodriguez de Acuna Martinez, a partner at the Madrid-based firm. “Banks are now prepared to incur big losses on real estate to shift all they can.”
• Europe Eyes Bigger IMF War Chest as Firewall Tops $1 Trillion. European governments called for a bigger global financial emergency fund after engineering a firewall to fight the region’s debt crisis that tops the symbolic $1 trillion mark. Euro-area finance ministers decided yesterday that 500 billion euros ($667 billion) in fresh money would go along with 300 billion euros already committed to create an 800 billion- euro defense against the two-year-old turmoil. Europe is counting on those sums, plus the European Central Bank’s extra lending and bond-buying programs, to demonstrate that it is on the road back to stability and encourage Group of 20 economies to bulk up the International Monetary Fund’s anti- crisis coffers at an April 19-20 meeting. “Europe is aware of its responsibility for the international economy,” German Finance Minister Wolfgang Schaeuble told reporters today after a two-day meeting of European finance officials in Copenhagen. “If the IMF takes precautions to prevent possible contagion or threats to the world economy, then Europe for its part will make a decisive contribution.”
• Schaeuble Condemns Discord 'Nonsense' Following Euro Spat. German Finance Minister Wolfgang Schaeuble condemned as “nonsense” a breakdown in communication that caused a meeting of euro-area finance ministers to descend into confusion with a spat between Luxembourg and Austria. Schaeuble said the abrupt cancellation of a press conference in Copenhagen yesterday by the meeting’s chairman, Luxembourg Prime Minister Jean-Claude Juncker and the following apology of Austrian Finance Minister Maria Fekter over her pre- announcement to reporters that the group had limited new bailout lending to 500 billion euros ($667 billion) could have the effect of uniting decision makers. “This is nonsense,” Schaeuble told reporters after the meeting ended today. “If we want to calm markets, if we want to win back lost trust that we’re making with the right decisions, we have to implement them rather than continuing to feed more and more speculation.”
• China Arrests Six for Web Rumors; Microblogs Ban Comments. China closed 16 websites and detained six people for spreading rumors that military vehicles were entering Beijing, as microblogging websites disabled their comment features for three days. The authorities detained the six for “fabricating or disseminating online rumors,” the state-run Xinhua News Agency reported today, citing city police and the State Internet Information Office, without naming the detainees. The websites were closed for spreading rumors that “something wrong” was going on in Beijing, Xinhua said. Speculation of a coup spread on the Internet on March 20, helping spark the biggest jump in credit-default swaps for Chinese government bonds in four months. The Communist Party holds a congress later this year to pick the next generation of leaders who may run China for the next decade and the lack of a transparent process may escalate the risk and impact of rumors. Sina Corp.(SINA) started a 72-hour suspension of the commenting function on its popular microblogging site today, citing a need to clear up rumors and illegal information, the company, whose Twitter-like service has more than 300 million registered users, said in a statement. Users opening Tencent Holding Ltd. (700)’s microblog site saw a similar notice.
• Roche May Abandon its Bid for Illumina(ILMN), SonntagsZeitung Reports. Roche Holding AG (ROG), a Basel, Switzerland-based drugmaker, may drop its $6.6 billion bid for Illumina Inc., SonntagsZeitung reported, citing an unidentified person close to Roche’s board. San Diego, California-based Illumina, a diagnostics company, can’t rely on Roche’s continuing participation in negotiations, the person said, adding that for Roche, Illumina is a “nice-to-have,” not a “must-have,” the Swiss newspaper reported.
• Iran Says Russia Relations to See ‘Leap’ With Putin at Kremlin. Iran’s relations with Russia will witness a “leap” with Vladimir Putin’s return to the Kremlin, the Fars reported, citing Iranian Foreign Ministry spokesman Ramin Mehmanparast. Russia and Iran have “multiple grounds for cooperation,” Mehmanparast said in an interview with state-run news agency. The “horizon of relations with Russia will be bright” and the level of relations will rise considerably, he said.
• Groupon(GRPN) Reports 'Material Weakness,' Restates Quarterly Revenue. Groupon Inc. (GRPN), the largest provider of daily deals online, reported a “material weakness” in its financial controls and said fourth-quarter results were worse than previously stated because of higher refunds to merchants. The revisions reduced revenue in the period by $14.3 million to $492.2 million, the Chicago-based company said yesterday in a regulatory filing. Groupon had reported $506.5 million last month.
• Facebook(FB) Valued at $102.8 Billion in Final Auction on SharesPost. Facebook Inc. (FB)’s implied valued rose 8.9 percent to $102.8 billion yesterday in what was expected to be the last auction of its stock on SharesPost Inc.’s exchange before the social-networking company’s initial public offering. SharesPost completed the auction at a price of $44.10 for 150,000 units, the firm said in an e-mailed statement. That’s up from an auction earlier this month with a price of $40.50 a share, valuing the company at $94.4 billion, based on a share count of 2.33 billion.
• Egypt's Muslim Brotherhood Nominates President Candidate. Egyptian military judges dropped convictions against Muslim Brotherhood presidential candidate Khairat el-Shater, clearing the nominee of the nation’s dominant political party to run in the election, the group’s lawyer said. “We have taken administrative, legal and judicial measures before the military judiciary and based on this, all convictions have been dropped,” Abdel Monem Abdel Maqsoud said in a phone interview in Cairo yesterday. “All legal obstacles have been removed, and el-Shater now has the right to fully exercise all his political rights,” he said.
  
• South Korean Exprts Fall 1.4% on Weakness in Global Demand. South Korea’s exports were less than analysts forecast in March, sliding 1.4 percent from a year earlier on weakness in global demand. Imports fell 1.2 percent, leaving a trade surplus of $2.3 billion, the Ministry of Knowledge Economy said in an e-mailed statement today. The median estimate in a Bloomberg News survey of 13 economists was for a 1.3 percent gain in exports.
• Why Are the Fed and SEC Keeping Wall Street's Secrets? Getting what should be public information about major Wall Street firms can be maddeningly difficult. Bloomberg News discovered this in its ultimately successful effort to get information on the $1.2 trillion in “secret loans” the Fed doled out during the financial crisis. And I’ve had no small experience of it myself.
• Japan Tankan Confidence Not Improving, Threatens Rebound. Sentiment among Japan’s largest manufacturers failed to improve in March as executives predicted the yen will rebound against the dollar, hurting exporters' sales and profits. The quarterly Tankan index was unchanged from minus 4 in December, the Bank of Japan said today in Tokyo. That was less than the median estimate of 25 economists surveyed by Bloomberg News for a reading of minus 1.

Wall Street Journal:

• EU Lenders Kick Troubles Down Road. Even as the European banking crisis shows signs of easing, lenders across the Continent are engaging in a variety of maneuvers to avoid, or at least delay, coming to terms with potential problems lurking on their books. Some banks are concocting unorthodox structures designed to improve all-important capital ratios, without raising new capital or moving unwanted assets off their balance sheets. Others are engaging in complex transactions with struggling customers to help temporarily avoid loan defaults—but possibly exposing the lenders to future problems.
• Inside Elite Chinese Circle, Brit Came to Fear for His Life. Neil Heywood, the Briton whose death in China is at the center of a Chinese political crisis, told friends he feared for his safety because he had fallen out with the wife of a senior Communist Party leader, according to people familiar with the matter. Mr. Heywood had claimed to be part of the small inner circle of Bo Xilai, a former political rising star whose sacking as party chief of the city of Chongqing this month set off one of the biggest upheavals in Chinese politics since the Tiananmen Square crackdown on demonstrators in 1989.
• Investors Dip Into Riskier Waters. After a Solid First Quarter, Market Trends Take Turn Toward Normal; 'It's Too Early to Declare Victory'. Full-fledged optimism is in short supply, but compared to the start of the year, investors are at least feeling safe enough to poke their heads out of their bunkers. The euro zone has stepped back from the brink of collapse, the U.S. economy is showing continued signs of life, particularly on the employment front, and central banks have extended efforts to support economic growth.
• Oil Boom Sparks River Fight. The oil boom in North Dakota is sparking a high-stakes legal battle over land few people would think to fight for: the muddy banks of the Missouri River. As energy companies race to lock up every available oil-producing acre, the state of North Dakota has been leasing mineral rights to the land beneath and along the river. Now, landowners say they deserve a share of the tens of millions of dollars in proceeds, because the state is including shoreline areas they believe belong to them.
• Obama and the Eisenhower Standard by Fouad Ajami.
  

Business Insider:

• Goldman Sachs Frantically Unloads Its Stake In A Company With Ties To Sex Trafficking.
• Massive Bond Purchases By The ECB Are The Worst Kind Of Bailout.
• Bernanke Is Rewriting History and Making the Same Mistakes Again.
  

Zero Hedge:

• The Spanish Riotcam Has Arrived.
• The Eye Of The Hurricane Passes: Full List Of European Known Knowns As The New Quarter Begins.

CNBC:

• There Obama Goes Again: He Hates Fossil Fuel, and He Hates Success.
• China Big Factories Busy in March, Small Ones Struggle. China's big factories were surprisingly busy in March as a stream of new orders lifted activity to an 11-month high, but credit-constrained smaller manufacturers struggled, suggesting that the economy is still losing steam.

Wall Street All-Stars:

• Indicator Update: Can We Find New Jobs?
  

NY Times:

• Police Are Using Phone Tracking as a Routine Tool. Law enforcement tracking of cellphones, once the province mainly of federal agents, has become a powerful and widely used surveillance tool for local police officials, with hundreds of departments, large and small, often using it aggressively with little or no court oversight, documents show. The practice has become big business for cellphone companies, too, with a handful of carriers marketing a catalog of “surveillance fees” to police departments to determine a suspect’s location, trace phone calls and texts or provide other services. Some departments log dozens of traces a month for both emergencies and routine investigations.

The Telegraph:

• Germany's Reluctant Hegemony and Misguided Calvinism. If the purpose of monetary union is to tie down a "European Germany" with silken cords, the Kohl-Mitterrand legacy has gone horribly wrong.

WirtschaftsWoche:

• The Group of 20 nations and the European Union are pressuring Germany to avoid reducing its budget deficit too fast so that the country can continue being Europe's "engine of growth," citing German Deputy Finance Minister Steffen Kampeter.
  

Weekend Recommendations
Barron's:

• Made positive comments on (UNP), (BIG), (RGR), (AVII) and (FITB).

Night Trading

• Asian indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 156.0 -6.0 basis points.
• Asia Pacific Sovereign CDS Index 126.75 -7.0 basis points.
• FTSE-100 futures +.10%.
  
• S&P 500 futures +.32%.
• NASDAQ 100 futures +.38%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PBY)/.12

Economic Releases
10:00 am EST

• Construction Spending for February is estimated to rise +.7% versus a -.1% decline in January.
  
• ISM Manufacturing for March is estimated to rise to 53.0 versus a reading of 52.4 in February.
• ISM Prices Paid for March is estimated to rise to 63.0 versus 61.5 in February.
  

Upcoming Splits

• (ASNA) 2-for-1
  

Other Potential Market Movers

• The Fed's Pianalto speaking, Eurozone Unemployment Rate, Eurozone Manfacturing PMI and the (NYX) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on profit-taking, rising global growth fears, more shorting and high energy prices. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.