Stocks Rising into Final Hour on Earnings Optimism, Euro Bounce, Short-Covering

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.98 -1.60%
  
• ISE Sentiment Index 74.0 -28.16%
  
• Total Put/Call .84 +2.44%
  
• NYSE Arms 1.23 +27.48%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 94.02 -2.22%
  
• European Financial Sector CDS Index 242.23 -2.12%
  
• Western Europe Sovereign Debt CDS Index 275.25 +.46%
  
• Emerging Market CDS Index 253.02 -1.05%
  
• 2-Year Swap Spread 30.25 +.5 basis point
  
• TED Spread 38.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -45.0 -.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 167.0 -2 basis points
  
• China Import Iron Ore Spot $145.40/Metric Tonne +1.11%
  
• Citi US Economic Surprise Index -8.0 -6.0 points
  
• 10-Year TIPS Spread 2.27 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +19 open in Japan
• DAX Futures: Indicating +14 open in Germany
  

Portfolio:

• Higher: On gains in my Tech, Medical, Biotech and Retail sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite Eurozone debt angst, high energy prices, rising global growth fears and less US economic optimism. On the positive side, Internet, Construction, Medical, Biotech, Retail, Homebuilding and Airline shares are especially strong, rising more than +1.0%. Tech shares have traded well throughout the day. Small-caps are outperforming. Lumber is rising +2.0% and Copper is gaining +1.4%. Major European Indices are rising around +1.0%, led by a +1.9% gain in Italy. The Bloomberg European Bank/Financial Services Index is rising +1.3%. The Germany sovereign cds is down -4.0% to 83.20 bps. Moreover, the European Investment Grade CDS Index is down -3.9% to 137.51 bps. On the negative side, Coal, Oil Service, Steel, Computer, Disk Drive and HMO shares are under meaningful pressure, falling more than -1.0%. Financial shares have lagged throughout the day again. Oil is rising +.4%, Gold is gaining +.3% and the UBS-Bloomberg Ag Spot Index is rising +.6%. Major Asian indices were mixed overnight as a +.58% gain in Korea was offset by a -.43% decline in Japan. The yen’s reaction to the BOJ’s activities overnight is a negative. The Spain sovereign cds is gaining +.6% to 475.42 bps, the China sovereign cds is rising +1.7% to 113.41 bps, the Japan sovereign cds is gaining +.97% to 95.17 bps and the Saudi sovereign cds is up +.74% to 120.5 bps. US Rail Traffic continues to soften. 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-Oct. levels. Lumber is -3.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and the broad equity rally. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -19.7% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +634.0% ytd. China's March refined-copper imports fell -8.0% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. The 10Y T-Note continues to trade too well, despite the big surge in the US sovereign credit default swap, and the euro currency can't sustain a bounce. The equity market seems even more inefficient than usual of late. The huge moves higher in certain key large-cap stocks on earnings reports that were good, but not that surprising, are a big psychological plus for the bulls. US stocks remain extraordinarily resilient, however breadth and volume remain lackluster. Despite a +1.6% gain for the S&P 500 for the week, Coal, Alt Energy, Steel, Paper, Networking, HMO, Gaming, Airline, Restaurant and Software shares were flat-to-lower on the week. As well, Asian stocks have not participated in recent US gains, which is another red flag. In my opinion, the Fed's QE has been a major reason that the US “recovery” has been very sluggish. However, most investors are convinced otherwise and continue to believe that another round is just around the corner. There remains a fairly high level of complacency among US investors regarding the rapidly deteriorating situation in Europe, in my opinion. As I have been warning for a couple of weeks, I still believe more European bank/sovereign downgrades are on the horizon. As long as Europe can hold off another disorderly decline in credit/economic growth, Asia remains stable and until the US “fiscal cliff” begins to be a focus of investors, select US stocks will likely work higher. However, in the second half of the year these issues will likely be of intense focus. One of my longs, (TFM), is testing its recent record high. I still see substantial outperformance for the shares over the intermediate-term.For the recent equity advance to regain 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-lower into the close from current levels on Eurozone debt angst, less US economic optimism, high energy prices, rising global growth fears, weakness in some key market leaders and less financial sector optimism.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.01%

Sector Underperformers:

• 1) Disk Drives -2.92% 2) HMOs -2.91% 3) Coal -2.05%

Stocks Falling on Unusual Volume:

• WDC, KEG, NUS, STX, WCG, CNC, PG, PTEN, MXWL, NANO, SIMO, DECK, HMSY, CTCT, ITMN, ABFS, BJRI, INFA, SBUX, SYNA, VPRT, HBHC, QLIK, RSG, NVO, LEG, CVH, GT, FPO, IDCC, AET, WM, AXL, PFG, N, SYNA and RSG
  

Stocks With Unusual Put Option Activity:

• 1) DECK 2) ALL 3) LO 4) DNKN 5) CALL
  

Stocks With Most Negative News Mentions:

• 1) MDRX 2) DECK 3) LEG 4) SBUX 5) GT
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.35%

Sector Outperformers:

• 1) Internet +2.32% 2) Communications +1.12% 3) Homebuilding +1.10%

Stocks Rising on Unusual Volume:

• AMZN, CRAY, NWL, ORLY, EXPE, CRBC, JAZZ, CPTS, WCRX, SAIA, WOOF, CPSI, CALL, ARBA, CERN, TRIP, SWKS, MOG, MAG, AEM, RMD, CODE, OIS, SHFL, MXIM, VCI, TRW, SPN, RNF, LL, ASGN and RYL
  

Stocks With Unusual Call Option Activity:

• 1) XCO 2) DECK 3) GNW 4) AMZN 5) CSTR
  

Stocks With Most Positive News Mentions:

• 1) MXIM 2) EXPE 3) UPS 4) AMZN 5) PG
  

Charts:

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

Friday Watch

Night Trading

• Asian equity indices are -.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 167.0 +5.5 basis points.
  
• Asia Pacific Sovereign CDS Index 136.50 +2.0 basis points.
  
• FTSE-100 futures +.03%.
  
• S&P 500 futures -.38%.
  
• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AXL)/.63
• (B)/.44
• (CVX)/3.22
• (COV)/1.03
• (F)/.36
• (GT)/.09
• (IP)/.51
• (MRK)/.98
• (NWL)/.31
• (NEM)/1.14
• (PG)/.93
• (SPG)/1.67
• (SUP)/1.25
• (VFC)/1.87
• (WY)/.00
  

Economic Releases
8:30 am EST

• The 1Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 4Q.
• Advance 1Q GDP is estimated to rise +2.5% versus a +3.0% gain in 4Q.
• Advance 1Q Personal Consumption is estimated to rise +2.3% versus a +2.1% gain in 4Q.
• Advance 1Q GDP Price Index is estimated to rise +2.1% versus a .9% gain in 4Q.
• Advance 1Q Core PCE is estimated to rise +2.1% versus a +1.3% gain in 4Q.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for April is estimated at 75.7 versus a prior estimate of 75.7.
  

Upcoming Splits

• (SCVL) 3-for-2
  

Other Potential Market Movers

• The Italian bond auction and the BOJ rate announcement could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology 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 day.

Stocks Rising into Final Hour on Euro Bounce, Tech Sector Optimism, Short-Covering

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.15 -3.98%
  
• ISE Sentiment Index 105.0 -6.25%
  
• Total Put/Call .80 +9.59%
  
• NYSE Arms 1.03 +16.39%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.19 -1.44%
  
• European Financial Sector CDS Index 247.0 +.16%
  
• Western Europe Sovereign Debt CDS Index 274.0 -.25%
  
• Emerging Market CDS Index 255.63 -1.29%
  
• 2-Year Swap Spread 29.75 +.75 basis point
  
• TED Spread 38.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -44.50 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 169.0 -2 basis points
  
• China Import Iron Ore Spot $143.80/Metric Tonne -1.98%
  
• Citi US Economic Surprise Index -2.0 -1.9 points
  
• 10-Year TIPS Spread 2.29 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +63 open in Japan
• DAX Futures: Indicating +46 open in Germany
  

Portfolio:

• Higher: On gains in my Tech, Medical, Biotech and Retail 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

Today's Headlines

Bloomberg:

• Merkel Steps Up Defense of Budget Agenda, Targets Excessive Debt. Chancellor Angel Merkel stepped up her budget-cutting message in the face of rising criticism of Germany’s focus on austerity, saying that excessive debt robs states of their ability to make independent decisions. Referring to euro-area countries shouldered with too much debt, Merkel told supporters in the northern German state of Schleswig-Holstein that certain nations had themselves brought on austerity by spending more than they raised in revenue. Too much debt “harms countries’ ability to make their own decisions, so that they’re more and more dependent on the markets, and have to step up savings and make harsher cuts,” Merkel told a campaign rally today in Flensburg on the Danish border. Schleswig-Holstein holds an election on May 6. Merkel stressed her defense of consolidating budgets as the best way to resolve the two-year-old debt crisis even as the focus in Europe shifts away from austerity to promoting economic growth.
• Spain Yields at 6% Show Bank, Economy Risk: Euro Credit. As Spain’s recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6 percent as investors speculate the government will be forced to bail out the financial system. The nation’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades. “Spain is likely to need support in both the banking and government sectors,” said Jamie Stuttard, head of international bond portfolio management at Fidelity Investments, which has $1.2 trillion of assets. “Government bond market developments hold the key.”
• Anti-Euro Le Pen's Gain Spooks Overseas French Investors. Pierre Mouton, a fund manager at Notz Stucki & Cie. in Geneva, looks at the rise of anti- European, anti-austerity parties across the border in France with concern. It may keep him out of the country’s stock market. “We’re cautious on French stocks,” Mouton, whose firm manages $7.5 billion and has been reducing its holdings in France, said in an interview. “If the new president breaks under pressure from these groups, stocks will suffer. We prefer not to take that risk.”
• Oil Rises to One-Week High. “The dollar is down, which is helping most of the commodities,” said Phil Flynn, an analyst at futures brokerage PFGBest in Chicago. Crude oil for June delivery rose 32 cents, or 0.3 percent, to $104.44 a barrel at 12:37 p.m. on the New York Mercantile Exchange. Futures touched $104.92, the highest level since April 17. Prices are up 5.7 percent this year. Brent oil for June settlement increased 45 cents, or 0.4 percent, to $119.57 a barrel on the London-based ICE Futures Europe exchange.
• Consumer Comfort in U.S. Falls by the Most in More Than a Year. Consumer confidence in the U.S. dropped last week by the most in more than a year as perceptions of personal finances and the buying climate dimmed. The Bloomberg Consumer Comfort Index fell to minus 35.8 in the period to April 22 from minus 31.4 the previous week, the biggest decline since March 2011. A gauge of the buying climate decreased to a two-month low, and a measure of household financial wherewithal fell by the most since September.
• Pending Sales of U.S. Existing Home Increased 4.1% in March. Signed contracts to buy U.S. homes rose more than forecast in March as low interest rates drew buyers back into the market. The index of pending home purchases rose 4.1 percent to 101.4, the highest level since April 2010, after a 0.4 percent gain in February that was revised from a previously estimated 0.5 percent drop, the National Association of Realtors reported today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for a 1 percent rise in the measure, which tracks contracts on previously owned homes.
• Gold Climbs on Jobless Claims. Gold rose the most in two weeks on speculation that the Federal Reserve may increase stimulus measures to bolster the U.S. economy after more Americans than forecast filed applications for unemployment benefits last week. “The job market is softening, and the Federal Reserve may be forced to look at some form of easing,” James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida, said in a telephone interview. “Investors have started pricing that in.” Gold futures for June delivery rose 0.7 percent to $1,653.80 an ounce at 9:33 a.m. on the Comex in New York. A close at that price would mark the biggest gain for a most- active contract since April 12. Before today, the precious metal gained 4.8 percent this year.
• Providence Said Selling Hulu Stake at $2 Billion Value. Hulu.com owners Walt Disney Co. (DIS), Comcast Corp. (CMCSA) and News Corp. (NWSA) are close to buying out Providence Equity Partners Inc.’s stake at a price that values the company at $2 billion, said two people with knowledge of the matter. Providence is selling its 10 percent share in Hulu for $200 million after investing $100 million when the venture began in 2007, according to the people, who weren’t authorized to talk publicly.
• Fed Sells CDOs From AIG Rescue to Barclays(BCS), Deutsche Bank(DB). The Federal Reserve Bank of New York said it sold $7.5 billion of collateralized debt obligations linked to commercial mortgages to Barclays Plc and Deutsche Bank AG. The joint winning bid “represents good value for the public and significantly exceeds the original price” the central bank paid for the assets, New York Fed President William C. Dudley said today in a statement on the regional bank’s website.
• Banks Likely to Cut Pay, Staff, Boston Consulting Says. Investment banks, faced with a weak industry outlook, probably will reduce the amount of revenue set aside for pay and should cut 20 percent to 30 percent of managers, according to Boston Consulting Group Inc.

Wall Street Journal:

• Sympathy for the Devils May Be Running Short at Goldman(GS). A few years ago, Mick Jagger was asked why the Rolling Stones were about to embark on one of their gray-haired, past-their-prime tours with big beer-company sponsorships and pricey tickets. "Is it about the money?" the questioner said. Without missing a beat, Mr. Jagger replied: "It's always been about the money."
• Appetite Is Back for AIG Bonds. Two bundles of bonds that once helped sicken American International Group Inc.(AIG) now have Wall Street salivating.
• FDA Plans ID-Tag System to Detect Faulty Devices. The Food and Drug Administration is devising a new system for detecting malfunctions in medical devices that will tap medical and billing records from hospitals and insurance companies. The system is designed to catch malfunctioning devices like the St. Jude Medical Inc. heart defibrillator wires recently linked to at least 20 deaths. The agency wants to assign a new bar-code-like identification number to medical devices. It would use that number to search large databases of records that could include veterans' and other hospitals, as well as large insurance companies.

CNBC.com:

• Foreclosure Activity Returns in Majority of US Markets. Big jumps in foreclosure activity in cities like Pittsburgh, Indianapolis, New York and Raleigh pushed the national numbers higher in the first three months of this year, according to a new report from RealtyTrac, an online foreclosure sales and data company. A majority of U.S. housing markets posted a quarterly increase in foreclosure activity.
• Growth in Europe? Call It a Very Vague Aspiration.
  

Business Insider:

• Another Poll of Independents Spells CATASTROPHE for Obama.

Zero Hedge:

• 84% of All Stock Trades Are By High-Frequency Computers … Only 16% Are Done By Human Traders.
• LTRO #Fail 2: European Credit Supply and Demand Fading Fast. (graphs)
• The Bailout Of The US Postal Service Begins: Cost To Taxpayers - $110,000 Per Union Vote "Saved Or Gained".

Wall Street Pit:

• Apple(AAPL) Remains the "Best of Breed".

Telegraph:

• China's Property Boom Has Peaked, Forever. Here is some food for thought, if you are a China "take-over-the-world" bull. I have just been listening to a talk on the Chinese housing market by Xianfang Ren, Beijing analyst for IHS Global Insight. Land sales make up 30pc of total tax revenue for the central government and 70pc for local government. (For those of us who watched the Irish state balloon on the back of property taxes – when they had a fat budget surplus – this has a familiar ring.) Construction makes up 10pc of total jobs, and a further 20pc indirectly in cement, steel, metallurgy etc. The government is building 36m homes for the poor, but that will start to run down in two years or so. Residential investment typically peaks at 8pc to 9pc of GDP for emerging nations during their catch-up growth spurts. It is already 12pc in China. Japan’s ratio peaked in 1973, long before the property price bubble burst. China has almost certainly peaked too on this crucial measure.
• Europeans Will Never Accept a Federal Banking System. The latest crackpot idea for shoring up Europe's monetary union, much discussed at last week's spring meeting of the International Monetary Fund and now widely promoted by eurocrats, is the establishment of a federal banking system, with a single framework for regulation, bailouts, deposit insurance, supervision and resolution.

Europa:

• EU Sues Italy Over Rules on Energy Performance of Buildings. Buildings are responsible for around 40% of energy consumption and 36% of the CO2 emissions in the European Union. The European legislation aims to achieve a significant reduction in the energy consumption of buildings, thus helping to combat climate change and strengthen the EU’s energy security. Large energy savings will also enable households to drastically reduce their bills. It is therefore essential that Member States fully apply this legislation.