Stocks Finish Higher, Boosted by Homebuilding, Retail, Semi and Oil Service Shares

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Stocks Higher into Final Hour on Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs, Alternative Energy longs, Gaming longs and Biotech longs. I added to my (GOOG) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is slightly above average, despite gains in the major averages. Today’s overall market action is very bullish. The VIX is falling 4.7% today, but remains relatively high at 22.0. The ISE Sentiment Index is a low 95.0 and the total put/call is an above-average 1.03 today. Finally, the NYSE Arms has been running below-average and is currently .80. Today’s broad market action is even more impressive considering today’s economic data, the rise in oil and decline in tech leader (GOOG). While the major averages are getting extended short-term, the recent parabolic rise in short interest, high cash levels at most funds, historically bearish sentiment readings and technical breakout in the S&P 500 should keep pullbacks relatively mild and short-lived. Hitwise said today that it is actually seeing an increase in traffic from Google to retail sites, which indicates GOOG’s paid search deceleration is not due to the economy. Pacific Crest said that its channel checks contradict the data from comScore and CSFB said that the January decline in paid clicks was intentional in an attempt to eliminate the zero value click. I still believe recent significant improvements to GOOG’s algorithms will result in further substantial market share gains over the intermediate-term. I suspect the shares are in the process of bottoming for the year right now and will finish the year substantially higher than current levels. Nikkei futures indicate an +206 open in Japan and DAX futures indicate an +45 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, diminishing bond insurer angst and bargain hunting.

Today's Headlines

Bloomberg:
- IBM Corp.(IBM), the world’s biggest computer-services company, announced plans to buy back $15 billion of stock. The stock surged to a four-month high.
- International Game Technology(IGT), the world’s largest slot machine maker, might boost earnings more than 10% by purchasing a competitor without weakening the equity of shareholders. Shuffle Master(SHFL) is the most likely target. Other candidates may include Bally Technologies(BYI) and WMS Industries(WMS).
- MBIA Inc.(MBI) had its Aaa bond insurer rating affirmed by Moody’s Investors Service, removing the threat of an immediate downgrade that would have sparked losses across the credit markets.
- The Fed’s Poole said financial markets are not healed, but he sees progress. He also said the TIPS spread is well within its two-year range, he sees no change in direction of Fed policy yet and that the US economy will likely avoid recession.
- Federal Reserve Vice Chairman Donald Kohn said turmoil in credit markets and the possibility of even slower growth pose a “greater threat” than inflation.
- Crude oil is rising above $100/bbl. in NY after the US dollar dropping to a three-week low prompted investment funds to boost speculation in the commodity.

Wall Street Journal:
- US Pushes Sovereign Funds To Open to Outside Scrutiny.

CNBC:
- Sam Zell, chairman of Equity Group Investments LLC, told CNBC that the US economy isn’t going into a recession and that the housing market will begin its “recovery phase” in the next few months. “Obviously, what we have going on is an attempt to creat a self-fulfilling prophecy,” he said. “We have two Democratic candidates who are vying with each other to describe the economic situation worse.”
- Former US Treasury Secretary Lawrence Summers said in an interview on CNBC today that while inflation numbers need to be monitored closely, the US is far from the “stagflation” of the 1970s.

Forbes:
- The world’s largest hedge fund, US-based Renaissance Technologies, has received approval from the Securities and Exchange Board of India to operate in the nation’s stock markets as a foreign institutional investor.

USA Today:
- Shortage of surgeons pinches US hospitals. Cuts in medical school enrollments in ‘80s and ‘90s now felt nationwide.

LA Times:
- California to Pump Up Access to Biofuels.

AP:
- Internet advertising revenue surpassed $21 billion for the first time in 2007, citing the Interactive Ad Bureau. Ad revenue rose 25% from almost $17 billion in 2006.

AFP:
- Iran’s supreme leader, Ayatollah Ali Khamenei, praised President Mahmoud Ahmadinejad for the “great success” of the country’s nuclear program, citing a speech aired on state tv.

Jerusalem Post:
- “I think there is a strain within the pro-Israel community that says unless you adopt an unwavering pro-Likud approach to Israel, then you’re anti-Israel, and that can’t be the measure of our friendship with Israel,” leading Democratic presidential contender Illinois Senator Barack Obama said.

al-Hayat:
- Saudi Arabia has no plans to end pricing crude oil in dollars and change to euros, citing Mohamed Al-Jasser, vice governor of the kingdom’s central bank.

Tehran Times:
- Iranian companies will soon start work on public infrastructure projects in Iraq as part of cooperation efforts between the two neighbors, citing Tehran Mayor Mohammad-Baqer Qalifaf.

Bear Radar

Style Underperformer:

Large-cap Value +.65%

Sector Underperformers:

Airlines (-.82%), Internet (-.82%) and Coal (-.49%)

Stocks Falling on Unusual Volume:

GOOG, TSRA, HWAY, SSYS, CRDN, KSWS, FWLT, BABY and GTXI

PPI Rises More Than Estimates, Consumer Confidence Falls More Than Estimates

- The Producer Price Index for January rose 1.0% versus estimates of a .4% increase and a downwardly revised .3% decline in December.

- Consumer Confidence for February fell to 75.0 versus estimates of 82.0 and a reading of 87.3 in January.

BOTTOM LINE: Prices paid to US producers rose more than forecast in January, Bloomberg reported. Core producer prices rose 2.3% in January from year-ago levels. Energy costs rose 1.5% as the price of gas gained 2.9% during the month. The 10-year TIPS spread, a good gauge of longer-term inflation expectations, is rising 4 basis points on the report to 2.44%. However, this is still 4 basis points below levels seen in November and 13 basis points below the peak in June of last year at 2.57%. There remains a 92% chance for another 50 basis point fed funds cut at the upcoming March 18^th meeting and an 8% chance of a 25 basis point cut. I suspect inflation worries will peak for the year over the next couple of months and gauges will show meaningful deceleration in the second half of the year.

Consumer confidence fell more than forecast in February, Bloomberg reported. The Present Conditions component fell to 100.6, slightly below the long-term average of 102.8, from 114.3 the prior month. The Expectations Component fell to 57.9, the lowest since January 1991 at the beginning of the Gulf War, from 69.3 the prior month. The S&P 500 had already put in place a major bottom in October of 1990 at the time of that reading. The spread between what consumers say now about their current financial situation and what they feel about the future remains historically wide. The percentage of consumers planning to purchase a home rose to 2.7% from 2.5% the prior month. As well, those planning to purchase a large appliance rose to 30.9% from 30.6% in January. Consumer confidence in the Northeast Central region is at an extraordinarily depressed 43.3. Depressed sentiment in the northern part of the country continues to weigh heavily on the overall gauge. Sentiment in the Southwest Central and Mountain regions came in at a healthy 109.3 and 104.9, respectively. According to Intrade.com, the odds the US enters recession this year have fallen to 63.9% from 77.5% last month. I suspect this will mark the low point in consumer confidence for the year.

Bull Radar

Style Outperformer:

Small-cap Value (+.22%)

Sector Outperformers:

Homebuilders (+2.11%), Retail (+1.74%) and Restaurants (+1.32%)

Stocks Rising on Unusual Volume:

CBRL, DPZ, TRN, RDEN, TGT, AXA, DFG, TTEC, SNDA, FRP, RRI, CCOI, REP, POR, CGPI, ASTE, YTEC, FELE, COIN, HSII, TYPE, AMCN, VOCS, KNDL, SSRI, STRA, AVTR, SAFM, CVCO, FCSX, ATHN, TNS, RSH, TCI, CEP, FSF and FDP