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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Software longs, Retail longs and Computer longs. I covered all my (IWM/QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is very light. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling .3.9% and is still above-average at 19.71. The ISE Sentiment Index is below average at 126.0 and the total put/call is about average at .86. Finally, the NYSE Arms has been running about average most of the day and is currently .90. The Euro Financial Sector Credit Default Swap Index is rising 2.6% today to 93.83 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is +.69% to 145.36 basis points. The TED spread is rising 2.83% to 1.14 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 2.19%, which is still down about 44 basis points in about six weeks. The Citi eurozone economic surprise index is now -170.80 versus a reading of +51.90 for the US economic surprise index. The US dollar index is down .21% today on hawkish ECB comments and profit-taking. I will be very surprised if the ECB doesn’t lower rates over the coming months, despite this rhetoric. Heavily-shorted (FNM), (FRE) and (LEH) are surging again today, which is helping push the (XLF) 1.0% higher. Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +27 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering offsets higher energy prices and rising credit market angst.

Today's Headlines

Bloomberg:
- Fannie Mae(FNM) and Freddie Mac(FRE) sold $3 billion of short-term notes at yields that suggest the U.S. mortgage-finance companies are still capable of financing their businesses without government assistance.
- Goldman Sachs Group Inc.(GS) had its third-quarter earnings estimate cut almost in half by Morgan Stanley analyst Patrick Pinschmidt, who said stock market declines will force the bank to revalue investments. Pinschmidt said Goldman's third-quarter earnings will probably be $1.65 a share, down from his earlier prediction of $3. Principal investments at Goldman include private equity and real estate holdings, as well as stock in the Industrial and Commercial Bank of China Ltd., the nation's biggest lender. ICBC's shares have declined 18 percent since the end of May in Shanghai trading.
- The Baltic Dry Index, a measure of shipping costs for commodities, fell for a sixth straight trading day on weaker demand for so-called panamax ships to haul grains. The index is 40% below its record on May 20^th.
- OAO Gazprom led a jump in the cost of protecting Russian companies from default to the highest in almost five months on investor concern the country's military incursion in Georgia will trigger a rise in borrowing costs. Credit-default swaps on the world's largest natural-gas producer increased 36 basis points to 260 this month, and Moscow-based oil-pipeline operator OAO Transneft rose 33.5 to 265, according to at CMA Datavision prices at 3:15 p.m. in London. Contracts on Russia's government debt climbed 32 to 134, the highest since April 2.
- US mortgage-servicing companies helped a record 192,034 homeowners avert foreclosure last month by setting up repayment plans or changing terms to make loans more affordable, an industry survey showed. The Hope Now Alliance, a coalition of servicers, counselors and investors, helped almost 2.07 million homeowners stay in their homes since July 2007.
- The crisis of confidence that sent Fannie Mae(FNM) and Freddie Mac(FRE) debt costs to record highs above U.S. Treasuries is also providing the mortgage-finance companies with the biggest profits on new investments since at least 1998.
- Oil, natural gas and gasoline rose on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina, as it moves toward production platforms in the Gulf of Mexico.
- Borders Group Inc.(BGP), the bookseller that put itself up for sale in March, jumped as much as 27 percent in New York trading after reporting a second-quarter loss that was narrower than analysts estimated.
- European Central Bank council member Axel Weber said there's no room for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.

Wall Street Journal:
- Joe Biden has fought to preserve Delaware federal courts' disproportionate share of corporate bankruptcies, benefiting law firms in his home state that rank among his top supporters.
- Hedge Funds Help Fill Gap In Lending for Property.
- Infrastructure funds are in trouble. Will the infrastructure builders be next? Quickening inflation and tightening credit are squeezing infrastructure projects in China, India and Middle Eastern countries that mean business for contractors and heavy-equipment makers. About 8%, or $60 billion, of the $750 billion of such projects scheduled for this year have already been delayed or canceled, according to Morgan Stanley, which reckons global infrastructure spending will growth 3% in 2008, down from 10% last year, and might even decline in 2009. That will hurt companies such as General Electric(GE), which makes power generation equipment, Caterpillar(CAT), which produces earth-moving machinery, and Emerson Electric(EMR), a manufacturer of heating and cooling systems.

The Washington Post:
- Sen. Barack Obama sought more than $3.4 million in congressional earmarks for clients of the lobbyist son of his Democratic running mate, Sen. Joseph R. Biden Jr. of Delaware, records show. Obama's campaign has taken a hard stance against the world of lobbying in the nation's capital.

AP:
- The head of a powerful service workers union threatened Tuesday to unleash money from a $10 million "accountability" fund to defeat any political figure — Democrats included — who breaks promises to organized labor. "Any Democrat — or Republican — who said they were going to support us on health care or free choice and turns against us is going to paint a target" on their backs, Andy Stern, president of the powerful Service Employees International Union, told The Associated Press in an interview. "...We're not going to just win this election and hope Barack Obama does well. People want something to happen."

Financial Times:
- The US consumer is not the only one feeling down and out. Since the start of the year, higher food and energy prices have undermined consumer confidence not only in Detroit but also in Dusseldorf, Delhi and Dalian. The upshot: a global slump in personal spending is unfolding, portending rockier times for the global economy and world financial markets.

Handelsblatt:
- K+S AG, Europe’s largest producer of potash used in fertilizers, plans to expand its potash production in the coming years. In light of the expansion of the potash market, that will mean a production increase of as many as three million tons and investments of more than $2.94 billion in the next 5-10 years.

Bear Radar

Style Underperformer:

Large-cap Growth +.76%

Sector Underperformers:

Airlines irlind (-2.53%), Medical Equipment (+.11%) and Restaurants (+.16%)

Stocks Falling on Unusual Volume:

AMLN, ALKS, SOLF, UAUA, JCG, DY and PPC

Stocks With Unusual Put Option Activity:

1) MTH 2) AMLN 3) FRX 4) DISH 5) MAS

Durable Goods Orders Jump Again

- Durable Goods Orders for July rose 1.3% versus estimates of unch. and an upwardly revised 1.3% gain in June.

- Durables Ex Transports for July rose .7% versus estimates of a .7% decline and an upwardly revised 2.4% gain in June.

BOTTOM LINE: Orders for US durable goods unexpectedly increased in July and June orders were revised higher, Bloomberg reported. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, rose 2.6%, the most since April. Shipments of those items, which are used to compute GDP, rose .6% versus a .4% gain the prior month. Gains in orders for machinery, metals, communications gear, automobiles and aircraft all contributed to the increase in demand in July. I expect Durable Goods to continue to remain firm through year-end on inventory rebuilding and better-than-expected demand. Tomorrow's preliminary 2Q GDP report should show a meaningful revision higher from an original 1.9% estimate.

Bull Radar

Style Outperformer:

Small-cap Growth (+.96%)

Sector Outperformers:

Homebuilders (+2.17%), Steel (+2.09%) and Construction (+2.03%)

Stocks Rising on Unusual Volume:

TSO, FTO, VIP, LFC, KNDL, CRY, SINT, ANEN, CLNE, HAIN, CSUN, APSG, DXPE, SMTS, NTES, COCO, RAIL, DGIT, MNRO, APWR, RMBS, FSYS, NTAP, AGNC, BIOD, IKN, TLB, GLP, XCO and TBH

Stocks With Unusual Call Option Activity:

1) NTAP 2) NUAN 3) MIR 4) FHN 5) BIG

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
Exchange Volume vs. Average
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Real-Time Intraday Quote/Chart
Dow Jones Hedge Fund Indexes