Stocks Finish Lower, Weighed Down by Construction, Transportation, HMO, Steel, Defense and Alternative Energy Shares

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Stocks Reversing Higher into Final Hour on Less Financial Sector Uncertainty, Diminishing Economic Fear, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Medical longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is also above average. Today’s overall market action is bullish. The VIX is falling 3.52% and is very high at 43.76. The ISE Sentiment Index is below average at 110.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running around average most of the day, hitting 1.56 at its intraday peak, and is currently .70. The Euro Financial Sector Credit Default Swap Index is falling 8.01% today to 149.0 basis points. This index is now back below its high of 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling .99% to 218.80 basis points. The TED spread is rising .98% to 96 basis points. The TED spread is now down 371 basis points in about four months. The 2-year swap spread is falling .78% to 63.75 basis points. The Libor-OIS spread is falling .17% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.00%, which is down 171 basis points in about seven months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .29%, which is down 1 basis point today. The sharp reversal higher in the (XLF), on volume, after investors heard more details on the bank “stress tests” is a large broad market positive. The Bank Index(BKX) is jumping 6.7%. Semi, Telecom, REIT, Education, Disk Drive and Energy stocks are also posting strong gains. Market leading stocks have been relatively strong throughout the day. Another large decline in gold and jump in the 10-year yield indicates fear is diminishing. Asia should see gains tonight. Nikkei futures indicate an +30 open in Japan and DAX futures indicate an +54 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing financial sector pessimism, short-covering, bargain-hunting and less extreme economic fear.

Today's Headlines

Bloomberg:

- Federal Reserve Chairman Ben S. Bernanke said there may be a benefit in resurrecting a rule that restricts short-selling stocks when share prices are falling amid the current bear market. “In the kind of environment we have seen more recently” the so-called uptick rule “might have had some benefit,” Bernanke said in testimony before the House Financial Services Committee today. The Standard & Poor’s index has tumbled 50 percent since the SEC dropped the uptick rule 16 months ago. New SEC Chairman Mary Schapiro said in January she may resurrect the provision.

- Washington’s respite from congressional pet projects known as earmarks appears to be over. President Barack Obama, who insisted on keeping his economic stimulus package free of money for lawmakers’ projects, may soon be faced with a bill stuffed with thousands of them. The U.S. House plans today to approve a $410 billion spending bill providing $7.7 billion for more than 8,500 special projects, according to Taxpayers for Common Sense, a Washington- based group that tracks earmarks.

- Goldman Sachs Group Inc.(GS), recipient of $10 billion of federal rescue funds, would be a buyer of assets if the U.S. government sets up a so-called “bad bank” to acquire toxic investments, an analyst said. “Goldman appears almost excited to participate in the bad- bank process,” Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone wrote after meeting with Goldman Sachs Chief Financial Officer David Viniar yesterday. “We note Goldman’s highly successful investments in the energy space during the post-Enron meltdown.”

- Two officers of WG Trading, a broker- dealer based in Greenwich, Connecticut, were charged with conspiracy in what authorities called a $550 million securities- fraud scheme dating to 1996. The two, Paul Greenwood and Stephen Walsh, were among four suspects arrested today by the Federal Bureau of Investigation after three securities-fraud complaints were unsealed in U.S. District Court in New York, said Jim Margolin, an FBI spokesman.

- Regulators set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a review of their balance sheets. The regulators will complete their so-called stress tests by the end of next month, the Treasury said in a statement in Washington.

- Crude oil rose to a two-week high after a government report showed that U.S. gasoline inventories fell as refineries cut operating rates and demand strengthened.

- Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., the world’s largest iron ore producers, may get 30 percent less for the raw material this year under annual contracts after a slump in steel demand.

- The yen is off to its worst start in nine years against the dollar as Japan’s tumbling exports and the fastest economic contraction since 1974 end a rally sparked by investors seeking a refuge from the financial crisis. The currency slumped 6.4 percent against the dollar this year as global stock markets extended 2008’s losses.

- The cost to protect against default by Citigroup Inc.(C) and Bank of America Corp.(BAC) declined for a second day after Federal Reserve Chairman Ben S. Bernanke downplayed fears of nationalization and President Barack Obama vowed to fix the banking system. Credit-default swaps protecting senior unsecured bonds sold by New York-based Citigroup dropped 25 basis points to 435 basis points, according to broker Phoenix Partners Group. The contracts rose to as high as 525 basis points yesterday before a rally. Contracts on Bank of America fell 10 basis points to 255 basis points after reaching 320 basis points yesterday, Phoenix prices show. San Francisco-based Wells Fargo & Co. fell 13 basis points to 217 basis points, according to CMA DataVision. Morgan Stanley declined 10 basis points to 382 basis points, CMA data show, and Goldman Sachs Group Inc. fell seven basis points to 285. In London, the Markit iTraxx Financial index of 25 European banks and insurers declined 13 basis points to 154 basis points, according to JPMorgan Chase & Co.

Wall Street Journal:

- A top U.S. House Democrat is warning of signs that Japan is considering steps to devalue its currency, a move that could hurt the ailing U.S. auto industry, and he urged President Barack Obama to step up pressure on the Japanese government. House Financial Services Chairman Barney Frank, D-Mass., echoing concerns of U.S. auto makers and their congressional allies, called on Obama this week to pressure Japan to resist the temptation to devalue the yen.

CNBC.com:
- Republican Representative Eric Cantor said Congress may respond to calls for action to relieve companies of accounting rules such as so-called mark-to-market. Cantor said there “is some appetite” for making the changes, which “wouldn’t cost the taxpayers any money.”

NY Times:

- Big Drug Makers May Seek to Fill Holes in Roster.

TradersMagazine.com:

- Trading industry experts said the passage of a new bill to tax each buy and sell transaction by up to 25 basis points would devastate liquidity in the equities market. The proposed House of Representatives' bill-H.R. 1068: Let Wall Street Pay for Wall Street's Bailout Act of 2009-would, they say, dramatically increase trading costs, widen bid-ask spreads, kill off high-frequency market making firms, slash volumes and move trading to overseas markets. The proposed bill would add 5 cents per share to the cost of trading an average stock, at around $20 a share.

Boston Herald.com:

- HBO on your PC? It could happen sooner than you think. Wary of the growing number of consumers watching TV shows online for free — and yet reluctant to upset viewers by yanking shows from the Internet — the nation’s largest cable operators are in talks with media conglomerates to take back control. They would create a platform to release cable TV shows online, but exclusively for paying subscribers.

The Detroit News:

- Negotiations between General Motors Corp. and its bondholders are progressing, with major investors signaling that they are now willing to accept less money than originally sought in exchange for forgiving billions in unsecured notes -- but only if the federal government guarantees the new debt.

Europa:

- State aid: Commission provides guidance for the treatment of impaired assets in the EU banking sector.

Cinco Dias:

- Repsol YPF SA, the Spanish oil company, will bid for contracts in Iraq as the government there seeks to boost oil output. The Iraqi government will offer engineering and construction contracts in as many as 19 oil fields this year and Repsol will seek to win a share of the business.

Interfax:

- Russia will soon sign a contract with Iran to supply nuclear fuel for at least 10 years, citing Sergei Kiriyenko, CEO of Rosatom Corp., Russia’s state-owned nuclear holding company.

Bear Radar

Style Underperformer:
Small-cap Value (-3.19%)

Sector Underperformers:
Airlines (-5.60%), HMOs (-5.60%) and Insurance (-4.93%)

Stocks Falling on Unusual Volume:
GMXR, LNC, CLF, TI, KNDL, FSLR, WYNN, ASTE, GTIV, FWLT, ODFL, SPWRB, AMED, ZN, HEI, HLF, CCH, RUK, CNP, CRT, AP, SJM and DWA

Stocks With Unusual Put Option Activity:
1) CI 2) MUR 3) FSLR 4) TEX 5) CF

Bull Radar

Style Outperformer:
Large-cap Growth (-2.04%)

Sector Outperformers:
Education (-.15%), Semis (-.32%) and Retail (-.76%)

Stocks Rising on Unusual Volume:
NEM, SSRI, KR, SWY, HPQ, KTC, FCX, JCOM, PZZA, TRMK, CPSI, APSG, DISCA, SXCI, EPIQ, DLTR, BCPC, MELI, CHSI, HURN, ONXX, SNDA, TNDM, HITT, CECO, LIHR, CRI, TFX, HRL, TYN, TRA and POR

Stocks With Unusual Call Option Activity:
1) LRCX 2) LLY 3) CBI 4) FSLR 5) RMBS

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