Stocks Finish Lower, Weighed Down by Energy, Construction and Road/Rail Shares

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In Play

Stocks Lower into Final Hour on Rising Credit Market Angst, Global Growth Concerns

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Semi longs. I covered my (IWM/QQQQ) hedges and them added them back today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is falling 2.1% and remains above average at 22.80. The ISE Sentiment Index is below average at 115.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running low most of the day and is currently .44. The Euro Financial Sector Credit Default Swap Index is rising 5.0% today to 90.50 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising .04% today at 124.19. It appears as though there is quite a bit of short-covering going on today rather than bargain hunting. Energy-related stocks are notably weak considering oil is flat on the day. The gains in semi stocks are also noteworthy considering broad market weakness. The 10-year T-note will likely continue to rally until a meaningful reversal lower in oil is at hand. Nikkei futures indicate a -34 open in Japan and DAX futures indicate an +74 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising credit market angst, short-selling and global growth concerns.

Today's Headlines

Bloomberg:
- US gasoline demand fell 2.7% last week, a sign that motorists are cutting back on vacation plans as pump prices touch records, a MasterCard Inc. report showed. It was the ninth consecutive week of declines form the year-earlier period.
- Hedge funds reduced their use of leverage following the turmoil in financial markets last year while holding substantial portions of their assets in cash, according to a survey. Funds reduced their borrowing last year to a leverage ratio of 2.1 from 2.3 a year earlier, consultant Greenwich Associates and Global Custodian magazine said. Hedge funds worldwide held 15% of their assets in cash as the start of 2008.
- Brazil may take control of some fertilizer mineral deposits that aren’t being fully developed in a bid to reduce the nation’s dependence on imports as prices soar.
- Copper decline in London on signs of slowing demand for imports of the metal into China, the world’s biggest user.
- Kodak(EK) Buyback May Pave Way for Merck(MRK), Ingersoll-Rand(IR).

NY Times:
- Technology Leaders Favor Online ID Card Over Passwords.

AP:
- Virgin Mobil USA is introducing a plan with unlimited calling for $79.99 per month, helping feed the price-cutting frenzy that has washed over the cellular carriers this year.

Politico:
- Hedge funds lobbying with stealth.

Charlotte Observer:
- Wachovia(WB) workers ‘pulling together’ The bank also confirms it has hired Goldman Sachs(GS) to study the loan portfolio.

Dow Jones Newswires:
- Iraq will announce the first tenders for international companies to develop its oil and gas fields on June 30, citing an oil ministry official. The ministry also increased the number of companies eligible to participate in the tenders to 41 from 36.

AgricultureOnline:
- Iran Buy Wheat Supplies From Canada, Russia.

Bear Radar

Style Underperformer:

Small-cap Growth -.77%

Sector Underperformers:

Papersirlind (-1.78%), Construction (-1.50%) and Oil Service (-1.05%)

Stocks Falling on Unusual Volume:

ATHR, IBN, SCOR, FSYS, ASCA, JRCC, PENN and CT

Stocks With Unusual Put Option Activity:

1) PMCS 2) CI 3) LLY 4) JCP 5) NKE

Consumer Expectations Lower Than During 1970s

- Consumer Confidence for June fell to 50.4 versus estimates of 56.0 and a reading of 58.1 in May.

- The House Price Index for April fell .8% versus estimates of a .4% decline and a .6% decline in March.

BOTTOM LINE: Confidence among Americans dropped to the lowest level in 16 years, Bloomberg reported. The Present Conditions component fell to 64.5 from 74.2 the prior month. The Expectations component for the next six months fell to 41.0, the lowest since record-keeping began in 1967, versus 47.3 the prior month. Confidence in the north eastern regions remains mind-bogglingly depressed. Confidence in the Northeast Central region, where most hedge funds and major media outlets are headquartered, fell to 27.50 from 34.7 the prior month. It is stunning that the current confidence readings are lower now than at anytime during the 70s or even the early 90s, considering the macro backdrop now and during those periods. The stage for a strong secular bull move higher in US stocks continues to be set as the “US negativity bubble” grows ever larger.

Bull Radar

Style Outperformer:

Large-cap Value (-.62%)

Sector Outperformers:

Semis (+1.70%), Banks (+1.64%) and Drugs (+.49%)

Stocks Rising on Unusual Volume:

KR, UBS, GAP, NVS, ROYL, PDO, AIXG, TSON, RCRC, LRCX, IXYS, AMSC, AEIS, ASML, CAKE, RRGB, KLAC, SMA and CRT

Stocks With Unusual Call Option Activity:

1) LGF 2) EK 3) LLY 4) DKS 5) NT