Monday, June 25, 2007

Stocks Lower into Final Hour on Hedge Fund Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my I-Banking longs and Semi 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, sector performance is negative and volume is above average. The NYSE reported that short interest on the exchange, from mid-May through mid-June, rose from 11.747 trillion shares to 12.747 billion shares, which is yet another all-time high. Moreover, this 8.51% increase leaves NYSE short interest up an astounding 30% since mid-February, the largest four-month percentage jump since at least 1991 when Bloomberg began tracking. This is even more shocking considering the S&P 500 rose about 6% during that period as the DJIA was hitting one record after another. The largest overall short on the NYSE remains the iShares Russell 2000 Index (IWM) at 290,557,518 shares, up from 237,133,225 shares the prior month. Moreover, short interest on the American Stock Exchange has exploded a mind-boggling 46% over the last four months. This is just more evidence that the many US stock market bears remain stunningly complacent and continue to party like it's 2000-2003, despite the S&P 500's 104% gain from that periods' lows. I continue to believe the current "U.S. negativity bubble" will eventually burst, thus spurring the "mother of all short-covering rallies."

Here are the 25 NYSE stocks with the largest percentage increase in their short interest relative to their float from mid-May through mid-June:

1. Citadel Broadcasting Corporation (CDL) +32.9%
2. Total System Services (TSS) +21.3%
3. National Semiconductor (NSM) +13.8%
4. Greenhill & Company (GHL) +11.8%
5. Cal Dive International (DVR) +11.8%
6. TOUSA (TOA) +10.8%
7. Mueller Water Products (MWA) +10.4%
8. The Great Atlantic & Pacific Tea Company (GAP) +10.1%
9. American Oriental Bioengineering (AOB) +9.2%
10. Federal Agricultural Mortgage (AGM) +9.2%
11. Luminent Mortgage Capital (LUM) +8.5%
12. CNA Financial (CNA) +8.4%
13. Nymex Holdings (NMX) +7.3%
14. eFunds (EFD) +7.0%
15. LeapFrog Enterprises (LF) +7.0%
16. Under Armour (UA) +6.7%
17. Medifast (MED) +6.6%
18. Retail Ventures (RVI) +6.1%
19. CACI International (CAI) +6.0%
20. SWS Group (SWS) +5.6%
21. Pinnacle West Capital (PNW) +5.6%
22. Live Nation (LYV) +5.0%
23. Diamond Offshore Drilling (DO) +4.9%
24. RadioShack (RSH) +4.8%
25. Navigant Consulting (NCI) +4.8%

I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates, short-covering and bargain-hunting.

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