Stocks Finish Slightly Higher, Boosted by Technology, Homebuilding and Financial Shares

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In Play

Stocks Mixed into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Alternative Energy longs. I added to my (AAPL) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is about average. Investor anxiety is high, despite today’s mixed performance in the major averages. Today’s overall market action is neutral. The VIX is rising 4.0% today and remains relatively high at 23.0. The ISE Sentiment Index hit a depressed 68.0 and the total put/call hit a high 1.23 today. Finally, the NYSE Arms has been running above-average most of the day. Considering today’s economic data, recent stock gains and fall in the US dollar, today’s action is more impressive. I still think the recent parabolic rise in short interest, high cash levels at most funds, historically bearish sentiment readings and recent technical breakout in the S&P 500 should keep pullbacks relatively mild and short-lived. There looks to be a strong bid now under many market leading stocks that had been under severe pressure during this correction, which is a big positive. IBM’s(IBM) CFO said today that he feels better about their US business now than he did during the fourth quarter. (AAPL) said today that it will host a media event on March 6 and will discuss new iPhone “enterprise” features and release its software developer toolkit. MBIA’s(MBI) CEO said today that he does not expect rating agencies to take action on the companies’ ratings over the next year or longer, which is another large positive. (GS), which has recently been under significant pressure, is trading at session highs, up 4.2%. The 10-year swap spread is falling to 68.8 basis points over Treasuries today, down 13 basis points over the last week. Nikkei futures indicate a -120 open in Japan and DAX futures indicate a -5 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:
- Federal Reserve Chairman Ben S. Bernanke signaled the US central bank is prepared to lower interest rates again even amid signs of accelerating inflation.
- US regulators for Fannie Mae(FNM) and Freddie Mac(FRE) removed limits on the companies’ $1.5 trillion mortgage portfolios, bringing an end to a restriction that stifled their ability to provide financing for the housing market.
- The risks to European economic growth are on the ‘downside’ and the inflation rate may rise further because of higher oil and other commodity prices, European Central Bank board member Lorenzo Bini Smaghi said. He said that the US economy would not likely slip into recession.
- Prime Minister Gordon Brown’s plans to increase taxes on wealthy foreigners living in Britain may prompt hedge funds to expand operations abroad instead of in the UK, a poll by accounting firm Phoros Management showed.
- Stony Brook University, part of the State University of New York, received a $60 million donation from hedge fund manager Jim Simons, former head of the schools’ mathematics department.
- High-yield, high-risk loan prices have rebounded as interbank lending rates steadied, according to Bank of America(BAC) analysts. The average price of US leveraged loans rose to 90.45 cents on the dollar yesterday, up from a low of 86.28 on Feb. 7, citing S&P LCD data.
- The US Centers for Disease Control and Prevention recommended all children get vaccinated against influenza, expanding the number of people who should get flu shots by 50%.

NY Times:
- GM(GM) Voices Confidence in Lending Business.
- Now on the Campaign Trail, a Reined-In Bill Clinton.

Philadelphia Inquirer:
- The University of Pennsylvania and Drexel University are in serious talks with the Philadelphia School District to jointly operate two small high schools in University City – the first venture of its kind for the district at the high school level.

Bear Radar

Style Underperformer:

Mid-cap Value -.12%

Sector Underperformers:

Airlines (-4.09%), Oil Tankers (-1.86%) and Coal (-1.18%)

Stocks Falling on Unusual Volume:

ADSK, SCRX, ELN, ENOC, LAMR, OFIX, PBKS, CRI, URS and NNN

Fed Funds Futures Probabilities Graph

(Click on image to enlarge)

Durable Goods Orders, New Home Sales Below Estimates

- Durable Goods Orders for January fell 5.3% versus estimates of a 4.0% decline and a downwardly revised 4.4% gain in December.

- Durables Ex Transports for January fell 1.6% versus estimates of a 1.4% gain and a downwardly revised 2.0% increase in December.

- New Home Sales for January fell to 588K versus estimates of 600K and 605K in December.

BOTTOM LINE: Orders for durable goods fell more than forecast in January, Bloomberg reported. Bookings for non-defense capital goods excluding aircraft, a gauge for future business spending, fell 1.4%. Shipments of those items, used to compute GDP, gained .1%. Orders for military gear fell 20%. The 3-month average of Durable Goods Orders is -.1%, which isn’t near levels normally associated with economic contraction. The Morgan Stanley Cyclical Index is outperforming today, rising .6%. The 10-year yield is 2 basis points higher. I expect Durable Goods Orders to bounce back this month on inventory rebuilding as exports continue to boom at record levels.

Purchases of new homes in the US fell more than forecast in January, Bloomberg reported. The median price of a new home fell to $216,000 from $254,400 a year earlier. The supply of new homes at the current sales rate rose to 9.9 months’ worth. Sales fell 10% in the Northeast, which sales gained 2.2% in the West. After today’s data, the odds of the Fed lowering the fed funds rate at the March 18^th meeting by 50 basis points fell to 90.0% from 96.0% yesterday. The odds of a 75 basis point cut rose to 10.0% from 0.0% yesterday. I still expect home sales to surprise on the upside this spring on pent-up demand, lower prices and lower mortgage rates. This should make a meaningful dent in inventories.