Stocks Soaring into Final Hour on Lower Energy Prices, Diminishing Credit Market Angst and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Medical longs, Biotech longs, Retail longs, Computer longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. Investor anxiety is above average, despite recent gains. Today’s overall market action is very bullish. The VIX is falling 3.9%, but remains high at 25.6. The ISE Sentiment Index is a low 110.0 and the total put/call is a below-average .8. Finally, the NYSE Arms has been around average most of the day and is currently .9. Growth stock leaders are especially strong today, rising 4-6%. I continue to believe true growth stocks are in the early stages of a multi-year period of outperformance. On Thursday after the close, the NYSE reported short interest jumped another 7.0% to a record 16.01 billion shares. Short interest on the exchange is up an astonishing 97.7% over just the last two years. Oil continues to trade poorly as the US dollar gains strength. I suspect a close below $100/bbl. at week’s end is likely. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another basis point today to 2.31%, which is down 37 basis points in just one week. Fed fund futures now imply a 74.0% chance for a 25 basis point cut at the upcoming April 30^th meeting, up from 44.0% last Thursday. Futures now imply a 26.0% chance for a 50 basis point cut, down from 56.0% last Thursday. I think the Fed has finally found the right mixture of actions to achieve a firmer dollar, lower inflation expectations, higher stock prices and less credit market angst. This is a huge positive. The Shanghai Composite fell another 4.5% last night and is down 41% from its high of last October. As well, Vietnam fell another 4.5% and is down 53.2% from its all-time high. I still believe developed markets, especially the US, will significantly outperform emerging markets over the next five years. Nikkei futures indicate an +250 open in Japan and DAX futures indicate an +78 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit market angst and falling energy prices.

Today's Headlines

Bloomberg:
- Federal Home Loan Banks were freed to increase their purchase of mortgage-backed bonds by about $150 billion.
- The cost to protect US corporate debt from default plunged after JPMorgan(JPM) quadrupled its offer for Bear Stearns(BSC), reflecting investor confidence that credit markets averted a crisis. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 9 dropped 15 basis points to 140 basis points. The CDX index has now dropped 50 basis points since the Fed’s decision March 16 to back JPMorgan’s purchase of Bear Stearns. The Markit LCDX index, a gauge of confidence in the US high-yield, high-risk loan market that rises as sentiment improves, jumped 1.05 percentage point to 93.5, according to Goldman Sachs(GS).
- The US dollar rose against the yen and the euro on speculation the Fed’s interest-rate cuts and efforts to spur lending will help revive economic growth.
- Tiffany & Co.(TIF) rose the most in more than six years in NY trading after posting fourth-quarter profit that beat analysts’ estimates.
- JPMorgan(JPM) quadrupled its offer for Bear Stearns(BSC) to $10 a share and struck a deal to buy 39.5% of the company without a shareholder vote, making it unlikely opponents can block the takeover.
- Stanford Kurland, CEO of Private National Mortgage Acceptance and former president of Countrywide Financial sees opportunities in distressed mortgage assets. (video)
- Tobias Levkovich, Citigroup’s(C) chief US equity strategist, said a commodity “bubble” is poised to burst, increasing the risk of investing in mining and agricultural companies.
- Google(GOOG), owner of the world’s most popular Internet search engine, proposed a plan that may let wireless Internet devices use soon-to-be-vacant television airwaves without interfering with current equipment.

Wall Street Journal:
- Verizon’s(VZ) fiber-optic service, mainly available to suburbanites, is making a big push into Manhattan with a deal to connect an 11,232-unit apartment complex.
- New exchange-traded notes that investors use to bet against gold soared last week as prices of the precious metal dropped in response to the US Fed’s cut. The DB gold Double Short ETN, issued by Deutsche Bank AG, rose 21% in three days.

MSNBC.com:
- As the alternative energy movement picks up steam, researchers are increasingly looking to their local communities for tons of organic waste that could be transformed into more environmentally friendly biofuels.

Washington Times:
- Senator Barack Obama, whose campaign criticized outside political groups giving money to presidential candidates, has benefited the most from such groups, campaign records show.

Washington Post:
- Both Obama and Clinton Embellish Lawmaker Roles.

AFP:
- Al-Qaeda deputy commander Ayman al-Zawahiri today called for strikes against US and Jewish interests in an audio address released on the Internet.

International Herald Tribune:
- Asian balance sheets remain healthy and economic growth resilient despite the global credit crunch, but by one market measure, Asian bond issuers are at even worse risk than they were during the financial crisis a decade ago.

Daily Telegraph:
- Prudential Plc, a London-based insurer, may spend as much as $2 billion on a US acquisition in the next few months, probably in life insurance, citing an interview with Clark Manning, the CEO of Jackson National Life Insurance, the company’s US unit.

Gulf Times:
- Petroleum prices will range between $80 and $110 per barrel for the rest of 2008, OPEC President Chakib Khelil said yesterday.

arab news:
- Saudi Arabia yesterday reiterated its commitment to stabilize the international oil market by ensuring adequate supply.

TED Spread Graph

(click on image to enlarge)

BOTTOM LINE: The TED spread is plunging 45 basis points today to 159 basis points. This is the third-largest single-day drop over the last decade, according to Bloomberg records. The TED spread is still elevated, but this is a major positive. The 3-month T-bill yield is jumping 48 basis points to 1.05%.

Existing Home Sales Rise, Home Inventories Fall

- Existing Home Sales for February rose to 5.03M versus estimates of 4.85M and 4.89M in January.

BOTTOM LINE: Sales of existing homes in the US unexpectedly rose in February for the first time in seven months, Bloomberg reported. Sales rose in three of four regions, boosted by an 11% surge in the Northeast. The number of homes for sale fell 3%, bringing the inventory of unsold homes at the current sales pace down to 9.6 months’ worth from 10.2 months in January. According to Bankrate.com, the average 30-year fixed rate mortgage has fallen 50 basis points in less than two weeks to 5.62%. The median existing home price is now down 14.9% to $195,900 from the record highs set in July 2006. The Homebuilding Index is jumping 7.1% today and is breaking above its 200-day moving average for the first time since May of last year. I continue to believe overall home sales will surprise on the upside this spring on pent-up demand, lower prices, lower mortgage rates and diminishing credit market angst.

Bull Radar

Style Outperformer:

Large-cap Value (+5.6%)

Sector Outperformers:

Homebuilders (+6.4%), I-Banks (+4.7%) and Biotech (+4.5%)

Stocks Rising on Unusual Volume:

IJK, NTL, SRZ, IXG, BSC, HCP, ITB, DSG, HOV, WNS, IX, BHS, TIF, CSH, DSL, PSEM, KB, IBN, FRP, C, PBR, PNM, GAIA, FMX, TUP, LOJN, BNE, DMRC, NCTY, IDCC, ISYS, AVTR, APEI, LSTR, TZOO, ABAX, MATK, MCRS, VPFG, UCTT, NIHD, PTNR, EZPW, OZRK, LUFK and LKQX

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