Stocks Finish Lower, Weighed Down by Airline, Technology, Retail and HMO Shares

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Stocks Lower into Final Hour on Record Energy Prices, Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Biotech longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is bearish as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is rising 3.6% and remains above average at 22.3. The ISE Sentiment Index is slightly below average at 138.0 and the total put/call is above average at 1.07. Finally, the NYSE Arms has been running slightly above average most of the day and is currently 1.09. The rise in energy prices is a large negative. Until oil reverses lower or at least stabilizes, another strong broad market surge higher is unlikely, in my opinion. The 10-year swap spread is falling another 2.0 basis points today to 62.75 basis points over Treasuries. This is down from a high of 92.75 in early March and down 13.45 basis points in three days. Short interest on the NYSE rose again the first two weeks of April and remains right at record levels, despite recent stock gains. Nikkei futures indicate a -57 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on record energy prices, shorting and profit-taking.

Today's Headlines

Bloomberg:
- The cost of protecting corporate bonds from default held near a 12-week low as capital-raising plans by Royal Bank of Scotland Group Plc and CIT Group(CIT) boosted confidence that financial companies are weathering a freeze in some credit markets. Contracts on CIT, the biggest independent US commercial finance company, reached the lowest in more than three months as concerns eased about the NY-based company’s ability to repay debt maturing this year.
- Growers and traders said the US Commodity Futures Trading Commission(CFTC) is failing to adequately regulate speculators and index funds during the record rally in crop prices. “The market is broken, it’s out of whack, and someone has to step in and bring relief,” William Dunavant Jr., chairman of cotton merchant Dunavant Enterprises, said. The rallies have been fueled by a surge in demand for futures by large funds such as the Goldman Sachs(GS) Commodity Index Fund, AIG Index Fund and Pimco Commodity Fund. The increased investment by index funds in crop futures has “put a strain on consumers as well as many producers and commercial participants that utilize the futures markets to manage risk and discover prices,” Walter Lukken, acting chairman of the CFTC, said. Index funds had almost doubled positions to 1.732 million agricultural contracts as of April 15, up from 896,734 contracts in January 2006. Global commodity investments, including those from hedge funds, rose by more than a fifth in the first quarter to $400 billion.
- Crude oil rose to a record $119.86 a barrel in NY as the US dollar dropped, boosting speculation in the commodity by investment funds.
- Citigroup(C) CEO Vikram Pandi, facing shareholders for the first time since his appointment in December, said the credit-market contraction that saddled his bank with record losses is abating.
- GSO Capital Partners LP, the credit investment firm bought by Blackstone Group last month, is raising a $510 million collateralized loan obligation to buy high-risk, high-yield debt being sold by banks at discounted prices.
- Coach Inc.(COH), the largest US market of luxury leather handbags, posted third-quarter profit that advanced more than analysts estimated, helped by a 20% sales gain at namesake stores in North America.

Wall Street Journal:
- Why I Left Greenpeace by Patrick Moore, co-founder and former leader of Greenpeace. Greenpeace puts politics before science, Moore says.

VentureBeat:
- Google(GOOG) wants to turn your home page into your social network. Social networks like Facebook and MySpace are often just one click of a bookmark away on users’ web browsers. Google looks to be one-upping them by turning its personalized home page, iGoogle, into a social network of sorts.

USA Today:
- New US Smog Rules Would Hit Smaller Counties.

Detroit News:
- The US Transportation Dept. today will propose a sweeping increase in fuel economy standards, requiring passenger cars to average 35.7 miles per gallon and light trucks 28.6 mpg by 2015.

Kydo News:
- Macau’s government won’t issue new gaming licenses nor provide land for new casinos, citing city CEO Edmund Ho.

Gulfnews.com:
- Iraq on Monday made much-needed diplomatic gains after Gulf countries and Egypt pledged to consider opening embassies in Baghdad. The decision by the eight-member group to embrace Iraq’s political and security progress was seen as a “qualitative leap forward” by Iraq’s foreign minister who attended the one-day meeting in the Bahraini capital.

Haaretz.com:
- Italy is expected to join a European Union consensus on Iran’s nuclear program, after dropping earlier objections last week, possibly paving the way for new sanctions.

Bear Radar

Style Underperformer:

Small-cap Growth -2.41%

Sector Underperformers:

Airlines (-10.5%), Semis (-4.72%) and HMOs (-4.3%)

Stocks Falling on Unusual Volume:

DST, CLMT, WNR, NVLS, OMCL, UAUA, AIRM, NFLX, VNUS, BRKR, PTEC, IIVI, CERN, ASTE, TRLG, ECLP, AXE, MDP, CIT, LXK, BJS, CSL and AGP

Stocks With Unusual Put Option Activity:

1) UAUA 2) PGNX 3) PDE 4) RSH 5) MCO

Existing Home Sales Slightly Exceed Estimates, Weekly Retail Sales Confirm Last Week's Improvement

- Existing Home Sales for March came in at 4.93M versus estimates of 4.92M and 5.03M in February.

BOTTOM LINE: Sales of previously owned homes in the US fell in March less than economists had anticipated, Bloomberg reported. The median sales price fell to $200,700 from $217,400 a year earlier. The number of homes for sale at the current pace rose to 9.9 months’ worth versus 9.6 months’ worth in February. Purchases rose 2.2% in the Northeast and the West. They fell 6.5% in the Midwest and 3.5% in the South. Sales of condos and co-ops rose 3.6%. Residential construction has subtracted from economic growth since the first three months of 2006. Home sales have stabilized over the last month around current levels, which is a large positive. According to BankRate.com, the average 30-year fixed rate mortgage is falling 7 basis points today to 5.83%, which is down from 6.38% in June of last year. Weekly retail sales rose 1.9% this week versus a 2.0% gain the prior week. This week’s gain confirms the improvement seen last week. After averaging .6% increases during the month of February, weekly retail sales have seen a meaningful improvement, averaging 1.95% the last two weeks. This is especially noteworthy considering how pessimistic the consumer supposedly is and the stimuli that is on the horizon. I still expect home sales to bounce higher over the coming months on lower mortgage rates, lower prices, pent-up demand and less economic angst.

Bull Radar

Style Outperformer:

Large-cap Value (-.42%)

Sector Outperformers:

Gaming (+2.73%), Telecom (+.50%) and Banks (+.24%)

Stocks Rising on Unusual Volume:

LVS, WYNN, ARB, CHK, FCX, GOOG, WTI, STO, HES, ZRAN, VLTR, CNC, SFG, FEED, MPEL, WGOV, TWIN, LOGI, DCOM, FTEK, ARTC, MICC, RMBS, GNTX, FSYS, ASTI, KELYA, GFIG, FITB and PNR

Stocks With Unusual Call Option Activity:

1) ICO 2) AMT 3) CBI 4) LXK 5) MCO