Stocks Finish at Session Highs, Boosted by Retail, Financial, Restaurant, REIT and Technology Shares

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Stocks Surging into Final Hour on Lower Energy Prices, Buyout Speculation, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs, Computer longs and Internet longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is substantially higher, most sectors are rising and volume is below average. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling 7.3%, but remains above average at 18.0. The ISE Sentiment Index is below average at 120.0 and the total put/call is about average at .86. Finally, the NYSE Arms has been running around average most of the day and is currently .93. I said on Friday that I thought a reversal lower in oil is all that stands in the bulls way of another meaningful market surge higher. Oil trades heavy today for the first time in awhile and is near session lows. A meaningful continuation of oil’s decline should help boost the S&P 500 up through its 200-day moving average over the coming weeks. Market-leading growth stocks continue to trade very well. Retail stocks are especially strong. The action in (FDX) and (MBI) shares, considering the news, is also a very positive indication for the broad market. Moreover, the TED spread is falling another 11 basis points today to .89 basis points, which is the lowest since February 20^th and down from 204.0 on March 19^th, which is a significant positive. The 30-day asset backed commercial paper yield is down another 8 basis points to 2.55%, the lowest since January 2005 and down from 6.18% in December of last year. The European Financial Sector Credit Default Swap Index is falling 3.06 basis points to 64.06 basis points. The Eurozone Economic Surprise Index has fallen to -31.20, down from 79.0 in late March. Reports of a Hewlett-Packard(HPQ) deal for Electronic Data Systems(EDS) are also a major positive for the broad market. Nikkei futures indicate a +112 open in Japan and DAX futures indicate a +66 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower energy prices, diminishing credit market angst, buyout speculation and bargain hunting.

Today's Headlines

Bloomberg:
- Money Markets Signal Worst of Credit Market Crisis May Be Over. The difference between the yield on three-month Treasury bills and the rate on dollar-denominated loans in London, an indication of credit risk known as the TED spread, is narrowing.
- India Cheapest BRIC Market, May Get Cheaper on Costs. Investors are punishing stocks in India more than in any of the largest emerging markets as government measures to curb inflation cut profits at companies from Steel Authority of India Ltd. to Grasim Industries Ltd.
- HSBC Investment Management’s $2.7 billion Absolute Return Service cut commodity holdings to less than 2% of the fund, from a 17% peak in December, because of a “high” risk of prices slumping from records. “The risk of a sharp correction is high,” said Charlie Morris, the fund’s manager. This year’s rally in so-called soft commodities including coffee, cocoa and sugar is “finished,” and gold and silver will fall further from their peaks, he said. Morris predicted gold prices will fall to $750 an ounce within a year.
- MBIA Inc.(MBI) rose 5% in NY trading after saying it will pump $900 million into its insurance unit and reporting a first-quarter loss that was narrower than some analysts’ estimates.
- India’s industrial production grew at the slowest pace since 2002 in March as borrowing costs at a six-year high discouraged consumers from buying cars and motorcycles.
- Crude oil fell $1.81/bbl. to $124.11 after touching a record of $126.40/bbl. in NY amid signs that rising prices may curb demand in emerging markets. China’s oil imports fell 3.9% in April from a year earlier as refiners cut demand, and India’s industrial production grew at slowest pace since 2002.
- AnnTaylor Stores(ANN) increased the most in six years in NY trading after first-quarter profit exceeded estimates.
- China Hit by 7.9-Magnitude Quake; More Than 8,700 Die.
- Lehman CFO Callan Says Firm Boosted Liquidity, Added Customers.
- China and India must take equal responsibility with the US and other industrialized nations in cutting global warming pollution, Republican presidential candidate John McCain said.
- China ordered banks to set aside more deposits as reserves for the fourth time this year after inflation accelerated, approaching the fastest pace since 1996.

Wall Street Journal:
- Keep America Open to Trade. Recently, prominent voices in punditry and politics have questioned the benefits of America’s openness and called for an isolationist U-turn that would choke off our innovation and prosperity.
- After spending several weeks staking out positions on taxes, Iraq and judges designed to appeal to conservatives, John McCain is shifting his attention to independents and Democrats, with proposals on climate change.
- Banks may agree to fund the buyout of Clear Channel Communications(CCU) for $36 a share as part of a legal settlement.
- Hedge funds and other investors have started buying leveraged loans and asset-backed securities that have been languishing on banks’ balance sheets since the credit crisis began last summer. This is the latest indication that the credit market may have turned.

AP:
- An Energy Department report concludes that wind turbines can produce 20% of the nation’s annual electricity needs within 20 years. This is about the same share of electricity produced today by nuclear power.

Portfolio.com:
- Apple(AAPL) is close to announcing it has signed a deal to sell HBO programs and movies on the iTunes website.

MarketWatch.com
- Merrill Lynch(MER) has enough capital and access to cash to pay off some $50 billion of debt due in the next year and to rebuild its financial strength, the investment bank’s senior financial executives said Monday.

InvestmentNews:
- California has backed away from a controversial proposal to regulate hedge funds under strong opposition from its hedge fund industry.

Reuters:
- Russia’s Economy Ministry raised its forecast for inflation this year to 9-10.5% from 9-10% after consumer prices rose more than expected in the first four months.

TimesOnline:
- Greg Fleming hurtles through the door of a plush London meeting room. The 45-year old Merrill Lynch(MER) president and chief operating officer is running on empty. He has come to rally the troops and get them re-focused and back on track after the extreme turbulence of the past nine months. His tone is much more upbeat than most and he speaks about the credit crunch in the past tense. He figures that the worst of the writedowns are over and that the price of leveraged finance paper is picking up. He says that buyers have come out that were not there in the first quarter of this year. It is time to turn a back on the rain clouds, he says.

Xinhua News:
- Five more children died of hand, foot and mouth disease in China, taking the death toll to 39. China has now registered 24,934 cases of the disease so far.

Bear Radar

Style Underperformer:

Mid-cap Growth +.14%

Sector Underperformers:

Oil Serviceirlind (-1.60%), Coal (-1.21%) and HMOs (-.94%)

Stocks Falling on Unusual Volume:

CRYP, CCOI, CLWR, PDC, GENC, IMCL, PSUN, JASO, CTS, FMR and EVR, KFS, PDX, JAH, NSR, OMG,

Stocks With Unusual Put Option Activity:

1) ACAS 2) SHW 3) JOSB 4) CCU 5) ARO

Economic Releases

- None of note

Bull Radar

Style Outperformer:

Small-cap Value (+1.21%)

Sector Outperformers:

Retail (+1.52%), Wireless (+1.28%) and Restaurants (+1.09%)

Stocks Rising on Unusual Volume:

CVLT, BLKB, HBC, DWSN, MGG, CMC, RADN, PETS, GEOI, COGT, ERES, CVLT, ENER, RICK, TRLG, VISN, SINA, FPFC, RIMM, ZRAN, ROCK, KNOT, SNHY, CMTL, SF, CCU, VQ, YSI, ECA, ANN, TAL, TDK and MBI

Stocks With Unusual Call Option Activity:

1) EDS 2) ERTS 3) LLTC 4) CORS 5) DRS