Stocks Finish Higher, Boosted by Construction, Commodity and REIT Shares

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Stocks Mostly Higher into Final Hour on Short-Covering, Bargain Hunting, Positive Intel Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Alternative Energy longs and Biotech longs. I added to my (QQQQ)/(IWM) hedges and then took some of them off today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is rising 3.1% and is high at 26.07. The ISE Sentiment Index is very low at 73.0 and the total put/call is high at 1.09. Finally, the NYSE Arms has been running above average most of the day and is currently 1.0. The Euro Financial Sector Credit Default Swap Index is rising 5.3% today to 92.56 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising .35% today to 143.50. The TED spread is rising 12.93% to 1.13. The AAII % Bulls came in at 22.2% this week, while the % Bears rose to 55.2%. Both professional and individual investor sentiment remains historically depressed. Growth stocks are substantially outperforming value stocks again today. Given the action in certain financial shares, sharp losses in Europe, a $5 spike in oil and deafeningly scary rhetoric from the financial press, today’s market action is more impressive. While I continue to believe a hard reversal lower in commodities is necessary for a sustainable market bottom, today’s whippy market rise in the face of numerous headwinds is the type of action I would expect to see near a sustainable low in equities. Intel(INTC) said over the last hour that that global business is still very strong, which is also a big positive. Nikkei futures indicate an +28 open in Japan and DAX futures indicate an +61 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- US Senate Banking Committee Chairman Christopher Dodd said it’s unlikely Fannie Mae(FNM) and Freddie Mac(FRE) will fail.
- Man Group Plc, the world's largest publicly traded hedge fund manager, said assets under management rose 6.6 percent to a record in the past three months as clients added money and investments gained.
- Dow Chemical Co.(DOW), under pressure from record oil prices, agreed to buy Rohm & Haas Co.(ROH) for about $18.8 billion to increase sales of more lucrative electronics materials and adhesives in its biggest acquisition ever.
- U.S. Treasury Secretary Henry Paulson said he's been assured by the regulator for Fannie Mae and Freddie Mac that the two government-chartered mortgage companies have enough capital.
- General Motors Corp.(GM), the biggest U.S. automaker, has ``no thoughts whatsoever'' of bankruptcy, Chief Executive Officer Rick Wagoner said.
- Toyota Motor Corp. will build its Prius gasoline-electric car in the U.S., responding to a weakened dollar by producing the world's best-selling hybrid where there's most demand.
- Crude oil rose more than $5 a barrel after Iran test-fired more missiles in the Persian Gulf and a Nigerian militant group said it will end a cease-fire this week.

Wall Street Journal:
- Merck & Co.(MRK), Eli Lilly & Co.(LLY) and Pfizer Inc.(PFE) are teaming up to create new drug-discovery methods, which the companies say could save them large sums by reducing the failure rate of clinical trials.
- A Bipartisan Fix for the Oil Crisis.

NY Times:
- Spy Cases Raise Concern on China’s Intentions.
- Apple(AAPL) Moves to Dominate Internet Mobile Devices.

International Herald Tribune:
- The AFL-CIO is mobilizing union members who are military veterans to work against Republican presidential candidate John McCain and other office seekers it opposes, officials said Thursday. The union also launched an ad that will air Thursday that features a Vietnam combat veteran criticizing McCain's stance on the war in Iraq and on veterans issues. The ad will air for three weeks on national cable and in Michigan, Minnesota, Ohio, Pennsylvania, Virginia and Wisconsin, union officials said.

Bear Radar

Style Underperformer:

Large-cap Value +.42%

Sector Underperformers:

HMOs irlind (-3.37%), Gaming (-2.84%) and Retail (-1.24%)

Stocks Falling on Unusual Volume:

LFG, COLB, FCSX, ZUMZ, ROCK, RRGB, CHTT, WYNN, SFSF and GYMB

Stocks With Unusual Put Option Activity:

1) NLY 2) CNX 3) DOW 4) GILD 5) BIG

Initial Jobless Claims Plunge, Retail Sales Above Long-term Average

- Initial Jobless Claims for this week fell to 346K versus estimates of 395K and 404K the prior week.

- Continuing Claims rose to 3202K versus estimates of 3140K and 3111K prior.

- ICSC Chain Store Sales for June rose 4.3% versus estimates of a 3.3% gain and a 2.9% increase in May.

BOTTOM LINE: The number of Americans filing initial claims for unemployment fell substantially this week, Bloomberg reported. The four-week moving-average for initial claims fell to 380,500 from 390,500 the prior week. During the last recession in 2001, which was one of the mildest on record, jobless claims averaged about 415,000. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, rose to 2.4% from 2.3% the prior week. This is still well below the long-term average of 2.9% and the 3.0% seen in 2002. I expect jobless claims to tick up next week, but continue to trend lower through year-end. Chain Store Sales for June rose 4.3%, which is above the long-term average of 4.1% and up from a .5% decline in March of this year. This is also a large positive.

Bull Radar

Style Outperformer:

Small-cap Growth (+.79%)

Sector Outperformers:

Construction (+2.23%), REITs (+1.92%) and Biotech (+1.51%)

Stocks Rising on Unusual Volume:

ABX, PCTI, CRK, GG, ERIC, LFC, X, CS, PPC, SAFM, GHL, ZNT, JNJ, CPKI, CENX, VMED, MASI, MDCO, MMSI, KNSY, AIRM, BIOD, FSYS, GXDX, SPWR, CRZO, RBCAA, PLCE, CTCT, FITB, WSBC, ROST, ROHM, IX, SGR, RNE and FMS

Stocks With Unusual Call Option Activity:

1) WDC 2) SGR 3) BRCD 4) FRE 5) MPEL