Stocks Finish at Session Highs, Boosted by Homebuilding, Hospital, Technology and Transportation Shares

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Stocks Surging into Final Hour on Less Economic Fear, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Medical longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is positive and volume is below average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 7.12% and is very high at 25.17. The ISE Sentiment Index is low at 95.0 and the total put/call is above average at .91. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .64. The Euro Financial Sector Credit Default Swap Index is rising 1.28% today to 89.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 1.24% to 122.01 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 5.27% to 19 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 2.07% to 35.44 basis points. The Libor-OIS spread is falling 7.78% to 14 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 10 basis points to 1.77%, which is down 89 basis points since July 7th. The 3-month T-Bill is yielding .12%, which is unch. today. Given the mixed jobs report, the market’s reaction to it is quite favorable. Cyclicals are especially strong. Defense, Coal, Oil Tanker, Computer, Semi, Disk Drive, Hospital, Homebuilding, Road/Rail and Airline shares are all jumping 2%+ on the day. It is noteworthy that oil is unable to rally despite the reversal lower in the US dollar, bond weakness and equity strength. I am not convinced we are done with the recent pullback, however I am not ruling it out. It is a big positive that the trend of the market falling on good news has ended, but volume is too light to draw any conclusions as of yet. Nikkei futures indicate an +143 open in Japan and DAX futures indicate an +38 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering and investment manager performance anxiety.

Bear Radar

Style Underperformer:
Mid-Cap Value (+.77%)

Sector Underperformers:
Education (-.92%), Insurance (-.21%) and Utilities (+.13%)

Stocks Falling on Unusual Volume:
LOPE, ZUMZ, SNDA, AIG, COO and ABM

Bull Radar

Style Outperformer:
Large-Cap Growth (+1.33%)

Sector Outperformers:
Defense (+2.42%), Airlines (+2.24%) and Semis (+2.15%)

Stocks Rising on Unusual Volume:
INFA, PHG, LGCY, AMT, CHL, DB, PNR, GROW, ULTA, AMED, RMBS, STAR, NVTL, ARST, MDCO, OVTI, GOLD, ATPG, SSRI, HMIN, CREE, CIEN, BIIB, JOSB, CTCM, RYAAY, FIRE, IPSU, ESL, CBE, TKS, WBD, OXM and SJR

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Friday Watch

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (PLCE), target $37.

- Reiterated Buy on (AOC), target $47.

- Downgraded (ANF) to Sell, target $24.

- Reiterated Buy on (HD), target $34.

Night Trading
Asian Indices are -.25% to +.50% on average.

Asia Ex-Japan Inv Grade CDS Index 133.0 -13.0 basis points.
S&P 500 futures -.07%.
NASDAQ 100 futures unch.

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Earnings of Note
Company/EPS Estimate
- (HRB)/-.37

Economic Releases

8:30 am EST:

- The Change in Non-Farm Payrolls for August is estimated at -230K versus -247K in July.

- The Unemployment Rate for August is estimated to rise to 9.5% versus 9.4% in July.

- Average Hourly Earnings for August are estimated to rise .1% versus a .2% gain in July.

Upcoming Splits
- (ABVT) 2-for-1

Other Potential Market Movers
- Treasury Secretary Geithner meeting with the G-20 Finance Ministers in London and the (CX) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.