Stocks Finish at Session Highs, Boosted by Financial, Transport, Gaming, Retail, Homebuilding, REIT and Steel Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Stocks Soaring into Final Hour on Falling Energy Prices, Less Financial Sector Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Alternative Energy longs, Biotech longs and Commodity shorts. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, most sectors are rising and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is very bullish. The VIX is falling 5.41% and is still above-average at 22.93. The ISE Sentiment Index is below-average at 131.0 and the total put/call is about average at .88. Finally, the NYSE Arms has been running around average most of the day and is currently .92. The Euro Financial Sector Credit Default Swap Index is falling 1.72% today to 77.58 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 -1.3% today to 134.22 basis points. The TED spread is falling 1.7% to 1.09. The euro is very close to breaking down through its intermediate-term uptrend line that has been in place since August of last year versus the US dollar. I suspect the euro will break this technical support over the coming days, which should further pressure commodities. A move towards the $1.50 level versus the euro is likely over the coming months, in my opinion. Much of the parabolic move higher in commodities over the last couple of years was a result of “investors,” such as pension funds, making a long-term decision to hedge against a perceived future inflation problem by pouring money into commodity index, commodity hedge and commodity exchange-traded funds. Since the bubble in commodities has been the main source of inflation fears, this became a vicious cycle. If inflation expectations continue to fall rapidly, as they have of late, a virtuous cycle could take hold, whereby less demand for inflation hedging products results in lower commodity prices, which then further lowers inflation expectations. This would be a major positive for the broad US stock market. Nikkei futures indicate an +181 open in Japan and DAX futures indicate an +47 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit angst, less financial sector pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- The US dollar advanced to a one-month high versus the euro and the yen as U.S. consumer confidence increased and crude oil prices dropped, reducing concern the economy may fall into a recession. The currency rose earlier as Merrill Lynch & Co.'s plans to sell $8.5 billion of stock and liquidate bonds raised speculation Wall Street may have seen the worst of the credit crisis. The pound depreciated versus the dollar after an index of U.K. retail sales dropped in July to a 25-year low.
- Crude oil fell to a 12-week low as the U.S. dollar strengthened against the euro and on signs gasoline demand may extend declines. Oil has dropped 17 percent since its July record as the rising dollar curbed the appeal of commodities as an inflation hedge.
- Dealers including Lehman Brothers Holdings Inc.(LEH) are considering changing credit-default swap contracts to more closely resemble cash bonds, following pressure to reduce risks in the $62 trillion market. Lehman last week began offering clients the ability to trade some credit-default swaps with a fixed coupon, much like a corporate bond, and is advocating making it a standard across the market.
- Spain's housing collapse is becoming European Central Bank President Jean-Claude Trichet's economic crisis as delinquent home-loans rise amid a slowing economy.
- Corn fell for the first time in four sessions and soybeans dropped to the lowest in almost eight weeks as rains and warm weather improved crop conditions in the U.S., the world's biggest exporter of both crops. About 66 percent of the corn was in good or excellent condition as of July 27, compared with 65 percent a week earlier, the U.S. Department of Agriculture said yesterday. About 62 percent of the soybeans got the top ratings, compared with 61 percent a week earlier, the USDA said. Conditions for both crops are better than a year ago, easing concern caused by Midwest flooding in June that sent prices to records. ``The corn and soybean crops are in pretty good shape and the markets will experience further liquidation,'' said Greg Grow, director of agribusiness for Archer Financial Services in Chicago. ``Without a new weather threat, the trend is for lower prices.''
- Merrill Lynch & Co.'s(MER) decision to liquidate $30.6 billion of collateralized debt obligations at a fifth of their face value ``suggests the endgame'' for CDO risk at financial companies, Bank of America Corp. analysts said.
- The cost of protecting Merrill Lynch(MER) bonds from default fell the most in more than four months after the third-largest US securities firm said it will sell $8.5 billion in stock and liquidate mortgage-linked securities. Credit-default swaps on NY-based Merrill plunged 65 basis points to 275 basis points, according to broker Phoenix Partners Group.
- U.S. Steel Corp.(X), America's largest steelmaker by market value, climbed the most in seven years in New York trading after second-quarter profit more than doubled, beating analysts' estimates. U.S. Steel rose $20.88, or 14 percent, to $166.21 at 1:30 p.m. on the New York Stock Exchange. A close at that price would be the biggest one-day gain since April 24, 2001.
- Palm Inc.(PALM) rose the most in four years on the Nasdaq after saying its Centro e-mail phone sold 2 million units in less than a year, a sign the company is weathering competition from the BlackBerry and Apple Inc.'s iPhone.
- SAP AG(SAP), the world's biggest maker of business-management software, raised its revenue and margin forecasts for this year after second-quarter license sales beat analysts' estimates.
- India's central bank increased its benchmark interest rate by a half point, more than economists predicted, and forecast slowing economic growth as inflation at a 13-year high erodes spending by consumers and companies. The Reserve Bank of India raised its repurchase rate to 9 percent from 8.5 percent, the third increase in two months, according to a statement in Mumbai today.

Wall Street Journal:
- What if I told you that a prominent global political figure in recent months has proposed: abrogating key features of his government's contracts with energy companies; unilaterally renegotiating his country's international economic treaties; dramatically raising marginal tax rates on the "rich" to levels not seen in his country in three decades (which would make them among the highest in the world); and changing his country's social insurance system into explicit welfare by severing the link between taxes and benefits?
- Earlier this month the House of Representatives voted on an energy bill called the Drill Responsibly in Leased Lands (Drill) Act. The good news, for those of us who actually want to do something to lower gas prices, is that it failed.
- A Bush administration proposal to boost fuel efficiency of automobiles to 31.5 miles per gallon by 2015 is raising hackles on two sides: from car makers, who say it is too tough, and from some Democrats, who say it isn’t tough enough.
- Deutsche Bank AG has avoided the worst of the banking carnage by pulling off a series of trades that have lightened its load of soured investments. While it still could need to write down assets or raise capital, Germany's largest bank by market value is positioning itself to be an acquirer in the second half.
- Hedge funds, viewing the carnage caused by the credit crisis, are starting to weigh opportunities in the battered financial sector. It is another sign for bullish investors that better times are ahead.

NYPost:
- Hedge fund BlueGold Capital might have struck black gold, with oil bets driving returns up a whopping 160 percent through the end of June. BlueGold just opened for business in February, but its eye-popping returns have already attracted attention - and money - from investors. Indeed, assets have grown by more than six times since inception to $925 million, according to a BlueGold official and the company's most recent letter to investors. The true test for BlueGold, however, may be in its July returns, as oil prices have tanked in recent weeks, said Chris Schelling, a researcher of alternative investments with Thomson Reuters. "My guess is their numbers for July will be awful," said Schelling, noting that the fund is close to 90 percent correlated with the oil markets. Indeed, their only bad month so far - down 16.3 percent - occurred in March when oil prices fell slightly. Crema declined to comment on the firm's strategy except to say that BlueGold makes the bulk of its oil bets using complex derivative contracts.

Seeking Alpha:
- Illegal Short Sellers May Face RICO Indictments. RICO, Racketeering Influenced Corruption Organizations Act, the law Rudy Guiliani used to bring down Michael Milken, and other Wall Street crooks, could be revisited in the SEC's struggle to clean up Wall Street's growing threat to the financial markets.

San Francisco Chronicle:
- Billionaire investor T. Boone Pickens excoriated Yahoo's management for failing to reach an agreement to sell all or part of the Web portal to Microsoft Corp. Pickens, who bought 10 million Yahoo shares in May in hopes that an acquisition was imminent, said Monday that he got tired of waiting for a deal and sold his entire holdings at a loss. "I think that Yahoo management was pathetic," Pickens told The Chronicle's editorial board.

USA Today:
- U.S. combat deaths in Iraq appear headed to the lowest monthly total since the start of the war as the top U.S. general there said overall violence is declining toward "normal" levels.

Izvestia:
- Russia may be hurt by the potential bursting of the “oil bubble,” caused by a “long period of slowing economic growth” that the world has entered, Russia central banker Alexei Ulyukayev said.

Caijing magazine:
- China must “absolutely ensure” the stability of its capital markets during the Olympic Games, citing the nation’s top securities regulator. China’s stock-market watchdog must quell market rumors and control risk points in the system, citing Shang Fulin. China’s benchmark CSI 300 Index has plummeted 45.6% this year, making it the world’s worst-performing major equities market.

China Daily:
- China may delay any increase in fuel prices until after the Olympics end next month. China’s leaders have agreed to gradually deregulate gasoline and diesel prices, and probably won’t do so before the end of the games, citing Lin Boqiang, an energy professor at Xiamen Univ. The country increased gasoline and diesel prices by as much as 18% on June 20.

Reuters India:
- OPEC should not consider cutting production after oil's steep two-week decline as markets are now balanced, OPEC President Chakib Khelil said on Tuesday, adding that prices could yet fall another $50 a barrel. Khelil, who is also Algeria's oil minister, said oil prices could fall to $70 to $80 in the long-term, if the U.S. dollar continued to strengthen and geopolitical anxieties eased. “The price today is abnormal at $123 a barrel,” said Khelil. Asked if OPEC members should cut supply if oil prices continue to decline, he said: "No, I don't think so, why should they cut production? They always want to make sure there is good supply and demand and to satisfy the demand."

Haaretz:
- Senior officials in Jerusalem confirmed Monday that Syria has carried out a number of measures in recent weeks that reflect that it is taking talks with Israel seriously.

Al-Hayat:
- Oil revenue at the six Persian Gulf states will probably rise 57% this year on higher oil prices, citing a report by the Gulf Cooperation Council’s general secretariat. GCC countries may earn $600 billion in 2008, compared with $381 billion in the prior year.

Bear Radar

Style Underperformer:

Large-cap Growth +1.32%

Sector Underperformers:

Gold irlind (-2.58%), Oil Service (-1.44%) and Coal (-1.43%)

Stocks Falling on Unusual Volume:

SNE, HERO, JDAS, CBEY, PRSC, CGNX, LDSH, INDM, SEPR, RCII, CPHD, XL, KDN, DAC, ICA and RBC

Stocks With Unusual Put Option Activity:

1) KFT 2) MOT 3) NTAP 4) FMCN 5) LFG

Consumer Confidence Rises Slightly, Weekly Retail Sales Still Near Average Rates

- Consumer Confidence for July rose to 51.9 versus estimates of 50.1 and 51.0 in June.

BOTTOM LINE: Consumer Confidence in July exceeded estimates and rose slightly from June, Bloomberg reported. The proportion of people expecting their incomes to rise over the next six months rose to 14.2% from 13.1% in June. The Present Conditions component of the index fell slightly to 65.3 from 65.4 in June. The Expectations component rose to 43.0 from 41.4 in June. The percentage of Americans planning to purchase a house rose to 2.7% from 2.4% in June. The percentage of those that see business as good rose to 13.1% from 11.5% in June. The percentage of those that see business as worse 6 months from now fell to 32.4% from 33.5% in June. The New England region, while still depressed, saw consumer confidence jump significantly to 47.8 from 26.6 the prior month. The Southwest Central and Mountain regions remain the most optimistic at 81.6 and 72.2, respectively. For the third week in a row, weekly retail sales rose +2.7%, which is the best showing since the week of September 11, 2007 and just slightly below the long-term average, despite numerous headwinds and the diminishing effects of the government stimulus package. Weekly retail sales have now averaged +2.68% over the last month, up from an average weekly gain of .6% during the month of February. The US Dollar Index is surging .84% and the 10-year yield is rising 8 basis points on today’s reports. The 10-year TIPS spread, a good gauge of inflation expectations, is falling to 2.31% today, which is down 32 basis points in 16 days on the decline in commodity prices. The commodity bubble has been the driving force behind the current "US negativity bubble." I expect consumer confidence to improve and retail sales to move back above average levels into year-end as energy prices fall meaningfully, the US dollar rallies, election uncertainty ends, stocks rise, inflation decelerates significantly, housing fears subside, interest rates remain relatively low and the job market improves modestly.

Bull Radar

Style Outperformer:

Small-cap Value (+2.16%)

Sector Outperformers:

Airlines (+11.1%), Steel (+6.30%) and Gaming (+3.95%)

Stocks Rising on Unusual Volume:

CNQR, PVTB, SAP, CMC, CLF, WBSN, VECO, ALXN, WMGI, AMGN, AMED, RBCAA, RYAAY, IRIS, WSBC, MMSI, BEAV, NFLX, MICC, UTEK, ISYS, PRAA, LHCG, MVC, FDG, RAH, SCL, TFX, GPI and HW

Stocks With Unusual Call Option Activity:

1) GPS 2) KFT 3) ALXN 4) TS 5) CIEN