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Market Wrap

Majors Finish First Half Mixed

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Stocks finished mixed-to-lower as the second quarter came to and end Monday in another brisk volume trade at the big board.

While well off Thursday and Friday's rising daily volumes of 5.23 billion and 6.09 billion shares, traders remained active among the one, two, and three-lettered stock symbols at the big board.

Economic figures released here in the U.S. were regional and continued to suggest that while the economy is not slipping into a full-blown recession, it's limping along at best.

Just after the cash market open the Chicago Purchasing Manager's Index, a barometer for business activity in the Midwest (Illinois, Michigan and Indiana) was released. The group said its overall index rose to 49.6 for June, from 49.1 in May and was above economists' forecast for a decline to 48.0. While not as weak as many had feared, the sub-50 reading still showed sign of business activity contracting for a fifth-straight month.

Other important readings due out this week are the Labor Department's June employment report and ISM's Non-Manufacturing Composite. Both reports are slated for release on Thursday.

Just before the clock struck 12:00 PM EDT, oil prices eased from their morning highs with August Crude Oil futures (cl08q) having traded another record high of $143.67 before the 07:00 AM EDT hour when the EIA revised April U.S. oil usage to -3.9% versus the same period last year. But a dip to $139.20 was gobbled up as the EIA said U.S. oil use rose by 36,000 barrels per day versus March.

By day's end, Nymex August Crude Oil futures (cl08q) settled down $0.21, or -0.15% at a fitting $140.00 round-number close. August Nat. Gas futures (ng08q) settled up a hefty $0.1550, or 1.17% at $13.353.

On a more global scale, Japan's Nikkei-225 ($NIKK), which finished Monday's session down 63 points, or -0.46% managed to finish up 7.6% for the second-quarter as the yen fell 6.3% against the greenback during the same period.

While the land of the rising sun recouped a portion of it 18.2% decline from the first quarter, financial reforms and a devastating earthquake in Mainland China had the Shanghai Composite ($SSEC) glowing red by an additional 21.2% in the second quarter.

European bourses put in a mixed-to-higher trade to start the week. A 96-point gain had London's FTSE-100 ($FTSE) rising 1.74% as oil and mining shares bolstered gains. Despite the bounce, buyers were unable to push the FTSE-100 into positive territory at the end of the quarter with the pound relatively unchanged versus the dollar on a year-to-date basis.

Germany's DAX ($DAX) finished lower by just more than 3-points, or -0.06% at 6,418, while France's CAC-40 ($CAC) rose 37 points, or +0.85% to 4,434, while pacing euro-zone weakness with a 5.8% decline for the second quarter.

Major Global Markets, Currencies, Oil and Gold

Since our visit last Monday, oil prices as depicted by the U.S. Oil Fund (USO) $113.77 +0.01% have risen an additional 2.57%, as bullish momentum accelerated thru the second quarter with the USO surging 39.8%.

While "black gold" rose 39.8% in the second quarter, its shiny counterpart in the StreetTracks Gold (GLD) $91.40 -0.07% (~$914.00 spot) finished up 1.1% for the quarter, while the U.S. Dollar Index (DXY) finished at 72.50 for the quarter, up roughly 1.0% versus a weighted basket of global currencies.

Since I'm on the topic of commodities, Corn futures, or "granular gold" as it is being called these days traded limit down at 724'6 from Friday's 754'6 for the July contract after the latest U.S. Department of Agriculture (USDA) figures showed farmers had planted more than a million more acres of corn than had been expected back in March.

The USDA said farmers expect to harvest 78.9 million acres of corn, down 8.7% from the 86.5 million harvested last year. The 8.7% decline includes the damage to corn crops caused by flooding in the Midwest.

Wall Street ended the second quarter of 2008 rather mixed.

An additional 7.4% decline for the narrowly comprised Dow Industrials ($INDU) in the second quarter caps off the worst first half for the Dow Industrials since 1970.

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Shares of Chevron (NYSE:CVX) $99.13 +1.35% capped off a component-best 16.13% gain for the quarter, while discount retailer Wal-Mart (NYSE:WMT) $56.20 -0.17% rose 6.68% on the quarter and now leads a rather narrow list of YTD gainers by a wide margin, with an 18.24% gain thru the first half of the year. International Business Machines (NYSE:IBM) $118.53 -1.26% fell $1.52 today, but still holds a 9.65% gain since its 12/31/07 close of $108.10.

Only CVX (16.13%), WMT (6.68%), XOM (+4.20%), IBM (+3.52%), INTC (+1.42%) and MCD (+0.81%) showed price gains for the quarter.

While rising energy prices, and commodity price in general garnered much of the second-quarter's headlines, concerns about the financial sector, even if they aren't as pronounced as at the start of the quarter continued to provide major headwinds for the Dow Industrials, the broader S&P 500 Index ($SPX) 1,280.00 +0.12% at the end of the second-quarter.

General Motors (NYSE:GM) $11.50 -0.43% traded at its lowest level since 1954 earlier in the session and plunged 39.63% during the second-quarter as slowing auto-sales combined with the credit crunch hurt results at its GMAC unit.

Insurer American Intl. Group (NYSE:AIG) $26.46 -4.64% closed at another multi-year low today, and darned near outpaced GM for biggest percentage decliner in the second-quarter.

Bank of America (NYSE:BAC) $23.87 -2.92% also closed at a multi-year low having dropped 37.04% in the just completed second quarter.

Dow Components - Sorted by Q2 % Gain/Loss

Simply sorting the Dow-30 components by their Q2 gain/loss and placing the $NDX, which gained 3.1% on the quarter probably speaks "volumes" as to the importance of International Business Machines (NYSE:IBM) and larger-cap technology. Mind-you, there's more than technology comprising the NDX/QQQQ, but there isn't a "financial" in the bunch.

The Russell 2000 Index ($RUT) has been relinquishing gains as I thought they might into the end of the second quarter, and a "follow the weakness" trade on 06/18/08 in the ProShares UltraShort Russell 2000 (TWM) $78.80 +2.41% as the Dow Diamonds (DIA) $113.55 +0.07% closed below $120.75 that very day has paid off handsomely to this point.

This "follow the weakness" we're seeing in the RUT is what tends to occur as some very handsome BULLISH gains start getting SOLD by bulls as they see other gains diminish, or losses build in other parts of the market.

Still, the more domestic and economically sensitive small caps have shown some relative strength compared to their BIG CAP brethren and still suggests that while the U.S. economy sputters, it remains a question as to how severe a slowdown is.

The Financial Select SPDRs (XLF) $20.20 -1.79%, which is comprised of bank, brokers, insurers fell 19% for the quarter, and it remains apparent that JPM, C, BAC and AIG remained under selling pressure during the quarter, some of the "financial" portions of GE's (GE Capital) and GM's business units are still being closely scrutinized.

Closing U.S. Market Watch -

Since last summer, roughly 1-year ago (see YrNet%), banks and brokerages have written down more than $300 billion of mortgage-backed securities and other "risky" investments. Later this month even more losses are expected when companies like Citigroup (NYSE:C) $16.76 -2.84%, Merrill Lynch (NYSE:MER) $31.71 -3.02% report their second-quarter results.

For the second-quarter, Merrill's stock price has fallen 20.6%, roughly inline with the XLF itself.

Late this evening, a rather "bold" and bullish call came from Morgan Stanley with the firm saying investor's should buy Lehman Brothers (NYSE:LEH) $19.81 -10.96%. This despite rumors that the beleaguered investment bank could be bought out well below its current price.

"We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing," wrote analysts Patrick Pinschmidt and Avi Ghosh. "The firm's ability to weather near-term market headwinds and return to respectable return on equity generation should help the shares trade closer to book value."

Morgan Stanley's duo thinks Lehman's return on equity (ROE) will rise from 3% in the second half of this year to 12% in 2009 and 14% in 2010, even as the firm's debt trading declines 28% from its peak.

Pinschmidt and Gosh think LEH should trade nearer to book value, which currently stands at roughly $39/share.

S&P Depository Receipts (SPY) - Daily Intervals

After closing BELOW $132.02 and 19.1% conventional retracement, buyers have been unable to muster any type of gain and the SPX once again rests at/near its lowest close of 2008 and the 03/10/08 close of $127.57.

While the closely monitored S&P 500 Bullish % (BPSPX) from Dorsey/Wright and Associates shows 30.80% of the SPX/SPY components (154 out of 500) still having a "buy signal" associated with their chart, and this 30.8% well above the 03/17/08 relative low measure of 23.09%, which would be deemed "bullish divergence," I think bears should be protecting gains here, and bulls have some time to monitor things, and see if some of the New High and New Low indications, as well as the various major market bullish % indicators reverse back up.
 

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