Federal Reserve Chairman Ben Bernanke’s assessment that the economy is showing signs of stabilization and better-than-expected earnings report from companies pushed the Dow Jones industrial average to its highest level in six months even as the session remained volatile and most stocks seesawed. Reports of losses at a number of regional banks had financials stocks under pressure.  Bernanke’s prediction of rising unemployment was also a reason for the subdued tone on the Street.  In his testimony on the Hill, Bernanke warned that "even if the economy begins to turn up in terms of production, unemployment is going to say high for quite a while, so it's not going to feel like a really strong economy."

The Dow Jones industrial average ended up 68 points, or 0.8% and the broader S&P 500 index edged up 3 points, or 0.4%, its highest close in 8 months. The tech-heavy NASDAQ added 7

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* Research in Motion (NASDAQ:RIMM) shares dropped nearly 5% in after hours trade following its fiscal first quarter report and second quarter guidance. Ex-items the Blackberry maker earned 98 cents a share, beating estimates of 94 cents, on inline revenues of $3.42 billion, up 52.7% year-over-year.  However, the company said it expects second quarter earnings of $0.94 to $1.03, inline with estimates, with revenues of $3.45 billion to $3.7 billion, at the low end of projections.  Shares have since rebounded in early trade this morning on positive analyst comments

* Caterpillar (NYSE:CAT) reported in a filing that its May machine sales plunged 57% from a year earlier, as the drop in its retail machine sales accelerated

* Goldman Sachs' (NYSE:GS) added Microsoft (NASDAQ:MSFT) to its conviction buy list with an increased price target of $29, citing better sales drivers and cost management

* UAL (NASDAQ:UAUA) said its second quarter traffic numbers may drop

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UAL Corp. (UAUA) sees a second-quarter decline in consolidated passenger unit revenue (PRASM) of between 17.9% and 18.9% on a year-over-year basis.

However, shares of the company are up about 8% this afternoon.

In a regulatory filing, it was revealed that UAL expects second-quarter consolidated available seat miles to decrease 9% from last year's levels. Consolidated traffic is projected to fall in the range of 9.5% to 10.5%.

UAL expects to be in compliance with the fixed charge loan covenant at the end of the second quarter.

It expects to end the quarter with a cash balance of $2.5 billion, which includes $.3 billion of restricted cash, compared to $2.7 billion (including $255 million of restricted cash) at the end of the first quarter.

For the second quarter, the consensus' loss estimate is currently $1.16 per share, which is wider by 24 cents over the past month and

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UAL Corp. (UAUA) sees a second-quarter decline in consolidated passenger unit revenue (PRASM) of between 17.9% and 18.9% on a year-over-year basis.

However, shares of the company are up about 8% this afternoon.

In a regulatory filing, it was revealed that UAL expects second-quarter consolidated available seat miles to decrease 9% from last year's levels. Consolidated traffic is projected to fall in the range of 9.5% to 10.5%.

UAL expects to be in compliance with the fixed charge loan covenant at the end of the second quarter.

It expects to end the quarter with a cash balance of $2.5 billion, which includes $.3 billion of restricted cash, compared to $2.7 billion (including $255 million of restricted cash) at the end of the first quarter.

For the second quarter, the consensus' loss estimate is currently $1.16 per share, which is wider by 24 cents over the past month and

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The VIX (a measure of options volatility, an indicator of stock market volatility risk, and reputedly a “fear gauge”) has come down so far from being historically high, that commentators now speak of it as low.  The fact is that is it still high relative to the intermediate past.

The 10-year average VIX is 22.  The 6-month average is 41.  The current level is 35.

click image to enlarge

The chart shows the VIX for several troubled times:

A: Asian currency crisis (1997) - VIX 38 B: Russian economic crisis (1998) - VIX 46 C: terrorist attack on New York City (2001) - VIX 44 D: multiple major US bankruptcies (2002) * - VIX 45 E: CDO and general credit crisis (2008) - VIX 90 F: today - VIX 35

* 7 of 15 largest US bankruptcies occurred in 2002 (or Dec 2001): Enron, Global Crossing, Conseco, Worldcom, UAL, NTL,

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Uncertainty over the economic implications of the swine flu outbreak weighed on sentiments in Asia as benchmarks in the region fell the most in three weeks. Moods also soured after media reports said Bank of America (NYSE:BAC) and Citigroup (NYSE:C) were told by U.S. regulators they may need to raise more capital.  Japan's Nikkei 225 Stock Average sank 232.57 points, or 2.7%, to 8,493.77 points. Hong Kong's Hang Seng Index declined 1.9%.  Fears persisted that the swine flu epidemic could hurt the prospects of a global economic recovery.  A World Health Organization report suggested it was now too late to contain the virus. 

Yesterday's marketplace was a clear picture of risk-aversion.  As worries grew that the swine flu outbreak could take the form of an epidemic, fearful investors turned to safe haven prospects like Treasuries, yen and US dollar bets, as well as defensive healthcare and utility plays.  The

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Here is an interesting quote from Jeremy Grantham in Barron's."So although the fair value of the S&P today may be about 1025, typically bubbles overcorrect by quite a bit, possibly by 20%. That is very discouraging."Clearly the interview was done a few days after the worst carnage of the week. A 20% 'overcorrection' works out to SPX 825. The low on Friday was 839.The dilemma faced by market participants right here is the battle between reason and fear.Colgate (CL) will still sell plenty of toothpaste, Proctor & Gamble (PG) will still sell plenty of detergent, most of the companies that service where you work will continue to do so, most people will keep their cellphones, you will have a bank account somewhere and so on. And you know this.Also on the side of reason, there ...

Top 5 Auto Makers by Market Cap Top 5 Airlines by Market Cap The U.S. auto industry is poised to begin lobbying Congress for up to $50 billion in low interest loans to help them better compete in the global market by upgrading manufacturing facilities and paving the way for the production of vehicles with better fuel efficiency. Last year, Congress authorized $25 billion as part of an energy bill aimed at producing electric and hybrid vehicles, but auto makers are looking to expand the total to $50 billion over three years. Since companies such as Ford (F) and General Motors (GM) are below investment grade, company officials argue they cannot access capital at ...

Jim Corridore, analyst at Standard & Poors Equity Research raised his opinion on UAL (UAUA) from hold to buy:

1. UAUA is cutting 100 aircraft, and 2009 capacity will be down 17%-18% and Corridore believes it is near the level needed to get yields up enough to suit this oil price environment.

2. He believes oil could drop from current levels.

3. He expects unit costs to rise on lowered capacity in the short term, but expect the capacity cuts to help revenue growth in 2009.

4. 12-month target price is $12.

Personally, I don’t think I would put too much faith in the Airline industry; it is a horrible business (high capital costs, and low returns).  If oil prices drop substantially, the stocks will go up, but I would rather bet elsewhere for the time being.

See stock picks from S&P analysts at:

http://www.trackthepros.com/categories.php?category_id=382

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