Stocks Finish at Session Lows, Weighed Down by Airline, Financial, Gaming, Construction and Commodity Shares

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Stocks Sharply Lower into Final Hour on Global Growth Worries, Financial Sector Pessimism and More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Computer longs and Medical longs. I added to my (IWM)/(QQQQ) hedges this morning and then covered them this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is falling and volume is heavy. Investor anxiety is elevated. Today’s overall market action is very bearish. The VIX is falling 1.02% and is historically elevated at 51.61. The ISE Sentiment Index is low at 87.0 and the total put/call is above-average at 1.06. Finally, the NYSE Arms has been running high most of the day, hitting 2.35 at its intraday peak, and is currently 1.81. The Euro Financial Sector Credit Default Swap Index is falling 9.3% today to 116.67 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 3.8% to 171.24 basis points. The TED spread is falling 7.97% to 3.52 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down another 14 basis points to 1.17%, which is down 146 basis points in about three months and at the lowest level since April 1999. I said yesterday that there are particularly troublesome signs in Europe and the ECB is way behind the curve. I think much of today’s US stock sell-off is related to the ECB’s inaction. I still believe a significant coordinated global central bank response is likely over the coming days. On the positive side, gauges of credit market angst are much improved today, which is necessary for a sustainable stock market bottom. Nikkei futures indicate a -340 open in Japan and DAX futures indicate a -56 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, financial sector pessimism and global growth worries.

Today's Headlines

Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke signaled policy makers are ready to lower interest rates as the credit freeze worsens the outlook for U.S. economic growth and as inflation concerns wane. ``In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate,'' Bernanke said in a speech in Washington.

- Morgan Stanley(MS) said its agreement to raise $9 billion from Japan's Mitsubishi UFJ Financial Group Inc. is ``on track'' after speculation the deal may fall through caused the company's stock to fall as much as 40 percent.

Wall Street Journal:

- Lee Ku-Taek, CEO of Posco, South Korea’s biggest steelmaker, said the risk of deep recession meant companies like Posco should prepare themselves for capacity to outstrip demand. The biggest challenges facing the world’s steel industry were rising raw-material prices, excess capacity and environmental issues, he told the World Steel Association.

NY Times:
- As the Web becomes a more social place, media companies are trying to make it easier to share links with friends, add comments to articles and extend users’ online identities.

- The Citadel Group of Chicago, the giant hedge fund that Mr. Griffin has run so successfully for nearly 20 years, is leaking money. As of Sept. 30, its two main investment funds were down 20 percent this year, The Times said, citing Citadel investors. Most of the losses came in the last few weeks, when the markets swooned. But with the entire hedge fund industry on edge, even Mr. Griffin is considering what once would have been unthinkable: reducing some of the lavish fees that investors pay Citadel to tend their fortunes. Citadel is developing several new, low-price funds that will eschew the industry’s “2 and 20” structure, whereby funds collect annual management fees of 2 percent and, on top of that, take a 20 percent cut of any profits. Some of the funds will bet only on investments and will not use short sales to hedge, effectively taking the “hedge” out of hedge fund. The funds will provide investors with a menu of à la carte investing options, another departure for Mr. Griffin, as he expands beyond hedge funds into broader asset management.

Trading Markets:

- Sentiment Now Bearish As All Heck.

Forbes.com:
- There currently is no centralized trading platform for credit defaults swaps. Exchange operator CME Group(CME) and Citadel Investment Group are hoping to change that.

San Francisco Chronicle:

- California company has new approach to solar. The next wave of solar power technology may be a skinny glass tube that looks like a fluorescent light bulb painted black.

am New York:

- Federal prosecutors moved Monday to delay indefinitely the sentencing of convicted fundraiser Antoin "Tony" Rezko, sending their strongest hint yet that he is ready to spill his political secrets. The filing asks for a postponement while prosecutors and defense attorneys "engage in discussions that could affect their sentencing postures." Speculation has simmered for weeks that the key fundraiser for Gov. Rod Blagojevich and Sen. Barack Obama was whispering what he knows about corruption in Illinois government to federal prosecutors in hopes of getting a lighter sentence.

Reuters:
- European Central Bank Executive Board member Lorenzo Bini Smaghi said inflation pressures have become “less important” and the bank will make monetary-policy decisions when needed, citing Italian radio.

- BNP Paribas SA will merge Fortis’s commodities trading business with its own after agreeing to buy the Belgian bank’s assets for $20 billion.

Jornal de Negocios:
- “European solutions” rather than “national solutions” are needed to fight the financial crisis, European Commission President Jose Barroso said.

Bear Radar

Style Underperformer:
Large-cap Value (-3.33%)

Sector Underperformers:
Airlines (-13.78%), Alternative Energy (-7.21%) and Homebuilders (-7.13%)

Stocks Falling on Unusual Volume:
MS, BCS, SAP, FSLR, DRYS, SYKE, CETV, LNY, AAP, ALG, ASF, TBH, CGV, CBL and BTE

Stocks With Unusual Put Option Activity:
1) SWY 2) TPX 3) AMT 4) MYL 5) CBS

Bull Radar

Style Outperformer:
Large-cap Growth (+.59%)

Sector Outperformers:
Drugs (+1.30%), Wireless (+1.14%) and Medical Equipment (+1.13%)

Stocks Rising on Unusual Volume:
VIP, BHP, ACL, RTP, LLY, BP, REP, STT, VRSN, TESO, TRMB, SPTN, CMED, FFIV, PAAS, CME, OSIP, ULTI, NCIT, LHCG, BIDU, AUXL, WPPGY, SSRI, BEAV, HTLD, CRDN, CENX, PWB, CMN, DT and OKS

Stocks With Unusual Call Option Activity:
1) MTW 2) BAX 3) HA 4) BSX 5) APWR