Stocks Finish Mostly Lower, Weighed Down by HMO, REIT, Airline and Bank Shares

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Stocks Rising into Final Hour on Bargain-Hunting, Fed Rate Cut and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Computer longs, Biotech longs, Retail longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is rising .64% and is historically elevated at 67.82. The ISE Sentiment Index is low at 103.0 and the total put/call is below average at .78. Finally, the NYSE Arms has been running high most of the day, hitting 2.02 at its intraday peak, and is currently 1.28. The Euro Financial Sector Credit Default Swap Index is falling 5.25% today to 103.33 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 2.37% to 210.66 basis points. The TED spread is rising 5.1% to 285 basis points. The TED spread is now down 179 basis points in about three weeks. The 2-year swap spread is down 6.0% to 113.25 basis points. The Libor-OIS spread is rising 1.28% to 265 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to .85%, which is down 178 basis points in about four months and at the lowest level since February 1999. Market leading stocks are posting another day of massive gains. While we are getting extended very short-term, I fully expect the DJIA to test 10,000 within the next 10 days. Nikkei futures indicate an +500 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, diminishing forced selling and bargain-hunting.

Today's Headlines

Bloomberg:
- The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era. ``Downside risks to growth remain,'' the Federal Open Market Committee said today in a statement in Washington. ``Recent policy actions, including today's rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.''

- The U.S. Treasury and the Federal Deposit Insurance Corp. are developing a program to provide at least $500 billion in government guarantees for troubled mortgages, according to people familiar with the matter.

- The cost of protecting against a default by GMAC LLC fell to the lowest in more than a month as the auto finance and mortgage lender sought a new bank status that may give it access to cash from the U.S. Treasury's $700 billion rescue plan.

- Middle East banks may face losses from hedge-fund investments as the industry is squeezed by the global credit crunch, said Citigroup Inc. “Most of the banks in the Middle East have been the target of hedge fund managers,” said Kaveh Samie, managing director of Citigroup in the Middle East and North America. “That exposure has not been felt yet.”

- Crude oil climbed more than $4 a barrel, the biggest gain in a month, amid signs that central bank interest-rate cuts may help revive fuel demand. Oil advanced as much as 9.9 percent on forecasts that the U.S. Federal Reserve rate cut will help spur a recovery in the world's biggest fuel-consuming country. China also lowered rates today and the European Central Bank may reduce them next week. Prices also rose because the dollar fell the most against the currencies of six major U.S. trading partners since 1985.

- Las Vegas Sands Corp.(LVS) doubled in New York trading after the Singapore government said it was in talks with the casino company to help finish a $4 billion casino project.

- Apple Inc.(AAPL), the maker of Macintosh computers and the iPhone, rose to the highest in two weeks in New York trading after Sanford C. Bernstein & Co. said a ``significant'' share repurchase may boost earnings. A depressed price-to-earnings ratio, low interest rates and a growing cash balance ``make a strong case for Apple to initiate a substantial share repurchase program,'' analyst Toni Sacconaghi, based in New York, said in a note to clients today. Sacconaghi estimates that a $20 billion stock buyback would boost earnings by 9 percent above his estimate of $5.50 a share next year.

- Money-market rates in London dropped as cash injections by central banks and the prospect of deeper reductions in borrowing costs worldwide showed signs of revitalizing confidence in lending. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 5 basis points today to 3.42 percent, its 13th straight decline, according to the British Bankers' Association.

- Legg Mason Inc.(LM), burdened for a year with subpar returns and the cost of bailing out money funds, rose the most since it went public 25 years ago after reporting quarterly profit that exceeded analysts' estimates.

Wall Street Journal:

- Greenlight Capital, SAC Said Caught in Volkswagen Short Squeeze.

Washington Post:
- Sen. Barack Obama's presidential campaign is allowing donors to use largely untraceable prepaid credit cards that could potentially be used to evade limits on how much an individual is legally allowed to give or to mask a contributor's identity, campaign officials confirmed. Faced with a huge influx of donations over the Internet, the campaign has also chosen not to use basic security measures to prevent potentially illegal or anonymous contributions from flowing into its accounts, aides acknowledged. The Obama campaign has shattered presidential fundraising records, in part by capitalizing on the ease of online giving. Of the $150 million the senator from Illinois raised in September, nearly $100 million came in over the Internet.

Charlotte Observer:

- Some factories stable amid downturn.

Interfax:

- Russia’s inflation rate in the year through Oct. 27 reached 11.5% as poultry and beef prices rose, citing a government official.

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Globe and Mail:

- A great many Canadian hedge funds were leveraged commodity plays. Many of these funds don't have a second act to roll out when the resource story is no longer a crowd pleaser.

Bear Radar

Style Underperformer:
Large-cap Growth (+.18%)

Sector Underperformers:
HMOs (-3.23%), Airlines (-2.23%) and REITs (-2.07%)

Stocks Falling on Unusual Volume:
APL, BXP, CI, AET, VPRT, ULTI, VOCS, ADVS, DRIV, APL, WXS and NYM

Stocks With Unusual Put Option Activity:
1) RYL 2) FDRY 3) KGC 4) WSM 5) LAMR

Bull Radar

Style Outperformer:
Small-cap Growth (+.93%)

Sector Outperformers:
Gaming (+7.2%), Oil Service (+6.3%) and Energy (+3.3%)

Stocks Rising on Unusual Volume:
NXY, TSRA, APOL, ICLR, STRA, WYNN, BBOX, XRAY, AVAV, KNDL, VPHM, CPSI, CETV, CMED, BMRN, PLXS, WBSN, CRDN, RCII, CEPH, GRMN, IEO, PEZ, IBA, PCP, PTE, LUX, LM, SXL and KDN

Stocks With Unusual Call Option Activity:
1) DHI 2) TLM 3) HBC 4) LM 5) WYNN