Stocks Finish Higher, Boosted by Retail, Airline and Financial Shares

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Stocks Higher into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Gaming longs and Retail longs. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 4.3% today, but remains high at 28.0. The ISE Sentiment Index is a below average 106.0 and the total put/call is hitting an above average 1.11. The fact that the market has recouped morning losses despite negative news today is a large positive. Cisco(CSCO) disappointed and it is unch., while many other tech stocks are rising. Moreover, many retailers reported disappointing same-store-sales, yet the Morgan Stanley Retail Index is surging another 4%. Oil is higher, but airlines are rising another 3%. Finally, financials are 1% higher notwithstanding more scary credit-related news and rhetoric. The US Dollar continues to trade as if at the very least an intermediate-term bottom is in place as the ECB finally acknowledged a cut may be in order, which is another large positive. As well, the 10-year T-note is trading as if an intermediate-term top is in, which may indicate subsiding economic pessimism. Fed funds futures imply an 88% chance for another 50 basis point cut and a 12% chance for a 75 basis point cut at the upcoming meeting. (WMS), one of my longs, is hitting a new high today, which is very impressive considering recent market turbulence. I still see substantial upside in the shares over the longer-term as server-based gaming takes hold. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a +80 open in Germany. I expect US stocks to trade modestly higher into the close from current levels on less economic pessimism, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- US stocks rose, led by consumer companies, after JC Penney(JCP) and Gap Inc.(GPS) said profits will exceed analysts’ estimates.
- The euro fell to the lowest level in more than two weeks against the US dollar as ECB President Trichet said European growth may slow.
- President Bush said the US Senate must promptly vote on his backlog of some 200 nominees, including three for the Federal Reserve Board, and stop treating them like “political pawns.”
- GSO Capital Partners LP, the hedge fund being bought by Blackstone Group LP, hired Najib Canaan and a trading team from Brevan Howard Asset Management LLP to invest in mortgages and bonds hit by the credit-market contraction.
- Bank of America(BAC) increased its stake in Ambac Financial(ABK) from 5.1% at the end of September to 7.06%.
- Copper is surging 3.7% as falling inventories quelled concern that demand for the metal may slump.
- US Treasuries declined as demand was weaker than expected at the government’s $9 billion auction of 30-year bonds, which drew the lowest yield on record.

Wall Street Journal:
- Lehman’s(LEH) Harris Tops List of Forecasters.
- The European Central Bank faces a tough task when it reviews interest rates today, not only because of the economic slowdown but also because hedge funds are trying to exploit disparities within the European Union.
- Actively managed ETFs, soon to become reality, may not offer the low costs and tax-efficiency that have been ETF’s biggest attractions.
- Alcatel-Lucent SA(ALU), the telephone equipment maker that saw its shares drop 60% in 2007, may be a good buy as an industry price war subsides.

NY Times:
- Wal-Mart Will Expand In-Store Medical Clinics.

LA Times:
- Yahoo(YHOO) said to step up talks with Google(GOOG).

Red Herring.com:
- Half of GM(GM) Cars Will Be running on ethanol by 2012. Start-up biofuel company Coskata Inc., part-owned by GM, said it has formed a strategic alliance with ICM Inc. to build a commercial plan to mass produce cellulose-based ethanol. The plant is due to open in late 2010.

Forbes:
- Some 70% of all equity volume is driven by computer models that suddenly trigger a surge in buy or sell orders that are causing the fragmentation, volatility and use of hidden trading venues.

USA Today:
- Al-Qaeda Shifts Iraq Tactics to Salvage Image.

Economic Times:
- Deutsche Bank is on the prowl for acquisitions, its CEO said on Thursday, after it dodged the subprime disaster that hit rivals.

Asharq al-Awsat:
- Saudi Arabian investors have $400 billion in investments in the US, making it the number one destination for their money, citing a report from the Riyadh-based Saudi British Bank. The US funds represent 34% of the $1.2 trillion that Saudis have invested abroad. Saudis diversified their investments away from the US after the terrorist attacks on Sept. 11.

Bear Radar

Style Underperformer:

Mid-cap Value (+.26%)

Sector Underperformers:

Drugs (-1.57%), HMOs (-1.08%) and Computer Hardware (-1.08%)

Stocks Falling on Unusual Volume:

MYL, IAR, GSK, ASF, PRU, AHG, BIOD, EXBD, TLEO, UFPI, CHUX, SFLY, MDTH, JDSU, BG and AZN

Initial Jobless Claims Fall, Pending Home Sales Decline

- Initial Jobless Claims for this week fell to 356K versus estimates of 342K and 378K the prior week.

- Continuing Claims rose to 2785K versus estimates of 2715K and 2710K prior.

- Pending Home Sales for December fell 1.5% versus estimates of a 1.0% decline and a downwardly revised 3.0% decline in November.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell this week, Bloomberg reported. The four-week moving average of jobless claims rose to 335,000 versus 326,500 the prior week. The unemployment rate among those eligible for benefits, which tracks the US Jobless claims are still at levels suggesting sluggish growth, not recession. I expect claims to move back down to more healthy levels in the second half of the year. unemployment rate, rose to 2.1%, which is still historically low, versus 2.0% the prior week.

The number of Americans signing contracts to buy previously owned homes fell more than forecast in December, Bloomberg reported. Purchases fell 3.1% in the West, 3% in the South and 1.7% in the Northeast. They jumped 3.4% in the Midwest. I still expect home sales to surprise on the upside as we entire the spring on pent-up demand, lower prices and the plunge in mortgage rates.

Bull Radar

Style Outperformer:

Small-cap Growth (+.24%)

Sector Outperformers:

Airlines (+3.38%), Retail (+2.23%) and I-Banks (+1.03%)

Stocks Rising on Unusual Volume:

NSR, CME, IAT, UTI, LH, ENS, KCE, ICE, POWI, DBTK, HUBG, PLCE, NSIT, TICC, MKSI, RTSX, ANDE, AKAM, ADVS, ECOL, ELON, JJSF, OSIS, MFLO, PPDI, EMKR, URBN, MWIV, CTRN, JCP, GAIA, PEP, KSS, ACL, FTE, IIT, MET, ELP and PFG

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
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NYSE Unusual Volume
NASDAQ Unusual Volume
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Thursday Watch

Late-Night Headlines
Bloomberg:
- The euro fell for a third day against the US dollar and the yen on speculation European Central Bank President Jean-Claude Trichet will signal borrowing costs may need to be cut to bolster growth.
- MBIA Inc.(MBI), plans to raise an additional $750 million by selling about 50.3 million common shares, bolstering capital in an attempt to retail its AAA rating.
- Federal Reserve Chairman Ben S. Bernanke said the central bank is “closely monitoring developments” with bond insurers, including the potential effects of ratings downgrades for banks.
- Cisco Systems(CSCO) forecast third-quarter sales that fell short of analysts’ estimates, spurring a 7.4% drop in the stock.
- Fadel Gheit, Managing Director of Oppenheimer, Says Oil Market ‘Bubble’ May End.
- Robert Toll Says Housing Market ‘Might Be Bottoming’: (video).
- US mortgage servicers helped 545,000 subprime borrowers stay in their homes in the second half of last year by modifying loans or setting up repayment plans.
- Ethanol in Chicago and three sport markets declined after a government report showed that gasoline inventories rose to a nine-year high.

Wall Street Journal:
- Airlines Merger Talks May Lead to Double Wedding.
- Candidates Mobilize As Race Grinds On.

MarketWatch.com:
- Investment banks say capital is still available. Merrill, Lehman give update on exposure to bond insurers.
- AT&T(T) expanding high-speed wireless network. Move likely foreshadows introduction of updated iPhone.

CNBC.com:
- Recession Nerves = Great Buying Opportunity.

NY Times:
- Clinton Lent Campaign $5 Million, May Lend More.

IBD:
- EBay(EBAY) Could gain In A Yahoo Acquisition.

Financial Times:
- The SEC is looking at whether Societe Generale violated US securities laws as it unwound and revealed its loss from Jerome Kerviel’s allegedly rogue derivatives trades.
- S&P unveils ratings overhaul.

National Post:
- Buffett ‘Huge Bull’ on US Economy.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (WXS), target $49.

Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 futures -.65%.
NASDAQ 100 futures -1.53%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (DO)/1.67
- (ASF)/.48
- (MDC)/-.65
- (MLNM)/.13
- (TBL)/.50
- (DHI)/-.45
- (EXPE)/.32
- (IP)/.64
- (LH)/1.00
- (AN)/.32
- (ENER)//-.13
- (COV)/.56
- (MCO)/.47
- (IT)/.36
- (AET)/.88
- (PEP)/.80
- (APA)/2.48
- (PBI)/.69
- (GNW)/.68
- (MFE)/.44
- (BMC)/.50
- (SINA)/.32
- (OMTR)/.08
- (AG)/.61
- (BWA)/.70
- (TRA)/.66

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to fall to 342K versus 375K the prior week.
- Continuing Claims are estimated to fall to 2715K versus 2716K prior.

10:00 am EST
- Pending Home Sales for December are estimated to fall 1.0% versus a 2.6% decline in November.

3:00 pm EST
- Consumer Credit for December is estimated at $7.4 billion versus $15.4 billion in November.

Other Potential Market Movers
- The Fed’s Fisher speaking, Fed’s Lockhart speaking, weekly EIA natural gas inventory report, (ELY) analyst meeting, (PETD) analyst meeting, Thomas Weisel Tech/Telecom/Internet Conference, CSFB Energy Conference, CSFB Financial Services Forum and Merrill Global Pharma/Biotech/Medical Device Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by automaker and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Tech, Financial and Homebuilding Shares

Evening Review
Market Summary
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 Stock Quote
In Play

Stocks Lower into Final Hour, Weighed Down by Tech, Financial and Homebuilding Shares

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Medical longs and Semi longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The overall tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 2.5% today to a high 29.0. The ISE Sentiment Index is a very low 84.0 and the total put/call is hitting an above average 1.02. Finally, the NYSE Arms is above-average at 1.4. The ongoing weakness in many large-cap growth leaders is worrisome. I will closely monitor the market’s reaction to Cisco’s report after the close before lifting market exposure. Nikkei futures indicate a -10 open in Japan and DAX futures indicate a -50 open in Germany. I expect US stocks to trade mixed into the close from current levels as bargain-hunting, falling energy prices and short-covering offsets ongoing economic pessimism.

Today's Headlines

Bloomberg:
- Mortgage applications in the US increased for a fifth consecutive week, led by a rebound in purchases.
- A storm unleashed tornadoes across the southern US late yesterday, killing at least 48 people, sparking a pipeline explosion in Tennessee and destroying homes and businesses from Alabama to Kentucky.
- US credit markets are trading as if the economy is in a recession because investors’ “fear has overwhelmed greed,” Goldman Sachs(GS) CFO Viniar said.
- Polo Ralph Lauren(RL) said third-quarter profit rose more than analysts estimated and increased its earnings forecast.
- Iran Sex Changes Get Mullahs’ Money as Regime Persecutes Gays.
- Crude oil is falling more than $1 a barrel after the government reported that US inventories surged the most in almost four years as refineries slowed operating rates and imports climbed.
- Copper is rising over 2% as inventories monitored by the LME dropped for a fourth-straight session.
- Plosser Says ‘Aggressive’ Rate Cuts Were Appropriate.
- US derivatives exchanges including CME Group(CME) tumbled in NY trading after the Dept. of Justice said their trade-processing practices may be anti-competitive.

Wall Street Journal:
- Icahn Set to Host Blog on Corporate Abuses.
- The Big Four accounting firms plan to hire roughly the same number – or more – of interns and entry-level employees for 2008 as they did last year.
- Credit Agricole SA’s Calyon unit is leading talks to bail out Financial Guaranty Insurance Co., a NYC-based bond insurer that was downgraded by ratings firms.

Morningstar:
- Goldman(GS) Hungry To Buy Distressed Mortgage Debt.

Forbes:
- After dominating the US wireless spectrum auction for months, from influencing the terms of the auction to bidding, it looks like Google(GOOG) is off the hook.

Washington Times:
- US and Iraqi negotiators will begin meeting later this month and hope to conclude a strategic compact on long-term economic, political and military cooperation by midsummer, Iraq’s US ambassador said yesterday. The agreement would not endorse permanent US military bases in his country or “tie the hands” of future US or Iraqi leaders. “We also believe that any future American president would see the benefits to the US national interest of keeping an alliance with Iraq,” said Iraq’s US ambassador.

Dagens Industri:
- Ericsson AB sees no decline in demand from operators who want the Swedish company to manage their networks, citing Jan Frykhammar, head of Ericsson’s global services division.

Ethiopian News Agency:
- MIDROC Gold Mine Ltd. will almost double production over the next decade, citing CEO Arega Yirdaw. The company plans to increase output to as much as 6.52 metric tons a year, from 3.5 tons currently and expects to produce more than 70 tons of gold over the next 13 years.

Bear Radar

Style Underperformer:

Mid-cap Growth (-.01%)

Sector Underperformers:

Gaming (-1.38%), Homebuilders (-1.28%) and Computer Hardware (-1.24%)

Stocks Falling on Unusual Volume:

NSR, NFP, CME, NMX, SRX, DBTK, FORM, RSYS, CVLT, ABCO, RVBD, QSFT, DWSN, TZOO, MANH, BBBB, LOOP, USNA, CAKE and RATE

Productivity Surging, Unit Labor Costs Decelerating

- Preliminary 4Q Non-farm Productivity rose 1.8% versus estimates of a .5% gain and a 6.0% increase in 3Q.

- Preliminary 4Q Unit Labor Costs rose 2.1% versus estimates of a 3.5% gain and a -1.9% decline in 3Q.

BOTTOM LINE: Worker productivity in the US grew more than forecast in the fourth quarter as companies sought to contain unit labor costs, a sign inflation pressures may recede, Bloomberg reported. Labor costs account for about two-thirds of the cost of producing a good or service. This gives the Fed more flexibility and Richmond Fed President Lacker said today that further rate cuts may be warranted. Productivity rose at a 1.6% pace for all of 2007, up from a 1% pace in 2006. Productivity at non-financial corporations, a gauge released with a one-quarter lag and closely watched by former Fed Chairman Greenspan, rose at a 3.7% rate in the third quarter versus a 2.1% gain in the second quarter. Given the substantial deceleration in 4Q growth, the stronger-than-expected rise in productivity is a big positive. As well, decelerating unit labor costs, the main component of inflation, give the Fed significant leeway to cut rates further. I continue to believe unit labor costs will rise at below average rates over the intermediate-term. Moreover, I suspect productivity, which has picked up meaningfully over the last three quarters, will continue trending at above-average rates over the intermediate-term.

Bull Radar

Style Outperformer:

Large-cap Growth (+.72%)

Sector Outperformers:

Airlines (+3.29%), Retail (+2.22%) and Hospitals (+1.73%)

Stocks Rising on Unusual Volume:

ALO, SFF, JXI, AHG, RL, RBC, TMO, MFLX, ADVS, JDSU, QSII, PNSN, GHDX, RAIL, VOCS, IVAC, OMRI, IVGN, LDSH, OTTR, TTWO, TOMO, SIRO, FORR, HLEX, PRGO, SID, DIS, TWX, IIG, INSP and CLF

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Wednesday Watch

Late-Night Headlines
Bloomberg:
- BHP Billiton Ltd.(BHP) the world’s largest mining company, raised its hostile offer for Rio Tinto Group(RTP) to $147.4 billion, aiming to thwart a blocking move led by a Chinese competitor. Rio Tinto shares rose 4.9% in extended trading.
- JDS Uniphase(JDSU), the maker of equipment for testing telecom networks, reported second-quarter profit and sales that beat analysts’ estimates, sending the share soaring 20.6% in after-hours trading.
- Walt Disney(DIS), the second-largest US media company, reported first-quarter profit that beat analysts’ estimates as revenue from cable networks and theme parks climbed. The stock jumped 5.7% in extended trading.
- Smoking marijuana on a regular basis as a young adult can lead to gum disease by age 30 or younger, according to a study by New Zealand researchers.
- Heart attacks and deaths nearly doubled after patients stopped taking the anti-clotting drug Plavix, according to the first national study documenting the risk to heart patients who end their drug therapy.
- The euro declined the most against the US dollar in almost two months after Europe’s service industries weakened and raised concern that Jean-Claude Trichet’s reluctance to cut interest rates will hamper growth.
- Euro May Weaken to $1.431 on Technical Charts, Citigroup Says.

Wall Street Journal:
- McCain Scores in Northeast, Illinois. Romney Takes Massachusetts, Utah; Huckabee Rallies in Southern States.
- Obama Shows Strength in Deep South; Clinton Wins New York, Massachusetts.

MarketWatch.com:
- Buying January’s worst. Newsletters attracted to many worst performers from last month.
- Insiders are betting heavily on bull-market rebound.

NY Times:
- Whatever the outcome of Microsoft’s(MSFT) bid for Yahoo(YHOO), the move and Google’s(GOOG) countermoves mark an escalation in the confrontation between the two companies.
- For Marketing, the Most Valuable Player Might Be Google’s YouTube.
- In CBS Test, Mobile Ads Find Users.

SmartMoney.com:
- Microsoft(MSFT) Shareholders to Pay High Price for Yahoo(YHOO).

Forbes.com:
- Worries that payment shock on adjustable-rate mortgages could trigger even more defaults could subside as LIBOR continues to fall. The majority of hybrid adjustable-rate mortgages currently resetting – the ones analysts and experts widely predicted would default at high levels because of rising interest rates – are tied to LIBOR. Six months ago LIBOR was at 5.31%. By Monday, the rate had fallen to 3.1%. Subprime borrowers that were looking at a 30% jump in monthly payments just six months ago, are now looking at a monthly payment increase of less than 10%. If LIBOR continues to decline, adjustable rates could actually begin resetting below their initial interest rate, saving customers on monthly payments.

IBD:
- Google(GOOG) Cuts E-Mail Security Price To Advance ‘Cloud’ Services Push.

Financial Times:
- The Iraqi government is inviting major oil multinationals to participate for the first time in the development of the oil industry. Iraq is determined to push ahead with plans to raise production from a current 2.5 million barrels per day to 6 million barrels per day in five years.

Business Times:
- Singapore Telecom Ltd. says its 172 million mobile-phone subscribers will help the company in its bid to bring Apple’s(AAPL) iPhone to Asia, citing CEO Chua Sock Koong.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (SMTC), target $18.
- Reiterated Buy on (EMR), target $58.
- Maintained Buy on (MU), target $17.

Night Trading
Asian Indices are -3.75% to -1.75% on average.
S&P 500 futures -.29%.
NASDAQ 100 futures -.36%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
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Top 25 Stories
Top 20 Business Stories
Today in IBD
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Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (WMG)/.12
- (IACI)/.55
- (PDX)/.80
- (DVN)/1.93
- (MGAM)/-.02
- (BIIB)/.80
- (TWC)/.31
- (TIN)/.16
- (TWX)/.29
- (SLE)/.24
- (CI)/.98
- (ITT)/.93
- (RL)/.76
- (HB)/.66
- (EDS)/.57
- (CCI)/.09
- (FMC)/.70
- (PRU)/1.89
- (CSCO)/.38
- (ACL)/1.27
- (MET)/1.44
- (WMS)/.25
- (AVB)/.58
- (AKAM)/.37

Upcoming Splits
- (CJR) 2-for-1
- (JASO) 3-for-1

Economic Releases
8:30 am EST
- Preliminary 4Q Non-farm Productivity is estimated to rise .5% versus a 6.3% gain in 3Q.
- Preliminary 4Q Unit Labor Costs are estimated to rise 3.5% versus a -2.0% decline in 3Q.

Other Potential Market Movers
- The weekly EIA energy inventory report, weekly MBA mortgage applications report, (CTXS) analyst day, (AXP) financial community meeting, (JAVA) analyst meeting, CSFB Financial Services Forum, CSFB Energy Conference, Cowen & Co. Aerospace/Defense Conference, Thomas Weisel Tech/Telecom/Internet Conference and Merrill Lynch Global Pharma/Biotech/Medical Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Lower, Weighed Down by Commodity, Financial, Retail and Tech Shares

Evening Review
Market Summary
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 Stock Quote
In Play

Stocks Sharply Lower into Final Hour on Profit-taking, Shorting, Economic Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Software longs, Biotech longs and Semi longs are more than offsetting gains in my Commodity shorts, (EEM) short, Internet longs and Medical longs. I added to my (XLE) short, added to my (EEM) short and added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is about average. Investor anxiety is high again. Today’s overall market action is bearish. Financials are under pressure, despite the relative stability in bond insurer shares. Commodities are also registering significant losses on global growth worries and the jump in the US dollar. I sense an increasing number of global investors view Europe as falling substantially behind the curve as their economies weaken and the ECB continues to talk of the possibility of future rate hikes. This will likely lead to further US dollar strength and commodity weakness over the coming months. I continue to see the US Fed as now “ahead of the curve” and the odds of an intermeeting rate cut are rising meaningfully. The VIX is rising 8.0% today to a high 28.0. The ISE Sentiment Index hit a below average 102.0 and the total put/call is hitting an above average 1.12. Finally, the NYSE Arms has been running very high again all day at 2.47, which is also a positive. I still view the odds of a full retest or new lows in the market as unlikely and further weakness providing good entry points in favorite longs for investors. Google(GOOG) is finally outperforming today. I think it is very likely it has seen its lows for the year as investor fears over a possible (MSFT)/(YHOO) combination diminish and its growth picks up this quarter. Comscore said today that Google’s global search market share is 62.4% versus 15.7% for Yahoo/Microsoft combined. The stock is very cheap given its fundamentals and should be awarded a premium valuation based on its ability to grow at a very healthy rate despite an economic slowdown. Nikkei futures indicate a -400 open in Japan and DAX futures indicate an +8 open in Germany. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, rising rate cut odds and short-covering.

Bear Radar

Style Underperformer:

Large-cap Value (-3.07%)

Sector Underperformers:

I-Banks (-3.94%), Coal (-3.41%) and Semis (-3.21%)

Stocks Falling on Unusual Volume:

PFG, IEX, NYX, AIR, CQB, CBL, WOOF, VRUS, CBEY, THOR, ROCM, BPHX, SNCR, DISCA, ACAD and SOHU

Today's Headlines

Bloomberg:
- The euro declined the most against the dollar in almost two months after Europe’s service industries weakened and raised concern that Jean-Claude Trichet’s reluctance to cut interest rates will hamper growth.
- Apple Inc.(AAPL) unveiled higher-prices models of its iPhone mobile handset and iPod media player with double the memory of older versions, altering its lineup for the second time in six months to encourage shoppers to spend more.
- Computer Sciences(CSC) rose the most in more than two years in NY trading after third-quarter profit topped analysts’ estimates.
- Whirlpool(WHR) said fourth-quarter profit rose more than analysts estimated, sparking the largest appliance maker’s biggest gain on the NYSE in nine months.
- Perot Systems(PER) rose the most in more than four years after fourth-quarter profit and sales topped analysts’ estimates.
- Illumina, the market of tools used to analyze genetic material and diagnose disease, rose the most in three weeks after forecasting profit that tops analysts’ estimates.
- Worldwide investment in clean energy technologies, driven by the need to address climate change, could reach a total of $7 trillion through 2030, according to a study by Cambridge Energy Research Assoc.
- Dennis Gartman, editor of the Gartman Letter, Sees Up to 15% Drop for Gold.
- Sugar inventories that rose 19% last year will reach a record within months as farmers from Brazil to India contribute to a growing glut.
- Crude oil is falling more than $2/bbl. on a rising US dollar, less speculation by investment funds, decelerating global demand and record global production.

Wall Street Journal:
- Microsoft Corp.(MSFT) will probably raise its $44.6 billion offer for Yahoo! Inc.(YHOO) to avoid a lengthy battle. Sandeep Aggarwal, an analyst with Oppenheimer, said no other company wants Yahoo as much as Microsoft does and the latter will have to raise its bid to something in the range of $36 to $40 a share.
- Microsoft’s(MSFT) Yahoo(YHOO) Gambit.
- Chinese Investors Relying on ‘Olympic Put’ for Rally.

Businessweek.com:
- Buffett Stock Screen Shows 60 Candidates.

CNBC:
- Wilbur Ross, chairman of NY-based WL Ross, said he’s still looking at several bond insurers and may make a decision on investing in the next few weeks.

Marginal Revolution:
- Commercial loans from large banks are at an all time high and increasingly rapidly.

Dealbreaker:
- Goldman Sachs’ latest hedge fund, which was the largest launch in the history of the industry, had a rough first month. The fund is down 6% for January, according to a source familiar with the results.

San Francisco Chronicle:
- Lennar(LEN) attracts major backer for S.F. projects.
- New Intel(INTC) chip sets a record, doubles processing power.

LA Times:
- Top corporate insiders last month bought more of their companies’ shares than they sold for the first time since 1995, while the volume of shares sold short last month grew to 3.7% of NYSE-traded companies’ total shares outstanding, the highest since at least 1931.

USA Today:
- Farmland more valuable than ever.

AP:
- US-backed Sunni Muslim tribesmen found about 50 bodies in a mass grave west of the Iraqi city of Samarra, citing local officials. About 200 bodies were unearthed in recent months from mass graves around nearby Lake Tharthar, an area that was controlled by al-Qaeda until an uprising this year by local tribes.

De Telegraaf:
- Corporate Express NV is in “exploratory” talks with Staples Inc.(SPLS) to be bought.

Reforma:
- Mexico’s wind-generated power industry will receive $4.5 billion in international and domestic investments in the next five years.

ISM Non-Manufacturing Declines, Prices Paid Falls

- ISM Non-Manufacturing for January fell to 44.6 versus estimates of 52.5 and a reading of 53.2 in December.

BOTTOM LINE: US service industries unexpectedly shrank in January, Bloomberg reported. The New Orders component fell to 43.5 versus 53.9 the prior month. New Export Orders rose to 52.0 from 50.0 in November. The Employment component fell to 43.9 from 51.8 the prior month. The Prices Paid component fell to 70.7 from 71.5 in December. Weekly retails sales rose a sluggish .5% this week. According to Intrade.com, the odds of a recession beginning this year are still down from 77.5% a couple of weeks ago to 68% today, notwithstanding this report. As well, the US dollar index is rising substantially. Fed fund futures now imply a 100% chance for another 50 basis point rate cut at the March 18 meeting, which is up from a 68.0% chance yesterday. I suspect this number will see a substantial snapback next month. I still expect overall US growth to accelerate meaningfully as the year progresses.

Bull Radar

Style Outperformer:

Small-cap Value (-.23%)

Sector Outperformers:

Airlines (+.93%), Gaming (+.78%) and Hospitals (+.14%)

Stocks Rising on Unusual Volume:

HEW, WHR, OMI, YTEC, ILMN, OSIS, PSYS, WYNN, BPHX, TZIX, GOOG, RCII, TNDM, MANT, PRGO, FOSL, ACOR, CVCO, AVTR, SNDK, ISRG, CBRL, LVS, HOT and MAR

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
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Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Moody’s Investors Service(MCO) is considering a new ratings system based on numbers for structured-finance securities that would abandon the letter grades created by founder John Moody about a century ago.
- Seagate Technology(STX), the world’s largest maker of hard-disk drives, raised its quarterly dividend by 20% and announced plans to buy back as much as $2.5 billion of stock over the next two years.
- Investors should sell the Australian dollar, according to BNP Paribas SA, France’s biggest bank. The currency, known as the Aussie, will fall to 77 US cents by year-end and 65 cents by the end of 2009, according to Hans-Guenter Redeker, global head of currency strategy at BNP.
- Billionaire real estate developer Sam Zell bought a 7.7% stake in Starwood Hotels & Resorts(HOT) to become the company’s second-biggest shareholder, causing the shares to rise 4.8%.
- Iran’s new space center built to send a research satellite into orbit is a “troubling development” because it employs the same technology used for producing long-range ballistic missiles, the US state Dept. said.
- Australia Raises Interest Rate to 7% to Curb Prices.

Wall Street Journal:
- If credible bidders don’t emerge to challenge Microsoft’s(MSFT) $44.6 billion offer for Yahoo!(YHOO), the Web titan will likely have to resort to a tried-and-true method for securing a higher price: playing hard to get.
- Issues Recede in ’08 Contest As Voters Focus on Character.
- Obama Closes In on Clinton As McCain Lengthens Lead.
- Actively Traded ETFs: A Step Closer to Reality.

BusinessWeek.com:
- The World’s Most Influential Headhunters.
- Teradyne(TER): A Tempting Tech Pick.

Forbes.com:
- Prominent new hedge funds pulled in slightly more money last year than in 2006 largely because savvy bets on the housing market pumped up assets at a small handful of funds.

IBD:
- Q4 Earnings Really Weren’t Too Bad – Except For Banking.

USA Today.com:
- Senate calls timeout on economic stimulus plan.

Reuters:
- News Corp.(NWS/A) lifts outlook, sees no ad slowdown.

Financial Times:
- China ‘on course for growth slowdown’.
- Microsoft(MSFT) hits back at Google(GOOG).

TimesOnline:
- The West’s biggest oil companies are in talks with the Government of Iraq to boost the country’s oil and gas output.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (RIMM), target $140.
- Rated (AKAM) Buy, target $51.
- Reiterated Buy on (ADM), target $52.
- Maintained Buy on (NWS/A), target $26.

Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 futures -.19%.
NASDAQ 100 futures -.21%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Earnings of Note
Company/EPS Estimate
- (CME)/3.58
- (AVP)/.29
- (EMR)/.64
- (LPX)/-.33
- (TYC)/.61
- (NYX)/.66
- (WHR)/2.15
- (DUK)/.24
- (DIS)/.52
- (THQI)/.35
- (JDSU)/.11
- (NBR)/.73
- (CBG)/.73
- (CAKE)/.26
- (INSP)/.24
- (FORM)/.40

Upcoming Splits
- (CJR) 2-for-1
- (JASO) 3-for-1

Economic Releases
10:00 am EST
- The ISM Non-Manufacturing Composite for January is estimated to fall to 52.4 versus 53.2 in December.

Other Potential Market Movers
- The Fed’s Lacker speaking, weekly retail sales report, (UAUA) analyst meeting, (STT) analyst meeting, (JAVA) analyst meeting, Cowen & Co. Aerospace/Defense Conference, Thomas Weisel Tech/Telecom/Internet Conference, Merrill Lynch Global Pharma/Biotech/Medical Device Conference and CSFB Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and shipbuilding stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly mixed. The Portfolio is 100% net long heading into the day.

Stocks Finished Lower, Weighed Down by Financial, Retail and Homebuilding Shares

Evening Review
Market Summary
Today’s Movers
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WSJ Data Center
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Market Wrap CNBC Video(bottom right)
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GuruFocus.com
PM Market Call
After-hours Commentary
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In Play

Stocks Lower into Final Hour on Profit-taking, Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is below average. Investor anxiety is above average. Today’s overall market action is just mildly bearish given recent gains. The most technically extended financial, homebuilding and retail shares are under the most pressure today. The VIX is rising 7.0% today to a high 26.0. The ISE Sentiment Index hit a depressed 77.0 and the total put/call hit an above average 1.13 this morning. Finally, the NYSE Arms has been running high all day at 1.55, which is a positive, especially given below average volume. Overall, today’s action looks like a healthy low-volume consolidation of recent gains. Many growth stocks are higher on the day despite ongoing weakness in some of the leaders. I continue to believe pullbacks will remain relatively mild and short-term in nature and should be bought. Nikkei futures indicate a -75 open in Japan and DAX futures indicate a -5 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism and short-covering.

Today's Headlines

Bloomberg:
- CEOs, directors and other senior officials in corporate America are buying more of their companies’ shares than they’re selling for the first time since 1995, prompting growing confidence the stock market is poised to rally for the rest of the year. August Busch III, an AT&T(T) board member since 1980, bought $2.27 million shares in the biggest US phone company last month, his largest purchase on record. Monsanto Co.(MON) director William Parfet added to his holdings in the world’s No.1 seed producer for the first time in eight years.
- Perceived headwinds aren’t preventing the DJIA from beating all of the world’s biggest stock markets.
- President Bush is asking Congress to fund a $25 billion budget for the US Energy Dept., the largest requested increase for the dept. in five years. The president proposes to raise spending on programs to increase power production without boosting greenhouse gas emissions. The budget allocates more spending on “clean-coal” technology to capture emissions from coal-burning power plants as well as nuclear energy, which provides power without emitting carbon dioxide.
- Sugar-cane production in Brazil, the world’s biggest producer of sugar, may rise this year as growers plant more to benefit from soaring demand for biofuels, research company Datagro Ltd. said.
- The global sugar surplus may extend beyond 2009 as a price rally spurred by hedge fund buying dissuades farmers from reducing output, said Jonathan Kingsman, head of sugar and ethanol research company Societe Kingsman SA.
- Vestas Wind Systems A/S, the world’s biggest wind-turbine maker, rose 12% in Copenhagen trading after lifting its 2007 earnings forecast.
- Ignore the Obituaries, US Reign Will Endure.
- Crude oil is rising $1/bbl. after the Houston Ship Channel was closed to tankers because of fog and Turkish planes attacked Kurdish insurgent bases, boosting investment fund speculation in the commodity.
- Citadel Investment Group LLC, the asset-management firm run by Kenneth Griffin, separated its hedge fund business from an options market-making unit in what may be a prelude to a public offering.
- Microsoft(MSFT) May Borrow for First Time to Buy Yahoo(YHOO).

NY Times:
- Another Difficulty for a Microsoft-Yahoo Marriage: Recruiting.
- GM’s(GM) Global Strategy: A Brand for Every Place.

Forbes.com:
- Federal Reserve Governor Randall Kroszner called on the mortgage industry to help avoid a wave of defaults by “quickly” modifying payment terms.

PRNewswire:
- RBC Capital Markets today announced the launch of the RBC Emerging Manager Allocator platform, a proprietary pool of capital that is structured to invest in a diversified group of emerging manager hedge funds with a demonstrated ability in alternative investing.

Broadcasting & Cable:
- Cablevision(CVC) Starts New Video on Demand DVD Service.

Interfax:
- For the first time since 1991, Russian tanks, multiple rocket launchers and armored personnel carriers will roll across Red Square on May 9 as part of the annual Victory Day parade.