Saturday, December 17, 2005

Market Week in Review

S&P 500 1,267.32 +.63%*

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Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was neutral considering less hawkish Fed comments, healthy retail sales data, decelerating inflation readings, lower long-term interest rates, increasing deal activity, falling energy prices and decent news from the homebuilders. The advance/decline line rose slightly, sector performance was mixed and volume was slightly above average on the week. Measures of investor anxiety were mixed. However, the AAII % Bulls fell again to 46.15%. This reading is now back near average levels, which is a big positive considering most major averages are at least above 4-year highs. The average 30-year mortgage rate fell to 6.30% which is 109 basis points above all-time lows set in June 2003. I continue to believe mortgage rates will head modestly lower over the intermediate-term as measures of inflation decelerate and economic growth slows to average rates. Moreover, the benchmark 10-year T-note yield fell 9 basis points on the week after the Fed made less hawkish comments in their policy statement, foreign demand for US assets hit another record and measures of inflation decelerated.

Small-cap and Nasdaq shares underperformed on profit-taking, option expiration and index rebalancing. Gold fell substantially on the week and appears to have made an intermediate-term top. Unleaded Gas futures were down again and are 46% below September highs even as refinery utilization still remains below normal as a result of the hurricanes. Natural gas supplies decreased more-than-expected this week, however they are still above the 5-year average for this time of year even as over 20% of daily Gulf of Mexico production remains shut-in. It now appears very likely that natural gas has joined oil and peaked for the intermediate-term. As I said last week, prices for many commodities have been driven by fear and record capital inflows into commodity funds, rather than fundamentals. I still expect global energy demand destruction and a significant increase in supplies into 2006 to push energy prices substantially lower from current levels. The S&P 500 is still within striking distance of my mid-year prediction of a double-digit annual gain. The index is currently up 6.44% for the year with 9 trading days remaining.


*5-day % Change

Friday, December 16, 2005

Weekly Scoreboard*

Indices
S&P 500 1,267.32 +.63%
DJIA 10,875.59 +.90%
NASDAQ 2,252.48 -.19%
Russell 2000 683.09 -.83%
DJ Wilshire 5000 12,667.59 +.41%
S&P Equity Long/Short Index 1,105.46 +.52%
S&P Barra Growth 606.51 +.73%
S&P Barra Value 656.41 +.54%
Morgan Stanley Consumer 599.30 +1.44%
Morgan Stanley Cyclical 786.81 +.78%
Morgan Stanley Technology 534.61 +.39%
Transports 4,142.49 +.98%
Utilities 417.82 +1.95%
S&P 500 Cum A/D Line 8,624.00 -.59%
Bloomberg Crude Oil % Bulls 41.0 -21.15%
Put/Call .80 unch.
NYSE Arms .96 -5.88%
Volatility(VIX) 10.68 -8.64%
ISE Sentiment 186.00 -5.10%
AAII % Bulls 46.15 -6.71%
US Dollar 89.71 -1.74%
CRB 326.36 -.44%

Futures Spot Prices
Crude Oil 58.06 -2.42%
Unleaded Gasoline 156.89 -2.37%
Natural Gas 13.63 -4.66%
Heating Oil 173.20 -.06%
Gold 506.20 -4.72%
Base Metals 153.29 -.54%
Copper 202.55 +1.83%
10-year US Treasury Yield 4.43% -1.99%
Average 30-year Mortgage Rate 6.30% -.32%

Leading Sectors
Airlines +7.01%
Drugs +3.11%
Homebuilders +2.98%

Lagging Sectors
Oil Service -2.11%
Steel -2.26%
Oil Tankers -2.87%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Slightly Lower Mid-day on Expiration and Rebalancing

Indices
S&P 500 1,269.17 -.14%
DJIA 10,885.11 +.04%
NASDAQ 2,254.86 -.26%
Russell 2000 682.71 -.30%
DJ Wilshire 5000 12,682.16 -.17%
S&P Barra Growth 607.43 -.16%
S&P Barra Value 657.27 -.13%
Morgan Stanley Consumer 599.59 +.41%
Morgan Stanley Cyclical 787.83 +.07%
Morgan Stanley Technology 535.17 -.09%
Transports 4,147.04 +.03%
Utilities 418.90 +.24%
Put/Call .83 +38.33%
NYSE Arms .96 +15.83%
Volatility(VIX) 10.54 -1.77%
ISE Sentiment 195.00 -10.55%
US Dollar 89.79 -.26%
CRB 326.20 -.73%

Futures Spot Prices
Crude Oil 58.30 -2.82%
Unleaded Gasoline 156.25 -3.36%
Natural Gas 13.68 -.73%
Heating Oil 173.50 -3.15%
Gold 505.90 -.14%
Base Metals 153.29 +1.97%
Copper 202.90 +1.40%
10-year US Treasury Yield 4.44% -.40%

Leading Sectors
Airlines +3.27%
Drugs +.78%
Software +.55%

Lagging Sectors
Coal -1.30%
Oil Service -1.49%
Energy -1.87%
BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Airline longs and Energy shorts. I covered some of my IWM and QQQQ shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is heavy. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering the decline in long-term rates and energy prices. A partnership with Google (GOOG) would be ideal for AOL, in my opinion. Google would provide the "out-of-the-box" type of thinking that AOL is lacking. I don't believe Microsoft (MSFT) could do that. I am convinced that there is tremendous value that can be unlocked in AOL under the right circumstances. This deal would be very big for both parties. I expect US stocks to trade mixed into the close from current levels as rebalancing offsets lower energy prices.

Today's Headlines

Bloomberg:
- S&P will introduce a series of “growth” and “value” indices today that are tied to its US market benchmarks, including the S&P 500.
- GM CEO Wagoner said there’s been “ample interest” in his finance unit and he is confident the automaker can find a buyer after some of the nation’s biggest banks declined to bid.
- US 10-year Treasuries are rising, heading for the biggest weekly gain since November, on speculation the Fed is almost done raising interest rates.
- United Nations Deputy Secretary-General Louise Frechette, who was criticized by former US Fed Chairman Volcker for failing to properly manage the scandal-plagued Iraq oil-for-food program, announced her resignation today.
- Crude oil, heating oil and natural gas are falling on forecasts showing that warmer weather will move across the northern US, reducing demand.
- Google is discussing a 5% stake in AOL for $1 billion that would exclude Microsoft.

Wall Street Journal:
- Yahoo! has signed an agreement with Marketing Management Analytics research firm to offer advertisers the chance to buy detailed research on the effectiveness of their Web advertisement.
- Google is struggling to reconcile its goal of making information “universally accessible and useful” with its aim of expanding in China as it wrestles with Chinese censors.
- A group including Cerberus Capital Management, Kimco Realty and supermarket chain SuperValu may win the auction to buy Albertson’s for about $9.6 billion, or $26 a share.
- Iraq’s struggle toward democracy will require patience and sacrifice, which necessitates the support of the international community, four Eastern European ambassadors to the US wrote.

NY Post:
- Apollo Management’s $1.3 billion takeover of Linens ‘n Things may fall apart in the next two weeks if the retailer fails to meet the earnings goal set for the acquisition.

Washington Post:
- Saudi Arabia’s new ambassador to the US rejected the Iranian president’s description of the Nazi Holocaust during WW II as a myth, saying the “horrific genocide” isn’t in dispute.

NY Times:
- Sid Richardson Energy Services, a gas pipeline company owned by the Bass family of Fort Worth, Texas, yesterday agreed to be acquired by Southern Union for $1.6 billion in cash.
- The participation of Sunni Arabs, a minority, in Iraq’s national election yesterday will raise hopes of a reconciliation with the ruling Shiite parties that came to power in Janurary.

TheDeal.com:
- Fresh Del Monte Produce is looking for a buyer and could be sold for about $1.8 billion.

Current Account Deficit Shrinks

- The 3Q Current Account Deficit shrunk to -$195.8 billion versus estimates of -$205.0 billion and -$197.8 billion in 2Q.
BOTTOM LINE: The US current-account deficit unexpectedly narrowed from July through September, Bloomberg reported. The shortfall was the smallest since 3Q 2001. I expect the current account deficit to improve modestly going forward.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote