Weekly Outlook

Click here for Market Outlook by CNBC.

Click here for Stocks in Focus for Monday by MarketWatch.com.

There are several economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Advance Retail Sales, Business Inventories

Tues. – Trade Balance, Producer Price Index, IBD/TIPP Economic Optimism, weekly retail sales

Wed. – Weekly MBA mortgage applications report, Consumer Price Index, Empire Manufacturing, weekly EIA energy inventory report, NET Long-term TIC Flows, Industrial Production, Capacity Utilization, NAHB Housing Market Index

Thur. – Housing Starts, Building Permits, Initial Jobless Claims, Philly Fed

Fri. – Univ. of Mich. Consumer Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Blackstone Group(BX), Bob Evans(BOBE), DeVry Inc.(DV), Netease.com(NTES), SYSCO Corp.(SYY)

Tues. – Agilent(A), Applied Materials(AMAT), Dillard’s(DDS), Fortress Investment Group(FIG), Fossil Inc.(FOSL), Harman Intl.(HAR), Home Depot(HD), TJX Cos(TJX), Wal-Mart Stores(WMT)

Wed. – Affiliated Computer Services(ACS), Daktronics(DAKT), Deere(DE), Dick’s Sporting Goods(DKS), Longs Drug(LDG), Macy’s(M), Network Applicance(NTAP), PetSmart Inc.(PETM), Salesforce.com(CRM), Sara Lee(SLE)

Thur. – Autodesk(ADSK), Estee Lauder(EL), Grube & Ellis(GBE), Guess ?(GES), Hewlett-Packard(HPQ), JC Penney(JCP), Kohl’s Corp.(KSS), Nordstrom(JWN), Red Robin(RRGB), Zumiez(ZUMZ)

Fri. – Focus Media(FMCN), JM Smucker(SJM)

Other events that have market-moving potential this week include:

Mon. – Keefe Bruyette & Woods Bank Conference

Tue. – CSFB Communications Conference, UBS Engineering & Construction Conference, Jeffries Industrials Conference, Keefe Bruyette & Woods Bank Conference

Wed. – CSFB Communications Conference, (YUM) Investor Day

Thur. – CSFB Communications Conference, (IVGN) Annual Investor Day

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on better-than-expected earnings reports, diminishing forced selling, less hedge fund performance uncertainty, decelerating inflation, bargain-hunting, and short-covering. My trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,433.06 +1.43%*

Click here for the weekly market review by Bloomberg.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,453.64 +1.43%
DJIA 13,239.54 +.44%
NASDAQ 2,544.89 +1.34%
Russell 2000 788.78 +4.42%
Wilshire 5000 14,600.58 +1.47%
Russell 1000 Growth 585.07 +.97%
Russell 1000 Value 813.45 +1.59%
Morgan Stanley Consumer 713.59 +1.80%
Morgan Stanley Cyclical 1,010.17 -.61%
Morgan Stanley Technology 621.14 +.54%
Transports 4,961.73 +1.80%
Utilities 491.32 +3.10%
MSCI Emerging Markets 128.83 -1.65%

Sentiment/Internals
NYSE Cumulative A/D Line 65,166 -.96%
Bloomberg New Highs-Lows Index -801 -8.98%
Bloomberg Crude Oil % Bulls 28.0 +75.0%
CFTC Oil Large Speculative Longs 230,904 -12.7%
Total Put/Call 1.09 -23.78%
NYSE Arms .73 -79.26%
Volatility(VIX) 28.30 +12.48%
ISE Sentiment 106.0 +2.91%
AAII % Bulls 45.76 -.26%
AAII % Bears 38.98 -2.55%

Futures Spot Prices
Crude Oil 71.47 -5.25%
Reformulated Gasoline 195.48 -3.49%
Natural Gas 6.82 +11.80%
Heating Oil 197.12 -3.30%
Gold 681.60 -.45%
Base Metals 236.08 -7.60%
Copper 335.95 -3.56%

Economy
10-year US Treasury Yield 4.81% +12 basis points
4-Wk MA of Jobless Claims 307,800 +.6%
Average 30-year Mortgage Rate 6.59% -9 basis points
Weekly Mortgage Applications 656.50 +8.1%
Weekly Retail Sales +2.9%
Nationwide Gas $2.80/gallon -.06/gallon
US Cooling Demand Next 7 Days 17.0% above normal
ECRI Weekly Leading Economic Index 142.0 -.28%
US Dollar Index 80.67 +.63%
CRB Index 310.91 -2.28%

Best Performing Style
Small-cap Value +4.5%

Worst Performing Style
Mid-cap Growth +.76%

Leading Sectors
Alternative Energy +8.4%
Homebuilders +6.61%
Banks +4.0%
Biotech +3.93%
REITs +3.22%

Lagging Sectors
Tobacco -1.69%
HMOs -1.95%
Telecom -2.40%
Oil Tankers -3.06%
Steel -3.22%

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

*5-Day Change

Stocks Lower into Final Hour on Continuing Weakness in Financials and Homebuilders

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly negative today as the advance/decline line is lower, sector performance is mixed and volume is very heavy. My intraday gauge of investor angst is elevated again. Investor angst is at levels normally associated with meaningful market bottoms. The NYSE Arms hit a very elevated 2.97 this morning. The VIX is at the highest level since early 2003. The ISE Sentiment Index 10-day moving average is at the second lowest reading on record. The CBOE total put/call 10-day moving average is also at the second highest reading on record. Money market funds, this week, saw $36 billion in inflows, the most since 2005. As well, the average 30-year mortgage rate fell nine basis points this week to 6.59%. This is down from 6.73% three weeks ago. November housing price futures are maintaining recent gains at $215,800. Trading has a panicky feel again today even as global central banks inject further liquidity into the system. The futures markets are now pricing in an imminent rate cut by the U.S. Fed. If this were to occur, the heavily shorted financials and housing-related equities would likely see extraordinary moves higher. At this point, I disagree that it would scare investors and result in further downside. As well, many of the hedge funds that are currently under duress are the very types of funds that I have been saying for some time will see substantial outflows. I still think a good portion of these outflows will move back into more positively correlated U.S. stocks strategies. Insider buying in general has soared recently, but especially so in financial equities even as investors stampede out the door, according to InsiderScore.com. In fact, this round of insider buying is led by the troubled financial industry, particularly among real estate investment trusts and other companies exposed to the subprime mortgage fallout, according to the report. This is very significant, in my opinion. RBC released its monthly consumer confidence index this morning. It came in at the best level in five months, jumping from 76.1 to 89.3. It appears that falling gasoline prices and a healthy job market were large contributors. It is also interesting to note that the gauge that measures consumers' feelings about the economy and their own financial fortunes over the next six months soared to 43.9 from 23.1 in July. As well, the employment component of the survey rose to 124.5 from 116.8 the prior month. Finally, the gauge that measures consumers' comfort level in making major purchases surged to 97.9 from 83.6 in July. This survey is contradictory to fears of imminent major job losses and a plunge in consumer spending. I still think consumer sentiment will improve further over the intermediate-term as housing fears subside, interest rates remain low, inflation decelerates further, energy prices continue to fall meaningfully, unemployment remains historically low, wages continue to substantially outpace inflation and stocks resume their major uptrend. Countrywide Financial(CFC), the source of much angst today, is trading near session highs, rebounding almost 3 points from today’s low. I expect US stocks to trade higher into the close from current levels on short-covering, rising expectations for a Fed rate cut and bargain hunting.

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- EMC Corp.’s(EMC) VMware boosted the size of its IPO to as much as $1.1 billion, potentially making it the biggest share sale of a technology company since Google’s IPO in 2004.
- Shares of banks, hammered over the debacle in credit markets, are now at their cheapest in more than a decade. Some investors have noticed.
- Treasuries rose, pushing the two-year note’s yield down the most since 2004, after money market rates soared and the European Central Bank loaned $130 billion to banks to avert a cash crunch. Ten-year note yields exceeded the shorter-term maturities by the most since September 2005 as futures traders increased bets the Fed will cut interest rates.
- News Corp.(NWS/A) Chairman Rupert Murdoch said he will take on the New York Times(NYT) once his purchase of Dow Jones(DJ) is complete by expanding non-business coverage at the Wall Street Journal.
- The Bank of Japan added $8.49 billion to the financial system, joining central banks in the US and Europe in supplying cash to assuage a credit crunch.
- Countrywide Financial(CFC) said “unprecedented disruptions” in the US home-loan market may crimp its ability to lend and erode profit.

Wall Street Journal:
- One of the most profitable periods ever for the refining industry may be coming to an end.

AP:
- Activist Cindy Sheehan, who turned her soldier son’s death into a platform for protesting the Iraq war, announced her candidacy for the US House of Representatives. She plans to challenge House Speaker Nancy Pelosi for her seat.

Financial Times:
- Nick Scheele, president and chief operating officer of Ford Motor(F) from 2001 to 2005, has entered the bidding for the Jaguar and Land Rover brands.
- Hillary Clinton faced scrutiny on Thursday over her attitude towards the use of nuclear weapons, amid a deepening foreign policy dispute with Barack Obama, her rival for the Democratic presidential nomination.
- Telecoms switch on to web television.

Sankei:
- North Korean leader Kim Jong Il sent a personal message to President Bush saying he wanted to normalize ties with the US and become a close partner after North Korea tested a nuclear weapon. The US government switched its strategy toward North Korea from confrontation to dialogue after Bush received the message.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AKAM), target $58.
- Reiterated Buy on (EFII), target $33.50.
- After years of small-cap and value stock outperformance, we have witnessed a turnaround in style trends. Our models currently favor large-caps and growth stocks. Continued large-cap and growth stock outperformance could created additional headwinds for investors who are not positioned for such a shift.

Night Trading
Asian Indices are -3.0% to -1.5% on average.
S&P 500 futures -.69%.
NASDAQ 100 futures -.55%

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Earnings of Note
Company/EPS Estimate
- (AYR)/.45
- (CRYP)/-.11
- (WCRX)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for July is estimated to rise 1.0% versus a 1.05 gain in June.

2:00 am EST
- The Monthly Budget deficit for July is estimated to widen to -$35.0 billion versus -$33.2 billion in June.

Other Potential Market Movers
- None of note

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.