BETWEEN THE HEDGES

Wednesday, August 22, 2007

Thursday Watch

Posted by Gary .....at 8:09 PM

Late-Night Headlines
Bloomberg:
- Mortgage companies rallied and stock- index futures rose in extended U.S. trading after Countrywide Financial Corp.(CFC), the biggest U.S. mortgage lender, said it obtained a $2 billion investment from Bank of America Corp.(BAC).
- Goldman Sachs Group Inc.'s(GS) Global Equity Opportunities hedge fund rose 12 percent last week after the securities firm shored up the money-losing pool with $3 billion of cash, investors said.
- The Bank of Japan kept interest rates unchanged after a global credit rout clouded the outlook for growth in the world’s second-largest economy.
- Robert Diamond, president of Barclays Plc, sees a “sense of calm” in financial markets.
- Iran’s Nuclear Threat Aided by Fake Firms, Rome Bank, US Says.
- Central bankers from Santiago to Seol are raising interest rates to fight inflation in a bet that this month’s global financial-market turmoil won’t derail economic growth enough to contain prices at home.
- The yen is falling to a one-week low against the dollar and the euro.

Wall Street Journal:
- Bank of America(BAC) acquired a $2 billion equity stake in Countrywide Financial(CFC), a moved aimed at dispelling a crisis of confidence among creditors and investors in the nation’s largest home-mortgage lender. The stock soared 20.3% in after-hours trading.
- Seagate Technology(STX), the maker of computer disk drives, will start making products that use flash memory chips next year, citing CEO Bill Watkins.

Financial Times:
- Insight: History teaches this is just a bull market correction.
- Share buybacks by FTSE 100 companies increased by 40% during the recent market turbulence as shares fell and companies took the opportunity to buy stock at reduced prices, citing figures provided by Mergermarket.
- Dubai World plans to increase its stake in MGM Mirage to as much as 20% once the company has secured gaming licenses from US authorities in jurisdictions where the Las Vegas group has casinos.
- The median fees earned by the world’s top auditing firms increased 345% in the five years to 2006 following the passage of the Sarbanes-Oxley Act, citing a study by The Corporate Library, a US corporate governance research firm.

Reuters:
- A group of California gasoline station owners filed suit in US federal district court in San Francisco accusing three oil industry giants of fixing gasoline prices across the US from 1998 to 2001.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BKD), target $65.
- Upgraded (TECD) to Buy, target $50.

Night Trading
Asian Indices are +1.75% to +2.50% on average.
S&P 500 futures +.86%.
NASDAQ 100 futures +.68%.

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
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
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
- (ARO)/.18
- (BKS)/.12
- (BEBE)/.19
- (BRCD)/.11
- (PLCE)/-.94
- (BKE)/.32
- (GME)/.08
- (GPS)/.20
- (HIBB)/.15
- (HRL)/.41
- (MRVL)/.07
- (MENT)/.07
- (PSUN)/.07
- (PDCO)/.35
- (SFD)/.44
- (SSI)/.22
- (TTC)/1.00

Upcoming Splits
- (TXT) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 320K versus 322K the prior week.
- Continuing Claims are estimated to fall to 2555K versus 2567K the prior week.

Other Potential Market Movers
- The EnerCom Oil & Gas Conference, (DE) Analyst Meeting, (CEG) Analyst Meeting and weekly natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by financial and commodity stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Soar, Finish at Session Highs, on Merger Speculation and Less Fear

Posted by Gary .....at 5:05 PM

Indices
S&P 500 1,464.07 +1.17%
DJIA 13,236.13 +1.11%
NASDAQ 2,552.80 +1.25%
Russell 2000 798.56 +1.29%
Wilshire 5000 14,711.25 +1.22%
Russell 1000 Growth 584.25 +1.35%
Russell 1000 Value 825.92 +1.11%
Morgan Stanley Consumer 714.11 +.97%
Morgan Stanley Cyclical 1,026.66 +2.06%
Morgan Stanley Technology 622.76 +1.21%
Transports 4,924.57 +2.12%
Utilities 496.08 +.94%
MSCI Emerging Markets 126.22 +3.15%

Sentiment/Internals
Total Put/Call 1.09 +22.47%
NYSE Arms .77 -27.91%
Volatility(VIX) 22.89 -9.35%
ISE Sentiment 92.0 -31.85%

Futures Spot Prices
Crude Oil 69.32 -.36%
Reformulated Gasoline 188.80 +1.30%
Natural Gas 5.61 -3.52%
Heating Oil 195.04 -.08%
Gold 670.50 +.65%
Base Metals 232.07 +2.56%
Copper 324.05 +2.39%

Economy
10-year US Treasury Yield 4.64% +5 basis points
US Dollar 81.24 -.30%
CRB Index 300.63 +.29%

Leading Sectors
Steel +5.37%
Gaming +3.16%
Airlines +3.02%

Lagging Sectors
Biotech +.58%
REITs +.48%
Banks +.14%

Evening Review
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

Afternoon Recommendations
Oppenheimer:
- Rated (BPA) Buy.

Afternoon/Evening Headlines
Bloomberg:
- US stocks climbed for a fifth day on growing speculation the summer breakdown in credit markets won’t derail the economy or pending company mergers.
- US banks will be the “victors” of the turmoil affecting home lenders and owners of some mortgage securities in a market shift spurred by more borrowers becoming delinquent on subprime debt, a Bear Stearns(BSC) analyst says.
- Morgan Stanley(MS), the second-biggest securities firm, is “best positioned” to withstand the credit crunch and will make the quickest recovery among Wall Street brokerages, Sanford C. Bernstein said in a research note.
- US two-year Treasury notes led the bond market lower on speculation the Fed will cut its benchmark interest rate no more than a quarter-percentage point in the next month.
- Crude oil in NY fell to a two-month low after an EIA report showed an unexpected increase in inventories.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Computer longs, Internet longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, every sector rose and volume was about average. Measures of investor anxiety were above-average into the close. Today's overall market action was very bullish. Many market-leading “growth” stocks posted gains of 3%-4% today, again substantially outperforming the broad market. If you didn't panic out of these types of stocks at the lows and added to them, you are probably back near your high-water mark for the year, with the S&P 500 still 5.6% off its highs. That is what makes market timing so tricky and why I like to use ETF short hedges instead of selling my favorite long positions during periods of market stress. Notwithstanding the pullbacks that have occurred since the major 2002 market bottom, that have always been seen as the beginning of a new bear market by many, the S&P 500 is up over 100%. The yen is near session lows vs. the dollar, which is a positive. Nikkei futures are indicating an up 250 open in Japan tonight. My intraday gauge of investor angst was at above-average levels throughout the day, despite gains, which is also a positive. The underlying tone of the market today was the healthiest since the pullback began. We are getting overbought short term, and there is more negative news to come, but it is unlikely, given how many are looking for a retest or new lows, that a sell-off of that magnitude will occur.

Stocks Higher into Final Hour on M&A Speculation, Diminishing Credit Fears

Posted by Gary .....at 3:07 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Internet longs and Retail longs. I added to my (BRCM) long and took profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. My intraday gauge of investor angst is still above average. Extreme credit market fears are subsiding. Housing-related credit default swaps are falling again. The homebuilding index is 1.8% higher despite Toll Brothers (TOL,+5.2%) reporting an 85% drop in profits and not giving forward guidance, which goes back to the significant improvement in psychology that has occurred since the Fed discount rate cut. The I-banking index is also rising 1%, which is also a positive. The average 30-year jumbo mortgage is falling 7 basis points today, which is the first decline since the first week of July. Gasoline supplies fell substantially more than estimates as refiners cut back production once again, however, oil supplies exceeded estimates. Oil is falling another $0.25 on the report. While it is getting oversold short term and the peak in hurricane season is three weeks away, I continue to believe that oil has made a major double-top. I think the commodity can test the $49.90-per-barrel it hit last January over the next six months. This has very positive implications for the broad stock market and inflation. The yen is weaker today vs. the dollar, the 10-year yield is rising 5 basis points, the VIX is falling 8%, and gold is breaking to a five-day high, which implies less fear. The CBOE total put/call hit a very high 1.71 this morning, however, and the ISE Sentiment Index is plunging 33%, to a depressed 90.0, which implies high anxiety among retail options traders, which bodes well for further gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit fears, lower energy prices and bargain hunting.

Today's Headlines

Posted by Gary .....at 3:03 PM

Bloomberg:
- Dubai will invest as much as $5.1 billion in Kirk Kerkorian’s MGM Mirage(MGM), giving the Las Vegas casino company a partner as it expands into real estate.
- Helmut Fisher, head of structured product sales at Merrill Lynch International(MER) in London, says “The hedge fund sector is recovering. There’s a certain normalcy that has returned and volatility has declined, even though it is still higher than before the subprime crisis began.”
- Natural gas in NY fell to an 11-month low on probable expansion of US inventories and the threat of storm damage to Gulf of Mexico production ended.
- Crude oil in NY is falling to a 2-month low after an EIA report showed an unexpected increase in inventories.
- President Bush laid out his argument for maintaining the US presence in Iraq, asserting that an early pullout would lead to the kind of bloodshed Southeast Asia experienced after American forces left Vietnam.
- Tech Data(TECD), the world’s second-biggest distributor of computer products, climbed the most in six years in Nasdaq Stock Market trading after its quarterly earnings and a sales forecast beat analysts’ projections.
- The four largest US banks each borrowed $500 million from the Fed’s discount window on behalf of clients after the central bank cut the interest rate it charges and encouraged lenders to use the facility.

Wall Street Journal:
- Federal Reserve officials are cautiously optimistic that the series of steps they have taken to stabilize markets have started to work.
- The US Defense Department is to shut down its terrorism database after it was criticized for storing information about people who posed no threat.
- US doctors are encouraging a new treatment called bariatric surgery for diabetes and weight loss. The treatment, which shrinks the stomach and sometimes reroutes the intestines helped 75% of patients who underwent the surgery lose their diabetes.
- US attorney generals are uniting to persuade MySpace, Facebook Inc. and other Web social-networking sites to include more extensive parental controls and age-verification devices so children can’t use the sites.

Dow Jones:
- PIMCO’s Gross Sees Time Near For Bargain-Hunting In Credit.

Financial Times:
- Private-equity firms probably won’t walk out on pending buyouts.

Reuters:
- Google Inc.(GOOG), having failed to get regulators to make phone companies resell wireless spectrum to rivals, still may bid on mobile-phone airwaves being auctioned by the US government.
- Hedge funds see opportunities in distressed debt.

BBC:
- Sony Corp.(SNE) will probably this week unveil a tuner which enables its PlayStation 3 game console to record and play back television shows.

Die Welt:
- Bert Ruerup, an economic adviser for Germany’s government, said the economy’s recovery is still “intact and robust” after turbulence on financial markets.

Kuwait News Agency:
- Iraqi stocks rose .4% yesterday after international investors bought into the Baghdad market. Foreign investors accounted for almost 10% of the transactions.

Economic Releases

Posted by Gary .....at 11:47 AM

- None of note