Stocks Mostly Lower into Final Hour With Anxiety High

BOTTOM LINE: The Portfolio is about even into the final hour as losses in my Commodity shorts offset gains in my Medical and Biotech longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are falling and volume is above average. Investor anxiety is high. Retail options traders, however, are finally displaying the kind of pessimism I would expect to see near a meaningful market bottom. Cisco's (CSCO) additional $10 billion buyback is one large positive today. NPD also said video game sales were 73% higher in October from last year. As well, the speculative and investment grade credit default swaps have stabilized this week. The AAII percentage of bulls dropped to 33.01% this week from 36.2% the prior week. This reading is approaching depressed levels. The AAII percentage of bears fell to 49.5% this week from 51.4% the prior week. This reading is still at elevated levels. Moreover, the 10-week moving average of the percentage of bears is currently at 37.3%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. The 50-week moving average of the percentage of bears is currently 37.4%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990 to July 1991 and March 2003 to May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently still close to eclipsing the peak in long-term bearish sentiment during the 2000 to 2003 market meltdown. I find this astonishing, notwithstanding the recent pullback, given that the S&P 500 is 100% higher from the October 2002 major bear market lows and just 6.6% off a record high. It is also noteworthy that as pessimism grows ever thicker, corporate insiders are displaying downright giddy behavior with their recent stock activity. Prior to the 2000 economic downturn, insiders were bailing in droves. I expect US stocks to trade modestly higher into the close from current levels on bargain hunting and short-covering.

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Friday Watch

Late-Night Headlines
Bloomberg:
- A rare red diamond, the largest of its type ever to appear at auction, sold for a record at a Christie’s International sale in Geneva yesterday.
- President Bush announced steps to reduce airline delays before next week’s Thanksgiving holiday travel rush, including opening up military airspace and suspending nonessential maintenance work.
- India’s record stock market rally may falter if the government slaps controls on overseas buying in an attempt to stem gains in the rupee, CLSA Ltd. said.
- The yen fell against all 16 of the most-actively traded currencies as Japanese investors put money into mutual trusts specializing in overseas securities.
- China’s growth in factory and property spending accelerated, making the central bank more likely to raise interest rates for a sixth time this year.

Wall Street Journal:
- Democratic presidential candidates debated in what amounted to Round Two of their feisty encounters two weeks ago.

NY Times:
- Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

MarketWatch.com:
- Best long-term market timers believe we’re in a bull market.

CNNMoney.com:
- Tahoe Hybrid SUV named ‘Green Car of Year’

CNBC.com:
- Fed Pumps Over $47 Billion Into Financial System.

USA Today.com:
- Number of cars with top safety scores nearly triples.

AP:
- Major League Baseball Commissioner Bud Selig said the sport’s revenue was $6.07 billion this year, up from $1.2 billion when he took the job in 1992.
- Outfielder Barry Bonds was indicted by a federal grand jury on perjury and obstruction of justice charges.

Financial Times:
- Mubadala Development Co., an investment company owned by the Abu Dhabi government, may buy a 9% stake in Sunnyvale, California-based Advanced Micro Devices(AMD).
- China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (INTU), target $35.
- Upgraded (EXPE) to Buy, target $38.

Night Trading
Asian Indices are -2.75% to -1.0% on average.
S&P 500 futures -.20%.
NASDAQ 100 futures -.14%.

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Earnings of Note
Company/EPS Estimate
- (ANN)/.60
- (JBX)/.38

Upcoming Splits
- (D) 2-for-1

Economic Releases
9:00 am EST
- Net Long-term TIC Flows for September are estimated to rise to $71.5 billion versus -$69.3 billion in August.

9:15 am EST
- Industrial Production for October is estimated to rise .1% versus a .1% gain in September.
- Capacity Utilization for October is estimated to fall to 82.0% versus 82.1% in September.

Other Potential Market Movers
- The Fed’s Kroszner speaking, Fed’s Lockhart speaking, (MHS) analyst day, (GIB) investor day, CSFB High Yield Media & Telecom Investor Conference, RBC Capital Markets MLP Conference CSFB Insurance & Asset Management Conference and Bank of America Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and automaker 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 Near Session Lows on Lingering Economic Worries

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Stocks Falling into Final Hour on Lingering Economic Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, most sectors are falling and volume is above average. Investor anxiety is high. For the first time in many months, the U.S. dollar is trading as though at least a tradable bottom may be in place and oil/gold are trading toppy. It is also interesting to note that the Bombay Bullion Association said yesterday that gold imports into India, the world's largest consumer of the metal, plunged 50% in October from a year earlier. The October-December period is historically the busiest season in India for jewelry sales. Gold is around session lows falling $27 per ounce, to $788 per ounce. It is down $60 per ounce in a week. For several years, gold bugs have made the argument that its rise was indicative of mounting worries over inflation. The CPI rose to a modestly above-average 3.5% year over year in October vs. a 2.8% rise the prior month. The U.S. Dollar Index is 0.3% higher today but is still not far off its recent lows. I have said for some time and continue to believe that the rise in gold has been mainly a function of the historic speculation for the commodity by investment funds related to perceptions over emerging market demand. I continue to believe the secular trend of disinflation remains firmly in tact and that it will reassert itself during the next meaningful global slowdown. While I may take some profits in my iShares Lehman 20+ Year Treasury Bond (TLT) long over the coming weeks, the position remains a core long, and I will add back to it on any significant uptick in interest rates from current levels. Reuters is reporting that Cisco Systems (CSCO) CEO Chambers is saying that he is comfortable with prior estimates. He also said, while there are risks, he see a soft landing for the U.S. economy and a very strong global economy. I continue to see no evidence of the impending recession that investors are pricing into many stocks at current levels. The forward P/E on the S&P 500 is now 15.8, down from 16.1 at the beginning of the year. If the multiple on the S&P 500 were to contract again this year, it would mark the fourth consecutive year of contraction, a feat which has only been done two other times since 1905. I expect US stocks to trade mixed-lower into the close from current levels on lingering economic worries.

CPI at Expectations, NY Manufacturing Near 3-year High, Job Market Healthy, Philly Fed Rises

- The Consumer Price Index for October rose .3% versus estimates of a .3% gain and a .3% increase in September.

- The CPI Ex Food & Energy for October rose .2% versus estimates of a .2% gain and a .2% rise in September.

- Empire Manufacturing for November came in at 27.4 versus estimates of 19.0 and a reading of 28.8 in October.

- Initial Jobless Claims for this week rose to 339K versus estimates of 320K and 319K the prior week.

- Continuing Claims fell to 2568K versus estimates of 2575K and 2575K prior.

- The Philly Fed for November rose to 8.2 versus estimates of 5.0 and a reading of 6.8 in October.

BOTTOM LINE: Consumer prices in the US rose at the same pace in October as the previous month, Bloomberg reported. Core consumer prices are now rising at a 2.2% annual rate. Food prices rose .3% versus a .5% gain in September. Clothing prices were unch. and auto prices fell slightly. The impact of high energy prices on other prices has been limited. Competition for business continues to keep a lid on inflation, economists said. I continue to believe next month’s inflation readings will show acceleration on the move higher in energy prices, but that further deceleration in inflation is likely over the intermediate-term. I still think the secular trend of disinflation remains firmly in tact.

The pace of manufacturing in NY this month held near a three-year high as shipments accelerated, Bloomberg reported. The Inventories component dropped to minus 1.2 versus 3.5 the prior month. The New Orders component fell to 24.5 versus 25 in October. The Prices Paid component rose to 42.9 versus 36.1 last month. I continue to expect manufacturing to help boost overall US growth as exports remain strong and companies rebuild depleted inventories as they gain confidence in the sustainability of the current expansion.

The number of Americans filing first-time claims for unemployment benefits increased last week, Bloomberg said. The four-week moving average of claims held steady at 330,000. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. The Hollywood writers' strike likely contributed to the uptick in claims. I still believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing in the Philly region unexpectedly accelerated this month as new orders and shipments strengthened, Bloomberg reported. The Inventory component rose to 2.5 versus minus 15 in October. The Prices Paid component fell to 37.7 versus 40.3 in October. As I said above, I still expect manufacturing to continue to help boost overall US economic growth over the intermediate-term.