BETWEEN THE HEDGES

Monday, November 19, 2007

Tuesday Watch

Posted by Gary .....at 11:30 PM

Late-Night Headlines
Bloomberg:

- The global burden of HIV has been overstated, with new surveillance data showing the number of people carrying the AIDS-causing virus is about 6.3 million lower than estimated last year. More accurate ways of tracking the disease indicate for the first time that the world turned the corner on the three-decade epidemic in the late 1990s.
- London Metal Exchange director Philip Crowson stated on Monday that China’s robust demand for raw materials may slow down after the 2008 Beijing Olympics, due to a series of policies on curbing investment and rising inflation pressure. Philip stressed at a mining conference in PerthChina’s vigorous investment boom might be exaggerating the country’s underlying needs, particularly as its economy becomes more market-oriented, the state-owned companies improve their efficiency, and more efforts are made on environmental protection. that
- Leaders of the Association of Southeast Asian Nations will today agree to “abide by and implement” changes to their markets allowing the region to be a European Union-modeled economic community by 2015.
- Japan starts taking fingerprints and photographs of foreigners entering the country from today to catch terrorists that Justice Minister Kunio Hatoyama says are beating immigration controls using false passports and disguises.

BusinessWeek:
- Brazil, the New Oil Superpower. State-run Petrobras’ “monstrous” new oil find has wide-ranging implications for the South American country, the oil majors, oil services providers, and beyond.

IBD:
- Hard Drive Makers Resist Price War.

USA Today.com:
- Why give thanks when you can shop?

AP:
- General Motors’(GM) Cadillac CTS was named 2008 car of the year in the US by Motor Trend magazine.

Financial Times:
- The US Federal Reserve will on Tuesday publish its first set of enhanced economic forecasts alongside the minutes of the last meeting of the Federal Open Market Committee, and the result may surprise some investors. The new economic projections are likely to show that Fed policymakers expect the US economy will pull through an expected near-term rough patch and regain strength over the course of 2008, even though they see downside risks to that forecast.
- Arab investors, flush with liquidity, are considering investments in distressed US financial assets as they try to turn the turmoil in credit markets into a regional opportunity.

Daily Telegraph:
- Rio Tinto(RTP), defending a takeover proposal from BHP Billiton(BHP), may offer its larger rival partnerships in some projects instead of a merger.

Economic Daily News:
- AU Optronics(AUO) will supply panels that will be sued in Dell’s(DELL) new touch-screen laptops.

Jiji Press:
- Tomy Co. and other Japanese toymakers are shifting production to Vietnam on rising costs and safety concerns in China, where almost 90% of Japanese-brand toys are produced.

South China Morning Post:
- BYD Co. plans to export its own-brand electric cars to the US and western Europe by the middle of next year, citing an official at the Hong Kong-listed battery maker.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TGT), target $66. TGT’s November sales are tracking in-line with the company’s original guidance. We believe the arrival of more favorable weather in November has helped to drive sales of seasonal and cold weather items during the month.
- Reiterated Buy on (HOLX), target $74.
- Reiterated Buy on (MSFT), target $41.
- Reiterated Buy on (JWN), target $52.

Night Trading
Asian Indices are -3.0% to -.75% on average.
S&P 500 futures +.37%.
NASDAQ 100 futures +.65%.

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
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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
- (UNFI)/.32
- (BKS)/-.09
- (DHI)/-.85
- (DKS)/.05
- (TGT)/.62
- (GME)/.23
- (FRE)/.00
- (EV)/.49
- (ROST)/.35
- (SKS)/.16
- (ZLC)/-.60
- (SSI)/.05
- (BJ)/.33
- (DDS)/-.19
- (HRL)/.65
- (BGP)/-.62
- (LTD)/.00
- (ARUN)/.03
- (HIBB)/.24
- (WFMI)/.30
- (PSUN)/.14
- (GYMB)/.90
- (ODP)/.40
- (HOTT)/.15
- (MWRK)/-.59
- (PLL)/.57
- (JCG)/.36
- (FL)/.24
- (BCSI)/.24

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for October are estimated to fall to 1170K versus 1191K in September.
- Building Permits for October are estimated to fall to 1200K versus 1261K in September.

2:00 pm EST
- Oct. 31 FOMC Meeting Minutes

Other Potential Market Movers
- The weekly retail sales reports, (IART) analyst meeting, Bank of America Defense Day and Scotia Capital Telecom & Tech Conference could also impact trading today.

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

Stocks Finish Sharply Lower on Economic Worries

Posted by Gary .....at 5:29 PM

Indices
S&P 500 1,433.27 -1.75%
DJIA 12,958.44 -1.66%
NASDAQ 2,593.38 -1.66%
Russell 2000 750.35 -2.49%
Wilshire 5000 14,405.22 -1.79%
Russell 1000 Growth 595.66 -1.50%
Russell 1000 Value 778.59 -2.04%
Morgan Stanley Consumer 734.03 -1.26%
Morgan Stanley Cyclical 945.74 -3.05%
Morgan Stanley Technology 609.08 -1.68%
Transports 4,457.97 -2.32%
Utilities 520.45 +.08%
MSCI Emerging Markets 149.62 -2.38%

Sentiment/Internals
Total Put/Call 1.12 -12.50%
NYSE Arms 1.74 +147.8%
Volatility(VIX) 26.01 +2.04%
ISE Sentiment 128.0 +88.2%

Futures Spot Prices
Crude Oil $94.76 +.98%
Reformulated Gasoline 238.45 +.38%
Natural Gas 7.76 -2.96%
Heating Oil 260.75 +.79%
Gold 781.80 -.66%
Base Metals 229.07 -.80%
Copper 303.85 -5.02%

Economy
10-year US Treasury Yield 4.07% -9 basis points
US Dollar 75.80 -.04%
CRB Index 346.90 -.72%

Leading Sectors
Utilities +.08%
Medical Equipment -.22%
Restaurants -.32%

Lagging Sectors
Gold -4.5%
Homebuilders -4.7%
Airlines -5.2%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Nordstrom Inc.(JWN), the owner of 101 department stores in the US, said third-quarter profit rose more than analysts estimated on the sale of its Faconnable brand. The stock jumped 12% in after-hours trading.
- Hewlett-Packard(HPQ), the biggest personal-computer maker, reported a profit that beat analysts’ estimates after extending its lead over Dell Inc.(DELL). The company plans to buy back as much as $8 billion in shares.
- The average US pump price for regular gasoline fell 1.2 cents to $3.10/gallon in the week ended today.
- Zinc fell to a 20-month low as shipments from China, the world’s largest producer of the metal, accelerated on speculation the government will end a tax rebate on exports.

Business Week:
- Finance Stocks to Buy Now.

BOTTOM LINE: The Portfolio finished lower today on losses in my Retail longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was slightly above average. Measures of investor anxiety were high into the close. Today's overall market action was very bearish. Nikkei futures are indicating a down-230 open in Japan. Hewlett-Packard (HPQ) and Nordstrom (JWN) just beat and raised. HPQ isn't moving much on the news, however JWN is rising 12% in after hours. Cyclicals were hit especially hard again today, falling 3%. I still think an imminent recession in the

U.S.

is virtually impossible if not accompanied by a significant slowdown overseas. It appears as though investors are pricing in this possibility right now. I want to see how the market reacts to this evening's positive earnings reports, and if overseas stocks stabilize tomorrow morning, before further shifting market exposure.

Stocks Sharply Lower into Final Hour on Weakness in Financials and Retailers

Posted by Gary .....at 3:45 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Retail longs and Biotech longs. I added to my (EEM) short and added (IWM)/(QQQQ) hedge this morning, 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, every sector is falling and volume is above average. Investor anxiety is high again. The Fed's Stern spoke in Singapore last night. Here is a summary of his comments via Bloomberg:

1. It is too early to say what future actions are needed.
2. The U.S. housing adjustment still has a way to go.
3. Mortgage foreclosures are likely to increase.
4. Home building will remain subdued.
5. The flowover effects from housing are modest at most.
6. Other areas of the U.S. economy are doing well.
7. Housing is only a small proportion of the U.S. economy.
8. The U.S. economy is very resilient and sound.
9. The Fed is dependent on incoming economic data.
10. Policy can be changed at the appropriate time.
11. Energy, food prices are going up.
12. U.S. inflation has been fairly modest.
13. U.S. consumers are in reasonably good shape.
14. Shouldn't exaggerate the U.S. housing impact.
15. U.S. exports are doing well.

Overall, I would classify these comments as mixed. Barring a significant deterioration in economic data over the next month, I still think the Fed will remain on hold at the Dec. 11 meeting. However, fed fund futures imply a 90% chance for another 25-basis-point cut at the upcoming meeting. S&P 500 large futures traders remain positioned near historically net short levels, public short sales are spiking again and the AAII bull ratio four-week average is registering extreme pessimism. The Rasmussen Investor Index fell today to the lowest level of the year and is now at the lowest since mid-March 2003. These readings come with the S&P 500 just 6.6% off an all-time high and insider activity exceptionally bullish. Hitwise is reporting today that Google (GOOG) had 64.5% of the U.S. search market in October vs. 63.6% in September. Yahoo! (YHOO) had 21.7% vs. 22.6% in September, and MSN had 7.4% vs. 7.8% in September. Google is trading down 1.8% to session lows as the broad market moves back to session lows. I expect Google to continue to take share over the long term. As well, video ads, which are just in their infancy, and new product additions should continue to propel growth to relatively high rates over the intermediate-term, notwithstanding any economic slowdown. The stock is becoming egregiously cheap again relative to the broad market and its Internet peers given its fundamentals. I plan to add to my long position on any significant further weakness from current levels. In my opinion, longer-term investors who are dumping the stock as indiscriminate selling takes hold will regret it. I expect

stocks to trade mixed into the close from current levels as bargain hunting and short-covering offsets global economic worries.