Weekly Outlook

Click here for the Wall St. Week Ahead by Reuters.

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

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

Economic reports for the week include:

Mon. – Pending Home Sales

Tues. – Weekly retail sales reports, IBD/TIPP Economic Optimism, Wholesale Inventories, FOMC Rate Decision

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory report, Trade Deficit, Import Price Index, Monthly Budget Deficit

Thur. – Initial Jobless Claims, Producer Price Index, Advance Retail Sales, Business Inventories

Fri. – Consumer Price Index, Industrial Production, Capacity Utilization

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

Mon. – Vail Resorts(MTN), H&R Block(HRB), FuelCell Energy(FCEL), Pall Corp.(PLL), John Wiley & Sons(JW/A), Quest Software(QSFT)

Tues. – Sharper Image(SHRP), Multimedia Games(MGAM), Cooper Cos(COO), Krogere(KR)

Wed. – Martek Biosciences(MATK), ADC Telecom(ADCT), CKE Restaurants(CKE)

Thur. – CostcoWholesale(COST), Quiksilver(ZQK), JOS A Bank(JOSB), Lehman Brothers(LEH)

Fri. – Tektronix(TEK), CSK Auto(CAO), Winnebago(WGO), Ciena Corp.(CIEN)

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

Mon. – BB&T Consumer Conference, (NVO) analyst meeting, (ITW) investor meeting, (PPG) investor day, (WTSLA) analyst meeting, (HIG) investor call, (AVT) analyst meeting

Tue. – CIBC Virtualization Conference, Goldman Sachs Financial Services Conference, Wedbush Morgan California Dreamin’ Conference, (ARM) analyst meeting, (HPQ) analyst meeting, (T) investor day, (VVC) analyst breakfast, (INWK) analyst meeting, (VTIV) analyst meeting, (GNW) strategic update, (MRK) business briefing, (GMR) analyst meeting, (WLP) investor conference, (A) analyst meeting, (VRGY) analyst meeting, (ALTR) analyst meeting, (GE) outlook meeting

Wed. – CIBC Virtualization Conference, Wedbush Morgan California Dreamin’ Conference, (BDC) investor day, (SUN) analyst meeting, (YUM) investors conference, (LII) analyst meeting, (MALL) analyst meeting, (DHR) analyst meeting, (VVC) analyst luncheon

Thur. – Thomas Weisel Telecom Tomorrow Conference, Merrill Lynch Growth Industrial Conference, RBC Healthcare Conference, (PBG) investor day, (AMD) analyst day, (SMG) analyst day, (ZGEN) analyst meeting, (JAV) analyst meeting, (UTX) analyst meeting

Fri. – Roth Capital Software Event, (ACAD) analyst meeting, (IDT) analyst meeting

BOTTOM LINE: I expect US stocks to finish the week mixed as a firmer dollar, lower energy prices, seasonal strength, less economic pessimism and short-covering offsets profit-taking and higher inflation readings. My trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,504.66 +1.59%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,504.66 +1.59%
DJIA 13,625.58 +1.90%
NASDAQ 2,706.16 +1.70%
Russell 2000 785.52 +2.31%
Wilshire 5000 15,130.98 +1.76%
Russell 1000 Growth 625.82 +1.79%
Russell 1000 Value 818.68 +1.60%
Morgan Stanley Consumer 759.96 +.75%
Morgan Stanley Cyclical 1,020.34 +2.82%
Morgan Stanley Technology 632.85 +2.66%
Transports 4,876.35 +4.61%
Utilities 550.66 +3.46%
MSCI Emerging Markets 159.61 +3.87%

Sentiment/Internals
NYSE Cumulative A/D Line 64,580 +3.08%
Bloomberg New Highs-Lows Index -199 +32.1%
Bloomberg Crude Oil % Bulls 19.57 -41.3%
CFTC Oil Large Speculative Longs 215,237 -6.8%
Total Put/Call .96 -10.3%
NYSE Arms .92 +10.84%
Volatility(VIX) 20.85 -8.83%
ISE Sentiment 111.0 +15.63%
AAII % Bulls 40.65 +42.3%
AAII % Bears 39.84 -29.0%

Futures Spot Prices
Crude Oil 88.28 -.48%
Reformulated Gasoline 226.90 -1.72%
Natural Gas 7.15 -2.01%
Heating Oil 250.47 -.41%
Gold 800.20 +1.41%
Base Metals 218.16 -3.01%
Copper 312.60 -1.84%

Economy
10-year US Treasury Yield 4.11% +17 basis points
4-Wk MA of Jobless Claims 340,300 +1.4%
Average 30-year Mortgage Rate 5.96% -14 basis points
Weekly Mortgage Applications 791.80 +22.51%
Weekly Retail Sales +2.4%
Nationwide Gas $3.03/gallon -.05/gallon
US Heating Demand Next 7 Days 10% below normal
ECRI Weekly Leading Economic Index 138.70 +1.31%
US Dollar Index 76.29 +.19%
CRB Index 342.92 +.91%

Best Performing Style
Mid-cap Growth +2.56%

Worst Performing Style
Large-cap Value +1.60%

Leading Sectors
Homebuilders +10.05%
Disk Drives +7.18%
Engineering & Construction +7.05%
Steel +6.27%
Alternative Energy +6.23%

Lagging Sectors
Tobacco +.66%
Drugs +.42%
Hospitals -.01%
Airlines -.39%
Banks -.71%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Mixed into Final Hour as Healthy Profit-taking Offsets Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, Software longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly positive today as the advance/decline line is about even, most sectors are rising and volume is around average. Investor anxiety is slightly above average. Today’s overall market action is bullish, considering recent gains. Then yen is falling again today versus the US dollar and is down about 4% over the last 10 days, which is a positive. Moreover, the G-7 currency volatility index is falling again today to 9.43, down from a peak of 11.75 three weeks ago, which is also a positive. The total put/call hit a high 1.23 this morning. As well, the ISE Sentiment Index hit a depressed 75.0. Retail options traders remain very skeptical of any meaningful move higher in stocks. Moreover, the “smart money” OEX put/call is a low .89. The NYSE reported yesterday that short interest on the exchange, over the last two weeks of November, rose from 12.39 billion shares to 12.77 billion shares, which is just off the all-time high of 12.95 billion shares in July. Moreover, the 3.1% increase leaves NYSE short interest up an astounding 33.2% since mid-February, the largest percentage jump since at least 1991, when Bloomberg began tracking. This is just more evidence, in my opinion, that the many bears continue to party like it's 2000-2003, despite the S&P 500's 105% gain from that period's lows. Short interest was basically flat from mid-2002 through first quarter 2005, which is what I would expect considering the extraordinary number of new hedge funds created during the aftermath of the bursting of the internet bubble, combined with a large stock rally off the bottom in October 2002. The recent parabolic rise in short interest is stunning and is symptomatic of the current “U.S. negativity bubble”, in my opinion. Moreover, the only ETF that is ranked in the top 40 NYSE short positions is the iShares Russell 2000 Index (IWM). The rest are all equities. I think this is a direct result of the massive capital that has been allocated to low correlation U.S. stock strategies and the undying belief by the herd that the U.S. will continue to underperform all other global markets indefinitely. As well, many investors continue to see a 2000-type market meltdown lurking around every corner. I suspect, given their risk-adjusted underperformance over the last few years, that many low-correlation U.S. stock strategies will see significant redemptions at year-end and that a large percentage of this capital will move into more positively correlated U.S. stock strategies. As well, I think a chain reaction of events has already begun that will eventually lead to a dramatic positive change in perception by global portfolio managers regarding the prospects for U.S. stocks vs. most other global markets. The parabolic rise in short interest this year is unsustainable and only brings the "mother of all short-covering rallies" closer, in my opinion.

Here are the 25 NYSE stocks with the largest percentage increase in their short interest relative to their float over the last two weeks of November:

1) LNY +14.2%

2) ZLC +9.0%

3) AVX +8.0%

4) MYL +6.9%

5) KNX +6.6%

6) PZN +6.5%

7) PBY +6.0%

8) MWV +5.7%

9) BWY +5.6%

10) PII +5.3%

11) TPX +5.3%

12) JRT +5.0%

13) FRT +5.0%

14) FMD +4.7%

15) DW +4.7%

16) PPS +4.6%

17) ESS +4.6%

18) IN +4.3%

19) MIM +4.2%

20) LEN +4.2%

21) TWB +4.2%

22) MTX +4.1%

23) SUP +4.1%

24) TRN +3.9%

25) TER +3.8%

I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, lower energy prices, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Hedge funds run by Goldman Sachs(GS) and AQR Capital Management LLC fell in November as swings in financial markets confounded the computer-driven trading models used by the quantitative managers.
- Crude oil is falling another $2.83/bbl. today and is down $12/bbl. from recent highs on recent US dollar strength and worries over global demand.
- Gold is falling $8.70/oz., the most in a week, after a fall in energy prices reduced the appeal of the precious metal as an inflation hedges.
- Goldman Sachs Group(GS) Chief Economist Jim O’Neill said it is ‘hard to be bearish’ on the US dollar. (video)
- Cheesecake Factory(CAKE) increased its buyback program by 5 million shares after repurchasing $250 million of stock this fiscal year.
- Treasuries are declining, heading for their first weekly fall since October, as a government report diminished chances of a recession by showing employers added more jobs last month than economists forecast.
- Imax Corp.(IMAX) had its biggest gain ever in Nasdaq Stock Market trading after announcing plans to install 100 digital projection systems in AMC Entertainment(AC) theaters.
- The US and its European allies will proceed with efforts to impose a third round of United Nations sanctions against Iran.
- Cintas Corp.(CTAS), the largest US supplier of uniforms, jumped the most in two years after a Robert W. Baird analyst raised his rating, saying the stock is poised to climb if a historical correlation with US hiring holds true.
- Iraq Bonds Rally on US Troop Surge, Oil Earnings. Holders of Iraqi bonds are giving President Bush a vote of confidence.
- CA Inc.(CA), the second-largest maker of software for mainframe computers, gained the most in 10 months after Goldman Sachs(GS) upgraded the stock to “buy” and said a measure of profitability will improve next year.
- Papa John’s(PZZA), the third-largest US pizza chain, rose the most in two months in US trading after forecasting 2008 profit that may exceed analysts’ estimates and announcing the repurchase of as much as $50 million of its stock.
- Macrovision Corp.(MVSN) agreed to buy Gemstar-TV Guide(GMST) for $2.8 billion in cash and stock, adding interactive program listings to software that protects TV shows and movies from piracy.
- Synopsys Inc.(SNPS), whose programs help engineers design semiconductors, surged the most in more than a year on the Nasdaq after demand for software licenses produced fourth-quarter sales and profit that beat estimates.
- The dollar rose for a third day versus the yen, the longest winning streak since October, after a report showed U.S. employers added more jobs than forecast last month, suggesting the economy will avoid a recession.

Forbes.com:
- Sinking mortgage values have made big write-downs from banks and brokerages almost commonplace but that hasn’t deterred Joseph Lewis. The billionaire has upped his already sizable stake in Bear Stearns(BSC).

Boston Globe:
- Tens of thousands to see Winfrey, Obama.

Fortune.com:
- Apple’s(AAPL) $15 billion cash hoard. Which tech company has the most cash? Apple’s stash is indeed the biggest of the group, putting the iPod maker in the elite ranks of well-heeled Fortune 500 tech companies. Apple has added $5 billion to its coffers in the past year alone.

eWeek.com:
- NetSuite Plans Google-Style Auction IPO.

Energy Business Review:
- Nova Biosource Fuels has announced that start-up operations are progressing on schedule at the 20 million gallon per year biodiesel refinery being constructed for Scott Petroleum along the Mississippi river in Greenville, Mississippi.

Financial Times:
- ‘Quants’ continue to lose credibility. Given uncertainty in the current climate, the unemotional investment strategy used by quantitative funds based on core fundamentals in the market looks attractive. Yet “quant” funds, and quant-based funds, have come in for criticism in recent months after been widely blamed for the severity of the downturn in the summer.

Bear Radar

Style Underperformer:

Large-cap Value (+.02%)

Sector Underperformers:

Gold (-1.33%), Coal (-1.0%) and Computer Hardware (-.79%)

Stocks Falling on Unusual Volume:

CAE, GIL, FMD, ESL, STO, MVSN, PENX, FORM, SVVS and AEC