BETWEEN THE HEDGES

Tuesday, December 11, 2007

Wednesday Watch

Posted by Gary .....at 11:01 PM

Late-Night Headlines
Bloomberg:
- Lead fell 4.1% to a five-month low on expectations Ivernia Inc., banned from exporting 3% of the world’s mined lead output, will be able to resume exports. Copper declined 1.4% after another jump in stockpiles on the LME took supplies to a nine-month high.
- Crown Ltd., Australia’s biggest casino owner, agreed to buy Cannery Casino Resorts LLC for $1.75 billion cash, gaining four venues in Nevada and Pennsylvania.
- China Bulls Get First Sight of Bear as Market Slide Hits Funds.
- China’s retail sales increased at the quickest pace in at least eight years on rising incomes, aiding government efforts to curb the economy’s dependence on exports and investment for growth.
- North African militants linked with al-Qaeda said they organized two suicide bombings in the Algerian capital that killed more than 60 people, in the nation’s worst attack since Islamist massacres in the 1990s.
- The yen fell against all 16 of the world’s most-active currencies on speculation Japanese investors are sending money overseas to purchase higher-yielding assets.

Wall Street Journal:
- Parsing the Fed: How the statement changed.
- When Swiss bank UBS AG wrote down its subprime-mortgage investments by an additional $10 billion this week, an obscure and sometimes maligned credit-market index played a key role. The index is called the ABX.

NY Times:
- China Agrees to Post US Safety Officials in Its Food Factories.

MarketWatch.com:
- Cautious Fed cuts key rate by quarter-point. Markets slide after Fed doesn’t signal whether it’s open to future rate cuts.
- Helping to spread the wealth. US asset managers could be big winners from booming sovereign funds.

BusinessWeek.com:
- Smooth Sailing for Software Stocks. S&P likes the Systems Software subindustry’s stock-price momentum and positive fundamental outlook. Among its top picks: Microsoft(MSFT) and Oracle(ORCL).

CNBC.com:
- The Federal Reserve is considering using measures in addition to interest-rate cuts to stop credit from drying up, Steve Liesman said, citing a Fed official who asked not to be named. (video) The tools might “be seeing the light of day sooner rather than later,” Liesman said the official told him.

USA Today.com:
- Gas price drops below $3 a gallon.
- More Americans own pets than ever before, and they’re spending more money to keep them healthy, according to a survey released today by the American Veterinary Medical Association.

Financial Times:
- The amount of money managed by so-called quant funds has dropped by up to 40% in the past six months, as the drawbacks of the once rapidly growing strategy have been laid bare by the credit market turmoil.

London-based Times:
- The biggest shuffle of the FTSE 100 index since the days of the dot-com crash is expected tomorrow, with seven companies likely to be replaced in the quarterly rearrangement.

International Herald Tribune:
- China has banned US movies from its cinemas.

China Daily:
- Chinese tour groups will be allowed to visit the US for the first time next year under an agreement signed yesterday in Beijing.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (T), target $47.
- Reiterated Buy on (HPQ), target $60.

Night Trading
Asian Indices are -2.25% to -.75% on average.
S&P 500 futures +.25%.
NASDAQ 100 futures +.36%.

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
- (ADCT)/.22
- (MATK)/.20
- (CKR)/.13

Upcoming Splits
- (XTO) 5-for-4
- (DNR) 2-for-1

Economic Releases
8:30 am EST
- The Trade Deficit for October is estimated to widen to -$57.4 billion versus -$56.5 billion in September.
- The Import Price Index for November is estimated to rise 2.0% versus a 1.8% gain in October.

2:00 pm EST
- The Monthly Budget Deficit for November is estimated to widen to -$95.0 billion from -$73.0 billion in October.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, weekly EIA energy inventory data, (BDC) investor day, (SUN) analyst meeting, (YUM) analyst conference, (LII) analyst meeting, (MALL) analyst meeting, (ISV) analyst meeting, (DHR) analyst meeting, CIBC Virtualization Conference and Wedbush Morgan California Dreamin’ Conference could also impact trading today.

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

Stocks Finish Sharply Lower on Profit-taking and Fed Disappointment

Posted by Gary .....at 5:48 PM

Indices
S&P 500 1,477.65 -2.53%
DJIA 13,432.77 -2.14%
NASDAQ 2,652.35 -2.45%
Russell 2000 766.27 -3.15%
Wilshire 5000 14,854.93 -2.55%
Russell 1000 Growth 614.62 -2.39%
Russell 1000 Value 803.64 -2.74%
Morgan Stanley Consumer 750.59 -1.60%
Morgan Stanley Cyclical 996.42 -3.24%
Morgan Stanley Technology 627.35 -1.68%
Transports 4,734.75 -3.39%
Utilities 539.83 -2.34%
MSCI Emerging Markets 157.04 -1.54%

Sentiment/Internals
Total Put/Call 1.10 +14.58%
NYSE Arms 2.68 +302.96%
Volatility(VIX) 23.59 +13.74%
ISE Sentiment 146.0 +21.67%

Futures Spot Prices
Crude Oil $89.26 +1.60%
Reformulated Gasoline 227.65 +1.17%
Natural Gas 7.12 +1.29%
Heating Oil 251.02 +1.32%
Gold 802.90 -1.30%
Base Metals 213.53 -.55%
Copper 303.65 -1.83%

Economy
10-year US Treasury Yield 3.97% -19 basis points
US Dollar 76.30 +.31%
CRB Index 346.83 +.98%

Leading Sectors
Telecom +1.16%
Restaurants -.23%
Internet -1.38%

Lagging Sectors
Banks -5.22%
REITs -5.70%
Homebuilders -6.81%

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:
- Gold fell $8/oz. after the Fed lowered interest rates by less than some traders had expected, rallying the dollar and eroding the appeal of the precious metal as an alternative investment.
- MBIA Inc.(MBI), “meaningfully” improved its finances by raising $1 billion in capital, Moody’s Investors Service said.
- Citigroup Inc.(C) named former Morgan Stanley(MS) President Vikram Pandit as CEO, ending a monthlong search after Charles O. Prince stepped down amid at least $9 billion of mortgage losses.
- The Federal Reserve lowered its benchmark interest rate by a quarter-point to 4.25%, while signaling officials are open to further cuts if the housing slump and credit squeeze worsen.
- General Electric(GE), providing a forecast that trailed analyst estimates, said profit will rise at least 10% next year as growth slows at the consumer finance and health-care divisions.
- US Treasuries rose the most in more than three years after the Fed’s quarter-point reductions in interest rates.

Houston Chronicle:
- A newspaper critical of President Hugo Chavez’s government said Tuesday it is being forced to stop printing because officials have failed to authorize US dollars it needs to buy newsprint.

Economist.com:
- Darker days for new listings on China’s stockmarkets.

BOTTOM LINE: The Portfolio finished lower today on losses in my Biotech longs, Software longs, Retail longs, Computer longs and Medical 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 above average. Measures of investor anxiety were above average into the close. Today's overall market action was very bearish. However, the 10-year TIPS spread, a gauge of inflation expectations, fell to 2.25% after the Fed announcement, which is a positive. It is now at its lowest level since July 2005 before the historic hurricanes hit the Gulf. As well, the US dollar-based 3-month LIBOR rate fell another 2 basis points today and is down 61 basis points from September highs. I suspect, given the disappointment with the Fed, we could see some further weakness in stocks near-term. The most cyclical and credit-sensitive securities will likely remain under the most pressure. Market leading “growth” stocks should bottom over the next couple of days and resume their strong year-end rallies. Nikkei futures are indicating a down 429 open in Japan tonight.

Stocks Falling into Final Hour on 25 Basis Point Fed Rate Cuts

Posted by Gary .....at 3:18 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Computer longs, Biotech longs and Retail longs. I added to my (EEM) short and added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The Fed did not cut the discount rate 50 basis points as I had expected. As well, the tone of their language in the ensuing policy statement was a bit more hawkish than expected. The Fed said energy, commodity prices may push inflation up. I continue to believe high energy prices are having a much more negative impact on the broad US stock market than is commonly perceived. Fed fund futures now imply a 21.3% chance for a 50 basis point fed funds rate cut and a 65.4% chance for another 25 basis point fed funds rate cut at the January 30 meeting. The US dollar is strengthening on the news, which is pressuring most commodity prices. The 10-year yield is dropping 19 basis points to 3.97%. The Fed’s actions will likely result in even greater outperformance by true “growth” stocks over “value” stocks over the coming months. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.