Bear Radar

Style Underperformer:

Mid-cap Value (-.17%)

Sector Underperformers:

Airlines (-2.67%), Banks (-2.1%) and Restaurants (-.74%)

Stocks Falling on Unusual Volume:

SLM, COO, NWK, WM, SGP, ALO, CIX, CYNO, UNTD, LTRE, IPSU, NUAN, OMPI, HOKU, TWTC, SAIA, DMND, MBLX, C and WB

Trade Deficit Widens Slightly, Import Prices Jump on Imported Energy

- The Trade Deficit for October came in at -$57.8 billion versus estimates of -$57.4 billion and -$57.1 billion in September.

- The Import Price Index for November rose 2.7% versus estimates of 2.0% and a downwardly revised 1.4% in October.

BOTTOM LINE: The US trade deficit widened in October as the value of imported crude oil rose to a record, Bloomberg said. Excluding petroleum, the trade deficit was the smallest since 2004. US exports rose .9%, led by commercial aircraft and industrial engine orders, hitting another record high. The narrowing of the trade deficit contributed 1.37 percentage points to the 4.9% gain in third quarter US GDP growth, the most since 1996. The US trade deficit should continue to shrink over the intermediate-term, which will help boost overall US economic growth, as energy prices fall and exports continue to make new records.

Prices of goods imported into the US rose in November, propelled by record oil prices, Bloomberg reported. Prices excluding petroleum rose .7%. Food prices actually fell .2% during the month. Excluding all fuels, prices rose .5% during the month and 3% over the last 12 months. Prices of imported automobiles, parts and engines rose .3% for a second month. Cost for imported consumer products excluding autos rose .2%. Import prices increases have now likely peaked for the intermediate-term and should begin to decelerate next month. The 10-year TIPS spread, a gauge of inflation expectations, is currently 2.31%, which is down from 2.48% less than two weeks ago.

Bull Radar

Style Outperformer:

Small-cap Growth (+1.94%)

Sector Outperformers:

Telecom (+3.71%), Energy (+3.21%) and Computer Networking (+2.85%)

Stocks Rising on Unusual Volume:

PIV, KNM, CIX, EN, MPG, IJS, NEXT, FSIN, EMKR, SWIM, STBA, ALTU, MELI, RSTI, DIOD, ACAD, SNCR, GLBC, OXPS, BIDZ, ANDE, CSIQ, NICE, MCHP, WRNC, HURN, PBR, VSL, HES, BTM, HRS, MMM, RICK and ZQK

Links of Interest

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Wednesday Watch

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%.

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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

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
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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.