Stocks Higher into Final Hour, Boosted by Tech Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs, Retail longs, Semi longs and Medical longs. I added to my (ILMN), (AMSC) and (GILD) longs and took some profits in a few other longs today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly positive today as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. The total put/call hit a high 1.25 and the ISE sentiment index hit a depressed 80.0 today, as retail option traders remain skeptical of the chances for a year-end rally, which bodes well for further gains. Despite Morgan Stanley’s(MS) writedown and S&P’s downgrades of some bond insurers, the (XLF) is .8% higher on the day, which is also a big positive. Moreover, the 30-day asset backed commercial paper yield is falling another 6 basis points today and is down 42 basis points in a week. Despite a 5 basis point drop in the 10-year yield today, the dollar is firm, which bodes well for further dollar strength. Oil will likely begin another move lower at the first of the year after year-end mark-ups by investment funds end, the dollar strengthens more, supply exceeds estimates and global demand continues to decelerate. The Fed’s Lacker said today that he sees growth of 2-2.25% next year. I agree with his prediction. I continue to believe that as we move into the first quarter of next year without seeing a further meaningful deterioration in economic data that stocks will rise substantially from current levels as the recession trades are taken off. As I said yesterday, modestly below trend economic growth, low interest rates and decelerating inflation should prompt another explosive move higher in true “growth” stocks. This may already be beginning as many leading growth stocks are trouncing the major averages today. I expect US stocks to trade modestly higher into the close from current levels on diminishing credit market angst, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Credit Suisse Group investment strategists expect the S&P 500 to increase 13% to a record by the end of 2008. Shares are inexpensive relative to bonds, earnings won’t decline and “only one of five preconditions for a bear market is in place,” a bear market in junk bonds, Andrew Garthwaite and Jonathon Morton wrote today. They expect US economic growth of 1-1.5% for the year.
- President Bush today signed legislation aimed at cutting US dependence on overseas energy by setting tougher mandates for carmakers, electric-appliance manufacturers and ethanol producers.
- Short-term borrowing rates fell in Europe, the US and UK as European Central Bank council member Klaus Liebshcer said the bank is ready to provide more cash to restore confidence in money markets.
- The Fed’s Lacker sees US growth of 2-2.5% next year.
- The Federal Reserve, European Central Bank and Swiss National Bank loaned $34 billion in 28-day funds through special auctions as part of a global attempt by central banks to restore faith in the money markets.
- Morgan Stanley(MS) Posts Loss, Sells Stake to China.
- MBIA Inc.(MBI) and Ambac Financial Group(ABK) had the outlook on their AAA credit ratings lowered to negative from stable by S&P, while ACA Capital Holdings(ACA) guaranty ranking was cut to CCC from A.
- According to data compiled by RealtyTrac Inc. home foreclosures fell 10% in November from October.

Wall Street Journal:
- Interest Groups Gain In Election Cash Quest.
- Kiddies’ Wired Wish Lists. Forget Dolls, Toy Trains; The Younger Set Wants High-Tech Gadgets.
- Bear Stearns(BSC) CEO James Cayne and other top executives at the No. 2 underwriter of mortgage-backed bonds will forgo bonuses this year.
- Mezzanine Debt Attracts Real-Estate Investors.
- Bear Stearns(BSC) Asset Management plans to enter the “130/30” mutual fund category.

NY Times:
- Officials from Merrill Lynch(MER), Bear Stearns(BSC) and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities.

WashingtonPost.com:
- Of likely Iowa caucus voters, 33% plan to vote for Barack Obama, 29% Hillary Rodham Clinton and 20% John Edwards, according to a Washington Post-ABC News poll.

Business Week:
- Honda Targets Toyota’s Hybrid Dominance.

AP:
- Energy futures rose Wednesday after the government said supplies of crude and heating oil fell sharply last week, while gasoline inventories jumped. Much of the decline was due to a sharp drop in imports, almost a million barrels a day, because fog closed the Houston Ship Channel last week. Freight rates charged by the large tankers that bring oil from the Persian Gulf to the US have jumped recently, a sign that OPEC oil exports continue to rise. Today’s report showed gasoline demand fell by about 61,000 barrels last week and was up only .3% over the past four weeks versus a year ago. Analysts consider demand growth under 1.5% to be low.

Bear Radar

Style Underperformer:

Small-cap Value (-.63%)

Sector Underperformers:

Restaurants (-2.68%), Oil Tankers (-1.86%) and Retail (-1.67%)

Stocks Falling on Unusual Volume:

KFS, DRI, SLM, PKE, UNP, ADCT, SLXP, RMBS and TECUA

Economic Releases

- None of note

Bull Radar

Style Outperformer:

Large-cap Value (+.97%)

Sector Outperformers:

I-Banks (+1.78%), Steel (+1.78%) and Construction (+1.62%)

Stocks Rising on Unusual Volume:

GRT, BCR, AIR, RZ, DGIT, CAKE, FSIN, NUAN, TTWO, JOYG, ICLR, SOLF, CHNR, NDSN, SDTH, HMSY, RIGL, LEAP, DLLR, SYNA, FCSX, MANT, BUCY, GSIC, VSL, DRL, CHU and RICK

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