Stocks Mostly Higher into Final Hour, Led by Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, Internet longs and Medical longs. I added to my (NUAN) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is 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 very depressed 64.0 today, as retail option traders remain skeptical of the chances for a year-end rally, which bodes well for further gains. Despite the Bear Stearns(BSC) and MBIA(MBI) news, the (XLF) is less than one percent lower on the day, which isn’t too bad. Moreover, the 30-day asset backed commercial paper yield is falling another 9 basis points today and is down 51 basis points in a week. The US dollar is firm, despite today’s weaker economic data, which bodes well for further dollar strength. Oil is having trouble staying above $92/bbl. for the fifth consecutive day. I still think oil will begin another move lower at the first of the year after the year-end mark-ups by investment funds end, the dollar strengthens more, supply exceeds estimates and global demand continues to decelerate. True “growth” stocks are particularly strong again today. As well, technology shares are substantially outperforming the major averages. The MS Tech Index is now 10.6% higher year-to-date, almost triple the return of the S&P 500. I said early in the year that I expected technology to outperform this year. I also expect this to be the case again next year. Research In Motion's(RIMM) earnings report after the close could provide the catalyst for further tech sector gains tomorrow. The financials continue to trade as if at the very least they are forming a short-term bottom. Instability in the financial sector is the only thing holding the broad market back from more vigorous gains into year-end, in my opinion. Overall bearish sentiment towards US equities remains very elevated. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, tech sector strength, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Mobile-Phone Spending in US Rises to Record After New iPhone.
- Gold is falling another $3.20/oz. after the US dollar climbed further against the euro and oil reversed earlier gains, eroding the appeal of the precious metal as an alternative investment.
- The cost of borrowing in euros, pounds and dollars fell for a third day as central banks inject cash into global money markets to ease a year-end lending squeeze.

Wall Street Journal:
- After delaying a domestic satellite-surveillance program for more than two months, Homeland Security Secretary Michael Chertoff expects to finalize a new charter for it this week, a move that attempts to quell civil-liberties concerns and get the program back on track.
- Great Wall Street of China. Morgan Deal Underlines The New Capital Flow; Who’s Playing Whom?
- Latest Luxury: The Store Concierge. Retailers Kick It Up a Notch To Coddle Affluent Clientele.

NY Times:
- Silicon Valley Shaped by Technology and Traffic.
- It has been a difficult few years for earmarks, the pet spending projects that lawmakers pursue in Congress. They have been linked to felony cases, blamed for the national debt, stripped from the budget, exposed to public scrutiny and subjected to ridicule. Yet earmarks and the lawmakers who love them will not be denied.
- 2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy.
- Nanotechnology Companies Planning IPOs.

Knowledge @ Warton:
- A Closer Look at Sovereign Wealth Funds: Secretive, Powerful, Unregulated and Huge.

Wired:
- Apple(AAPL) May Make Big Splash With Apple TV in 2008.

International Herald Tribune:
- The secrecy surrounding the William J. Clinton Foundation has become a campaign issue as Senator Hillary Rodham Clinton seeks the Democratic presidential nomination with her husband as a prime source of strategy and star power. Some of her rivals argue that donors could us presidential foundations to circumvent campaign finance laws intended to limit political influence.

Final 3Q GDP Soars 4.9%, Initial Jobless Claims Rise, Leading Indicators Fall, Philly Fed Weak

- Final 3Q GDP rose 4.9% versus estimates of a 4.9% gain and prior estimates of a 4.9% increase.

- Final 3Q Personal Consumption rose 2.8% versus estimates of a 2.8% gain and a prior estimate of a 2.7% increase.

- Final 3Q GDP Price Index rose 1.0% versus estimates of a .9% gain and a prior estimate of a .9% gain.

- Final 3Q Core PCE rose 2.0% versus estimates of a 1.8% increase and prior estimates of a 1.8% gain.

- Initial Jobless Claims for this week rose to 346K versus estimates of 335K and 334K the prior week.

- Continuing Claims rose to 2646K versus estimates of 2610K and 2634K prior.

- Leading Indicators for November fell .4% versus estimates of a .3% decline and a .5% decline in October.

- Philly Fed for December fell to -5.7 versus estimates of 6.0 and a reading of 8.2 in November.

BOTTOM LINE: The US economy accelerated from July through September to the fastest pace in four years, Bloomberg reported. Growth last quarter was boosted by record exports and some inventory rebuilding. The shrinking trade deficit contributed 1.4 percentage points to GDP growth, the most in 11 years. Personal incomes grew at a 6% annual rate in the third quarter, which was well above the 4.3% year-over-year November CPI reading. I continue to believe booming exports, inventory rebuilding, decelerating inflation and resilient consumer spending will more than offset the drag from housing over the intermediate-term. 4Q GDP growth will likely come in around 1%, however I still expect GDP growth to average 2-2.5% over the intermediate term.

The number of Americans filing first-time claims for unemployment benefits rose more than forecast last week, Bloomberg reported. The four-week moving average climbed to 343,000. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2%. While jobless claims have ticked up recently, they are still below the 20-year average of 351,400. I continue to believe the overall job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Leading indicators fell slightly more than economists expected, Bloomberg reported. The leading index is down at an annual rate of 2.3% over the last six months, well short of the 4.5% decline usually seen before recessions. Gains in the factory workweek, rising orders for capital equipment and slower delivery times helped cushion the decline in the leading index. I expect the leading index to begin rising in the first quarter of next year, boosted by gains in stocks.

Manufacturing in the Philly region fell in December, Bloomberg reported. The New Orders component of the index actually rose to 10.7 versus 3.5 the prior month. Moreover, shipments surged to 18.4 from 4.7 the prior month. The Inventory component fell to -6.7 from 2.5 the prior month. The Employment component declined to .5 from 4.8 the prior month. While the headline number was weak, the underlying components don’t indicate contraction. I continue to believe that manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of booming exports.

Bear Radar

Style Underperformer:

Small-cap Value (-.84%)

Sector Underperformers:

Oil Tankers (-2.26%), Airlines (-1.99%) and Retail (-1.45%)

Stocks Falling on Unusual Volume:

CPY, RT, MBI, APOG, ATLS, FSIN, BWLD, BRLI, WRLD, TSCM and SLM

Bull Radar

Style Outperformer:

Large-cap Growth (+.61%)

Sector Outperformers:

Software (+1.84%), Wireless (+1.20%) and Computer Services (+1.23%)

Stocks Rising on Unusual Volume:

BYI, SRZ, PUK, VOL, BCA, HEI, LNN, SCS, PSJ, EVY, SMSC, HRBN, DGIT, ORCL, RIGL, LEAP, INWK, HWAY, SNCR, PRGS, LHCG, MLHR, FLML, CBRL, NNDS, LKQX, MELI, ENER, FDRY, CTAS, CCJ, HBHC, CT and AIXG

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