Bear Radar

Style Underperformer:

Small-cap Value (-1.86%)

Sector Underperformers:

REITs (-2.49%), Airlines (-2.39%) and Coal (-2.01%)

Stocks Falling on Unusual Volume:

SLM, IFN, UCBI, FSIN, SDTH, ESLR, SWWC and UCBI

Bull Radar

Style Outperformer:

Large-cap Growth(-.89%)

Sector Outperformers:

Utilities (-.40%) Energy (-.55%) and Computer Hardware (-.54%)

Stocks Rising on Unusual Volume:

BT, TNH, EVY, ADPI, MELI, CSUN, OPTT, PANL, CWCO, FSYS, HURC, CREE, COMV, ELON, CRMT, LAYN, FTEK, MBLX, DRYS, BVN, MWA, POT, IVN and CHA

Bearish Sentiment Still Exceeds Levels Seen at Depths of 2000-2003 Bear Market

* Notwithstanding historical individual investor pessimism, corporate insiders continue to buy their own stocks hand over fist.

The AAII percentage of bulls dropped to 30.0% this week from 35.85% the prior week. This reading is now at depressed levels. The AAII percentage of bears rose to 50.0% this week from 47.2% the prior week. This reading is now at an elevated level. Moreover, the 10-week moving average of the percentage of bears is currently at 46.7%, an elevated level. It has only been higher one other period in its history, which was September 1990-December 1990. Moreover, the 10-week moving average of the percentage of bears peaked at 43.0% right near the major bear market low during 2002. It is astonishing that the 10-week moving average of the % bears is currently greater than at any time during the bubble bursting meltdown of 2000-2003, which was arguably the worst stock market decline since the Great Depression.

Furthermore, the 50-week moving average of the percentage of bears is currently 38.6%, an elevated level seen during only one other period since tracking began in the 80s. That period was October 1990-July 1991, right near another major stock market bottom. The extreme reading of the 50-week moving average of the percentage of bears during that period peaked at 41.6% on Jan. 31, 1991. The current reading of 38.6% is slightly above the peak during the 2000-2003 bear market, which was 38.1% on April 10, 2003. I find this even more astonishing, notwithstanding the recent pullback, given that the S&P 500 is currently 105% higher from the October 2002 major bear market lows and just 4.6% off a record high.

Individual investor pessimism towards US stocks is currently deep-seated and historical in nature. This is just more evidence of the current “US negativity bubble” and bodes well for further out-sized stock market gains over the intermediate-term. It is also noteworthy that as investor pessimism grows ever thicker, corporate insiders continue to display downright giddy behavior with their recent stock activity during this pullback. It is even more interesting that the retail sector is seeing substantial insider buying, notwithstanding the current extreme investor pessimism towards the prospects for consumer spending. Prior to the 2000 economic downturn, insiders were bailing in droves. I continue to believe US stocks are poised for very strong performance during the first quarter of next year as the undying belief in an imminent recession fades and the uncertainty currently surrounding the financial sector lifts substantially.

Durable Goods Orders Rise, Jobless Caims Rise Slightly, Consumer Confidence Improves

- Durable Goods Orders for November rose .1% versus estimates of a 2.0% gain and a .4% decline in October.

- Durables Ex Transports for November fell .7% versus estimates of a .5% increase and a .9% decline in October.

- Initial Jobless Claims for this week rose to 349K versus estimates of 340K and 348K the prior week.

- Continuing Claims rose to 2713K versus estimates of 2645K and 2638K prior.

- Consumer Confidence for December rose to 88.6 versus estimates of 86.5 and a reading of 87.8 in November.

BOTTOM LINE: Orders for US durable goods rose less than forecast in November, partially restrained by a drop in defense orders, Bloomberg reported. Orders for military equipment fell 24%. However, Bookings Excluding Defense Equipment rose 1.2%. Orders for non-defense capital goods excluding aircraft, a gauge of future demand, declined .4% versus a 2.9% decline in October. Shipments of those items, used in computing GDP, rose .2% versus a 1.2% drop in October. Orders for transportation equipment rose 1.9%, boosted by a 21% jump in commercial aircraft demand. I expect Durable Goods Orders Ex Transports to rebound next month on inventory rebuilding.

The number of Americans filing first-time jobless claims for unemployment insurance rose slightly last week, Bloomberg reported. However, the four-week moving-average of new claims fell to 342,500 from 343,500. As well, the unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, remained at a historically low 2%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Consumer confidence in the US unexpectedly rose in December, led by a gain in optimism about the future, Bloomberg said. However, the Present Conditions component fell to 108.3 from 115.7 the prior month. The Future Expectations component rose to 75.5 from 69.1 the prior month. Those consumers expecting more jobs in the next six months rose to 11.2% from 10.6% the prior month. The percentage of consumers planning to purchase an automobile over the next six months rose to 6.1% from 4.8% in November. This month’s gain in the headline confidence index was boosted by a surge in confidence in the Southeast Central(+19.5% to 97.0) and the Northwest Central regions(+15.3% to 108.3). I expect consumer confidence to improve again next month on diminishing credit market angst, less overall economic pessimism, lower interest rates, lower energy prices, higher stock prices and a stable job market.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- The yuan rose the most since China ended a fixed exchange rate to the dollar in 2005 as the central bank sought to curb inflation.
- Amazon.com Says 2007 Holiday Season Is ‘Best Ever.’

Wall Street Journal:
- Congress Adds $10 Billion In Earmarks to 2008 Budget.
- ‘Long-Short’ Funds Labor to Thrive.

NY Times:
- Las Vegas Wins Big. Revenues on the Vegas strip are rising, even as rival casinos struggle.
- Inside Apple(AAPL) Stores, a Certain Aura Enchants the Faithful.

MarketWatch.com:
- Apple(AAPL) driven to record by strong iPhone, Mac sales.

BusinessWeek.com:
- Semiconductors: Healthy M&A Prospects. S&P says some recent deals show that chip companies are finding attractive prices and ways to improve by combining.
- The founder of Rembrandt Venture Partners offers predictions for next year and advice for entrepreneurs seeking funding.

CNNMoney.com:
- Hiring in ’08: Slower but steady gains.

IBD:
- Social Networking Has Taken Off With Users, Investors Swelling.

Forbes.com:
- Asset-management firm Davis Selected Advisers seems to be calling a bottom in the US financial services market. On Wednesday, it said it had acquired a 5.1% stake in MBIA(MBI), the world’s largest bond insurer, just two days after it pumped $1.2 billion into Merrill Lynch(MER).
- Unprecedented losses at Bear Stearns(BSC) couldn’t shake Joseph Lewis’s interest in the troubled brokerage. The British billionaire is still buying shares even after the company’s abysmal fourth quarter.

USA Today.com:
- Publicity over Ford Flex gains muscle with leisurely test drives.

Reuters:
- Buffet bets on America with latest purchase.

Financial Times:
- Apple Inc.(AAPL) and News Corp.’s(NWS/A) Twentieth Century Fox will start a service that lets consumers download films and rent them for a limited time.

Late Buy/Sell Recommendations
Citigroup:
- 8 Plausible and Interesting 2008 Outcomes: 1) The Republicans hold on to the White House – essentially, divided government remains the desire of the American people. 2) Oil prices fall to $70-75/bbl. alongside slower growth in the US and Europe, as well as Asia. 3) The US dollar strengthens to 1.25 vs. the Euro as the ECB finally cuts rates, while the trade deficit continues to decline. 4) Best performing sector in the S&P 500 is Financials. 5) The Chinese equity bubble bursts as pressures grow to rein in inflation, pollution, corruption, misallocation of resources along with trade protectionism threats forcing a more significant revaluation of the Yuan/Dollar peg. 6) Iran backs off its aggressive nuclear program as economic pressures force a change in priorities, especially as the US and neighboring countries begin negotiating with the government over Iraq and other local issues. 7) A carbon credit cap is imposed with carbon credit trading beginning, providing a new area for investors to seek profits and investment banks to trade. 8) Hedge fund consolidation picks up in earnest, with poor performance becoming the catalyst for change.

- 8 Questions We Are Not Hearing?: 1)Where should I consider buying real estate? General agreement is that prices are headed lower but no sense of where “value” is? 2) Doesn’t the yield curve steepness mean anything anymore for Financial sector earnings? 3) Why aren’t energy companies earning more with oil near $100/bbl. 4) Whatever happened to the problems of under-funded pension programs that were supposed to be the undoing of US public companies? 5) Why doesn’t the fact that 95% or more of equity mutual fund flows going to international funds in the past few years worry more people about a new stock investing craze outside the US? 6) Why has money continued to flow into hedge funds when their returns have been mediocre? 7) Whatever happened to the avian flu pandemic fears that dominated the investment mindset a couple of years ago? Are there such global fears dominating investors that may similarly fade away from public consciousness? 8) Why does anyone try to predict what price oil has to reach to end consumer spending when every benchmark in the past five years has been wrong?

Night Trading
Asian Indices are unch. to +1.25% on average.
S&P 500 futures -.17%.
NASDAQ 100 futures -.12%.

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
- (LUB)/.07
- (CBK)/.28
- (ACIW)/.33

Upcoming Splits
- (CAM) 2-for-1
- (TWIN) 2-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for November are estimated to rise 2.0% versus a .2% decline in October.
- Durables Ex Transports for November are estimated to rise .5% versus a .4% decline in October.
- Initial Jobless Claims for this week are estimated to fall to 340K versus 346K the prior week.
- Continuing Claims are estimated to fall to 2645K versus 2646K prior.

10:00 am EST
- Consumer Confidence for December is estimated to fall to 86.5 versus 87.3 in November.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -1,625,000 barrels versus a -7,586,000 barrel decline the prior week. Gasoline supplies are expected to rise by 1,550,000 barrels versus a 2,980,000 barrel increase the prior week. Distillate inventories are estimated to fall by -900,000 barrels versus a -2,158,000 barrel decrease the prior week. Finally, Refinery Utilization is estimated to rise by .7% versus a -.92% decline the prior week.

Other Potential Market Movers
- The weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology shares and commodity stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.