Stocks Lower into Finaly Hour as Profit-taking Offsets Short-covering

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is slightly lower, most sectors are declining and volume is light. Investor anxiety is above average again. Today’s overall market action is slightly bearish. The VIX is surging 7% to 22.2 and the ISE Sentiment Index remains low at 129.0. For the fourth day in a row, the NYSE Arms hit a high 1.74 this morning. It appears to me many short-term trading oriented funds are taking profits in winners today, both long and short. The NYSE short interest ratio just hit another new record high. The (XLF) is at session highs, rising 1.3%. As well, broad market weakness over the last few days looks more like a function of a year-end “buyers strike” rather than meaningful selling as volume has remained very light with high NYSE Arms readings. Gauges of credit market angst continue to decline. The TED spread is falling another 12 basis points to 147 basis points today, which is down 74 basis points in less than 3 weeks and down 93 basis points from August highs. As well, the 30-day US asset backed commercial paper yield is plunging 38 basis points today and is down 74 basis points in less than three weeks and down 89 basis points from September highs. I wouldn’t be surprised to see many of the beaten up and heavily shorted stocks continue to rise through week’s end, which should boost the broad market. I still believe market leading growth stocks will substantially outperform the broad market again next year as economic growth remains modestly below trend, interest rates remain low and inflation decelerates. I expect US stocks to trade modestly higher into the close from current levels on diminishing credit market angst, a firmer US dollar, seasonal strength, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Nasdaq Stock Market(NDAQ) obtained clearance from the Committee on Foreign Investment in the US for Borse Dubai to take a stake in the company, paving the way for its acquisition of OMX AB.
- Pakistan’s Election Commission will announce tomorrow whether the Jan. 8 parliamentary vote should be delayed in response to rioting that erupted after last week’s assassination of main opposition leader Benazir Bhutto.
- Copper is falling 1.0% today, heading for the smallest annual gain since 2001.
- Europe’s Dow Jones Stoxx 600 Index posted its first annual decline since 2002, as benchmarks in the UK and France dropped on the last day of trading in 2007.
- Borrowing costs for Citigroup, AT&T and hundreds of US investment-grade corporate bond issuers may fall next year as they refinance about $557 billion of bonds, according to data compiled by Bank of America.
- Delta Petroleum(DPTR), the US oil and gas producer that has posted five straight quarterly losses, said billionaire Kirk Kerkorian’s Tracinda Corp. will buy 35% of the company for $684 million.

Wall Street Journal:
- A veteran space scientist turned entrepreneur is making a big bet that a new generation of small, low-cost satellites can revolutionize the collection of weather and environmental data used to track storms and monitor climate shifts.
- Celanese Corp., Dow Chemical and Anglo American Plc are among Western companies seeking to profit from a Chinese boom in coal-to-chemicals projects.

NY Times:
- Disney(DIS) Expands Virtual Games for Children.
- Google’s(GOOG) Market Share Grows and Grows and Grows.
- Mac owners more likely to download music.

LA Times:
- Feds aid TV viewers’ move to digital. Agency will start taking requests for discounts on converter boxes Tuesday. In 2009, analog will be history.

iLounge:
- Apple readying HD Radio push for Macworld.

Houston Chronicle:
- President Bush signed legislation Monday to allow states and local governments to cut investment ties with Sudan because of the violence in Darfur.

Bear Radar

Style Underperformer:

Small-cap Growth (-.97%)

Sector Underperformers:

Gold (-1.81%), Alternative Energy (-1.74%) and Papers (-1.54%)

Stocks Falling on Unusual Volume:

PZE, COGT, FRP and GROW

Existing Home Sales Rise

- Existing Home Sales for November rose to 5.00M versus estimates of 4.97M and an upwardly revised 4.98M in October.

BOTTOM LINE: Sales of existing homes in the US unexpectedly rose in November, Bloomberg reported. The median home price fell 3.3% from year ago levels to $210,200. The number of homes for sale fell 3.6% to 4.27 million. At the current sales pace, that represents 10.3 months’ supply versus 10.7 months worth in October. The increase in purchases was led by a 10% rise in the West. Sales were unch. in the Midwest. Sales fell 3.3% in the Northeast and 2% in the South. I expect existing home sales to bounce further next month.

Bull Radar

Style Outperformer:

Mid-cap Growth(-.39%)

Sector Outperformers:

Airlines (+.29%), Restaurants (-.28%) and Semis (-.40%)

Stocks Rising on Unusual Volume:

FF, GLT, DPTR, CALM, EMKR, CSUN, AMIE, BPHX, CBEY, MBLX and PTNR

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