Bear Radar

Style Underperformer:

Small-cap Growth (-.02%)

Sector Underperformers:

Oil Tankers (-3.0%), Oil Service (-1.54%) and Energy (-.97%)

Stocks Falling on Unusual Volume:

MW, HRS, ANN, BKS, BRP, USMO, ININ, ANW, PZE, CGV and SNP

AAII % Bears 58.9, Highest Since October 18, 1990 After Iraq’s Invasion of Kuwait and During Peak of Recession

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

The AAII percentage of bulls dropped to 19.6% this week from 25.7% the prior week. This reading is now at a very depressed level. The AAII percentage of bears rose to 58.9% this week from 55.2% the prior week. This reading is now at an extraordinarily elevated level. The last time the AAII % Bears was this high was October 18, 1990 after Iraq’s invasion of Kuwait and before Operation Desert Storm began on January 17, 1991. Moreover, the peak of the 1990-1991 recession also occurred during 4Q 1990 as US GDP contracted 3.0%. The S&P 500 rose 65% over the next three years after this peak in bearish sentiment.

As well, the 10-week moving average of the percentage of bears is currently at 49.7%, also an extraordinarily 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 6.7 percentage points 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 39.7%, also an extraordinarily 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 39.7% is 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 94.1% higher from the October 2002 major bear market lows and 9.2% off its recent record high.

Individual investor pessimism towards US stocks is currently deep-seated and historical in nature, which bodes very well for further outsized gains over the intermediate-term. This is just more evidence of the current “US negativity bubble.” 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. During the 2000 economic downturn, insiders were bailing in droves. I still expect US stocks to turn in a positive return for this quarter, notwithstanding the poor start, as the undying belief in an imminent recession begins to fade and the uncertainty currently surrounding the financial sector lifts substantially.

Bull Radar

Style Outperformer:

Mid-cap Value (-.07%)

Sector Outperformers:

Airlines (+7.91%), Steel (+1.73%) and Homebuilders (+1.41%)

Stocks Rising on Unusual Volume:

TNE, NCR, ILMN, LOGI, UAUA, AKNS, GHDX, APOL, THOR, GYMB, ENOC, VOLC, ROST, COST, PCAR, PDLI, MTRX, IMCL, SIRF, ARGN, ACGL, LCC, DDS, FIG, JCP, UPS, CNA, ALY, DOX, HNR, HERO and IR

Links of Interest

Market Snapshot Commentary
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Top 20 Biz Stories
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Thursday Watch

Late-Night Headlines
Bloomberg:
- Holiday sales in the US climbed 4.5%, ahead of ShopperTrak RCT’s forecast, as retailers lured customers with discounts on clothing and electronics.
- Republican presidential contender Rudy Giuliani proposed a new tax plan that would cut capital gains and corporate tax rates while simplifying the tax form most Americans fill out. Giuliani said that if all of his tax proposals were enacted, “it would be the biggest tax cut in American history.”
- Target Corp.(TGT) said CEO Bob Ulrich will retire effective May 1 and be replaced by President Gregg Steinhafel.
- United Parcel Service(UPS) will boost its stock buyback plan fivefold to $10 billion.
- Alcoa Inc.(AA) said fourth quarter profit roes 76% as a $323 gain from the sale of a packaging unit more than offset declining metal prices and higher raw-material costs. The stock gained 4.2% in after-hours trading.
- A US panel created to recommend ways to fund road construction plans to propose that federal gasoline taxes rise as much as 40 cents per gallon over five years.
- General Electric(GE), the world’s biggest maker of electricity generation equipment, will take a majority stake in a $350 million wind-turbine project that will supply power to Austin, Texas. Closely held developer Renewable Energy Systems Americas will begin construction of the Hackberry wind farm 30 miles northeast of Abilene this month.

MarketWatch.com:
- Reading the Nasdaq tea leaves. There’s a good chance that the key US benchmark will rebound later this year.
- New crop of Internet-based retailers is gaining traction.
- ‘Shortsighted’ investment pros blew it: Poole Economy strong enough to avoid recession, St. Louis Fed chief says.

CNBC:
- Bear Stearns(BSC) won’t take more wirtedowns because the firm is “adequately marked” to market on its investments, CEO Alan Schwartz said in an interview. Schwartz said the company is “comfortable” with its positions and isn’t looking to raise capital.

NY Times:
- The Consumer Electronics Show has always been a hardware-focused, but his year software, information and entertainment content edged toward center stage.

CNNMoney.com:
- Green energy’s hottest stocks for 2008.
- Lawmakers are considering a host of options to stimulate the economy, and some may mean more for your bottom line.

SmartMoney.com:
- Chico’s Managers Betting on Comeback.

IBD:
- BlackRock’s Doll Sees ’08 Bright Spots.
- Today’s young people might be called the wired generation, but judging from this year’s Consumer Electronics Show they might not have to deal with actual wire for much longer.

USA Today.com:
- ‘Pimp my ride’ turns into ‘tech my ride’
- Race is on for Mobile Web’s pot of gold.
- Mortgage rates lowest since 2005, refinancing jumps.

Financial Times:
- Tony Blair takes advisory position at JPMorgan(JPM).
- Bear Stearns(BSC) held preliminary talks with Fortress Investments, a listed alternative asset management firm, regarding a possible combination in the weeks before Jimmy Cayne stepped down as chief executive of the investment bank.

Late Buy/Sell Recommendations
Citigroup:
- Maintain Buy on (CELG), target $82.
- Maintain Buy on (GILD), raised target to $56.
- Reiterated Buy on (UNH), target $83.
- Reiterated Buy on (UPS), target $85

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures +.10%.
NASDAQ 100 futures +.18%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (MSM)/.70
- (SHFL)/.10
- (IHS)/.43
- (CRAI)/.75

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 340K versus 336K the prior week.
- Continuing Claims are estimated to fall to 2730K versus 2761K prior.

10:00 am EST
- Wholesales Inventories for November are estimated to rise .4% versus unch. in October.

Other Potential Market Movers
- The Fed's Bernanke speaking, Fed’s Hoenig speaking, ICSC Chain Store Sales, weekly EIA natural gas inventory report, (MMSI) Investor Meeting, Needham Growth Conference, Consumer Electronics Show, JPMorgan Healthcare Conference and the Citigroup Entertainment Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Reversing Losses on Heavy Volume

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