Weekly Outlook

Click here for the weekly economic preview by Bloomberg.

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Producer Price Index, Advance Retail Sales, Empire Manufacturing, Business Inventories, weekly retail sales

Wed. – Weekly EIA energy inventory report, weekly MBA mortgage applications report, Consumer Price Index, Net Long-term TIC Flows, Industrial Production, Capacity Utilization, NAHB Housing Market Index, Fed’s Beige Book

Thur. – Housing Starts, Building Permits, Initial Jobless Claims, Philly Fed

Fri. – Univ.of Mich. Consumer Confidence, Leading Indicators

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – M&T Bank Corp.(MTB), Genentech Inc.(DNA), Charles Schwab(SCHW)

Tues. – US Bancorp(USB), Forest Labs(FRX), Citigroup(C), Marshall & Ilsley, California Pizza Kitchen(CPKI), State Street(STT), Intel Corp.(INTC), Linear Tech(LLTC)

Wed. – JPMorgan Chase(JPM), Wells Fargo(WFC), Progressive Corp.(PGR), Fortress Investment Group(FIG), AMR Corp.(AMR)

Thur. – PNC Financial Services(PNC), BlackRock(BLK), BB&T Corp.(BBT), Parker Hannifin Corp.(PH), Merrill Lynch(MER), Comerica Inc.(CMA), Bank of NY(BK), PPG Industries(PPG), CIT Group(CIT), Washington Mutual(WM), Seagate Technology(STX), TD Ameritrade(AMTD), International Game Technology(IGT), Advanced Micro Devices(AMD), Briggs & Stratton(BGG), Xilinix(XLNX), Domino’s Pizza(DPZ), Continental Airlines(CAL), International Business Machines(IBM)

Fri. – Schlumberger(SLB), Mentor Corp.(MNT), Johnson Controls(JCI), General Electric(GE)

Other events that have market-moving potential this week include:

Mon. – The National Retail Federation Conference

Tue. – Cowen Consumer Conference, National Retail Federation Conference, (RBA) analyst meeting, (SVR) analyst meeting

Wed. – Cowen Consumer Conference, Goldman Sachs Energy Conference

Thur. – Fed’s Fisher speaking, Fed’s Lockhart speaking, Goldman Sachs Energy Conference, (AEE) analyst meeting, (AMAT) analyst meeting

Fri. – Fed’s Lacker speaking, Bear Stearns Mortgage Servicer Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a firmer US dollar, lower energy prices, diminishing credit market anxiety, more constructive Fed comments, less economic pessimism, less financial sector uncertainty, bargain hunting and short-covering. My trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,401.02 -.75%*

Click here for the Weekly Wrap by Briefing.com.

Weekly Scoreboard*

Indices
S&P 500 1,401.02 -.75%
DJIA 12,606.30 -1.51%
NASDAQ 2,439.94 -2.58%
Russell 2000 704.65 -2.35%
Wilshire 5000 13,995.85 -1.12%
Russell 1000 Growth 579.05 -1.17%
Russell 1000 Value 761.37 -.77%
Morgan Stanley Consumer 713.53 +.11%
Morgan Stanley Cyclical 914.63 -2.65%
Morgan Stanley Technology 559.36 -4.13%
Transports 4,187.60 -1.71%
Utilities 543.46 +2.14%
MSCI Emerging Markets 147.65 +.17%

Sentiment/Internals
NYSE Cumulative A/D Line 59,269 -1.13%
Bloomberg New Highs-Lows Index -617
Bloomberg Crude Oil % Bulls 23.0 -55.8%
CFTC Oil Large Speculative Longs 242,131 +1.58%
Total Put/Call .91 -18.75%
NYSE Arms 1.49 -65.59%
Volatility(VIX) 23.68 -1.09%
ISE Sentiment 89.0 -4.30%
AAII % Bulls 19.6 -23.65%
AAII % Bears 58.9 +6.59%

Futures Spot Prices
Crude Oil 92.90 -5.18%
Reformulated Gasoline 232.64 -7.45%
Natural Gas 8.17 +4.14%
Heating Oil 254.50 -5.51%
Gold 897.50 +3.92%
Base Metals 222.98 -1.24%
Copper 330.0 +4.96%

Economy
10-year US Treasury Yield 3.78% -9 basis points
4-Wk MA of Jobless Claims 341,000 -.9%
Average 30-year Mortgage Rate 5.87% -20 basis points
Weekly Mortgage Applications 760,000 +32.23%
Weekly Retail Sales +1.3%
Nationwide Gas $3.09/gallon +.02/gallon
US Heating Demand Next 7 Days 13.0% below normal
ECRI Weekly Leading Economic Index 136.60 +1.11%
US Dollar Index 75.98 +.24%
CRB Index 365.15 -.29%

Best Performing Style
Large-cap Value -.77%

Worst Performing Style
Mid-cap Growth -2.82%

Leading Sectors
Drugs +6.0%
Biotech +5.26%
Medical Equipment +3.17%
HMOs +2.93%
Utilities +2.14%

Lagging Sectors
Retail -4.43%
Telecom -4.52%
Semis -4.80%
Networkin-7.41%
Oil Tankers -7.72%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Sharply Lower into Final Hour Despite Financial Sector Strength on Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added IWM/QQQQ hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, sector performance is mostly negative and volume is above average. Investor anxiety is above average. Today’s overall market action is bearish. It is very disappointing that we are giving back this much of the last two days’ gains given the relative strength in the financials. Large-cap growth leaders with any exposure to consumer spending are especially weak as investors continue to price in the worst case economic scenario. Meanwhile, the odds of a recession have actually declined over the last two days, according to Intrade.com. Bear complacency remains extraordinarily high given how much bad news is already factored into stock prices at current levels and the real potential for significant positive near-term catalysts. However, size buyers are scarce as investor confidence remains extraordinarily depressed. A significant confidence-boosting near-term catalyst needs to materialize soon to prevent the major averages from taking out recent lows. I expect US stocks to trade mixed into the close from current levels as short-covering, lower energy prices and diminishing credit angst offset more economic pessimism.

Trade Deficit Widens, Exports Hit Another Record, Import Prices Decelerate

- The Trade Deficit for November widened to -$63.1 billion versus estimates of -$59.5 billion and -$57.8 billion in October.

- The Import Price Index for December was unch. versus estimates of a .1% gain and an upwardly revised 3.3% gain in November.

BOTTOM LINE: The US trade deficit widened more than forecast in November as Americans spent a record amount on imported oil, overwhelming another record-setting month for US exports, Bloomberg said. Sales of automobiles, corn, refined petroleum products and industrial engines contributed to another surge in US exports. Imports rose 3%, reflecting record purchases of crude oil as the average price shot up to $79.65 a barrel, the highest ever. The rise in petroleum imports accounted for about two-thirds of the increase in the trade gap. Purchases of capital equipment by US companies and consumer imports also contributed to the increase. The US economy shouldn’t fall into recession as consumer spending softens without falling too much and exports keep surging to records, a Bloomberg News survey of economists this month showed. I expect the Trade Deficit to continue to trend lower over the intermediate-term as energy prices fall.

Prices of goods imported into the US were unchanged in December, as oil costs receded from a record high, Bloomberg reported. The price of imported petroleum and petroleum products dropped .6% after jumping 12.7% the prior month. Natural gas prices rose 2.8% in December, but were 2.7% lower from year ago levels. Costs for industrial materials, such as metals, fell .1%. I still think Import Prices increases have peaked for this cycle and that overall inflation will continue to decelerate over the intermediate-term.

Bear Radar

Style Underperformer:

Large-cap Growth (-1.14%)

Sector Underperformers:

Restaurants (-5.16%), Airlines (-2.81%) and Telecom (-2.66%)

Stocks Falling on Unusual Volume:

TIF, AXP, MCD, ININ, PLCE, ACGY, JNPR, PGNX, PBKS, CVGI, ARUN, CECO, INFY, LOGI, CTSH, NILE, BIGG, NILE, BGFV and TLEO