Stocks Higher into Final Hour on Less Economic Pessimism

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Computer longs, Retail longs and Commodity shorts offset losses in my Internet longs and Medical longs. I added (IWM)/(QQQQ) hedges, added (ISRG) puts and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is positive 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. Cyclicals, specifically transports, are especially strong. The heavily shorted and beaten-up financials, retailers and homebuilders are also strong again today. These groups have become very extended and short-term traders will likely take profits on tomorrow’s economic data and FOMC announcement. I wouldn't be surprised to see 4Q GDP and ADP Employment, which are released before the open tomorrow, surprise on the upside. This could also lead to weakness in the broad market, as traders cut expectations for a 50 basis point cut in the afternoon. I still sense there are a very large number of investors still on the sidelines who believe a complete retest or new lows are a certainty. This should keep pullbacks in the major averages relatively mild and short-term in nature. The VIX is falling 3.0% today, but remains high at 27.0. Weekly retail sales rose .7% this week, which is sluggish, but not recessionary. GM’s CFO said this afternoon that he does not see the US economy sliding into recession, as well. Fed fund futures now imply a 74% chance of a 50 basis point rate cut and a 26% chance for a 25 basis point cut tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Goldman Sachs Group’s(GS) Global Alpha hedge fund, once the firm’s biggest, fell about 40% last year because of wrong-way bets on currencies, equities and bonds worldwide, according to a report sent to investors.
- The European benchmark speculative grade credit default swap index is falling 17 basis points today to 438, down from 530 a week ago.
- Travelers Cos.(TRV), the second-largest US commercial insurer, increased its holdings of securities backed by subprime mortgages in the fourth quarter. The company “took advantage of favorable pricing” to purchase the securities, an executive said.
- Ethanol tariffs will be addressed in the 2009 budget, Energy Secretary Samuel Bodman said. The ethanol industry is “close,” to being able to stand on its own, he said.
- Turkey plans to develop a wind-turbine industry worth as much as $15 billion alongside a new wind energy market, Energy Minister Hilmi Guler said. Record demand for wind turbines has companies like General Electric(GE), the world’s second-biggest turbine marker, sold out through 2009 and has driven the cost of the equipment higher.
- Clearwire Corp.(CLWR), the wireless Internet company founded by mobile-phone pioneer Craig McCaw, rose as much as 23% in Nasdaq trading after the Wall Street Journal said talks about a venture with Sprint Nextel(S) have restarted.
- NYC traffic and pedestrian fatalities dropped to a record low in 2007, Mayor Bloomberg said.
- Unisys Corp.(UIS) climbed the most in five years in NY trading after fourth-quarter revenue and profit topped some analysts’ estimates.
- Lexmark Intl.(LXK), the second-biggest US printer maker, posted fourth-quarter earnings that beat analysts’ estimates on record sales to business clients and new, more profitable products.
- Bank of America(BAC) said its purchase of Countrywide Financial(CFC) is proceeding and the bank doesn’t need more capital.
- The IMF cut its forecast for global growth this year to a still healthy 4.1%, down from 4.9% in 2007.

Wall Street Journal:
- Despite calls by the Bush administration and European governments for OPEC to pump more oil, the cartel may actually look to cut output this spring if signs continue to point to increasing oil supplies and diminishing demand.
- Studies Cite Head Injuries As Factor in Some Social Ills.

Forbes.com:
- Abengoa SA unit Abengoa-Solar expects solar panels to be available for every Spanish home within 5-10 years.

USA Today:
- Governor Kathleen Sebelius on Tuesday endorsed Barack Obama for president, a Super Tuesday boost in a GOP-leading state that Democrats hope to reclaim in the White House campaign.

The Hindu:
- The US offered to provide technical support and equipment to fight an outbreak of avian influenza in India. Drugs such as Tamiflu will be made available and the US will assist West Bengal state with diagnosing potential cases of human infection.

Nikkei English News:
- Sanyo Electric Co. will increase production of digital cameras 60% to 15 million units this business year.

Bear Radar

Style Underperformer:

Large-cap Growth (+.72%)

Sector Underperformers:

Coal (-3.13%), Oil Service (-1.26%) and Internet (-1.24%)

Stocks Falling on Unusual Volume:

ALB, SII, CCU, EMC, ICUI, NHWK, ZRAN, JDAS, EWBC, AMLN, OXPS, CBST and PBG

Durable Goods Orders Very Strong, Overall Consumer Sentiment Slightly Better-Than-Expected, Present Situation Component Rises

- Durable Goods Orders for December rose 5.2% versus estimates of a 1.6% increase and an upwardly revised .5% gain in November.

- Durables Ex Transports for December rose 2.6% versus estimates of a .1% increase and an upwardly revised .4% decline in November.

- Consumer Confidence for January fell to 87.9 versus estimates of 87.0 and an upwardly revised 90.6 in December.

BOTTOM LINE: Orders for US durable goods rose substantially more than forecast in December, indicating business investment remains healthy. Bloomberg reported. The 5.2% surge in demand for computers, aircraft and other items made to last several years was the largest since July 2007. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, jumped 4.4%, the most since March of last year. Shipments of those items, used in determining GDP, rose 2%, the most since March of 2006. The rise in total orders was led by the largest gain in machinery bookings since December 2006, a jump in commercial aircraft and a 12% surge in communications gear. Shipments to international buyers set a ninth consecutive monthly record. To put today’s 5.2% jump in Durable Goods Orders in perspective, March 1993-February 1996, Sept. 1998-November 1999 and August 2002-February 2004 were periods in which Durable Goods Orders never rose above 5%. We were told by the many bears that the US economy was plunging into recession in 3Q when the credit turmoil began to intensify, but in actuality US GDP was rising at a very powerful 4.9% rate. The bears were even more certain that 4Q growth would be negative, however that now appears unlikely. Growth should come in around 1.5%. Now there doesn’t even seem to be a debate in many quarters, it is just assumed that we are now in a recession, which is defined as two consecutive quarters of GDP contraction. I continue to see little data to indicate we are now in a recession even as this is priced into stocks at current levels. I still expect US growth to average around 2% for the year.

Consumer confidence fell in January less than economists expected, Bloomberg reported. The Present Situation component rose to 115.3 from 112.9 the prior month. The Expectations component fell to 69.6 from 75.8 in December. The share of consumers who said jobs are plentiful rose to 23.9% versus 23.6% the prior month. The percentage of people that said jobs are hard to get fell to 20.1% from 22.7% in December. The percentage of consumers planning to buy an automobile rose to 6.7% from 6.3% the prior month. Those planning to buy an appliance rose to 30.5% from 28.1% prior. There remains a historically wide gap between consumers’ perceptions of their current financial situation and their views of the future. This is a direct result of the current “US negativity bubble,” in my opinion. Consumers have been told by so many high profile market participants, with negative political and/or financial agendas, for so many years that an imminent economic collapse is just around the corner that when we get a slowdown it is just assumed by most that the collapse in finally occurring, even though they don’t see it in their own finances. I suspect we have now seen the lows for the year in consumer sentiment gauges as economic pessimism begins to wane, home sales bounce unexpectedly, interest rates remain low, inflation decelerates, stocks rise and the job market remains healthy.

Bull Radar

Style Outperformer:

Large-cap Value (+1.11%)

Sector Outperformers:

Telecom (+1.96%), Airlines (+1.75%) and Computer Hardware (+1.32%)

Stocks Rising on Unusual Volume:

CXG, TAR, ZMH, KFN, AXE, FTO, SMG, CR, CNW, LXK, CHTT, QMAR, NNDS, ENDP, SMTS, GASS, MATR, SONC, ALGN, CENX, RATE, TECH, NICE, IBKR, ALDN, DBTK, ABK, THG, TNE, GEOY, EE, KFN and JOE

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