BETWEEN THE HEDGES

Tuesday, February 05, 2008

Wednesday Watch

Posted by Gary .....at 11:48 PM

Late-Night Headlines
Bloomberg:
- BHP Billiton Ltd.(BHP) the world’s largest mining company, raised its hostile offer for Rio Tinto Group(RTP) to $147.4 billion, aiming to thwart a blocking move led by a Chinese competitor. Rio Tinto shares rose 4.9% in extended trading.
- JDS Uniphase(JDSU), the maker of equipment for testing telecom networks, reported second-quarter profit and sales that beat analysts’ estimates, sending the share soaring 20.6% in after-hours trading.
- Walt Disney(DIS), the second-largest US media company, reported first-quarter profit that beat analysts’ estimates as revenue from cable networks and theme parks climbed. The stock jumped 5.7% in extended trading.
- Smoking marijuana on a regular basis as a young adult can lead to gum disease by age 30 or younger, according to a study by New Zealand researchers.
- Heart attacks and deaths nearly doubled after patients stopped taking the anti-clotting drug Plavix, according to the first national study documenting the risk to heart patients who end their drug therapy.
- The euro declined the most against the US dollar in almost two months after Europe’s service industries weakened and raised concern that Jean-Claude Trichet’s reluctance to cut interest rates will hamper growth.
- Euro May Weaken to $1.431 on Technical Charts, Citigroup Says.

Wall Street Journal:
- McCain Scores in Northeast, Illinois. Romney Takes Massachusetts, Utah; Huckabee Rallies in Southern States.
- Obama Shows Strength in Deep South; Clinton Wins New York, Massachusetts.

MarketWatch.com:
- Buying January’s worst. Newsletters attracted to many worst performers from last month.
- Insiders are betting heavily on bull-market rebound.

NY Times:
- Whatever the outcome of Microsoft’s(MSFT) bid for Yahoo(YHOO), the move and Google’s(GOOG) countermoves mark an escalation in the confrontation between the two companies.
- For Marketing, the Most Valuable Player Might Be Google’s YouTube.
- In CBS Test, Mobile Ads Find Users.

SmartMoney.com:
- Microsoft(MSFT) Shareholders to Pay High Price for Yahoo(YHOO).

Forbes.com:
- Worries that payment shock on adjustable-rate mortgages could trigger even more defaults could subside as LIBOR continues to fall. The majority of hybrid adjustable-rate mortgages currently resetting – the ones analysts and experts widely predicted would default at high levels because of rising interest rates – are tied to LIBOR. Six months ago LIBOR was at 5.31%. By Monday, the rate had fallen to 3.1%. Subprime borrowers that were looking at a 30% jump in monthly payments just six months ago, are now looking at a monthly payment increase of less than 10%. If LIBOR continues to decline, adjustable rates could actually begin resetting below their initial interest rate, saving customers on monthly payments.

IBD:
- Google(GOOG) Cuts E-Mail Security Price To Advance ‘Cloud’ Services Push.

Financial Times:
- The Iraqi government is inviting major oil multinationals to participate for the first time in the development of the oil industry. Iraq is determined to push ahead with plans to raise production from a current 2.5 million barrels per day to 6 million barrels per day in five years.

Business Times:
- Singapore Telecom Ltd. says its 172 million mobile-phone subscribers will help the company in its bid to bring Apple’s(AAPL) iPhone to Asia, citing CEO Chua Sock Koong.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (SMTC), target $18.
- Reiterated Buy on (EMR), target $58.
- Maintained Buy on (MU), target $17.

Night Trading
Asian Indices are -3.75% to -1.75% on average.
S&P 500 futures -.29%.
NASDAQ 100 futures -.36%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
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Before the Bell CNBC Video(bottom right)
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Today in IBD
In Play
Bond Ticker
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Earnings of Note
Company/EPS Estimate
- (WMG)/.12
- (IACI)/.55
- (PDX)/.80
- (DVN)/1.93
- (MGAM)/-.02
- (BIIB)/.80
- (TWC)/.31
- (TIN)/.16
- (TWX)/.29
- (SLE)/.24
- (CI)/.98
- (ITT)/.93
- (RL)/.76
- (HB)/.66
- (EDS)/.57
- (CCI)/.09
- (FMC)/.70
- (PRU)/1.89
- (CSCO)/.38
- (ACL)/1.27
- (MET)/1.44
- (WMS)/.25
- (AVB)/.58
- (AKAM)/.37

Upcoming Splits
- (CJR) 2-for-1
- (JASO) 3-for-1

Economic Releases
8:30 am EST
- Preliminary 4Q Non-farm Productivity is estimated to rise .5% versus a 6.3% gain in 3Q.
- Preliminary 4Q Unit Labor Costs are estimated to rise 3.5% versus a -2.0% decline in 3Q.

Other Potential Market Movers
- The weekly EIA energy inventory report, weekly MBA mortgage applications report, (CTXS) analyst day, (AXP) financial community meeting, (JAVA) analyst meeting, CSFB Financial Services Forum, CSFB Energy Conference, Cowen & Co. Aerospace/Defense Conference, Thomas Weisel Tech/Telecom/Internet Conference and Merrill Lynch Global Pharma/Biotech/Medical Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Lower, Weighed Down by Commodity, Financial, Retail and Tech Shares

Posted by Gary .....at 4:13 PM

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
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Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Sharply Lower into Final Hour on Profit-taking, Shorting, Economic Pessimism

Posted by Gary .....at 2:40 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Software longs, Biotech longs and Semi longs are more than offsetting gains in my Commodity shorts, (EEM) short, Internet longs and Medical longs. I added to my (XLE) short, added to my (EEM) short and added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is about average. Investor anxiety is high again. Today’s overall market action is bearish. Financials are under pressure, despite the relative stability in bond insurer shares. Commodities are also registering significant losses on global growth worries and the jump in the US dollar. I sense an increasing number of global investors view Europe as falling substantially behind the curve as their economies weaken and the ECB continues to talk of the possibility of future rate hikes. This will likely lead to further US dollar strength and commodity weakness over the coming months. I continue to see the US Fed as now “ahead of the curve” and the odds of an intermeeting rate cut are rising meaningfully. The VIX is rising 8.0% today to a high 28.0. The ISE Sentiment Index hit a below average 102.0 and the total put/call is hitting an above average 1.12. Finally, the NYSE Arms has been running very high again all day at 2.47, which is also a positive. I still view the odds of a full retest or new lows in the market as unlikely and further weakness providing good entry points in favorite longs for investors. Google(GOOG) is finally outperforming today. I think it is very likely it has seen its lows for the year as investor fears over a possible (MSFT)/(YHOO) combination diminish and its growth picks up this quarter. Comscore said today that Google’s global search market share is 62.4% versus 15.7% for Yahoo/Microsoft combined. The stock is very cheap given its fundamentals and should be awarded a premium valuation based on its ability to grow at a very healthy rate despite an economic slowdown. Nikkei futures indicate a -400 open in Japan and DAX futures indicate an +8 open in Germany. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, rising rate cut odds and short-covering.

Bear Radar

Posted by Gary .....at 2:40 PM

Style Underperformer:

Large-cap Value (-3.07%)

Sector Underperformers:

I-Banks (-3.94%), Coal (-3.41%) and Semis (-3.21%)

Stocks Falling on Unusual Volume:

PFG, IEX, NYX, AIR, CQB, CBL, WOOF, VRUS, CBEY, THOR, ROCM, BPHX, SNCR, DISCA, ACAD and SOHU

Today's Headlines

Posted by Gary .....at 2:00 PM

Bloomberg:
- The euro declined the most against the dollar in almost two months after Europe’s service industries weakened and raised concern that Jean-Claude Trichet’s reluctance to cut interest rates will hamper growth.
- Apple Inc.(AAPL) unveiled higher-prices models of its iPhone mobile handset and iPod media player with double the memory of older versions, altering its lineup for the second time in six months to encourage shoppers to spend more.
- Computer Sciences(CSC) rose the most in more than two years in NY trading after third-quarter profit topped analysts’ estimates.
- Whirlpool(WHR) said fourth-quarter profit rose more than analysts estimated, sparking the largest appliance maker’s biggest gain on the NYSE in nine months.
- Perot Systems(PER) rose the most in more than four years after fourth-quarter profit and sales topped analysts’ estimates.
- Illumina, the market of tools used to analyze genetic material and diagnose disease, rose the most in three weeks after forecasting profit that tops analysts’ estimates.
- Worldwide investment in clean energy technologies, driven by the need to address climate change, could reach a total of $7 trillion through 2030, according to a study by Cambridge Energy Research Assoc.
- Dennis Gartman, editor of the Gartman Letter, Sees Up to 15% Drop for Gold.
- Sugar inventories that rose 19% last year will reach a record within months as farmers from Brazil to India contribute to a growing glut.
- Crude oil is falling more than $2/bbl. on a rising US dollar, less speculation by investment funds, decelerating global demand and record global production.

Wall Street Journal:
- Microsoft Corp.(MSFT) will probably raise its $44.6 billion offer for Yahoo! Inc.(YHOO) to avoid a lengthy battle. Sandeep Aggarwal, an analyst with Oppenheimer, said no other company wants Yahoo as much as Microsoft does and the latter will have to raise its bid to something in the range of $36 to $40 a share.
- Microsoft’s(MSFT) Yahoo(YHOO) Gambit.
- Chinese Investors Relying on ‘Olympic Put’ for Rally.

Businessweek.com:
- Buffett Stock Screen Shows 60 Candidates.

CNBC:
- Wilbur Ross, chairman of NY-based WL Ross, said he’s still looking at several bond insurers and may make a decision on investing in the next few weeks.

Marginal Revolution:
- Commercial loans from large banks are at an all time high and increasingly rapidly.

Dealbreaker:
- Goldman Sachs’ latest hedge fund, which was the largest launch in the history of the industry, had a rough first month. The fund is down 6% for January, according to a source familiar with the results.

San Francisco Chronicle:
- Lennar(LEN) attracts major backer for S.F. projects.
- New Intel(INTC) chip sets a record, doubles processing power.

LA Times:
- Top corporate insiders last month bought more of their companies’ shares than they sold for the first time since 1995, while the volume of shares sold short last month grew to 3.7% of NYSE-traded companies’ total shares outstanding, the highest since at least 1931.

USA Today:
- Farmland more valuable than ever.

AP:
- US-backed Sunni Muslim tribesmen found about 50 bodies in a mass grave west of the Iraqi city of Samarra, citing local officials. About 200 bodies were unearthed in recent months from mass graves around nearby Lake Tharthar, an area that was controlled by al-Qaeda until an uprising this year by local tribes.

De Telegraaf:
- Corporate Express NV is in “exploratory” talks with Staples Inc.(SPLS) to be bought.

Reforma:
- Mexico’s wind-generated power industry will receive $4.5 billion in international and domestic investments in the next five years.