Stocks Finish at Session Lows, Weighed Down by Tech, Financial and Homebuilding Shares

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Stocks Lower into Final Hour, Weighed Down by Tech, Financial and Homebuilding Shares

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Medical longs and Semi longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The overall tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 2.5% today to a high 29.0. The ISE Sentiment Index is a very low 84.0 and the total put/call is hitting an above average 1.02. Finally, the NYSE Arms is above-average at 1.4. The ongoing weakness in many large-cap growth leaders is worrisome. I will closely monitor the market’s reaction to Cisco’s report after the close before lifting market exposure. Nikkei futures indicate a -10 open in Japan and DAX futures indicate a -50 open in Germany. I expect US stocks to trade mixed into the close from current levels as bargain-hunting, falling energy prices and short-covering offsets ongoing economic pessimism.

Today's Headlines

Bloomberg:
- Mortgage applications in the US increased for a fifth consecutive week, led by a rebound in purchases.
- A storm unleashed tornadoes across the southern US late yesterday, killing at least 48 people, sparking a pipeline explosion in Tennessee and destroying homes and businesses from Alabama to Kentucky.
- US credit markets are trading as if the economy is in a recession because investors’ “fear has overwhelmed greed,” Goldman Sachs(GS) CFO Viniar said.
- Polo Ralph Lauren(RL) said third-quarter profit rose more than analysts estimated and increased its earnings forecast.
- Iran Sex Changes Get Mullahs’ Money as Regime Persecutes Gays.
- Crude oil is falling more than $1 a barrel after the government reported that US inventories surged the most in almost four years as refineries slowed operating rates and imports climbed.
- Copper is rising over 2% as inventories monitored by the LME dropped for a fourth-straight session.
- Plosser Says ‘Aggressive’ Rate Cuts Were Appropriate.
- US derivatives exchanges including CME Group(CME) tumbled in NY trading after the Dept. of Justice said their trade-processing practices may be anti-competitive.

Wall Street Journal:
- Icahn Set to Host Blog on Corporate Abuses.
- The Big Four accounting firms plan to hire roughly the same number – or more – of interns and entry-level employees for 2008 as they did last year.
- Credit Agricole SA’s Calyon unit is leading talks to bail out Financial Guaranty Insurance Co., a NYC-based bond insurer that was downgraded by ratings firms.

Morningstar:
- Goldman(GS) Hungry To Buy Distressed Mortgage Debt.

Forbes:
- After dominating the US wireless spectrum auction for months, from influencing the terms of the auction to bidding, it looks like Google(GOOG) is off the hook.

Washington Times:
- US and Iraqi negotiators will begin meeting later this month and hope to conclude a strategic compact on long-term economic, political and military cooperation by midsummer, Iraq’s US ambassador said yesterday. The agreement would not endorse permanent US military bases in his country or “tie the hands” of future US or Iraqi leaders. “We also believe that any future American president would see the benefits to the US national interest of keeping an alliance with Iraq,” said Iraq’s US ambassador.

Dagens Industri:
- Ericsson AB sees no decline in demand from operators who want the Swedish company to manage their networks, citing Jan Frykhammar, head of Ericsson’s global services division.

Ethiopian News Agency:
- MIDROC Gold Mine Ltd. will almost double production over the next decade, citing CEO Arega Yirdaw. The company plans to increase output to as much as 6.52 metric tons a year, from 3.5 tons currently and expects to produce more than 70 tons of gold over the next 13 years.

Bear Radar

Style Underperformer:

Mid-cap Growth (-.01%)

Sector Underperformers:

Gaming (-1.38%), Homebuilders (-1.28%) and Computer Hardware (-1.24%)

Stocks Falling on Unusual Volume:

NSR, NFP, CME, NMX, SRX, DBTK, FORM, RSYS, CVLT, ABCO, RVBD, QSFT, DWSN, TZOO, MANH, BBBB, LOOP, USNA, CAKE and RATE

Productivity Surging, Unit Labor Costs Decelerating

- Preliminary 4Q Non-farm Productivity rose 1.8% versus estimates of a .5% gain and a 6.0% increase in 3Q.

- Preliminary 4Q Unit Labor Costs rose 2.1% versus estimates of a 3.5% gain and a -1.9% decline in 3Q.

BOTTOM LINE: Worker productivity in the US grew more than forecast in the fourth quarter as companies sought to contain unit labor costs, a sign inflation pressures may recede, Bloomberg reported. Labor costs account for about two-thirds of the cost of producing a good or service. This gives the Fed more flexibility and Richmond Fed President Lacker said today that further rate cuts may be warranted. Productivity rose at a 1.6% pace for all of 2007, up from a 1% pace in 2006. Productivity at non-financial corporations, a gauge released with a one-quarter lag and closely watched by former Fed Chairman Greenspan, rose at a 3.7% rate in the third quarter versus a 2.1% gain in the second quarter. Given the substantial deceleration in 4Q growth, the stronger-than-expected rise in productivity is a big positive. As well, decelerating unit labor costs, the main component of inflation, give the Fed significant leeway to cut rates further. I continue to believe unit labor costs will rise at below average rates over the intermediate-term. Moreover, I suspect productivity, which has picked up meaningfully over the last three quarters, will continue trending at above-average rates over the intermediate-term.

Bull Radar

Style Outperformer:

Large-cap Growth (+.72%)

Sector Outperformers:

Airlines (+3.29%), Retail (+2.22%) and Hospitals (+1.73%)

Stocks Rising on Unusual Volume:

ALO, SFF, JXI, AHG, RL, RBC, TMO, MFLX, ADVS, JDSU, QSII, PNSN, GHDX, RAIL, VOCS, IVAC, OMRI, IVGN, LDSH, OTTR, TTWO, TOMO, SIRO, FORR, HLEX, PRGO, SID, DIS, TWX, IIG, INSP and CLF