Wholesale Inventories Rise

- Wholesale Inventories for December rose 1.1% versus estimates of a .3% gain and an upwardly revised .8% increase in November.

BOTTOM LINE: Inventories at US wholesalers surged in December as sales declined, Bloomberg reported. Sales fell .7%, the most since January. The decline in sales brought the supply of goods on hand to 1.09 months from 1.07 months worth the prior month. The increase in wholesale inventories was led by a 9.2% rise in oil product stockpiles. The overall gain in inventories could help lead to an upward revision in 4Q GDP. The odds of a 50 basis point rate cut at the FOMC meeting next month are 68.0%, while the odds of a 75 basis point cut have risen to 32.0%. According to Intrade.com, the odds the US enters recession this year have fallen to 66.5% from 77.5% a few weeks ago. The ECRI Weekly Leading Economic Index jumped 1.83% this week back to 133.50. Despite the recent bounce higher in commodities, fueled by OPEC’s talk of oil production cuts, the 10-year TIPS spread, a good gauge of inflation expectations, is 2.29% today, down from 2.48% in November and 2.38% one week ago. I continue to believe inventory rebuilding will help boost overall US growth over the intermediate-term as exports rise to new records and companies gain confidence in future economic conditions.

Bull Radar

Style Outperformer:

Mid-cap Growth (+.78%)

Sector Outperformers:

Construction (+3.35%), Restaurants (+1.77%) and Software (+1.56%)

Stocks Rising on Unusual Volume:

MTD, WNS, DRS, MFE, HEP, LZ, GDI, COG, VNUS, CTSH, CSTR, LMNX, OMTR, GMXR, HAYN, OYOG, SPTN, TTMI, ALNY, URBN, IOSP, FRME, KNSY, ACAP, EPIC, TBSI, GOLD, GCOM, NFS, EQ and AIZ

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Friday Watch

Late-Night Headlines
Bloomberg:
- The euro headed for the biggest weekly decline in 1 ½ years against the dollar after European Central Bank President Trichet signaled he’s open to cutting interest rates as economic growth slows.
- The rebound in the dollar foreseen by UBS AG, BNP Paribas SA and Deutsche Bank AG is gaining momentum.
- Freddie Mac’s(FRE) losses from mortgage defaults may hit bottom by the end of the year as the housing recovery, CEO Richard Syron said today.
- The US Senate approved a $151 billion economic stimulus measure that will send tax rebates to more than 100 million US households.
- US economic growth is poised to return to its long-term trend in the second half of the year following aggressive interest –rate cuts, said Federal Reserve Bank of Dallas President Richard Fisher.
- OPEC may cut crude production when it meets next month to keep the price above $80 a barrel, oil ministry officials from four of the group’s nations said.
- Cognizant Technology(CTSH) said quarterly revenue rose 41% from year ago levels. The shares surged 13% in extended trading.
- Intermec(IN) reported revenues rose 16% over year ago levels. The shares rose 7.4% in after-hours trading.
- BMC Software(BMC) reported revenues exceeded the high end of guidance, rising 11% from year ago levels. The stock gained 4% in extended trading.
- CF Industries(CF) said net sales rose 62% from year ago levels. The shares jumped 7% in after-hours trading.
- MBIA Inc.(MBI) raised $1 billion by selling shares at $12.15 each in an effort to protect its AAA insurance rating. The stock fell 8.4% in extended trading.

MarketWatch.com:
- Hedge funds had their worst month since the dot-com bust. Fed rate cuts may have made things worse as heavily shorted stocks rallied.

NY Times:
- Benazir Bhutto died from a head wound caused after a bomb blast and not from an assassin’s bullet, according to Scotland Yard investigators probing the Pakistan opposition leader’s killing.

IBD:
- Handhelds Become Instant Hit For Maker Of Ultrasound Devices.
- HR Software Online Rising.

Gizmodo:
- Google(GOOG) Phone Prototype to Be Shown Next Week at Mobile World Congress.

USA Today.com:
- Corporate cafeterias go the green, healthy route.
- It’s not just Clinton, Obama and McCain stressing over the presidential election. Wall Street is, too.

Reuters:
- Three former El Paso(EP) natural gas traders were convicted on Thursday of reporting false deals to manipulate gas prices from 2000-2002.

Financial Times:
- China Investment Corporation, the Chinese sovereign wealth fund, is close to an agreement with JC Flowers, the US pirate equity group, to put about $4 billion into a new fund to invest in ailing financial institutions.
- US and Italian police arrested more than 70 Mafia suspects in NY and Sicily on Thursday, decapitating the second largest crime family in the US and thwarting plans by a new generation of organized crime bosses to re-establish a transatlantic axis.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (WW), target $62.
- Reiterated Buy on (ARW), raised target to $50..
- Reiterated Buy on (EXPE), target $38.
- Maintained Buy on (MDTH), target $40.
- Maintained Buy on (COV), target $52.
- Maintained Buy on (IP), target $40.
- Reiterated Buy on (CF), target $139.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 futures -.03%.
NASDAQ 100 futures -.07%.

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Earnings of Note
Company/EPS Estimate
- (ALU)/.14
- (BEC)/1.03
- (CVH)/1.18
- (FNM)/-1.29
- (SKYW)/.64
- (WY)/.34

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Wholesale Inventories for December are estimated to rise .3% versus a .6% gain in November.

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Pianalto speaking, Fed’s Yellen speaking, (GLW) investor meeting, (STJ) analyst meeting and CSFB Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are mixed as gains in automaker stocks are offsetting losses in industrial stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Higher, Boosted by Retail, Airline and Financial Shares

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In Play

Stocks Higher into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Gaming longs and Retail longs. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 4.3% today, but remains high at 28.0. The ISE Sentiment Index is a below average 106.0 and the total put/call is hitting an above average 1.11. The fact that the market has recouped morning losses despite negative news today is a large positive. Cisco(CSCO) disappointed and it is unch., while many other tech stocks are rising. Moreover, many retailers reported disappointing same-store-sales, yet the Morgan Stanley Retail Index is surging another 4%. Oil is higher, but airlines are rising another 3%. Finally, financials are 1% higher notwithstanding more scary credit-related news and rhetoric. The US Dollar continues to trade as if at the very least an intermediate-term bottom is in place as the ECB finally acknowledged a cut may be in order, which is another large positive. As well, the 10-year T-note is trading as if an intermediate-term top is in, which may indicate subsiding economic pessimism. Fed funds futures imply an 88% chance for another 50 basis point cut and a 12% chance for a 75 basis point cut at the upcoming meeting. (WMS), one of my longs, is hitting a new high today, which is very impressive considering recent market turbulence. I still see substantial upside in the shares over the longer-term as server-based gaming takes hold. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a +80 open in Germany. I expect US stocks to trade modestly higher into the close from current levels on less economic pessimism, bargain-hunting and short-covering.