Stocks Finish Near Session Lows, Weighed Down by Financial, Energy Shares

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Stocks Lower into Final Hour on Shorting, Economic Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Biotech longs and Medical longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is about average. Investor anxiety is just slightly above average. Today’s overall market action is bearish. The VIX is rising 4% today to a high 25.4. The ISE Sentiment Index is a below average 96.0 and the total put/call is a slightly above-average .92 today. Energy and financial stocks are under the most pressure today. Energy investor T. Boone Pickens said this morning that he is short oil and natural gas and the EIA reported gasoline inventories are now at 14-year highs, which also contributed to a $2/bbl decline in oil. Vietnam(VNINDEX), which I cautioned was in a bubble last year, fell another 4.6% last night despite strength in the rest of Asia. This index is now down 39.3% from its highs in March of last year. On the positive side, Hewlett Packard(HPQ) said today that it isn’t even seeing the traditional seasonal slowdown in Europe. Tech stocks, while lower, are significantly outperforming the broad market. Semis and Disk Drives are especially firm. Disk drive maker Western Digital(WDC) hit the highest level since November 1997 today. The 10-year swap spread, which had been climbing, has reversed 10 basis points lower over the last 2 days. As well, the 10-year TIPS spread has reversed 8 basis points lower since yesterday. Nikkei futures indicate a -150 open in Japan and DAX futures indicate a -28 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting and rising economic worries.

Jobless Claims Decline, Philly Fed Weak, Leading Indicates Slightly Lower

- Initial Jobless Claims for this week fell to 349K versus estimates of 349K and 358K the prior week.

- Continuing Claims rose to 2736K versus estimates of 2760K and a downwardly revised 2736K prior.

- Philly Fed for February fell to -24.0 versus estimates of -10.0 and a reading of -20.9 in January.

- Leading Indicators for January fell .1% versus estimates of a .1% decline and an upwardly revised .1% decline in December.

BOTTOM LINE: The number of Americans filing first time jobless claims fell this week, Bloomberg reported. The four-week moving average of claims rose to 360,500. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, held steady at a historically low 2.1%. Jobless claims and the unemployment rate still remain well below levels normally associated with economic contraction. I continue to believe the job market will strengthen to more healthy levels over the intermediate-term.

The Philly region gauge of manufacturing contracted more than economists expected this month, Bloomberg reported. The New Orders component of the index rose to -10.9 from -15.2 the prior month. The Inventories component of the index fell to -13 from -11.7 the prior month. The Employment component rose to 2.5 from 1.5 the prior month. The Prices Paid component fell to 46.6 from 49.8 in January. I expect this gauge to rebound in March on inventory rebuilding as exports continue to boom.

The Conference Board’s index of leading US economic indicators fell slightly in January on weakness in stocks and housing, Bloomberg reported. The Conference Board’s index of coincident indicators rose .1% for a second consecutive month. Yesterday, the Conference Board said that a US recession was unlikely and that the housing sector correction was nearly over. Fed funds futures now imply a 96% chance for a 50 basis point cut at the March 18^th meeting and a 4% chance for a 25 basis point cut. I still expect US growth of around 1% this quarter, with a slight pick-up next quarter. I continue to believe US growth will average about 2% for the year as the effects of the stimulus take hold in the second half, inflation decelerates, exports continue to boom and companies rebuild depleted inventories.

Bear Radar

Style Underperformer:

Small-cap Value -1.18%

Sector Underperformers:

Coal (-2.88%), Biotech (-2.30%) and Energy (-2.15%)

Stocks Falling on Unusual Volume:

OII, NVTL, VDSI, HDNG, PSYS, BPFH, CECO, LNET, LULU, SWIR, LAD, FMR, SWY, DGX

Bull Radar

Style Outperformer:

Small-cap Growth (+.14%)

Sector Outperformers:

Semis (+1.81%), Wireless (+1.63%) and Disk Drives (+1.24%)

Stocks Rising on Unusual Volume:

ITRI, ANSS, RIMM, IVN, MDRX, MC, SWC, ADI, KLAC, ONB, ATLS, PQ, CGV, ICLR, NTES, WBMD, CTCT, HLTH, JAKK, VRGY, SHPGY, AXYS, FADV, NDAQ, CSGP, SNPS, ARII, HURN, AFSI, CPS, TCI, VCI and FBN

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