Stocks Mixed into Final Hour as Plunging Commodity Prices Offset Global Growth Concerns

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Gaming longs, Retail longs, Software longs, Medical longs and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is mildly higher, sector performance is mostly positive and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 3.4% and is still above-average at 21.33. The ISE Sentiment Index is very low at 92.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running high most of the day, hitting a peak of 1.26, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is falling 1.48% today to 89.17 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -1.01% to 141.48 basis points. The TED spread is rising 3.07% to 1.13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is plunging 9 basis points to 2.05%, which is down 58 basis points in about seven weeks and at the lowest level since November 2003. I suspect the market made its lows for the day just now, however I plan to add hedges into the close on any further meaningful deterioration in the broad market. I still think the decline in commodities, rise in the US dollar and rise in financials is leaving many hedges funds under severe stress, resulting in reduced risk appetite across the board. Nikkei futures indicate an +111 open in Japan and DAX futures indicate a -25 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling commodity prices, less financial sector pessimism and bargain-hunting.

Bear Radar

Style Underperformer:

Mid-cap Growth (-1.06%)

Sector Underperformers:

Gold irlind (-5.70%), Steel (-5.10%) and Energy (-4.29%)

Stocks Falling on Unusual Volume:

AWC, ALY, SU, AKS, STO, RTP, TESO, CPX, BZP, BEAT, JRJC, ISIL, MDAS, IDSA, WF and LPL

Stocks With Unusual Put Option Activity:

1) EMC 2) LMT 3) GD 4) SD 5) LFC

Today's Headlines

Bloomberg:
- The cost of protecting corporate bonds from default fell after Korea Development Bank Chief Executive Officer Min Euoo Sung said the Seoul-based bank is in talks to buy a stake in Lehman Brothers Holdings Inc.(LEH) Credit-default swaps on New York-based Lehman fell to the lowest in almost three weeks, and contracts on other securities firms dropped. The Markit iTraxx Financial index, a benchmark gauge of credit risk linked to 25 European banks and insurance companies, reached the lowest in two weeks.
- The US dollar rose to the highest level against the euro in almost seven months as crude oil fell and traders speculated that the Federal Reserve's monetary policy will help the U.S. economy outperform Europe and Asia. The pound fell to a two-year low versus the greenback on evidence a recession in the U.K. is looming. Australia's dollar declined to the weakest level in almost a year after the country's central bank cut interest rates for the first time since 2001 and said economic growth will slow. ``The dollar is in an uptrend,'' said Meg Browne, vice president of foreign-exchange research at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Radio. ``Growth and monetary-policy differentials are beginning to shift in favor of the U.S. dollar. The oil story certainly helps.''
- Crude oil led a decline in commodities as Hurricane Gustav spared the U.S. Gulf states the destruction caused by Katrina and Rita in 2005. Oil slid to a five-month low in New York and gasoline dropped 13 percent, easing concern that inflation will choke global economic growth and pushing copper, gold and soybeans lower. The dollar's rally to the highest in almost seven months against the euro hurt commodities priced in the U.S. currency. The S&P GSCI index of 24 commodity futures, down as much as 7 percent in two days, has fallen more than 25 percent from its July 3 all-time high. ``Gold's direction will be determined by the moves in crude oil, and barring currently unapparent damage to Gulf of Mexico production facilities or local refining operations, the downside appears vulnerable,'' John Reade, the head of metals strategy at UBS AG in London, wrote in a report.
- Corn plunged by the trading limit and soybeans tumbled as oil fell after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage, driving the dollar up and reducing demand for the crops as an alternative investment.
- ArcelorMittal, the world's biggest steelmaker, fell the most in two months in Amsterdam trading after saying it will cut South African prices for the first time in a year. The company will lower prices for long products, used mainly in construction, by an average of 5.6 percent, Hennie Vermeulen, a spokesman for the company's ArcelorMittal South Africa Ltd. unit, said today in an interview. ``This is a very significant development,'' Charlie Dove- Edwin, an analyst at MF Global Securities based in London who as a ``sell'' recommendation on ArcelorMittal shares, said in a telephone interview. ``It's the start of prices falling around the world.''
- Federal Reserve Chairman Ben S. Bernanke has gone from a dollar liability to an asset, sparking a rally that even bears say shows few signs of ending.
- Switzerland's Federal Banking Commission will go ahead with a plan to cap the amount of assets that UBS AG and Credit Suisse Group AG can accumulate in relation to their capital, Chairman Eugen Haltiner said. ``We are going ahead with the leverage ratio,'' Haltiner said in an interview at a conference in Zurich today.
- Citadel, SAC Capital Get Pick of Casualties as Hedge Fund Carnage Worsens.
- There was much talk about change last week at the Democratic convention. But are the Democrats really offering any substantive change? To find out, I pulled out John Kerry's 2004 Democratic national platform and compared its fiscal policy with that contained in today's Barack Obama-inspired missive. The documents are so similar it's creepy.
- Google Inc.(GOOG), owner of the most popular Internet search engine, plans to introduce a Web browser today to challenge Microsoft Corp.'s(MSFT) decade-long dominance of the market.
- Crude oil, down 27% from July’s record, may decline at a faster rate after the price of futures contracts fell below their 200-day moving average for the first time in more than a year. The decline “would indicate that a strong longer term-trend has been broken and we could be waiting a long time for the next bullish move,” said Hakan Kocayusufpasaoglu, director of commodity derivatives at Credit Suisse Group in London. “Others may view it as a change in trend and actually go short.”
- Bank of America Corp.(BAC), the second- biggest U.S. bank, rose as much as 6.4 percent after getting a ``buy'' rating from Goldman Sachs Group Inc., which said the company won't have to issue common shares to raise capital.

Wall Street Journal:
- Ignore the Chauvinists. Palin Has Real Experience. In Alaska Gov. Sarah Palin, Sen. John McCain has found a fellow maverick to be his running mate -- one who can help bring the right kind of reform to Washington. Ms. Palin, like Mr. McCain, has a strong record of battling the status quo, restoring accountability and effectiveness to government, and working to secure energy independence, root out corruption and curb wasteful spending.
- John McCain's tax policies are designed to create jobs, increase wages and allow all Americans -- especially those in the hard-pressed middle class -- to keep more of what they earn. His plan achieves these goals in three important ways.
- Electronic Arts(ERTS) is betting on the release of “Spore” this week to raise revenue.
- Some of the biggest hedge funds are having their worst years, and the flood of new money going into funds has slowed. That is pressuring an industry bracing for investor withdrawals and worrying about how to survive without lucrative performance fees. Some investors willing to put new money in funds are even beginning to ask about better terms, a contrast to the situation just last year, when investors needed to beg to get into hot funds.

NY Times:
- Target(TGT) to Open Designer-Focuses Stores in New York.
- Running a Hedge Fund Is Causing Headaches.

LA Times:
- US Exports jump at LA, Long Beach ports, but imports falter.

Forbes.com:
- Severe losses outside of the U.S. have pushed activist hedge fund Atticus Capital into the red. The U.S. fund lost in excess of $5.0 billion so far this year, according to reports that surfaced Monday. Atticus saw total assets under management fall to around $14.0 billion at July's end from more than $20.0 billion last year, according to a source cited by Reuters.

HousingWire.com:
- In its second paper this year to take aim that the so-called ABX indices, which are based on credit derivatives written on MBS backed by subprime mortgage loans, the Bank for International Settlements suggested again late last week that financial firms marketing subprime RMBS assets based on pricing inputs from various ABX contracts may be overstating potential losses in the securities. The current BIS study used various econometric techniques to find evidence that both a declining risk appetite and rising concerns about market illiquidity have contributed more to the recent declines in ABX prices than have more fundamental drivers of subprime mortgage risk. In plain English, the study finds support for the idea that fears about the market’s future are affecting the securities well beyond their actual credit-default risk, especially when extrapolated to super-senior AAA RMBS bonds.

Reuters:
- OPEC oil production rose for a fourth month in August as output increased in Iran, Nigeria and Angola. Production by OPEC climbed to 32.82 million barrels a day in August, from 32.59 million barrels a day a month earlier, citing a survey of oil companies, OPEC officials and analysts. OPEC is pumping almost 800,000 barrels a day more than its target, the agency said.
- Iran's oil minister said on Tuesday OPEC must discuss crude oversupply when it meets and again indicated the No. 2 OPEC producer wanted the cartel to defend oil from hitting $100 a barrel, IRNA news agency said.
- Global semiconductor sales rose 7.6 percent in July from the previous year, helped by strong growth in consumer electronics, personal computers and cell phones, an industry group said. "LCD TV units are projected to increase 32 percent this year, and digital set top boxes and digital still cameras will both be up around 20 percent," said SIA President George Scalise in a statement. He added that the industry is enjoying the benefits of the strong 3.3 percent second quarter gross domestic product growth in the U.S, and continued strength in world markets. Excluding memory products, semiconductor sales increased by 11.6 percent year-on-year and by 3.2 percent sequentially.

Financial Times:
- Individual ownership of US stocks has fallen to a record low, highlighting the growing importance of institutional investors in domestic equity markets, according to a report to be issued Tuesday. Retail investors owned 34% of all shares and 24% of stock in the top 1,000 US companies at end-2006, said the Conference Board, an industry group. Both numbers are record lows. By contrast, individual investors owned 94% of all stocks in 1950 and 63% of all shares in 1980. Institutions – defined as pension funds, investment companies, insurers, banks and foundations – held 76% of the shares in the top 1,000 companies, up from 61% in 2000, the group said. Overall, mutual funds have been the fastest-growing institutional investors, accounting for 26% of assets, compared with only 2.3% in 1980.
- US auditors have renewed calls to introduce legal limits to the liability they face and have warned that the risk they currently bear is the "single greatest threat" to the industry's survival.

Globe and Mail:
- Hedge funds face struggle for survival.

Irish Times:
- Irish car sales declined 16.7% in the 12 months to Aug. 31 compared with the year-earlier period, citing figures from the Society of the Irish Motor Industry. Last month’s vehicle sales were 41.6% lower than those in August 2007.

Interfax:
- Russia’s Economy Ministry has a “working forecast” for inflation of between 12.2% and 12.4% this year, citing a government official.

La Nacion:
- Argentine vehicle sales fell 7.3% in August form the same month a year earlier. Sales in August had their biggest decline in more than five years, because of slowing economic activity, citing Dante Alvarez, president of the Association of Argentine Car Dealers.

Al-Mal:
- Steel prices in Egypt dropped 20% in a month after prices of raw materials declined.

Bull Radar

Style Outperformer:

Small-cap Value (+1.74%)

Sector Outperformers:

Airlines (+9.27%), Retail (+3.30%) and Restaurants (+2.96%)

Stocks Rising on Unusual Volume:

PT, AXA, VMED, PRU, FSS, BAC, GE, ABT, UDRL, CLMT, SCRX, EGLT, DXPE, BRKR, WBMD, HIBB, AMAG, UAUA, GIII, MRTN, URBN, PACW, SNCR, NTCT, PETM, SBSI, BAGL, CYBX, GOOG, ISH, PFM, JKL, PJP, PMR, PVD, SCX, CUK, IJS and SDY

Stocks With Unusual Call Option Activity:

1) AXP 2) MAT 3) JBLU 4) CCL 5) VRX

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
Exchange Volume vs. Average
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
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DJIA Quick Charts
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Real-Time Intraday Quote/Chart
Dow Jones Hedge Fund Indexes

Weekly Outlook

Click here for The Coming Week by TheStreet.com.

Click here for Stocks on the Move for Tuesday by Bloomberg.

There are a few economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – US markets closed

Tues. – ISM Manufacturing, ISM Prices Paid, Construction Spending

Wed. – Total Vehicle Sales, weekly retail sales reports, Fed’s Beige Book, Factory Orders, Challenger Job Cuts, weekly MBA Mortgage Applications report

Thur. – Weekly EIA energy inventory report, ADP Employment Change, Non-farm Productivity, Unit Labor Costs, Initial Jobless Claims, ISM Non-Manufacturing, ICSC Chain Store Sales

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – US markets closed

Tues. – Donaldson Co.(DCI)

Wed. – Joy Global(JOYG), H&R Block(HRB), Hovnanian Enterprises(HOV), Staples(SPLS), Guess? Inc.(GES)

Thur. – Jackosn Hewitt Tax Services(JTX), Ciena Corp.(CIEN), Cooper Cos.(COO), ADC Telecom(ADCT), Quiksilver Inc.(ZQK), Toll Brothers(TOL)

Fri. – National Semi(NSM), Korn/Ferry(KFI)

Other events that have market-moving potential this week include:

Mon. – US markets closed

Tue. – Lehman Brothers Energy Conference, Citigroup Tech Conference,

Wed. – Kaufman Brothers Investor Conference, Keefe Bruyette Woods Insurance Conference, Citigroup Tech Conference, Lehman Consumer Conference, Thomas Weisel Healthcare Conference, Goldman Sachs Retail Conference, Morgan Keegan Equity Conference

Thur. – Goldman Retail Conference, Keefe Bruyette Woods Insurance Conference, Thomas Weisel Healthcare Conference, Morgan Keegan Equity Conference, Cowen Clean Energy Conference, Kaufman Brothers Investor Conference, Citigroup Tech Conference, Lehman Consumer Conference, Needham HDD Investor Day, CSFB Automotive Conference

Fri. – Kaufman Brothers Investor Conference, Morgan Keegan Equity Conference, Thomas Weisel Healthcare Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher bargain-hunting, less credit market angst, diminishing financial sector pessimism, less economic pessimism, mostly positive earnings reports, lower commodity prices, a stronger US dollar and short-covering. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week. I will be unable to post the Tuesday Watch due to a scheduling conflict. I hope everyone had a safe and happy holiday weekend.