Stocks Higher into Final Hour on Lower Energy Prices, Less Financial Sector Pessimism and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs, Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 1.27% and is very elevated at 62.22. The ISE Sentiment Index is below average at 137.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running high most of the day, hitting 1.50 at its intraday peak, and is currently .82. The Euro Financial Sector Credit Default Swap Index is rising 10.72% today to 134.85 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is up .99% to 263.08 basis points. The TED spread is rising 1.47% to 219 basis points. The TED spread is now down 245 basis points in about seven weeks. The 2-year swap spread is up 1.86% to 109.75 basis points. The Libor-OIS spread is rising 1.54% to 186 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 12 basis points to .52%, which is down 210 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is now yielding .01%, which is down 4 basis points today. Considering today’s news, stock gains are more impressive. I am seeing a number of stocks that had very bad news today that have reversed substantially higher from morning lows on strong volume. Market leading stocks are substantially outperforming the major averages. I wouldn’t be surprised if the bears overreached again on the afternoon pullback and may have to cover some shorts into the close. The huge decline in mortgage rates and commodity prices are massive positives that investors are mostly ignoring, in my opinion. I suspect an awful jobs report on Friday is already priced into the market and we could see further gains on the news. Nikkei futures indicate an +111 open in Japan and DAX futures indicate a +10 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, short-covering, bargain-hunting, lower energy prices and seasonal strength.

Today's Headlines

Bloomberg:
- General Motors Corp.(GM), Ford Motor Co.(F) and Chrysler LLC, struggling for support in Congress for aid, won money-saving union agreements to delay contributions to medical funds and suspend a program that pays laid-off workers. Today’s move by the United Auto Workers gives GM, Ford and Chrysler a boost as their chief executive officers prepare to testify tomorrow and Dec. 5 on their requests for $34 billion in financial help.

- The U.S. economy weakened across all regions since the middle of October as it became tougher to get loans and demand for credit shrank, the Federal Reserve said in its regional economic survey.

- President-elect Barack Obama said Bill Richardson will be an “economic diplomat” for the U.S. as commerce secretary and a key member of a team that lays the groundwork for renewed growth.

- Hedge funds and index funds that helped drive copper to a record in July have “dropped out” in the last several weeks, leaving “almost traditional” factors such as inventories more influential, according to Bloomsbury Minerals Economics Ltd. in London.

- Fortress Investment Group LLC(FIG), the private equity and asset manager, halted redemptions from its Drawbridge Global Macro hedge fund after investors asked to withdraw $3.51 billion by year-end. The withdrawal requests include $1.5 billion in notices disclosed last month, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Fortress didn’t say when it would resume allowing investors to get their money back.

- Oil traders are increasing bets that crude will fall below $30 a barrel in the first quarter of 2009, following a price drop of more than $100 a barrel in less than six months. January $30 puts rose 4 cents to 7 cents a barrel, or $70 a contract, according to data compiled by Bloomberg as of 1:58 pm on the New York Mercantile Exchange. It was the third-most active contract on the exchange, trading 334 lots, up from 47 yesterday.

- Harvard University’s endowment decreased 22 percent, or $8 billion, in the first four months of fiscal 2009, putting the fund on course to have its worst performance in at least four decades. The endowment, the biggest U.S. education fund, had totaled $36.9 billion on June 30 after gaining 8.6 percent in fiscal 2008. The worst annual return that Harvard, in Cambridge, Massachusetts, has recorded in at least 40 years was a negative 12.2 percent in 1974.

Wall Street Journal:

- In the latest evidence of how Wall Street is seeking to broaden its sources of funds, Goldman Sachs Group Inc.(GS) is weighing whether to launch an Internet banking operation, according to people familiar with the situation.

MarketWatch.com:

- Mortgage applications filed last week rose a seasonally adjusted 112.1%, compared with the week before, as borrowers rushed to lock in lower rates, according to the Mortgage Bankers Association's weekly survey, released on Wednesday.

NY Times:
- Kia Motors Corp., South Korea's second-largest automaker, said Wednesday that construction of its first U.S. plant in West Point, Georgia is proceeding on schedule and will open as planned late next year.

- The iPod is going to medical school. Officials said Tuesday that an Apple Inc.(AAPL) portable media player will become standard equipment for Ohio State University med students.

Docu-Drama:

- Intuitive Surgical(ISRG), the oh-so-successful Sunnyvale maker of robotic surgery tools, said that its board of directors approved a severance plan that covers its executives in the event of an involuntary separation from service within 12 months after a change in control” of the company.

Silicon Alley Insider:

- Cyber Monday Traffic: Amazon(AMZN) Takes The Prize.

- RIM Blows Q3, But ‘Strong’ Demand For New BlackBerries(RIMM).

Reuters:
- Online spending on the Monday after Thanksgiving reached $846 million, up 15 percent from a year earlier. ComScore said the solid online spending showing for the first Monday after the holiday shopping season officially began was an encouraging sign for retailers.

- U.S. 30-year fixed mortgage rates, pivotal to the fortunes of the crumbling housing market, will fall steeply in reaction to government steps to buy mortgage-related securities, the manager of the world's biggest bond fund said on Wednesday. "We think the 30-year mortgage rate will come down another 50- to 100 basis points" as a result of the government purchases of housing-related securities, said Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, speaking on CNBC television.

- Cisco Systems Inc's (CSCO) chief executive stood by his long-term revenue forecast, despite concerns that a deep and prolonged U.S. recession could derail the company's growth plans. CEO John Chambers has targeted revenue growth of 12 percent to 17 percent a year in the long run.

- Financial services company Citigroup Inc (C) said on Wednesday it had teamed its customer loyalty program with global online retailer Amazon.com Inc (AMZN) in what an executive said was the largest-ever rewards program.

- Britain is likely to roll over its ban on short-selling financial stocks when the current rules run out in January, the Alternative Investment Management Association's deputy chief executive (AIMA) told Reuters. Andrew Baker added that the ban, which was introduced in September and expires on January 16, could potentially last for the entire length of the financial crisis.

- Electronic Arts(ERTS) and Gameloft, the world's two largest mobile gaming firms, said on Wednesday the market was doing well, a day after their next biggest rival, Glu Mobile, warned of soft demand.

Financial Times:
- Europe should launch discussions with the US over ways to curb speculative fluctuations in agricultural commodities markets, says a draft report that could be presented by European Union regulators on Wednesday. The paper, produced by the European Commission and seen by the Financial Times, recommends that national governments re-examine shopping hour restrictions, crack down on cartels and improve the functioning of the food supply network. The paper also addresses one of the most controversial issues in the food price spike - the role of hedge funds and other financial players that have moved into commodities markets. The Commission warns that these investors have "increased the risk for speculative bubbles in agricultural commodities future markets" but it stops short of blaming them for last year's price increases.

Financial Times Deutscheland:

- Germany’s cement makers have cut their sales forecast for the current year and 2009 as the crisis on financial markets causes builders to ditch new projects, citing an industry group. Demand for cement should shrink by as much as 4% next year, citing the group VDZ.

recast to "

Folha de Sao Paulo:

- Brazilian auto parts makers plan to cut about 4% of their workforce by year-end as slowing global growth erodes demand for automobiles.

Gazeta Mercantil:
- Brazil’s oil production may exceed Russia’s in 2014, citing Jose Carlos Vidal, a consultant for Brazilian state-controlled oil company Petrobras(PBR). Due to the discovery of offshore pre-salt fields, Brazil’s proven oil reserves may exceed the 79.4 billion barrels recorded for Russia last year.

Valor Economico:
- Brazilian mutual funds faced a record redemption of $35.2 billion between April and November, citing data from local Web site Fortuna.

Bear Radar

Style Underperformer:
Mid-Cap Growth (-.57%)

Sector Underperformers:
Steel (-6.21%), Oil Service (-5.87%) and Coal (-5.41%)

Stocks Falling on Unusual Volume:
FCX, RTP, SII, NXY, HES, UBB, SLB, ITU, RDS/A, XNPT, FLIR, MSCC, IIVI, IDCC, HE, IX and GIL

Stocks With Unusual Put Option Activity:
1) ROH 2) MRVL 3) GENZ 4) NSC 5) NXY

Bull Radar

Style Outperformer:
Small-cap Value (+.47%)

Sector Outperformers:
Homebuilders (+7.81%), I-Banks (+3.22%) and Retail (+3.04%)

Stocks Rising on Unusual Volume:
AMRI, QSII, USMO, BK, EBS, CCI, AZN, JPM, WYE, LNC, MET, BAS, NOV, PTR, BBL, SU, PKX, WOR, MNRO, STRL, BBBY, CBST, OFIX, NNDS, CTAS, TECH, RCRC, ISRG, CHCO, ATHN, AMZN, QGEN, AMSC, CEG, IBA, FMS, ETP, KCE, TOD, RHB, TLP and ISH

Stocks With Unusual Call Option Activity:
1) TXT 2) JNPR 3) SNDK 4) GENZ 5) TIF

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Republican Senator Saxby Chambliss won a second term and blocked Democrats from gaining a 60-seat Senate majority by defeating challenger Jim Martin in a runoff election in Georgia. Chambliss received 57.4 percent of the vote to 42.6 percent for Martin with 99 percent of the precincts reporting. Chambliss’ victory makes it more difficult for Democrats to stave off Republican filibusters, an attempt to block legislation through endless debate. It takes 60 votes to stop the procedure, meaning Democrats, set to control at least 58 seats when the Senate convenes in January, will need to enlist Republicans to stymie filibusters. Preventing a 60-seat majority gives Republicans “a shot at shutting Democrats down, or at least getting a seat at the table,” on important legislation, said Jennifer Duffy, a congressional analyst at the nonpartisan Cook Political Report in Washington.

- U.S. House Speaker Nancy Pelosi said she believes either Congress or the Bush administration will step in to aid domestic automakers because bankruptcy is “not an option.”

- Hedge Funds Lower Fees, Lengthen Lockups on New Bond Funds. Artradis Fund Management Pte, RAB Capital Plc’s Northwest unit and Cannizaro (Hong Kong) Ltd. are cutting fees and locking up investors’ money for longer in new hedge funds that will buy bonds after prices fell in Asia.

- The Markit iTraxx Australia index quoted 25 basis points lower at 355 as of 11:27 am in Sydney, Citigroup Inc. data show. The Markit iTraxx Japan index fell 5 basis points to 355 in Tokyo, according to Morgan Stanley.

- Research In Motion Ltd.(RIMM), maker of the BlackBerry phone, reported third-quarter sales and profit that missed its forecasts, blaming the economic slump and a strengthening U.S. dollar.

- Incitec Pivot Ltd., Australia’s largest fertilizer maker, and Wesfarmers Ltd. may face falling sales and rising inventories as farmers delay purchases on expectation domestic prices will drop in line with a global slide. “Demand is very slow; stock that was purchased before the crash is still sitting in sheds,” Peter McEwen, chief executive officer of Summit Fertilizers, a unit of Japan’s Sumitomo Corp. said from Kwinana, Western Australia.

- China, India Looking More ‘Third World’ Again. Economists such as Jim Walker of Asianomics Ltd. in Hong Kong are right that ``China is now at the heart of the global slowdown.'' If Walker's prediction that China will grow 4 percent or less next year -- with a 30 percent chance of a contraction -- is even close to being right, the nation is in huge trouble. The world's most-populous country needs to grow closer to 10 percent to generate the jobs needed to contain social unrest.

- Mongolia, sitting on what Rio Tinto Group has said is the world’s largest undeveloped copper-gold resource, is considering faster approval for investments after commodity prices plunged, President Nambaryn Enkhbayar said.

- NATO foreign ministers agreed to resume limited ties with Russia and ruled out further expansion of the alliance in the near term, handing an early diplomatic challenge to President-elect Barack Obama. Western European countries led by Germany maintained a veto on fast-track membership for Georgia and Ukraine and successfully pushed for an end to the U.S.-inspired policy of “no business as usual” with the Kremlin that was proclaimed after Russia’s war with Georgia in August.

Wall Street Journal:

- Big Three Seek $34 Billion Aid. GM, Chrysler Warn of Collapse This Month as Lawmakers Explore Bankruptcy.

- Electricité de France SA will offer to buy as much as $6.5 billion of assets from Constellation Energy Group Inc.(CEG), the U.S. utility that spurned an earlier offer from the French energy giant and instead agreed to be bought by Warren Buffett's MidAmerican Energy Holdings Co., people familiar with the matter say.

- AIG May ‘Dismantle’ Firm to Repay Government Loan.

- Goldman Sachs Group Inc.'s(GS) Whitehall family of real-estate funds is struggling with weak performance and potentially big losses on some investments made at the top of the real-estate market. Whitehall is best known for deals such as buying Rockefeller Center in 1996, but has slashed the value of the equity in one of its funds in half and likely will struggle to make a profit on deals such as its purchase of the Stratosphere, a Las Vegas casino, in 2008 and a string of hotel deals in the past two years.

- Another week, another hedge-fund restructuring. This time it's Ramius Capital Group, the New York firm overseen by Peter Cohen, the former chairman of the old Shearson Lehman Brothers. Ramius manages $10 billion in assets, but like many hedge-fund firms it's getting smaller.

- Paulson Debates Second Infusion. U.S. Treasury Secretary Henry Paulson is debating whether to ask Congress for the second installment of the $700 billion bailout package, concerned about competing demands for the funds and a potentially hostile reaction from lawmakers.

MarketWatch.com:
- Will December break Dow’s losing streak? Odds of stocks losing in the month are low.

NY Times:
- Lehman Bankers Resurface in Barclays Deal Team.

CNNMoney.com:
- iPhone grabs 30% of US smartphone market. Apple’s(AAPL) iPhone is the star in a series of charts published Tuesday by Needham & Co. analyst Charles Wolf.

ABC News:

- The Mumbai Police Bomb Squad confirmed today that terrorists planted a total of five bombs in the city during Wednesday's attacks, and that at least two of the bombs used sophisticated timers unlike anything India had seen until this year.

IBD:

- Integral Systems(ISYS): Defense Suppliers Banks On Being Low-Cost Maker Of Satellite Gear.

Reuters:

- Europe's greenhouse gas market has shown that investments by rich countries into clean-energy projects in poor nations are not always the best way to cut emissions blamed for global warming, the investigative arm of the U.S. Congress reported on Tuesday.

- Financial assets have become so cheap because of the credit crisis that now is a good time to scoop up bargains, the head of one of the world's biggest hedge funds, Avenue Capital, said on Wednesday. "Now is a phenomenal time to buy, assuming you think we're not in a depression," Marc Lasry, chairman and CEO of the company, said at the 2008 Clinton Global Initiative meeting in Hong Kong. "We're looking at valuations we think are extremely low. Unless the unthinkable happens, you'll be fine," he said, referring to the investment environment. Lasry said the fund is holding around $7 billion in cash. Of that capital, Avenue is investing 10 percent a month, he said.

Financial Times:
- Robert Gates, the US defence secretary who will remain as Pentagon chief in the Obama administration, on Tuesday said he was "less concerned" about President-elect Barack Obama's 16-month timetable to remove combat troops from Iraq. During the presidential campaign, Mr Obama pledged to remove combat troops from Iraq within 16 months of taking office, a position that Mr Gates and Admiral Mike Mullen, chairman of the joint chiefs, had publicly opposed. Mr Gates on Tuesday appeared to soften his opposition, saying he was comfortable with the 16-month timetable because Mr Obama wanted a "responsible drawdown". In doing so, however, he hinted that the incoming president might be more flexible on the timing of the withdrawals.

South China Morning Post:

- Macau casino revenues snapped a two-month losing streak last month, rising a modest 2.6 per cent from a year ago to 7.55 billion patacas, according to unofficial data.

China Daily:

- The sharp fall in initial public offerings and other businesses has forced many accounting firms in China, including the big four international giants, to start cutting jobs for the first time in many years.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ESRX), target $77.

- Reiterated Buy on (SKS), target $7.

Deutsche Bank:

- Investors should buy technology stocks because they will probably rebound the most when the economy recovers, according to Owen Fitzpatrick, head of equities at Deutsche Bank Private Wealth Management. The industry “doesn’t have to deal with the credit issue,” Fitzpatrick said. “Tech name in general are pretty safe.” Microsoft(MSFT), Apple Inc.(AAPL) and Google Inc.(GOOG) are among seven of 15 companies representing the largest proportion of the S&P 500 Info Tech Index that had had no long-term debt as of Sept. 30, shielding them from turmoil in credit markets.

Night Trading
Asian Indices are -.25% to +1.75% on average.
S&P 500 futures -.73%.
NASDAQ 100 futures -.82%.

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Earnings of Note
Company/EPS Estimate
- (DLM)/.12

- (AVAV)/.28

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Economic Releases
8:15 am EST

- The ADP Employment Change for November is estimated at -205K versus -157K in October.

8:30 am EST

- Final 3Q Non-farm Productivity is estimated to rise .9% versus a prior estimate of a 1.1% gain.

- Final 3Q Unit Labor Costs are estimated to rise 3.6% versus a prior estimate of a 3.6% increase.

10:00 am EST

- ISM Non-Manufacturing for November is estimated to fall to 42.0 versus 44.4 in October.

10:35 am EST

- Weekly EIA energy inventory data.

2:00 pm EST

- Fed’s Beige Book

Upcoming Splits
- None of note

Other Potential Market Movers
- The Feds’ Lacker speaking, Fed’s Kroszner speaking, weekly MBA mortgage applications report, Challenger Job Cuts report, (EGN) Investor Meeting, (XEL) Investor Meeting, (HI) Analyst Day, Deutsche Bank Tech Conference, Merrill Lynch Energy Conference, Citi Chemicals Conference, FBR Investor Conference, CSFB Tech Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and airline stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.