Monday Watch

Weekend Headlines
Bloomberg:

- President-elect Barack Obama said he’ll make the “single largest new investment” in roads, bridges and public buildings since the Eisenhower Administration to lift the sagging economy and create jobs. Obama, in his weekly radio speech today, said his plan to create or preserve 2.5 million jobs will also include making public buildings more energy efficient, repairing schools and modernizing health care with electronic medical records.

- The Markit iTraxx Japan index fell 3 basis points to 370 at 9:46 a.m. in Tokyo, according to prices from Credit Suisse Group AG. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan slid 5 basis points to 425, according to BNP Paribas SA. The Markit iTraxx Australia index was quoted 10 basis points lower at 390 basis points, Citigroup Inc. data show.

- The average price of regular gasoline at U.S. filling stations fell to $1.75 a gallon, the lowest price in more than four years. Gasoline slipped 22 cents, or 11 percent, in the two weeks ended Dec. 5, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide. Crude oil for January delivery on the Nymex dropped $2.86, or 6.5 percent to $40.81 a barrel on Dec. 5. Oil fell 25 percent since Nov. 28, the biggest weekly decline since the Persian Gulf War in 1991. Motorists bought an average 9.36 million barrels of gasoline a day, down from 9.39 million a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report. It was the 32nd consecutive weekly decline.

- Venezuelan President Hugo Chavez said his country’s economy will face difficult years ahead as the world financial crisis expands and demand for oil, Venezuela’s principal export, wanes. The economy expanded 4.6 percent in the third quarter from a year earlier, the lowest rate in five years as annual inflation accelerated to a five-year high of 36 percent in September.

- India's Prime Minister Manmohan Singh plans to spend an extra 200 billion rupees ($4 billion) to support an economy buffeted by recession and a terrorist attack, following interest-rate cuts announced yesterday. The government will spend a total of 3 trillion rupees, of which 7 percent is designated as new spending, in the remaining four months of the financial year, it said in a release today. ``The incremental spending is less than what was originally thought,'' said Sonal Varma, a Mumbai-based economist at Nomura International Plc. ``Any fiscal stimulus will help alleviate the stress in the economy, but a slowdown is inevitable.''

- Genentech Inc.(DNA) and Roche Holding AG’s drug Rituxan helped patients with a slow-growing form of leukemia keep the blood cancer from worsening in two clinical trials, findings that may change the way the disease is treated, scientists said.

- Senate Banking Committee Chairman Chris Dodd said General Motors Corp. Chief Executive Richard Wagoner should be replaced as a condition for federal aid and Chrysler LLC may have to merge to survive.

- Cephalon Inc.’s(CEPH) Treanda, a drug for non-Hodgkins lymphoma, worked as well as standard chemotherapy and was associated with fewer side effects in a study.

- Stocks have fallen so far that 2,267 companies around the globe are offering profits to investors for free. That’s eight times as many as at the end of the last bear market, when shares rose 115% over the next year. Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39% sell at a discount to shareholder equity, data compiled by Bloomberg show. The MSCI World’s 47% plummet this year is the biggest since the gauge started in 1970. The slump left prices in the global measure at 1.17 times companies’ so-called book value on Nov. 20, the lowest on record, data compiled by Bloomberg show. Businesses with reserves will be cushioned from insolvency and may even benefit from deflation because buying power and the value of dividends increases as prices retreat, said Arlene Rockefeller, chief investment officer for global equities at State Street Global Advisors, which overseas $1.7 trillion. Yields on three-month Treasury bills fell to .01% last week as investors paid a premium for the safest, most liquid assets. The level was the lowest since 1940, according to monthly figures compiled by the Fed.

- Larry Grace, an analyst at Kim Eng Securitites(HK) Ltd., says oil may fall below $30 before rebounding. (Video)

Wall Street Journal:

- After making a fortune betting against financial stocks until this summer, mutual-fund manager Kenneth Heebner is turning bullish on the sector. Mr. Heebner, who runs one of last year's best-performing mutual funds, is sure banks and insurers will recover next year, thanks to Treasury Department and Federal Reserve efforts to bolster lending. "A year from now, credit will be available because of the government's actions," said Mr. Heebner, who works at CGM Funds in Boston.

- November rain poured down on hedge-fund managers as market turmoil and increased demands from investors for their money back deepened problems for funds already facing their worst year on record. The largest hedge funds run by Toscafund Asset Management LLP and Kingdon Capital were among many funds that experienced heavy losses in November, according to investors. Satellite Asset Management, founded by former Soros Fund Management traders, saw double-digit losses during the month and is reportedly among a handful of funds that have tried to stem investor redemptions.

- Federal securities regulators won't suspend the mark-to-market accounting rule that banking lobbyists and some conservative Republican lawmakers blame for exacerbating the credit crunch, according to a person familiar with the matter. Instead, the Securities and Exchange Commission will discuss ways to refine the rule's application, this person said. The agency is completing a study on mark-to-market accounting ordered up by Congress as part of the bailout bill. The study, due Jan. 2 and still in draft form, likely won't include new guidance on how to apply the accounting rule.

- Big-city mayors will arrive on Capitol Hill Monday to lobby for more federal spending to be funneled to urban areas that they say drive the country's economic engine. The push comes after a strong Democratic turnout in metropolitan areas helped President-elect Barack Obama -- who is set to become America's first urban president in almost half a century -- win by such a decisive margin in November. A delegation of mayors, including Michael Bloomberg of New York and Antonio Villaraigosa of Los Angeles, plans to ask the federal government to distribute funds directly to cities instead of going through state governments. The group is set to present a list of more than 4,600 infrastructure projects that they say are "ready to go."

- Tribune Co.(TRB) is preparing for a possible filing for bankruptcy-court protection as soon as this week, according to people familiar with the matter, in a sign of worsening trouble for the newspaper industry.

MarketWatch.com:

- Exchange-traded funds that let investors bet on energy prices and stocks are among the most popular offerings judging by their considerable trading volume, but some of these funds have been slammed by the severe correction in crude-oil prices. There are also portfolios designed to short oil and energy-sector stocks so investors can profit from market declines or hedge, and some of these bearish funds and notes provide leverage. Choices include PowerShares DB Crude Oil Double Short ETN (DTO) , PowerShares DB Crude Oil Short ETN (SZO) , MacroShares $100 Oil Down (DOY) , ProShares Short Oil & Gas ProShares (DDG) , ProShares UltraShort Oil & Gas (DUG) and ProShares UltraShort DJ-AIG Crude Oil (SCO).

- President-elect Barack Obama said Sunday that the auto industry is the "backbone" of American manufacturing and that top automakers can't be allowed to go bankrupt.

- Goldman Sachs(GS) and Morgan Stanley(MS) mark the end of an era this month when they post their first earnings since becoming commercial banks, and investors resigned to the dismal results on tap are restless for any indications about the companies' plan to grow with the less risky business model.

CNBC.com:
- World oil demand growth is likely to slow down more sharply than previously estimated in the next few years due to the economic downturn, the International Energy Agency said on Friday. Global oil demand is expected to grow by 220,000 barrels per day (bpd) in 2009 to average 86.37 million bpd, the IEA, which advises 28 industrialized countries, said in its Medium-Term Oil Market report. It gave its previous forecast, for growth of 350,000 bpd, in a monthly report on Nov. 13.

- Huge Job Losses Could be Signal That Worst Is Over. If there was ever a time to remind investors that the labor market is a lagging economic indicator, economists say today is such a day. Once the knee-jerk, doom-and-gloom reaction is over, something resembling optimism will prevail with the conclusion that the worst is over for the economy. “This is history,” says veteran Wall Street economist Ram Bhagavatula. “December payrolls will be weak as well. The leading indicators will come from a slow re-activation of the credit markets and increases in consumer spending. You should begin to see that in the next couple of months.”

NY Times:

- One quiet Friday in June 2006, Lawrence H. Summers ended his turbulent tenure as president of Harvard University. Few of the undergraduates for whom Mr. Summers, a former Treasury secretary, used to sign dollar bills were around. Most of his staff, including his driver, had been reassigned. Soon, even the burger with his name was off the menu at Mr. Bartley’s in Harvard Square. Now, Mr. Summers will have a job as the top White House economic adviser to Barack Obama.

IBD:
- Masimo(MASI): Biomed Firm Has High Hopes For Real-Time Bloodless Blood Test.

The Tennessean:
- Lower rates spark wave of refinancing. Mortgage bankers find selves busy as people rush to save.

Forbes.com:

- Stop The Fear Epidemic. The media need to help foster innovation and entrepreneurship, not squash it. Estrin, chief executive of JLabs and an adviser on President-elect Barack Obama’s transition team, is deeply concerned about this fear psychosis that threatens to stifle innovation. She believes that the "soup" that provides the basis of innovation is currently being poisoned. So I humbly request all of you members of the media--from the most powerful columnists to the tiniest bloggers--to be careful about what you put out into the cloud. Your keyboards have become so powerful now, that your slightest action of irresponsibility can blow us up into a crisis. You see, recently, several of the heads of states of powerful nations around the world gathered at the "G20" summit to discuss how they can cooperate to stave off the calamity that has been intensifying around us. Can we, members of the media, also not cooperate to stave off negativity from ruling the psychology of our people? Can we not underscore every negative report with a story of heroism and leadership, such that we focus not on the dark side of the human condition, but rather, make that extra effort to draw out what continues to burn as the eternal flame of the indomitable human spirit?

TheStreet.com:

- Federal approval of E*Trade Financial's (ETFC) application for government bailout money would benefit its largest investor, ailing hedge fund Citadel Investment Group.

Imweekly.com:

- Michigan Plan Rethinks Hedge Fund Hire. The Ann Arbor Employees' Retirement System has pulled out of its decision to hire HRJ Capital for a hedge fund-of-funds mandate. The firm would have managed the plan's first investment in the space, alongside BlackRock Multi Manager Partners.

Business Week:
- How Risky Is India? In the wake of the Mumbai siege, business must weigh the persistence of political violence against the strength and promise of the Indian miracle.

ZDNet:

- Microsoft(MSFT) and Dell(DELL) have signed a deal via which Dell will be shipping new PCs with the Live Search toolbar preinstalled, according to sources familiar with the arrangement between the two companies.

ByteandSwitch:

- Despite the slumping economy and a slowdown in tech spending, the storage market is holding up well, according to IDC . The research firm reported today that factory revenues for worldwide external disk storage systems increased 8.8 percent year-over-year to hit $4.9 billion in the third quarter. The overall market for disk storage systems grew 1.1 percent to $6.6 billion, IDC said.

San Jose Mercury News:

- Some Web news and rumor sites recently reported that Apple will offer a special 4 GB version of the iPhone for $99 through Wal-Mart(WMT). Most Wal-Mart employees contacted Friday either didn't know about such a model or said that Wal-Mart would not be carrying one. But Kim Nguyen, who is the department manager of the cell phone department at the Milpitas Wal-Mart, said she was told by an AT&T representative that her store would be getting a 4 GB model. She also said the store was supposed to get some iPhones two days before Christmas.

NY Post:

- Wesley Edens may soon find out if his Fortress Investment Group(FIG) is made of sand or stone. Back in October, Edens quipped that he'd consider taking his publicly traded investment firm private if its share price dropped to a buck. The comment was a joke meant to break the ice at a private event for Fortress clients at the Midtown Mandarin Oriental Hotel. However, now with the investment-management company's shares closing Friday at $1.76, down nearly 90 percent for the year, Fortress' performance is no longer a laughing matter.

Chicago Tribune:

- Coskata Inc., the biomass ethanol company that General Motors Corp.(GM) owns a stake in, received financing of $40 million from Blackstone Group(BX) and others. Closely held Coskata is developing plans to make ethanol from feed stocks other than corn and will open a plant in Pennsylvania next year. The company has designs for a plant that would produce 50 million gallons of the alternative fuel a year.

CNNMoney.com:

- Apple.com(AAPL) was the exception in comScore’s report on retail sales for Cyber Monday 2008, the biggest online shopping day in a year marked by global financial meltdown. While its competitors were offering deep discounts to pull in recession-battered customers, Apple (AAPL) had already ended its Black Friday sale and by Monday was back to charging its usual premium prices for laptops, desktops and MP3 players. Yet its online store still managed to grab the No. 5 spot in comScore’s ranking of the top 20 most visited retail sites on Monday Dec. 1, handily beating not only Dell (DELL) and Hewlett Packard (HPQ), but such full-fledged retail outlets as Best Buy (BBY), Toys “R” Us and Circuit City (CC). Apple.com drew nearly 3.7 million visitors that day, up 43% from November’s somewhat depressed average. The big winner for Cyber Monday was eBay (EBAY), with nearly 13 million visitors, followed by Amazon (AMZN; 9.2 million), Wal-Mart (WMT; 6.7 million) and Target (TGT; 4.8 million). Overall, according to comScore, online spending was up 15% from 2007, driven by a 22% increase in the number of buyers.

IDDmagazine.com:

- At a time when precious little is certain in the financial markets, one thing couldn't be more clear: the hedge fund industry is about to change dramatically. From investment strategies and leverage ratios to fee structures and regulation, the asset class will be remade in coming months. Fewer funds will be managing assets, as smaller, more vulnerable funds fade into the sunset.

CalculatedRisk:

- Bill Fleckenstein is shutting down his short hedge fund. Here is a reprint of his latest Daily Rap column explaining his decision.

AP:

- OPEC President Chakib Khelil says financial markets should prepare for a surprise announcement on oil production cuts when the cartel meets later this month. Khelil said a consensus had formed among the 13-member group for a significant reduction in output. OPEC meets next in Oran, Algeria, on Dec. 17.

Reuters:

- A government "car czar" would oversee any bailout of U.S. automakers under proposed terms being negotiated by the White House and Congress for extending up to $17 billion in emergency loans that mainly aim to spare General Motors Corp and Chrysler LLC from bankruptcy. Congressional and other sources familiar with the plan for oversight by an official within the executive branch said on Saturday that conditions were not final as Democratic leaders and the White House tried to cut a deal.

- More international coordination of macro-economic policy is needed,, Bank of England Deputy Governor John Gieve said on Saturday. In an interview with the financial magazine Hedge Funds Review (HFR), Gieve said that what happened in the world economy was "very important to the UK" because it was exposed to international trends. He acknowledged it was unlikely there would ever be "tight co-ordination" of macro-economic policies and no "world fiscal package," but said he thought interest rate moves like the globally coordinated 50 basis point cut in October would be more frequent in future, according to the HFR report.

- Milk, toothpaste, cough syrup, pet food, eels, blood thinner, car parts, pork, eggs, honey, chicken, dumplings, cooking oil and rice -- if you can fake it or taint it, you can almost guarantee it's happened in China. A string of product safety scandals, including contaminated infant formula that is believed to have killed six babies and sickened thousands of others, have rocked the faith of shoppers, making them wary of buying products made in China despite the often cheaper price tag. "I was physically disgusted when I saw it on the TV," said Sally Villegas, a mother of two in Australia, referring to the melamine-tainted infant formula scandal that came to light in September. "If I'm shopping and I pick up a product made in China, yes I would put it back."

- Even hedge-fund managers with portfolio gains are in trouble this year. Dozens of managers who are outperforming the market and their troubled rivals with gains of as little as a few percent or as much as nearly 100 percent are facing a surge of withdrawals as investors try to exit.

Financial Times:

- The video game industry appears to be alone in bucking a retail recession as consumers turn to fitness workouts, musical jam sessions and fantasy worlds to take their minds off the credit crunch. Microsoft has reported November as its biggest sales month in Europe for the Xbox 360 console - sales rose 124 per cent on a year ago. In the US it announced its best Black Friday, the day after Thanksgiving, with sales up 25 per cent on the year. US industry sales are up 25 per cent so far this year, according to the NPD research firm. Game sales in October rose 35 per cent on 2007's total. The rises are in spite of a strong 2007. A survey by Google of most-searched-for products across all categories shows gaming dominating.

- Some of the largest companies in the US, including General Electric(GE), Wal-Mart(WMT) and PepsiCo(PEP), were expected on Monday to launch a drive to improve ethical standards in business in an attempt to stem the decline in corporate America’s public standing.

TimesOnline:
- Informal talks to create the world's biggest exchange operator by merging Deutsche Börse and NYSE Euronext(NYX) have ended, it emerged last night.

Telegraph:

- Cold sore virus could cause Alzheimer’s. The virus that causes cold sores may be a major cause of Alzheimer's disease and existing drugs could be used to treat the degenerative condition, researchers have claimed.

Daily Mail:

- George Osborne, the Conservative Party finance spokesman, has vowed never to adopt the euro as the UK’s currency if they are elected into government, citing an interview.

Der Spiegel:

- Deutsche Boerse AG is holding talks with NYSE Euronext(NYX) on a merger. The enlarged company would be led by Deutsche Boerse CEO Reto Francioni and would have eight board members and an 18-member directorate. The new company would control share trading from New York and operate units in Paris and Frankfurt. The new company’s derivative business would be located in Frankfurt.

- Germany’s financial market rescue plan may be extended to include guarantees for interbank loans in a bid to encourage banks to resume lending to each other.

Folha de S. Paulo:
- Brazil’s federal government may consider tax cuts to reduce the affects of the global credit crunch in Latin America’s biggest economy.

livemint.com:

- Admiral Michael Mullen, the top military official of the US, confirmed to India that Pakistan’s military and intelligence chiefs had effectively admitted that the terrorists involved in last week’s terror attacks in Mumbai were Pakistani nationals and members of terrorist outfit the Lashkar-e-Taiba (LeT), according to a top Indian government official familiar with the subject and who did not wish to be identified.

Nikkei:

- Lending by the Bank of Tokyo-Mitsubishi UFJ, Mizuho Bank and four other leading Japanese banks had the highest growth in more than 17 years. The loan balance rose by 4.7% from a year earlier to $2.06 trillion at the end of November.

South China Morning Post:

- The value of China’s exports fell year-on-year in November - the first monthly drop in more than seven years - an influential mainland newspaper has reported.

Economic Observer:

- Mazda Motor Corp. has abandoned its 2010 sales target of 300,000 cars in China because of slumping demand and poor sales at a venture with Chongqing Changan Automobile Co., citing Mazda’s top China Mazda sold 105,000 cars in China during the first 10 months of this year, it said. executive.

Weekend Recommendations
Barron's:
- Made positive comments on (CBST), (JCG), (TIF), (ZRAN), (CCK), (OI), (CME), (LUK), (NYX), (AVAV) and (LMNX).

Citigroup:

- Reiterated Buy on (GOOG), target $450. Unprecedented Macro trumps all. But Long-Term Thesis intact. Excluding FX, GOOG is likely a mid-teens revenue grower in ’09, during the most severe economic conditions most of us have ever experienced. What does that say about GOOG’s revenue growth post the recession. And then layer in material new revenue opportunities in Mobile, Display and Video, and, arguably for the first time, real GOOG opex discipline.

- Most retailers indicated strong sales on Black Friday, however traffic and sales deteriorated during the weekend following Black Friday and it appears December is off to a slow start. While traffic may remain weak in first 1-3 weeks of December, we expect an acceleration in the last 1-2 weeks of the month to drive improving sales for December vs. November. We believe consumers will likely remain resilient when there is a purpose at hand. We expect Children’s retailers to show the greatest resilience. Additionally, e-Commerce sales from Thanksgiving, Black Friday, and Cyber Monday have been pushed into December(revenue recognized upon customer receipt) and should benefit total sales. Best December comp results expected at (HOTT), (PLCE), (ROST), (TJX) and (ARO).

Night Trading
Asian indices are +1.0% to +5.0% on avg.
S&P 500 futures +1.64%.
NASDAQ 100 futures +1.70%.

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Earnings of Note
Company/Estimate
- (NSM)/.22

- (HRB)/-.40

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The (MET) investor day, Illinois Tool Works analyst meeting, IBC Life Sciences Biopharma Manufacturing and Development Summit and UBS Media/Communications Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and financial shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for a weekly market preview by MarketWatch.

Click here for stocks in focus for Monday by MarketWatch.

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

Economic reports for the week include:

Mon. – None of note

Tues. – Weekly retail sales reports, IBD/TIPP Economic Optimism Index, Pending Home Sales

Wed. – Weekly EIA energy inventory data, weekly MBA mortgage applications report, Wholesale Inventories, Monthly Budget Statement

Thur. – Trade Balance, Import Price Index, Initial Jobless Claims

Fri. – Producer Price Index, Advance Retail Sales, Univ. of Mich. Consumer Confidence, Business Inventories

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

Mon. – National Semi(NSM), H&R Block(HRB)

Tues. – Autozone(AZO), Toro Co.(TTC), John Wiley(JW/A), Cooper Cos(COO), Kroger Co.(KR)

Wed. – Korn/Ferry(KFY)

Thur. – Ciena Corp.(CIEN), Martek Biosciences(MATK), Costco Wholesale(COST)

Fri. – None of note

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

Mon. – (MET) investor day, Illinois Tool Works analyst meeting, IBC Life Sciences Biopharma Manufacturing and Development Summit, UBS Media/Communications Conference

Tue. – Campbell Soup analyst meeting, UMH Properties investor forum, Sonoco Products analyst meeting, Delta Air analyst meeting, ArvinMeritor analyst day, Agilent analyst meeting, IBC Life Sciences Biopharma Manufacturing and Development Summiut, Merrill Lynch Small-cap investor forum, UBS Media/Communications Conference, Barclays Tech Conference

Wed. – Owens & Minor investor day, Parker Hannifin analyst meeting, VistaPrint analyst meeting, Principal Financial Group analyst meeting, Yum! Brands analyst conference, UBS Media/Communications Conference, RBC Healthcare Conference, Goldman Sachs Financial Services Conference, Barclays Tech Conference

Thur. – Belden Analyst Day, Dreamworks Animation analyst day, Danaher analyst meeting, Regency Centers analyst day, United Technologies investor day, Procter & Gamble analyst meeting, Barclays Tech Conference, RBC Healthcare Conference, Goldman Sachs Financial Services Conference, Keybanc Engineering/Construction Conference

Fri. – Harsco Corporation analyst meeting

BOTTOM LINE: I expect US stocks to finish the week higher on seasonal strength, diminishing financial sector pessimism, lower mortgage rates, lower commodity prices, bargain-hunting, short-covering and less forced selling. My trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 876.07 -2.25%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 876.07 -2.25%
DJIA 8,635.42 -2.19%
NASDAQ 1,509.31 -1.71%
Russell 2000 461.09 -2.55%
Wilshire 5000 8,708.95 -2.43%
Russell 1000 Growth 353.43 -3.26%
Russell 1000 Value 474.73 -1.52%
Morgan Stanley Consumer 536.69 -1.66%
Morgan Stanley Cyclical 456.18 -3.03%
Morgan Stanley Technology 326.47 -1.52%
Transports 3,433.33 -2.25%
Utilities 361.44 -5.44%
MSCI Emerging Markets 21.94 -3.94%

Sentiment/Internals
NYSE Cumulative A/D Line 15,952 unch.
Bloomberg New Highs-Lows Index -802 -230.04%
Bloomberg Crude Oil % Bulls 23.0 -27.2%
CFTC Oil Large Speculative Longs 180,960 +.91%
Total Put/Call .92 -36.55%
OEX Put/Call 1.59 -24.64%
ISE Sentiment 112.0 -18.25%
NYSE Arms .40 -60.0%
Volatility(VIX) 59.93 +8.41%
G7 Currency Volatility (VXY) 20.0 +1.57%
Smart Money Flow Index 6,890.59 +2.29%
AAII % Bulls 26.67 -14.66%
AAII % Bears 47.78 +6.44%

Futures Spot Prices
Crude Oil 40.81 -25.84%
Reformulated Gasoline 90.12 -26.28%
Natural Gas 5.74 -11.11%
Heating Oil 142.65 -18.39%
Gold 752.20 -8.16%
Base Metals 104.03 -13.13%
Copper 137.35 -17.51%
Agriculture 246.85 -13.58%

Economy
10-year US Treasury Yield 2.71% -21 basis points
10-year TIPS Spread .44% +8 basis points
TED Spread 2.18 unch.
N. Amer. Investment Grade Credit Default Swap Index 285.99 +19.76%
Emerging Markets Credit Default Swap Index 814.21 +11.91%
Citi US Economic Surprise Index -140.60 -19.56%
Fed Fund Futures imply 78.0% chance of 75 basis point cut, 22.0% chance of 50 basis point cut on 12/16
Iraqi 2028 Govt Bonds 41.0 -8.89%
4-Wk MA of Jobless Claims 524,500 +1.2%
Average 30-year Mortgage Rate 5.53% -44 basis points
Weekly Mortgage Applications 857,700 +112.09%
Weekly Retail Sales -.9%
Nationwide Gas $1.77/gallon -.07/gallon
US Heating Demand Next 7 Days 7.0% above normal
ECRI Weekly Leading Economic Index 109.90 +2.81%
US Dollar Index 87.12 +70%
Baltic Dry Index 663 -7.27%
CRB Index 208.60 -13.87%

Best Performing Style
Mid-cap Value -1.49%

Worst Performing Style
Mid-cap Growth -3.70%

Leading Sectors
Homebuilders +9.59%
Airlines +9.40%
Restaurants +6.64%
Retail +4.66%
Insurance +4.07%

Lagging Sectors
Steel -7.78%
Gold -11.10%
Energy -12.94%
Coal -20.62%
Oil Service -22.54%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish at Session Highs, Boosted by Airline, REIT, Insurance, HMO and Financial Shares

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In Play

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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs, Computer longs, Internet longs and Medical longs. I covered all of my (IWM)/(QQQQ) hedges, some of my (EEM) short, added (TBT) long and took profits in another trading long today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 3.98% and is very elevated at 61.04. The ISE Sentiment Index is below average at 113.0 and the total put/call is slightly above average at .94. Finally, the NYSE Arms has been running high most of the day, hitting 1.49 at its intraday peak, and is currently .56. The Euro Financial Sector Credit Default Swap Index is rising 3.78% today to 150.52 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 5.4% to 285.98 basis points. The TED spread is falling .31% to 217 basis points. The TED spread is now down 247 basis points in about seven weeks. The 2-year swap spread is +6.9% to 123.75 basis points. The Libor-OIS spread is falling .36% to 188 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 11 basis points to .41%, which is down 221 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 still yielding .01%, which is unch. today. Considering today’s news, stock gains are very impressive. As well, many individual stocks continue to rise as they announce negative news, which is a large positive and indicative of a market that wants to head higher. Market leading stocks are substantially outperforming the major averages again today. It is a large positive that investors finally seem to be thinking about the hugely positive ramifications of falling energy prices rather than only worrying about slowing demand. The insurance index is soaring 10.1% today, which is also helping to boost the (XLF). Given Asia’s relative strength last night, Europe’s dramatic underperformance today and US stocks’ large reversal higher, I would expect to see further gains early next week. The sectors with the largest losses for the year will likely outperform into year-end as shorts with large profits cover and bargain-hunters reposition for next year. There remains massive bull firepower on the sidelines and I still believe this recent rally will last longer and be bigger than most expect. Nikkei futures indicate an +33 open in Japan and DAX futures indicate an +145 open in Germany on Monday. 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.