Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

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, Final 3Q GDP, Final 3Q Personal Consumption, Final GDP Price Index, Final 3Q Core PCE, Univ. of Mich. Consumer Confidence, New Home Sales, Existing Home Sales, House Price Index, Richmond Fed Manufacturing Index

Wed. – Weekly MBA mortgage applications report, weekly EIA energy inventory data report, Personal Income, Personal Spending, PCE Deflator, PCE Core, Durable Goods Orders, Initial Jobless Claims

Thur. – US Markets Closed

Fri. – None of note

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

Mon. – Walgreen Co.(WAG), Red Hat(RHT)

Tues. – Micron Technology(MU), American Greeting(AM)

Wed. – None of note

Thur. – US Markets Closed

Fri. – None of note

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

Mon. – None of note

Tue. – (GW) special shareholders meeting, (PNC) special shareholders meeting, (WTBA) shareholders meeting

Wed. – None of note

Thur. – None of note

Fri. – (MVCO shareholders meeting

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

Weekly Scoreboard*

Indices
S&P 500 887.88 +.93%
DJIA 8,579.11 -.59%
NASDAQ 1,564.32 +1.53%
Russell 2000 486.26 +3.81%
Wilshire 5000 8,889.32 +1.30%
Russell 1000 Growth 365.31 +1.70%
Russell 1000 Value 477.04 +.65%
Morgan Stanley Consumer 539.12 +1.49%
Morgan Stanley Cyclical 474.90 +2.06%
Morgan Stanley Technology 344.36 +.67%
Transports 3,389.47 +4.44%
Utilities 364.23 -.39%
MSCI Emerging Markets 25.39 +3.98%

Sentiment/Internals
NYSE Cumulative A/D Line 18,117 +8.98%
Bloomberg New Highs-Lows Index -402 +10.86%
Bloomberg Crude Oil % Bulls 37.0 -30.2%
CFTC Oil Large Speculative Longs 205,840 +6.97%
Total Put/Call .81 -21.36%
OEX Put/Call 1.57 +55.45%
ISE Sentiment 127.0 +15.45%
NYSE Arms 1.26 +103.22%
Volatility(VIX) 44.93 -17.22%
G7 Currency Volatility (VXY) 22.14 +12.84%
Smart Money Flow Index 7,402.90 +2.61%
AAII % Bulls 39.73 +5.95%
AAII % Bears 35.62 -10.59%

Futures Spot Prices
Crude Oil 42.36 -14.30%
Reformulated Gasoline 96.93 -10.58%
Natural Gas 5.33 -3.73%
Heating Oil 139.20 -7.44%
Gold 837.40 +1.76%
Base Metals 100.66 -3.88%
Copper 132.65 -9.33%
Agriculture 285.17 +3.65%

Economy
10-year US Treasury Yield 2.12% -49 basis points
10-year TIPS Spread .11% -5 basis points
TED Spread 1.51 -40 basis points
N. Amer. Investment Grade Credit Default Swap Index 218.33 -16.35%
Emerging Markets Credit Default Swap Index 733.32 -8.79%
Citi US Economic Surprise Index -127.80 +1.69%
Fed Fund Futures imply an 82.0% chance of no change, 18.0% chance of 25 basis point cut on 1/28
Iraqi 2028 Govt Bonds 41.78 +2.07%
4-Wk MA of Jobless Claims 543,800 +.5%
Average 30-year Mortgage Rate 5.19% -28 basis points
Weekly Mortgage Applications 841,400 +2.90%
Weekly Retail Sales -1.10%
Nationwide Gas $1.67/gallon +.01/gallon
US Heating Demand Next 7 Days 9.0% above normal
ECRI Weekly Leading Economic Index 106.20 +.57%
US Dollar Index 81.30 -2.81%
Baltic Dry Index 818.0 +7.06%
CRB Index 218.87 -3.56%

Best Performing Style
Small-cap Value +4.19%

Worst Performing Style
Large-cap Value +.65%

Leading Sectors
HMOs +12.41%
Gaming +10.92%
Insurance +8.16%
REITs +8.04%
Airlines +6.32%

Lagging Sectors
Papers -1.08%
Semis -2.94%
Coal -3.70%
Energy -3.92%
Oil Service -6.79%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Mostly Higher, Boosted by REIT, HMO, Tech and Alternative Energy Shares

Evening Review
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After-hours Commentary
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In Play

Stocks Mostly Higher into Final Hour on Lower Energy Prices, Short-Covering and Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Healthcare longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is slightly higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 4.35% and is elevated at 45.29. The ISE Sentiment Index is below average at 124.0 and the total put/call is below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.54 at its intraday peak, and is currently 1.39. The Euro Financial Sector Credit Default Swap Index is rising 3.9% today to 124.0 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 rising .33% to 218.33 basis points. The TED spread is falling 4.38% to 151 basis points. The TED spread is now down 315 basis points in just over two months. The 2-year swap spread is down 2.07% to 82.75 basis points. The Libor-OIS spread is dropping 2.64% to 129 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 8 basis points to .10%, which is down 251 basis points in about 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 yielding .00%, which is up 5 basis points today. 1-month US Dollar-based Libor is dropping another 4 basis points to .47% today. It has declined 413 basis points since October 10^th. The recent plunge in gauges of credit angst remain a big positive. Despite potential negative catalysts today, the bears were unable to gain meaningful traction in the (XLF). Tech, REITs and HMOs were especially strong today. Small-cap stocks continue to outperform significantly. Investor reaction to the RIMM/ORCL earnings reports bodes well for the Naz into year-end. If it were not for option expiration today, I suspect the broad market would put in a better showing. I think stocks can build on this week’s gains next week. Nikkei futures indicate an +32 open in Japan and DAX futures indicate a -13 open in Germany on Mon. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, diminishing credit market angst and short-covering.

Today's Headlines

Bloomberg:
- Gold fell the most in almost three weeks as the dollar rebounded, reducing the appeal of precious metals as an alternative investment. Silver also dropped. The US dollar climbed as much as 2.7 percent against a weighted basket of six major currencies, heading for the biggest one-day jump since September.

- Crude oil dropped below $34 a barrel in New York as rising stockpiles at Cushing, Oklahoma, leave little room to store supplies for delivery next year. Supplies at Cushing, where oil that’s traded in New York is stored, rose 21 percent to 27.5 million barrels last week, the highest since May 2007, the Energy Department said on Dec. 17. Crude inventories in Cushing may increase to full capacity within “a matter of two or three weeks,” Barclays Capital analysts led by Paul Horsnell said in a research note Dec. 17. Spare production capacity in the oil industry may more than double through 2012, because of falling oil demand and new supply from investments already being made, said Cambridge Energy Research Associates. Excess capacity may rise to 8 million barrels a day from 3 million a day this year, according to Cambridge, Massachusetts- based CERA’s estimates.

- Germany, France and Belgium extended protection for banks and insurers against short-selling, part of European efforts to prop up shares during the financial crisis.

- The ruble dropped the most against the euro in nine years after the central bank accelerated its devaluation of the currency to protect reserves as a 26 percent plunge in oil battered the economy.

- Russia may be forced to let the ruble weaken 18% in the first quarter of next year as sliding oil prices send the current economic account into deficit and cut into reserves, says Citigroup Inc.(C).

- The cost of protecting against a default by U.S. automakers and their finance units dropped after the Bush administration said it will offer General Motors Corp. and Chrysler LLC $13.4 billion in loans to keep them operating. The upfront price on credit-default swaps protecting against a default by Detroit-based GM for five years fell 5 percentage points to 76 percentage points, according to CMA Datavision.

- The cost of borrowing in dollars for three months in London dropped to the lowest level since June 2004 as central banks worldwide cut interest rates and pumped emergency cash into money markets. The London interbank offered rate, or Libor, for such loans fell three basis points to 1.50 percent today, according to British Bankers’ Association data. The one-month rate slid to 0.47 percent, the 14th straight decline. Asian rates tumbled and the Libor-OIS spread, a gauge of cash scarcity, declined to the lowest level since Sept. 22.

- Treasury Secretary Henry Paulson urged Congress to release the second half of the $700 billion financial rescue fund after the government exhausted the first $350 billion in less than three months.

- U.S. regulators, trying to unravel the breadth of Bernard Madoff’s alleged $50 billion fraud, have found evidence of misconduct stretching back to at least the 1970s, two people familiar with the inquiry said.

- Harvard University, the world’s wealthiest institution of higher learning, paid its five highest-compensated investment officers a combined $25.9 million to manage its endowment for the year ended June 30, before the fund plunged 22 percent. Mohamed El-Erian, the former president and chief executive officer of the school’s management arm, who quit in November 2007, was paid $921,000, the Cambridge, Massachusetts, university said today in a statement. The highest paid investment officer was Stephen Blyth, the managing director for international fixed income, who received $6.4 million, according to the statement.

Wall Street Journal:

- The exchange-traded-fund boom has waned this year amid the market's troubles, with dozens of them folded and many more new launches delayed. About 50 ETFs have liquidated this year, after many failed to drum up enough assets and trading. Meanwhile, more than 500 new entries are in the works, but many are waiting for a better time to debut.

CNBC.com:
- Consumers may flood stores to do last-minute gift shopping this weekend, lured by heavy promotions from US retailers, said Gerald Storch, CEO of Toys “R” Us Inc.(TOY). Holiday-toy shopping is “certainly accelerating now,” Storch said. “I think this weekend will be one of the largest selling weekends in the history of US retailers,” Storch said.

NY Times:
- The Congressional Budget Office said Thursday that many of the health care proposals championed by President-elect Barack Obama and other Democrats would carry a high price tag and would generate only modest savings. One bright spot in a generally bleak picture was the estimate of potential savings from a requirement for doctors and hospitals to use health information technology, including electronic medical records, as a condition of participating in Medicare. Such a requirement could save the federal government $7 billion in the first five years and a total of $34 billion over 10 years, by reducing medical errors and avoiding unnecessary tests and procedures, the budget office said. It “would also lower health insurance premiums in the private sector,” the report said.

- A federal grand jury in New Mexico is investigating accusations that Gov. Bill Richardson’s administration gave lucrative contracts to a California financier because he contributed heavily to the governor’s political action committees, a person familiar with the grand jury proceedings said Thursday. President-elect Barack Obama has appointed Mr. Richardson to be secretary of commerce, and questions about the contracts may be raised in his Senate confirmation hearings in February. The investigation in New Mexico also comes as Mr. Obama deals with the uproar over corruption accusations against Gov. Rod R. Blagojevich of Illinois, Mr. Obama’s home state.

- Representative Charles B. Rangel made it clear again that he has no intention of stepping down from his chairmanship of the House Ways and Means Committee and that he intends to play an active role in making sure that New York City become a prominent beneficiary of any stimulus package undertaken by the Obama administration.

Washington Post:

- President-elect Barack Obama has selected two of the nation's most prominent scientific advocates for a vigorous response to climate change to serve in his administration's top ranks, according to sources, sending the strongest signal yet that he will reverse Bush administration policies on energy and global warming. Like Energy Secretary-designate Steven Chu, who directs the Lawrence Berkeley National Laboratory, Holdren and Lubchenco have argued repeatedly for a mandatory limit on greenhouse gas emissions to avert catastrophic climate change. Holdren's reported selection inspired no joy at the Competitive Enterprise Institute, a free-market advocacy group that denounces global warming "alarmists" and opposes many environmental laws. Myron Ebell, director of energy and global warming policy at CEI, said, "I think he's a very bad choice. His views are extreme, they're not based in fact, and he's a ranter." Of the overall Obama team, Ebell said, "They will pursue an anti-energy agenda that is designed to constrict energy supplies and raise energy prices."

Portfolio.com:

- In the next few months, thousands of hedge funds will go out of business. What the world will look like for the survivors.

Silicon Alley Insider:

- All quarter long, Wall Street has been trying to figure out why Google has introduced a slew of new revenue-generating products and suddenly developed new religion with regard to costs. The obvious answer is that Google is light on revenue and desperately trying to make the quarter. But that may not be the case. A senior source at the company tells us the changes are the result of Google's "secret weapon," new CFO Patrick Pichette.

Handelsblatt:

- The European Union’s plan to boost renewable energy generation by 2020 will cost German companies at least $143 billion. The plan stipulates that Germany must increase the use of renewables for electricity, heating and fuel to 18%, a goal that is not “technically and economically” feasible, citing a study by Ernst & Young LLP.

O Estado de S. Paulo:
- Brazilian exporters are forecasting demand for their products to worsen in coming months because of the global economic crisis, citing a survey by the Getulio Vargas Foundation. Almost two-thirds of the companies included in the survey expect the situation to worsen over the next six months, compared with only 3% that forecast an improvement.

Bear Radar

Style Underperformer:
Mid-cap Growth (+.85%)

Sector Underperformers:
Papers (-3.52%), Construction (-2.39%) and Steel (-.94%)

Stocks Falling on Unusual Volume:
AVAV, MSCC, SUPX, E, CRH, FLR, QDEL, DT, GEOY, CRDN, CTAS, SCHW, JWN and TNC

Stocks With Unusual Put Option Activity:
1) PTEN 2) LTM 3) CX 4) CVH 5) LUK