Stocks Finish Sharply Higher, Boosted by Gaming, Technology, Commodity, Alternative Energy, Construction and Airline Shares

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Stocks Soaring into Final Hour on Bargain-Hunting, Short-Covering and Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Technology longs, Financial longs, Retail 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 substantially higher, almost every sector is rising and volume is light. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 6.35% and is very high at 37.45. The ISE Sentiment Index is below average at 122.0 and the total put/call is slightly above average at .93. Finally, the NYSE Arms has been running around average most of the day, hitting 1.18 at its intraday peak, and is currently .64. The Euro Financial Sector Credit Default Swap Index is rising .54% today to 112.54 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 1.27% to 200.0 basis points. The TED spread is down 1.52% to 133 basis points. The TED spread is now down 333 basis points in about eleven weeks. The 2-year swap spread is up 8.24% to 75.50 basis points. The Libor-OIS spread is rising .99% to 123 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .13%, which is down 248 basis points in about six 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 .08%, which is unch. today. Today’s overall stock gains are broad-based again. REITs are the only notably weak group today, but they may just be pausing after a 37% move higher off their November lows. Despite more weak economic data, the most economically sensitive shares are today’s top-performers. The sell-off in long-term Treasuries remains a positive development. As well, market leading stocks are substantially outperforming the broad market. It appears the US dollar’s rally has resumed, which could pressure gold if tensions calm in the Middle East. Consumer cyclical shares saw the greatest amount of insider buying during the month of December with $235, 623,071 worth of stock purchased. Individual equities with notable net insider buying during the month were V, AKAM, LNY, HRL, HOS, FCNCB, KEX, GS, CSWC, DISCA, HES, ZLC and WEN. I suspect US stocks will extend gains again on Monday. Nikkei futures indicate an +566 open in Japan and DAX futures indicate an +57 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less economic pessimism, seasonal strength, less forced selling and short-covering.

Today's Headlines

Bloomberg:

- The cost of protecting against a default by GMAC LLC, the automobile- and home-loan company getting a $6 billion federal bailout, fell for the fifth day to a more than 11-month low. Credit-default swaps protecting GMAC bonds for five years fell 1 percentage point to 10.5 percentage points upfront, according to CMA Datavision as of 9:37 a.m. in New York. GMAC contracts have dropped from 44 percent upfront on Dec. 23, the day before the company won Federal Reserve approval to become a bank holding company, making it eligible to tap U.S. financial industry bailout programs. The upfront price on credit-default swaps protecting against a default by GMAC’s mortgage-lending unit, Residential Capital LLC, fell 2.5 percentage points to 42.5 percentage points, CMA data show.

- Crude oil rose in New York for a second day as the conflict in Gaza increased concern that Middle East supplies would be cut and Russia curbed natural-gas shipments to Ukraine.

- Gold prices fell as the dollar strengthened against the euro, eroding the appeal of the precious metal as an alternative investment. Platinum rose.

The dollar gained against the euro after a report showed manufacturing declined, a signal that the European Central Bank will have to cut interest rates to stimulate the economy.

- The euro fell to a two-week low against the dollar and declined versus the yen after a European manufacturing report indicated the recession is deepening in the 16-nation region. “Europe has to begin aggressively slashing rates down to 1 percent very quickly,” said Greg Salvaggio, vice president of capital markets at currency-trading firm Tempus Consulting Inc. in Washington. “The U.S. is in significant trouble too, but policy makers are throwing everything they have at the problems. Ultimately, it will emerge from the recession quicker than Europe, which will increase the appeal of U.S. assets.” “The ECB has no choice but to continue to cut rates,” said Jessica Hoversen, a currency and fixed-income analyst at MF Global Ltd. in Chicago, who predicted the euro may fall in the first quarter below $1.30. “That’s negative for the euro.” The moving-average convergence-divergence chart is showing a selling signal for the euro versus the dollar, traders said. The MACD index for the pair, or the difference between the 12- and the 26-day moving average, fell below the nine-day moving average yesterday for the first time since November, indicating the European currency’s rally starting last month may be over.

- James Chanos Says Hedge Funds Face Regulations: Year in Review.

- India cut interest rates for the fourth time since October and unveiled another stimulus package to counter the effect of the global recession on Asia's third- largest economy. The Reserve Bank of India lowered the repurchase rate by one percentage point to 5.5 percent and the reverse-repurchase rate by the same margin to 4 percent, it said in a statement in Mumbai. The government also more than doubled the amount overseas investors can hold in local bonds and extended capital to the nation's banks.

CNBC.com:
- Starwood Hotels & Resorts Worldwide(HOT) signed a confidentiality agreement with property magnate Sam Zell's Equity Group Investments, according to a regulatory filing. Such a move could be in preparation for Zell's firm taking a greater stake in Starwood.

- After a year-long hangover in 2008, the real estate industry is hoping for some strong, black coffee in the new year. All sectors—commercial, residential and retail—were hammered last year. And though the outlook for this year is still shaky, there is some optimism that the market will at least stabilize this year.

Barron’s:

- Apple(AAPL): Jobs Isn’t Sick, Says Argus Research.

VentureBeat:
- The image above shows a netbook Asus EEEPC 1000H running on Google’s mobile operating system Android. Huh? You thought Android was for mobile phones, right? Well, as we’ve written before, Google is planning to use Android for any device — not just the mobile phones.

NY Times:

- So your cellphone has a brushed-metal shell, can flip and slide four ways and has more buttons than an airplane cockpit. Big deal. The new status symbol is what your phone can do — count calories, teach Spanish, simulate a flute, or fling a monkey from a tree.

- Nucor Corp.(NUE) said the US steel industry is asking the government to include a ‘buy America’ clause in any upcoming economic stimulus package.

Channel Insider:

- Coming Soon: Managed Services for iPhones. Kaseya is developing remote management tools to give solution providers the ability to remotely configure and manage Apple iPhones, Microsoft Mobile and Symbian devices. In just 18 months since its debut, the Apple iPhone commands the third largest market share for smart phones in the North American market. In 2008, the number of iPhone users soared more 325 percent, and an increasing number of people are turning in their Blackberry and Symbian-based devices in favor of Steve Job’s handheld creation. “The time we spend on getting phones configured is huge. To be able to do remote management on someone’s device would be a great benefit,” says Dan Wilson, CEO of Waypoint Solutions Group in Charlotte, N.C.

Forbes:

- It's been foul weather for hedge-heads. Redemptions are rampant, performance is drooping, the Securities and Exchange Commission briefly banned short-selling, and Congress summoned them to do some 'splaining. But the really bad stuff is yet to come. Hedge funds are coming under attack from popular culture. In fact, the two uber-villains of Candace Bushnell's new book, One Fifth Avenue, are hedge-heads.

CNN:

- If you dare to look out your window at houses for sale, you might be surprised at what you can buy and with how little money. Prices are falling, and inventory is plentiful; it's a buyers' market. Alas, credit is so tight, potential buyers might think they need boat loads of cash or a superlative credit score to wade into the devastated housing market. But it isn't so, largely because of dramatic changes at the Federal Housing Administration (FHA), a federal housing loan insurer. FHA makes it less risky for lenders to provide mortgages because it will pay a claim to the lender in the event that a homeowner defaults on their loan.

cnet:

- The browser wars are heating up in earnest, with Google urging its customers to dump Internet Explorer 6 for the Mozilla Firefox or Google Chrome browsers. Internet Explorer commands a 68 percent global market share, according to Net Applications, but a full 20 percent of that share is for IE6. With Firefox apparently picking up 66 percent of all IE6 defectors, according to TG Daily, Google is effectively subsidizing the open-source Firefox at the expense of Microsoft. In sum, Microsoft is getting a taste of its own medicine from the company that increasingly looks and acts like Microsoft.

Philadelphia Inquirer:

- The long-planned direct train service between New York and Atlantic City is slated to start on Feb. 6, with introductory one-way ticket prices set at $50 for coach seats and $75 for first class. The weekend-only trips will take about 2 1/2 hours. They are aimed at affluent young New Yorkers who want to avoid the traffic congestion that often delays bus and auto travelers.

Reuters:
- Factories in China, India and Eastern Europe joined the United States and other developed countries in slashing output.

- The Treasury said on Friday said it will consider financial institution rescues and asset guarantees similar to those it provided Citigroup (C) on a case-by-case basis.

Financial Times:
- The Chinese government is moving to crush a group of prominent dissidents and intellectuals that has released a rallying call for democracy, human rights and rule of law. The group of about 300 writers, peasant farmers, students, professors, journalists, economists, and political activists from across the country all signed a document, known as Charter 08, that provides a detailed and wide-ranging blueprint for peaceful political, legal and economic reform in China.

Valor Economico:

- Brazil will have a surplus of energy this year as slowing economic growth saps demand and rainfall increases hydroelectric reservoirs. Brazil’s energy research agency lowered its estimate for demand growth in 2009 to 5.2% from 5.8%.

MEED:

- The value of the UAE construction market fell by 85 per cent over the course of 2008, according to MEED Projects, which tracks project activity across the Gulf. The latest figures show that just USD14.4bn of contract awards were made during the fourth quarter of 2008, down from USD98.1bn during the same period in 2007. Over the past five years, the sector has become one of the most important parts of the UAE economy. A recent report by US credit ratings agency Standard & Poor's estimated that the construction and real estate sectors account for almost half of Dubai's gross domestic product (GDP).

Bear Radar

Style Underperformer:
Large-cap Value (+1.32%)

Sector Underperformers:
REITs (-1.29%), Tobacco (+.47%) and Insurance (+.50%)

Stocks Falling on Unusual Volume:
None of note

Stocks With Unusual Put Option Activity:
1) CYPB 2) LLY 3) NBR 4) HOT 5) GT

Bull Radar

Style Outperformer:
Mid-cap Growth (+2.0%)

Sector Outperformers:
Disk Drives (+7.28%), Oil Service (+5.62%) and Steel (+5.46%)

Stocks Rising on Unusual Volume:
CLF, RTP, NIHD, PTR, JLL, CVA, APA, DRYS, UEPS, HURN, NCIT, PWRD, FELE, MDVN, TBSI, AVAV, HURC, EZPW, AKO/A, PBE, MBR, HOT, KRO and SCG

Stocks With Unusual Call Option Activity:
1) CIEN 2) WMB 3) NSM 4) SGR 5) ACE

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