Stocks Finish Mostly Higher, Boosted by Computer, Alternative Energy, Steel, Construction and Homebuilding Shares

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Stocks Mostly Higher into Final Hour on Short-Covering, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Healthcare longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (ISRG) long today, thus leaving the Portfolio 100% net long. The tone of the market is slightly bullish as the advance/decline line is mildly higher, most sectors are rising and volume is below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling .21% and is elevated at 43.31. The ISE Sentiment Index is below average at 120.0 and the total put/call is above average at 1.08. Finally, the NYSE Arms has been running high most of the day, hitting 1.43 at its intraday peak, and is currently 1.06. The Euro Financial Sector Credit Default Swap Index is rising 2.72% today to 97.0 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 3.0% to 203.0 basis points. The TED spread is down 2.42% to 127 basis points. The TED spread is now down 339 basis points in about three months. The 2-year swap spread is plunging another 9.49% to 57.25 basis points. The Libor-OIS spread is falling 3.89% to 117 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to .54%, which is down 221 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 down 1 basis point today. Volume was light again, with a high NYSE Arms reading, during the lows of this morning’s sell-off. As well, the total put/call has been running pretty high the last few days. It appears to me the bears lack firepower or will at this point. The recent pullback has little energy behind it. A “horrific” jobs’ report tomorrow is likely priced into the market. Any initial kneejerk sell-off in stocks related to this report in the morning will likely be short-lived. Nikkei futures indicate an +120 open in Japan and DAX futures indicate an +41 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, diminishing credit market angst and short-covering.

Today's Headlines

Bloomberg:

- The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market. JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its Web site, Wells Fargo & Co. has an offer for 4.875 percent and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down.

- JPMorgan’s(JPM) Geoff Lewis, head of investment services at JP Morgan Asset Management, says oil could easily fall below $30 a barrel. (video)

- Emerging-market countries racing to raise funds to finance budget deficits may have to pay higher borrowing costs because of global risk aversion, according to Brown Brothers Harriman & Co. in New York. Export earnings for sub-developing nations have slumped due to slower external demand and falling commodity prices, while the credit crunch has curbed foreign-direct investment, both vital sources of currency earnings, Brown Brothers said.

- Metal and coal prices are expected to average “considerably lower” in 2009 as demand plunges in a global recession and producers can’t cut supply fast enough, Goldman Sachs JBWere Pty said. Prices of coking coal may plummet by 60 percent, copper by 40 percent and aluminum by 28 percent, analysts led by Malcolm Southwood said in a note to clients yesterday. “With gold the most plausible exception, we expect 2009 annual average commodity prices to be considerably lower versus 2008, with negative implications for resources sector earnings,” the analysts said. “We expect global off-take of most metals and minerals to contract this year.” There will be oversupply of aluminum, copper, nickel and zinc and bulk commodities will also move into annual surplus in 2009, the brokerage said.

- Natural gas futures in New York fell for a third day after a government report showed that U.S. supplies of the heating and factory fuel are ample to meet demand in the weeks ahead. Stockpiles stood at 2.83 trillion cubic feet the week ended Jan. 2 after dropping 47 billion cubic feet, the U.S. Energy Department said. The surplus to the five-year average widened to 3.2 percent from 2 percent in last week’s report. Industrial demand for gas may contract by 7 percent in 2009, Ronald Barone, an analyst with UBS AG in New York, said in a report yesterday.

- Representative Barney Frank, chairman of the House Financial Services Committee, said the second half of the government’s $700 billion financial rescue should include aid for municipal bond issuers hurt by the credit crisis.

- Sears Holdings Corp.(SHLD), the largest U.S. department-store company, jumped the most in five years after its profit forecasts beat some analysts’ estimates. The retailer said it expects fourth-quarter earnings per share of $2.44 to $3.09, excluding one-time items that may include store closings, severance costs and hedging transactions. Seven analysts predicted $1.92, on average, in a Bloomberg survey. The company also forecast full-year net income of $1.27 to $1.90 a share today. Seven analysts projected 53 cents.

- Goldman Sachs Group Inc.(GS) said the U.S. Treasury market hasn’t turned into an asset bubble even as investors debate the wisdom of buying government bonds with yields near record lows. The U.S. economy is likely to expand below its potential for the next six to eight quarters, resulting in lower “core” inflation, according to a report released today by the New York- based firm.

- The U.S. average rate on a 30-year fixed mortgage dropped for a 10th straight week to the lowest on record as the government began buying mortgage bonds to stimulate housing demand. The fixed rate dropped to 5.01 percent from 5.10 percent a week earlier, Freddie Mac said in a report today. That’s the lowest in data that goes back to 1971, the McLean, Virginia- based mortgage buyer said.

- Former U.S. Senator Thomas A. Daschle pledged that as Barack Obama’s health secretary, he’ll make sure everyone has access to doctors and hospitals.

- Corporate borrowing in the commercial paper market expanded to the highest level since before Lehman Brothers Holdings Inc. filed for bankruptcy in September as companies took advantage of the lowest rates on record. U.S. commercial paper outstanding rose $83.1 billion, or 4.9 percent, during the week ended Jan. 7 to a seasonally adjusted $1.76 trillion, the Federal Reserve said today in Washington. That’s the highest since the week ended Sept. 10, five days before Lehman’s filing.

Wall Street Journal:

- General Motors Corp.(GM) said it needs to have key elements of a cost-cutting labor deal with the United Auto Workers in place by Feb. 17 to comply with last month's $17.4 billion federal bailout. GM and Chrysler LLC are required to get their labor costs in line with the U.S. operations of foreign-based competitors under terms of the low-interest loans from the Bush administration to avoid bankruptcy.

- Thousands of small, privately-held U.S. banks could have access to the $700 billion financial rescue program within "days, not weeks", according to sources familiar with the matter.

CNBC.com:
- Robert Doll, chief investment officer of global equities at BlackRock Inc.(BLK), told CNBC that in the second half of this year, investors will begin to see “some visibility” of a US economic recovery.

Business Week:

- In recent years several companies have developed 3D computer displays, with results ranging from disappointing to, literally, nauseating. Graphics specialist Nvidia (NVDA) has a new approach that promises to take computing into the third dimension. Video games will be the first to benefit, followed by movies and certain business tasks.

Chicago Sun-Times:

- The more than three-year-old split in the ranks of organized labor may be on the verge of mending. Change to Win was formed by seven unions that broke from the AFL-CIO after disagreements on how to best organize. It includes the Service Employees International Union, the International Brotherhood of Teamsters, Unite-Here, and laborers, carpenters, farm workers and food and commercial worker unions.

Institutional Investor:

- European Central Bank President Jean-Claude Trichet said he sees a “significant” worsening in the economic environment. “It’s clear that we have had a significant deterioration of the real economy,” Trichet said in an interview at the end of 2008 and published late last night.

MacDailyNews:

- Apple(AAPL) iPhone mobile Web market share surpasses RIM BlackBerry and Windows Mobile combined.

Red Herring:

- Apple's(AAPL) iPhone, which has become the touch-screen icon of the 3G mobile computing revolution, leaving its forerunners Palm and Blackberry in its clean cut wake will now be able to run a browser that blocks adult content at the source. With a reported 8 percent of American teenagers now owning the slick white status symbol parents, for the first time parents can will be able to have peace of mind in the knowledge that their children will be able to surf the web safely and in a squeaky clean way. The new browser software from InternetSafety.com's new Safe Eyes Mobile browser blocks the more unsavory side of the web from young, prying eyes was launched this week at MacWorld in San Francisco and at the 2009 International CES exhibition in Las Vegas.

MSNBC:

- It looks like Dick Tracy may finally get his wristwatch cell phone, the one that does video calls. LG Electronics plans to introduce a wrist phone later this year, giving reality a chance of catching up with the comic-strip hero who famously used a two-way "Wrist TV."

Point Carbon:

- Aviation biofuel may become commercially viable for passenger carriers within five years following successful test flights, citing the International Airline Transport Assoc. Commercial tests, including a two-hour demonstration yesterday by a Continental Air aircraft using a fuel blend made from algae and jatropha, are increasing.

Denverpost.com:

- Great snow lured more skiers and snowboarders this past holiday season to resorts than the previous season despite the economic recession. The Lakewood-based National Ski Areas Association found holiday visits to mountain resorts on average were up across the country even though the economy is sliding. In addition to good snowfall across the resorts, it also helped that some, including Silverton, Crested Butte and Telluride, saw record snowfall in December. According to the NSAA research, based on a random survey of several dozen ski areas nationwide, some resorts reported up to a 40 percent increase over 2007.

Financial Times:
- As thousands of people milled around the high-tech devices at the Consumer Electronics Show in Las Vegas, Nevada, on Thursday it was becoming clear that one of the big trends at this year’s event was the push for a holy grail that has thus far eluded the industry: internet connectivity in the living room.

O Estado de S. Paulo:

- Brazil may lose 3 million jobs in the first quarter of 2009, citing a forecast by Paulo Pereira da Silva, president of Forca Sindical, Brazil’s second-largest labor union group. The job cuts would account for about 10% of Brazil’s registered workforce.

Bear Radar

Style Underperformer:
Mid-cap Growth (-.75%)

Sector Underperformers:
Retail (-3.29%), Gaming (-2.59%) and REITs (-2.40%)

Stocks Falling on Unusual Volume:
WMT, SMSC, PUK, XLNX, DB, ISRG, HELE, PMTC, CERN, LEAP, SGMS, PFCB,

Stocks With Unusual Put Option Activity:
1) ELN 2) JAVA 3) ADS 4) SGR 5) TEX

Bull Radar

Style Outperformer:
Large-cap Value (+.49%)

Sector Outperformers:
Construction (+2.76%), HMOs (+1.55%) and Homebuilders (+1.32%)

Stocks Rising on Unusual Volume:
SSRI, SA, REP, ABT, SHLD, PSMT, FSLR, APSG, CRXL, BLUD, URBN, CONN, DRYS, ASEI, TBSI, DMND, SCHN, PLCE, RATE, SPWRB, TISI, GYMB, CSGP, SGR, RBN, CVC and GME

Stocks With Unusual Call Option Activity:
1) ISRG 2) NVLS 3) STT 4) ARO 5) SHLD

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