Weekly Outlook

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Click here for stocks in focus for Monday by MarketWatch.

There are a number of 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, IBD/TIPP Economic Optimism, Monthly Budget Statement

Wed. – Weekly MBA mortgage applications, weekly EIA energy inventory data, Import Price Index, Advance Retail Sales, Business Inventories

Thur. – Producer Price Index, EIA natural gas inventory report, Initial Jobless Claims, Empire Manufacturing, Philly Fed.

Fri. – Consumer Price Index, Net Long-term TIC Flows, Industrial Production, Univ. of Mich. Consumer Confidence

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

Mon. – Alcoa Inc.(AA), Charles Schwab(SCHW)

Tues. – Linear Technology(LLTC)

Wed. – Xilinix Inc.(XLNX), AMR Corp.(AMR)

Thur. – Marshall & Ilsley(MI), Genentech(DNA), Intel Corp.(INTC), Amphenol(APH), TK Shipping(TK), BlackRock(BLK)

Fri. – PPG Industries(PPG), Johnson Controls(JCI), Sony(SNE)

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

Mon. – The Fed’s Lockhart speaking, Cowen Consumer Conference, JPMorgan Healthcare Conference

Tue. – The Fed’s Bernanke speaking, Fed’s Lacker speaking, (HRB) Investment Conference, (MOS) Analyst Meeting, (MGAM) Analyst Meeting, JPMorgan Healthcare Conference, CSFB Homebuilding Conference, Deutsche Bank Auto Analysts Conference, Cowen Consumer Conference, BMO Capital Unconventional Gas Conference

Wed. – The Fed’s Yellen speaking, Fed’s Plosser speaking, Fed’s Stern speaking, (WAG) Shareholders Meeting, (MON) Shareholders Meeting, (MNKD) Analyst Meeting, CSFB Homebuilding Conference, Deutsche Bank Auto Analysts Conference, Goldman Sachs Energy Conference, JPMorgan Healthcare Conference

Thur. – The Fed’s Lockhart speaking, Fed’s Evans speaking, (MTW) Analyst Day, (MON) Pipeline Review, (AYI) Annual Meeting, Needham Growth Conference, Goldman Sachs Healthcare Conference, Citi Entertainment/Media/Telecom Conference, JPMorgan Tech Forum

Fri. – Fed’s Lacker speaking, (TWX) Shareholders Meeting

BOTTOM LINE: I expect US stocks to finish the week modestly higher on lower mortgage rates, bargain-hunting, short-covering, declining credit market angst and less forced selling. My trading indicators are giving bullish signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 890.35 -4.45%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 890.35 -4.45%
DJIA 8,599.18 -4.82%
NASDAQ 1,571.59 -3.71%
Russell 2000 481.30 -4.85%
Wilshire 5000 8,949.19 -4.10%
Russell 1000 Growth 372.16 -3.16%
Russell 1000 Value 475.19 -5.06%
Morgan Stanley Consumer 540.06 -4.42%
Morgan Stanley Cyclical 497.83 -.22%
Morgan Stanley Technology 353.74 -.78%
Transports 3,460.71 -5.21%
Utilities 370.79 -2.12%
MSCI Emerging Markets 24.89 -2.73%

Sentiment/Internals
NYSE Cumulative A/D Line 25,220 +17.46%
Bloomberg New Highs-Lows Index -63 +80.25%
Bloomberg Crude Oil % Bulls 41.0 -15.81%
CFTC Oil Large Speculative Longs 235,246 +4.67%
Total Put/Call 1.0 +6.38%
OEX Put/Call 1.54 +28.33%
ISE Sentiment 89.0 -25.21%
NYSE Arms 2.47 +257.97%
Volatility(VIX) 42.82 +9.26%
G7 Currency Volatility (VXY) 19.15 -6.72%
Smart Money Flow Index 7,527.86 +2.49%
AAII % Bulls 48.70 +102.92%
AAII % Bears 35.06 -35.87%

Futures Spot Prices
Crude Oil 40.40 -12.96%
Reformulated Gasoline 110.75 -.14%
Natural Gas 5.55 -7.81%
Heating Oil 148.90 +1.20%
Gold 853.60 -2.56%
Base Metals 113.75 +2.54%
Copper 154.95 +4.36%
Agriculture 316.29 +2.45%

Economy
10-year US Treasury Yield 2.39% +2 basis points
10-year TIPS Spread .58% +46 basis points
TED Spread 1.20 -13 basis points
N. Amer. Investment Grade Credit Default Swap Index 200.25 +.12%
Emerging Markets Credit Default Swap Index 711.19 -1.46%
Citi US Economic Surprise Index -100.50 +14.32%
Fed Fund Futures imply 72.0% chance of no change, 28.0% chance of 25 basis point cut on 1/28
Iraqi 2028 Govt Bonds 42.12 +2.34%
4-Wk MA of Jobless Claims 525,800 -4.9%
Average 30-year Mortgage Rate 5.01% -9 basis points
Weekly Mortgage Applications 1,143,800 -8.18%
Weekly Retail Sales -1.0%
Nationwide Gas $1.78/gallon -.15/gallon
US Heating Demand Next 7 Days 6.0% above normal
ECRI Weekly Leading Economic Index 109.40 +1.30%
US Dollar Index 82.66 +1.0%
Baltic Dry Index 821.0 +6.21%
CRB Index 229.91 -2.21%

Best Performing Style
Mid-cap Growth -2.87%

Worst Performing Style
Small-cap Value -5.42%

Leading Sectors
Computer Hardware +15.19%
Homebuilders +4.53%
Disk Drives +3.78%
Steel +1.82%
Airlines +1.22%

Lagging Sectors
Restaurants -5.53%
Insurance -5.76%
Gold -6.69%
REITs -6.88%
Banks -11.80%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish at Session Lows, Weighed Down by REIT, Energy and Bank shares

Evening Review
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After-hours Commentary
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In Play

Stocks Falling into Final Hour on More Economic Pessimism, Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Healthcare longs, Medical longs and Internet longs. I added back (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is falling .75% and is elevated at 42.25. The ISE Sentiment Index is below average at 133.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running very high most of the day, hitting 2.14 at its intraday peak, and is currently 1.62. The Euro Financial Sector Credit Default Swap Index is falling 1.51% today to 96.17 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 falling 1.65% to 200.25 basis points. The TED spread is down 6.52% to 120 basis points. The TED spread is now down 346 basis points in about three months. The 2-year swap spread is falling .93% to 54.25 basis points. The Libor-OIS spread is falling 8.01% to 1.08 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to .58%, which is down 217 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 .06%, which is down 2 basis points today. Volume is light again on today’s sell-off with a high NYSE Arms reading. However, the stock and bond market’s reactions to today’s news are negatives. I am also seeing a number of conflicting moves is various securities. While another stock rally could materialize at any time, I am going to leave my hedges on until I gain more clarity on these moves next week. Nikkei futures indicate an +14 open in Japan and DAX futures indicate an +24 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting and economic pessimism.

Today's Headlines

Bloomberg:

- The US dollar rose against the euro and headed for its biggest weekly gain since October after a U.S. government report showed payrolls shrank last month less than some economists forecast. The euro was poised for the biggest weekly drop against the pound since its debut in 1999 on speculation the European Central Bank will cut its main refinancing rate next week to the lowest level since 2005.

- U.S. corporate bond sales soared to $41 billion this week, the most in almost eight months, as companies took advantage of investor demand to raise cash in a weakening economy.

- The ruble may fall when Russia’s financial markets open on Jan. 11 after a seven-day holiday as companies and banks demand foreign currency to repay more than $80 billion of debt this year, according to Societe Generale SA. The ruble may slump 10 percent this month against the central bank’s target basket of dollars and euros, Societe Generale analysts said. The currency lost 20 percent against the dollar and 11 percent versus the euro between August and the end of last year as the Russian economy weakened because of the falling price of oil, its main export earner.

- Genentech Inc.(DNA) rose as much as 5.2 percent on a Financial Times report that Swiss drugmaker Roche Holding AG is preparing to raise its bid for the biotechnology company to $95 a share.

- The Baltic Dry Index, a measure of shipping costs for commodities, advanced to the highest in more than two months on demand for capsize vessels to haul coal and iron ore to make steel. The index rose 51 points, or 6.2%, to 872 points. Shipping rates are benefitting from increased congestion at Australian ports that cut the number of ships competing for cargoes, Philippe Van den Abeele, managing director at shipping hedge fund Castalia Fund Management(UK) Ltd. said.

- India should act quickly to shore up investor confidence after an alleged accounting fraud at Satyam Computer Services Ltd. triggered a plunge in stocks, a former regulator and executive said. More than two days after chairman Ramalinga Raju claimed he’d padded Satyam’s books by $1 billion, the company’s auditors and interim management have yet to confirm any irregularities. The government should appoint outside managers and accelerate the probe to clear up the case, said Richard Rekhy, chief operating officer of KPMG in India.

Wall Street Journal:

- The Illinois House of Representatives voted overwhelmingly to impeach Gov. Rod Blagojevich, one month after he was arrested and charged with corruption. Impeachment required just 60 votes. The final result was 114-1. A Senate trial will follow in coming days or weeks. "You ought to be angry, you ought to be disgusted, you ought to be mad as hell," said Rep. Tom Cross, before urging his colleagues to join him in voting to impeach.

NY Times:

- Numerous money-losing hedge funds have curtailed investor withdrawals over the past few months as redemption requests piled up. But “raising the gates,” as it’s known in the industry, can cost investors dearly, according to a recent study from the Vanderbilt University’s Owen Graduate School of Management and Columbia University. According to the study, the implied costs to a hedge fund investor of redemption restrictions can range from 5 percent to 15 percent depending on how long the fund has been in business, the expected return and the loss generated by liquidation of assets. Firms that have raised the gates include the Citadel Investment Group, D.E. Shaw, Farallon Capital Management and Magnetar Capital.

USA Today:

- We're seeing lots of "super zoom," point and shoot cameras here at CES.

Washington Post:

- Confronted with intense skepticism on Capitol Hill over the $700 billion financial rescue program, Treasury Secretary nominee Timothy F. Geithner and President-elect Barack Obama's economic team are urgently overhauling the embattled initiative and broadening its scope well beyond Wall Street, sources familiar with the discussions said. Geithner has been working night and day on the eighth floor of the transition team office in downtown Washington with Lawrence H. Summers and other senior economic advisers to hash out a new approach that would expand the program's aid to municipalities, small businesses, homeowners and other consumers.

Reuters:
- A top bank industry group said on Friday that it opposes an agreement between financial giant Citigroup Inc and Democratic senators that would rewrite U.S. bankruptcy law to help troubled mortgage borrowers avoid foreclosure. The American Bankers Association said in a statement that it did not participate in Citigroup's agreement with lawmakers and has consistently opposed giving bankruptcy judges broad authority to unilaterally modify mortgage terms. "ABA is opposed to the agreement because it will leave in place overly broad mortgage cram-down authority and other provisions that will harm thousands of banks across the country that have made, and continue to make, good loans," said Floyd Stoner, ABA's executive director for public policy.

Negocio:
- Consumer credit extended to families and companies in Spain fell 44% in the fourth quarter from a year earlier, citing the National Assoc. of Credit Establishments. The largest drop was a 56% decline in loans to buy cars.

MEES:

- Iraq may award a contract to develop its 4.35 billion barrel Nasiriyah oilfield before two bidding rounds for the rest of the country’s hydrocarbon resources. Eni SpA, Repsol YPF SA and Nippon Oil Corp. are “in the running” for the project, MEES said.