Monday Watch

Weekend Headlines
Bloomberg:

- Citigroup Inc.(C) may book a gain of as much as $10 billion by forming a brokerage venture with Morgan Stanley(MS), helping to replenish capital depleted by the biggest losses in the bank’s 197-year history, a person familiar with the talks said. The pretax gain would result from writing up the value of Citigroup’s Smith Barney brokerage unit to the new price set by the deal, said the person, who declined to be identified because the talks are confidential. The gain of $5 billion to $6 billion after taxes would flow into Citigroup’s capital, a loan-loss cushion so eroded that the bank had to get $45 billion of rescue funds last year from the U.S. government.

- President-elect Barack Obama said his two-year plan to boost the U.S. economy will generate as many as 4 million jobs, higher than his previous estimates, the biggest portion of them in construction, manufacturing and retail.

- Satyam Computer Services Ltd. will have to restate earnings and may be broken up after the company’s founder was arrested in India’s biggest corporate fraud investigation, executives said.

- The euro fell for a second day against the US dollar as traders raised bets that the European Central Bank will cut interest rates this week. The currency also dropped to a one-month low versus the yen on concern that the 16-nation region’s recession will worsen, prompting investors to cut holdings of higher-yielding assets financed in Japan. “A large portion of the euro’s demise has been predicated on the view that the ECB is falling behind the curve,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.

- Ford Motor Co.(F), alone among U.S. automakers in forgoing federal aid to stay in business, plans to “keep going on our own,” Chairman William Clay Ford Jr. said. The second-biggest U.S. automaker will ask for government loans only if “the world implodes as we know it,” Bill Ford told reporters today at the North American International Auto Show in Detroit.

- Crude oil fell for a fifth day in New York, extending last week’s 12 percent drop, on concern demand will decline more rapidly than the Organization of Petroleum Exporting Countries cuts output. Deutsche Bank AG on Jan. 10 lowered its forecast for the average price of crude oil this quarter by $10 to $45 a barrel, citing expectations consumption will fall by 1 million barrels a day this year. U.S. supplies have climbed in 13 of the past 15 weeks as the economy slows, according to the Energy Department.

- The Israeli military pressed ahead with its offensive against Hamas, moving into Gaza City, and its intelligence chiefs said the capacity of the militant Islamic group to fire rockets into Israel had been degraded. “Israel is nearing the goals it set for itself, but more effort, determination and patience is needed,” Israeli Prime Minister Ehud Olmert said yesterday in remarks to the Cabinet published by his office. “We must not, at the last minute, lose what has been achieved.”

- President George W. Bush said it “would be a problem” if interrogation tools his administration employed on suspected terrorists are abandoned. “The techniques were necessary and are necessary to be used on a rare occasion to get information necessary to protect the American people,” Bush said in an interview broadcast today on the “Fox News Sunday” program. “Obviously, I feel like it would be a problem, because these are tools that we have in place,” Bush said, when asked about the consequences of not using such techniques. “I just can’t imagine what it would be like to be president without these tools available and we captured a known killer who might have information about the next attack on America,” Bush said. He said the program’s legality was vetted and members of Congress were briefed on it. Hayden, in testimony to a Senate panel on Feb. 5, said the detainees subjected to waterboarding were Khalid Sheikh Mohammed, the self-described mastermind of the Sept. 11, 2001, attacks; Abu Zubaydah, a reputed al-Qaeda leader and associate of Osama Bin Laden; and Abd al-Rahim al-Nashiri, a suspected al- Qaeda leader behind the USS Cole bombing in 2000. The president, in the Fox interview taped earlier this week, said he’s confident that President-elect Barack Obama “understands the nature of the world and understands the need to protect America.”

- The cost of protecting corporate bonds in Australia from default fell, according to traders of credit-default swaps. The Markit iTraxx Australia index of credit-default swaps declined 5 basis points to 285 at 12:10 p.m. in Sydney, Citigroup Inc. prices show. Japan’s markets are closed today for holiday.

- Senators said Larry Summers, the top economic adviser to President-elect Barack Obama, signaled the incoming administration will back new restrictions on use of the remaining $350 billion of financial-rescue funds that may be sought this week.

- Robert Rubin, the former Treasury secretary who advised Citigroup Inc. as it lost $20 billion in the subprime mortgage crisis, resigned his position as senior counselor and won’t stand for re-election to the board. Rubin’s departure comes as Citigroup and Morgan Stanley are in talks to merge their brokerage units, said a person familiar with the matter. Rubin, 70, intends to “deepen his involvement in outside activities and organizations to which he has been strongly committed,” the New York-based bank said in a statement on Jan. 9. Rubin, who served at the Treasury’s helm from 1995 to 1999 under President Bill Clinton, was criticized by investors for collecting more than $150 million in pay in a decade while failing to steer Citigroup away from subprime securities. The investments led to four straight quarterly losses and prompted the bank to turn to the government for a rescue package. “His reputation has very much been damaged by what has happened at Citi,” Bert Ely, chief executive officer of Ely & Co., a bank consulting firm in Alexandria, Virginia, said in a Bloomberg TV interview.

- President-elect Barack Obama will uphold at least one of Washington’s old ways: the appointment of campaign donors to plum ambassadorships. “There probably will be some” political appointees serving abroad, Obama said at a news conference yesterday. “It would be disingenuous for me to suggest that there are not going to be some excellent public servants but who haven’t come through the ranks of the civil service.”

- Toyota Motor Corp., working to hold a lead in advanced vehicles over General Motors Corp. and smaller startups, plans to sell a tiny, battery-powered car in the U.S. by 2012 that can be recharged at electrical outlets. A concept version of the FT-EV “urban commuter” car will be at the North American International Auto Show in Detroit starting tomorrow, Toyota said in a statement.

- Chrysler LLC, working to keep pace with General Motors Corp. and Toyota Motor Corp., added the Jeep Patriot to its fleet of prototype electric autos, bringing the total to four.

- Russia’s ruble fell against the dollar in the first official trading day this year as the central bank devalued the currency for the 13th time in two months and companies demanded foreign currency to repay debt. “There’s colossal demand for foreign currency from the corporates needing to refinance,” said Evgeny Nadorshin, chief economist at Trust Investment Bank in Moscow. “If you have such an option, it is better to buy now before the ruble devalues more.” Investors have withdrawn more than $200 billion since August because of the war in Georgia, a more than 70 percent decline in oil prices since records in July and the worst market rout since the 1998 default, according to BNP Paribas SA estimates.

Wall Street Journal:

- President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010, suggesting the levy might outlive the "Death Tax Repeal" movement that has tried mightily to kill it. The Democratic stance on the estate tax contrasts with Mr. Obama's reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession. But Democrats are determined to act quickly to prevent the estate tax's scheduled repeal. Elimination of the levy on big inheritances was approved by Congress under President George W. Bush in 2001, with rollbacks phased in slowly and its full elimination slated to take effect next year. The Senate Finance Committee will move within weeks on legislation to reverse that law, and Mr. Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers said.

- Illinois Senator Dick Durbin said the Senate is reviewing the appointment of Roland Burris and the chamber's decision will likely come before the end of the month. The appointment has been shrouded in controversy since it was made by Illinois Gov. Rod Blagojevich, who faces impeachment proceedings by the Illinois Senate and a potential federal indictment for corruption charges, including allegedly scheming to sell off President-elect Barrack Obama's former Senate seat.

- China's exports and imports both fell for the second consecutive month in December, with an accelerated contraction in trade offering a bleak outlook for the world's third-largest economy and highlighting the need for Beijing to rely more on potent fiscal stimuli. The weak trade data, especially that of imports, showed China isn't just suffering from a global economic slowdown but also from a deterioration in local demand, an engine that the authorities have hoped would keep the economy going and unemployment in check.

- Technology Levels Playing Field In Race to Market Electric Car.

MarketWatch.com:

- Short-biased hedge funds, which mostly use short selling, gained 34% on average last year, according to early estimates from HedgeFund.net, which tracks industry performance. That compares to losses of more than 38% by the Standard & Poor's 500 index. Ursus, one of the biggest short-selling funds run by Jim Chanos' Kynikos Associates Ltd., returned more than 50% last year, according to two hedge fund investors who requested anonymity. On Friday, Rep. Gary Ackerman, D-N.Y., a member of the House Financial Services Committee, re-introduced legislation to bring back the so-called uptick rule. "In the wake of the elimination of the uptick rule, the value of many volatile stocks have plummeted due to an onslaught manipulative short sale practices," Ackerman said Friday in a statement. "The uptick rule is essential to rein in these abuses and restore much-needed stability and confidence to our financial markets." Under the bill, which Ackerman first introduced in July, the SEC would be mandated to reinstate the uptick rule within 90 days of the legislation's passage.

CNBC.com:
- Some call it the Super Bowl of healthcare. We’re talking about the JP Morgan Healthcare Conference kicking off Monday and it could move stocks.

IBD:
- The economy may be in the dumps. But medical waste management kingpin Stericycle (SRCL) is cleaning up.

NY Times:

- President Bush deflected a secret request by Israel last year for specialized bunker-busting bombs it wanted for an attack on Iran’s main nuclear complex and told the Israelis that he had authorized new covert action intended to sabotage Iran’s suspected effort to develop nuclear weapons, according to senior American and foreign officials.

- US Automakers Place Their Bets on Electric Cars.

- McDonald’s(MCD) Makeover Wins Over Hardened Skeptics.

- In India, Crisis Pairs With Fraud.

- President-elect Barack Obama said in an interview on ABC’s “This Week” that his administration may not be able to move as rapidly on some of his campaign promises, including closing the Guantanamo Bay detention facility.

- Mary L. Schapiro, who appears this week at a confirmation hearing on her selection to head the Securities and Exchange Commission, has been accused in two lawsuits of making misleading statements to quickly complete a merger of regulatory organizations after which she received a 57 percent raise in her pay.

- If there was one overarching theme from the Consumer Electronics Show here last week, it was that absolutely every device in our lives is becoming a computer connected to the Internet.

Washington Post:
- President-elect Barack Obama is urging the nation to celebrate Martin Luther King Jr. Day as it was originally intended: as a national day of service. With the holiday falling the day before his Jan. 20 inauguration, Obama is seeking widespread volunteer initiatives across the country, such as serving meals to the homeless, cleaning schools and neighborhoods, or helping disadvantaged youths and the elderly. Colin L. Powell, an honorary chairman of the Presidential Inaugural Committee, announced the "Renew America Together" initiative yesterday. He said he hopes the enthusiasm surrounding Obama's election victory will inspire Americans to finally meet the holiday's promise.

- Citigroup's(C) support for a plan to let bankruptcy judges modify the terms of troubled mortgages and help borrowers avoid foreclosure left its banking industry counterparts on the defensive yesterday, insisting that the plan would do more harm than good. After years of failed attempts, congressional supporters of the proposed law are cautiously optimistic about its prospects. And privately, banking executives acknowledge that some type of legislation is likely to pass, but they said they want to limit the loans eligible to be modified.

Forbes.com:

- For many small businesses, survival is the goal for 2009. In these difficult times, the notion of spending on novel networking products or services is a hard sell at best. Yet ignoring network infrastructure can cripple a business. Which technologies to embrace in the new year? The kind that can provide clear-cut, bottom-line savings. Here are three likely candidates:

Business Week:
- Why Obama Must Cut Taxes. Tax cuts and credits are needed to help repair consumer “balance sheets,” damaged by lower incomes and higher debts, argues BW’s Michael Mandel.

Silicon Alley Insider:

- Perhaps as a part of new CFO Patrick Pichette's push for more financial discipline, Google (GOOG) ratcheted-up the amount of ads it shows during Q4 to 4.01 per keyword, up from 2.544 in Q3 -- a 57% increase.

60 Minutes:

- About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market. So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.

USA Today:

- Indianapolis builds in anticipation of recession’s end. This city hasn't escaped the economic turmoil rocking the USA. But the reality of lost jobs, tight credit and home foreclosures is easy to overlook amid the robust activity along a downtown span of Washington Street. The boom is the product of a downtown filled during the day with thousands of corporate, retail and government workers, and at night with out-of-towners attending events at the Indiana Convention Center.

Bespoke Investment Group:

- While default risk has dropped dramatically for the financial companies listed below, it's still interesting to see how the firms compare with each other on the CDS front. Below we highlight current credit default swap prices for 24 financial firms across the globe. These prices represent the cost per year to insure $10,000 worth of debt for 5 years. As shown, default risk is the highest for Morgan Stanley, followed by Goldman Sachs, American Express, UBS, and Citigroup. The premium against default for JP Morgan is the lowest among US financial firms, with Wachovia, Wells Fargo, and Bank of America not far behind.

CNNMoney.com:

- Did Apple’s (AAPL) unrelenting advertising campaign for the iPod touch as a game machine (”The funnest iPod ever“) pay off this holiday season? Indirect data from two Web-based sources suggest it did — big time.

MSNBC:

- Iran using fronts to get bomb parts from US. Officials: Tehran is flouting export laws meant to stop lethal technology.

Economist.com:

- Mr Obama has acknowledged the urgency of addressing entitlements, but said more specifics would have to await his draft budget proposal, due for submission in mid-February. He has aimed his anti-deficit rhetoric, both before the election and since, principally at waste and earmarks, the pet projects legislators insert into spending bills. But as Maya MacGuineas of the Committee for a Responsible Federal Budget, a watchdog group, notes, such spending is at most $30 billion a year, or 1% of total expenditures. By contrast, entitlements amount to $1.2 trillion, or 41% of the whole; and, left unreformed, will grow to 60% by 2030.

Reuters:

- Cisco Systems Inc (CSCO) Chief Executive John Chambers said on Friday that the U.S. economy may start to grow again in the second half of 2009 but that his opinion should not be read as a comment on the network equipment maker's current quarter.

- Saudi Arabia plans to reduce its oil output to 7.7 million barrels a day next month, lower than its OPEC target, as the country seeks to bolster oil prices, citing industry sources it didn’t identify. The kingdom will produce less than its OPEC quota of about 8 million barrels a day to prevent a build-up in stock and a further decline in prices.

Financial Times:

- The retrenchment of the struggling hedge fund industry has led to a rapid fall in rents paid for the most expensive offices in central London. Rents for prime offices in London’s West End dropped by almost a third last year, according to NB Real Estate, a property consultancy, dropping from a peak of about £120 per sq ft in 2007 to £85 per sq ft by the end of 2008.

- As hedge fund managers returned last week to their plush offices in London’s Mayfair and Greenwich, Connecticut, many hoped to forget the industry’s worst year on record. But 2009 threatens to bring a detox diet for traders previously held up as among the world’s best – thinning the industry’s ranks and putting in jeopardy the fat fees that turned many “hedgies” into billionaires. Dismal returns and investor panic are in danger of proving fatal for many funds, following the worst year since Chicago’s Hedge Fund Research started tracking returns in 1980.

- Harbinger Capital, the activist US hedge fund headed by Philip Falcone that shot to fame in 2007 with a lucrative bet against subprime mortgages, joined the list of funds restricting withdrawals for investors a day before the end of last year, according to two investors. Harbinger’s main fund rose almost 43 per cent in the first six months of last year but lost all its profits and ended the year down 27.1 per cent. After redemptions and losses, the fund now manages about $6bn, one investor said, down from a peak of almost $20bn last summer.

- A US investigation into potential sanctions violations has expanded to involve nine European banks. Authorities suspect that some of the money transferred through the American banking system might have been used to finance Iran’s nuclear and missile programs.

TimesOnline:
- Four of London’s top hedge-fund managers face a public grilling after being summoned to appear before the influential Commons Treasury committee over the role of hedge funds in the banking crisis. It will be the first time they have been called to account by politicians in this type of public hearing. Hedge funds have been blamed in some quarters for shorting banking stocks, including HBOS, which the government pushed into an emergency takeover by Lloyds TSB late last year.

- Oil traders are seeking to hire at least five more supertankers this month to hoard crude at sea, bringing the total amount being stored to enough to supply Britain for 35 days, according to the world's largest operator of the vessels.

Sueddeutsche Zeitung:

- German Finance Minister Peer Steinbrueck suggested cutting the countries marginal tax rate to 12% from the current level of 15% to combat the recession.

SonntagsZeitung:

- UBS AG may post a $7.2 billion loss for the fourth quarter of 2008. UBS spokeswoman Rebeca Garcia declined to comment on the report.

Folha de S. Paulo:
- Rio Tinto Group(RTP), the world’s third-largest mining company, will cancel a $2.2 billion expansion plan in Brazil, citing the company’s Finance Director. Difficulties obtaining funding and falling demand for iron led to the decision for its mining complex in Corumba, a Brazilian city near the border of Bolivia and Paraguay. The company will resume its investment plan when markets show signs it is recovering.

Nikkei:
- Hino Motors Ltd. plans to sell a gas-electric truck next year offering twice the fuel efficiency of its current hybrids and 2 ½ times that of the company’s conventional engines. Hino, Japan’s biggest maker of heavy-duty trucks, will market the vehicles in Japan, the US and Australia.

Hankyoreh:

- South Korea’s economy shrank more than 4% in the fourth quarter of last year from the third quarter, citing a senior official at the Bank of Korea. The country’s economy is rapidly slowing faster than the central bank had expected.

Weekend Recommendations
Barron's:
- Made positive comments on (KALU), (MSFT), (PNC), (STT), (EXC), (ETR), (TMO), (ACAP) and (AEM).

Citigroup:

- Reiterated Buy on (BAC), target $22.

- Reiterated Buy on (NVDA), target $10.50.

- Reiterated Buy on (ATVI), target $15, added to Top Picks Live list.

Night Trading
Asian indices are -1.75% to +.25% on avg.
S&P 500 futures -.53%.
NASDAQ 100 futures -.45%.

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Earnings of Note
Company/Estimate
- (AA)/-.08

- (SCHW)/.26

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, Cowen Consumer Conference and JPMorgan Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for a weekly preview by MarketWatch.

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

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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.