Stocks Rising into Final Hour on Short-Covering, Bargain-Hunting, Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs and Medical longs. I added (STRA) long and took profits in another trading long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is about even, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 8.6% and is elevated at 46.60. The ISE Sentiment Index is low at 88.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running at a high level most of the day, hitting 2.13 at its intraday peak, and is currently 1.04. The Euro Financial Sector Credit Default Swap Index is falling 1.26% today to 108.67 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 5.08% to 210.92 basis points. The TED spread is rising 4.75% to 103 basis points. The TED spread is now down 363 basis points in just over three months. The 2-year swap spread is unch. at 60 basis points. The Libor-OIS spread is rising 7.74% to 97 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to .48%, which is down 222 basis points in just over 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 .11%, which is up 1 basis point today. Considering the massive carnage in the global banking sector this morning, today’s broad market action is very impressive. Airline, technology, education, restaurant, reit, homebuilding, hmo, defense and utility shares are all surging 2.5%+, substantially outperforming the major averages. I expect stocks to build on today’s gains next week. Nikkei futures indicate an +35 open in Japan and DAX futures indicate an +11 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying and bargain-hunting.

Today's Headlines

Bloomberg:

- The Federal Reserve may purchase Treasuries within the next few days or weeks as it broadens its policy beyond interest rate cuts to ease credit conditions amid the worst recession in 25 years, according to UBS AG. “Fed officials use every chance they get to highlight Treasury purchases as an important arrow in their quiver,” William O’Donnell, U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, wrote in a research report today. “It now appears as if the Fed may use Treasury purchases as a blunt tool to bring loan rates down further. This makes it more likely that Treasury purchases come sooner.”

- The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets.

- Israel may be a step closer to ending its 21-day campaign against Hamas after the U.S. agreed to help stop the flow of smuggled weapons into the Gaza Strip. Israeli Foreign Minister Tzipi Livni, making a joint announcement in Washington with Secretary of State Condoleezza Rice, called the accord signed with the U.S. on arms smuggling a “vital component to the cessation of hostilities” in Gaza.

- Morgan Stanley(MS) and Citigroup Inc.(C), which are forming a venture to be the largest investment adviser to individuals, had $1.8 billion of clients’ cash in a fund that invested with Bernard Madoff, said two people familiar with the matter.

- Chrysler Financial, the credit arm of Chrysler LLC, received a $1.5 billion, five-year loan from the U.S. Treasury, prompting the automaker to offer no-interest financing to buyers of some of its vehicles. As a condition of the aid, part of the $700 billion Troubled Asset Relief Program passed last year, Chrysler Financial agreed to limits on corporate governance and executive compensation. The loan will be secured by a pool of new consumer auto loans, the Treasury said today in a statement released in Washington.

- General Electric Co.’s(GE) finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump, people familiar with the company’s plans said.

- Oil demand will fall for a second year, the first back-to-back contractions since 1983, as a deepening recession erodes consumer spending, the International Energy Agency said. The adviser to 28 nations cut its global 2009 forecast by 1 million barrels a day on expectations the economic outlook will deteriorate. The IEA estimates consumption will shrink 0.6 percent to 85.3 million barrels a day. Forecasters including OPEC, JPMorgan Chase & Co. and Deutsche Bank AG have already said demand will fall this year. “It’s a major shift,” said Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London who worked at the IEA.

- European Central Bank President Jean- Claude Trichet said while the bank is likely to cut interest rates further, it will not reduce its benchmark to zero. “To the question is 2 percent the lowest level we will attain, I say no,” Trichet told Japanese broadcaster NHK in an interview broadcast earlier today.

- European Central Bank President Jean-Claude Trichet’s vision of economies converging behind the shield of a shared currency may be unraveling. The gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany has ballooned to the widest since before they joined the euro. The difference may grow further as Europe’s worst recession since World War II hurts budgets and credit ratings across the region. Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

- Wilbur L. Ross, the investor who made billions turning around distressed steel and textile companies, will buy a majority stake in First Bank and Trust Co., giving him a platform to purchase more banking assets. The bank has “good opportunities” to expand, Ross said in a Bloomberg Television interview today. “We view the whole financial services sector as a very interesting one.”

- Circuit City Stores Inc., the bankrupt consumer-electronics retailer, named four liquidators to sell the remaining merchandise in 567 U.S. stores before it goes out of business.

- The ruble dropped, heading for the biggest weekly decline against the dollar in a decade, as Russia’s central bank quickened the pace of devaluations to stanch the erosion of currency reserves.

CNBC.com:
- McDonald's(MCD) is prepared for another tough year economically but believes it is well-positioned to thrive despite the recession, company CEO Jim Skinner said Friday.

AP:

- A schedule of events for Obama’s inauguration.

Lloyd’s List:

- Shippers forecast Hong Kong’s container throughput would fall 10% this year.
The port of Hong Kong handled 24.24m teu in the full year 2008, up 1% from the previous year. It managed to retain its third place in the world’s container port league. However, users of the port are not optimistic about its performance in the new year. Hong Kong Shippers Council executive director Sunny Ho estimated that the port would see a 10% decrease in container throughput this year. He explained the forecast is not too pessimistic as Hong Kong had seen its volume fall 24% in the single month of December last year, compared with the same month in 2007.

VentureBeat:

- Apple’s(AAPL) stock was down today, but not as much as you might expect on the day following an announcement that its chief executive Steve Jobs will be taking a five month medical leave of absence. Why? Maybe it’s because Apple’s investors (and bargain hunters) realized that with or without Steve Jobs, Apple is likely set for at least the next few years.

Silicon Alley Insider:

- Apple(AAPL) iPhone App Downloads Accelerating, Crossed 500 Million.

Reuters:
- The U.S. Treasury has been in discussions with Ford Motor Co. (F) regarding its financing needs and the $700 billion federal rescue fund since December, a U.S. government official said on Friday.

Telegraph:
- Sales of Ugg boots, the wooly footwear favored by celebrities, have jumped in recent weeks thanks to the sub-zero temperatures that have hit Britain.

Bear Radar

Style Underperformer:
Small-cap Value (-.77%)

Sector Underperformers:
Banks (-5.59%), Oil Tankers (-2.02%) and Road & Rail (-1.60%)

Stocks Falling on Unusual Volume:
WFC, JPM, PNC, ZION, MBT, VIVO, SUSQ, JBHT, EL, BDC, ISH and MA

Stocks With Unusual Put Option Activity:
1) MI 2) EL 3) PALM 4) CMA 5) AVP

Bull Radar

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

Sector Outperformers:
Airlines (+3.7%), Restaurants (+2.38%) and Semis (+2.22%)

Stocks Rising on Unusual Volume:
PSD, BBBB, CREE, ABT, SSYS, CMA, SLM, EEFT, IBM, HMY, MYRG, LIFE, NTCT, RRGB, BMRN, TWGP, NVLS, CSTR, ILMN, LLTC, ATHN, ADSK, NTES, CGRB, ALGT, RIMM, BIIB, PSD, TRA, TNH, TMB, OCR and CNS

Stocks With Unusual Call Option Activity:
1) TSM 2) URBN 3) JCG 4) MCK 5) CMA

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:

- Bank of America Corp.(BAC), the biggest U.S. bank by assets, is nearing an accord on a financial aid package from the U.S. that may include $15 billion to $20 billion in capital, said a person familiar with the matter. The bank may also get a $120 billion “backstop” to help it cope with troubled assets, said the person, who declined to be identified because the accord hasn't been publicly announced. Bank of America needs the package to cushion losses tied to its purchase of Merrill Lynch & Co. earlier this year, said three people familiar with the matter. Bank of America moved up its fourth-quarter report to tomorrow amid speculation that bigger-than-expected losses at Merrill Lynch are putting a strain on its new parent.

- Intel Corp.(INTC), the world’s biggest maker of semiconductors, said profitability may improve after the first quarter as customers finish working through excess inventory. The shares rose in late trading. The gross margin, the percentage of sales remaining after taking out production costs, was 53 percent last quarter, the company said today in a statement. That figure will be in the low 40s this quarter, marking the “trough,” Chief Financial Officer Stacy Smith said on a conference call.

- A US Airways Group Inc.(LCC) jetliner headed from New York City to Charlotte, North Carolina, went down in the Hudson River today less than three minutes after takeoff with 155 aboard. All passengers and crew members are safe, the Federal Aviation Administration said. The pilot, identified by CNN as Chesley B. “Sully” Sullenberger, put the plane down in the 40-degree water just off the West 50s, a few blocks from the dock of the USS Intrepid, in what Mayor Michael Bloomberg called “a masterful job.” “We have had a ‘Miracle on 34th Street’; I believe now we have had a miracle on the Hudson,” said New York Governor David Paterson. “This is a potential tragedy that may have become one of New York City’s most spectacular days.”

- Genentech Inc.(DNA), the biotechnology company being pursued by its majority owner Roche Holding AG, said fourth-quarter profit rose 47 percent on sales of its cancer drugs. The company forecast 2009 earnings that fell short of analysts’ estimates, citing “business uncertainties.”

- The Federal Reserve bought $23.4 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds as part of the central bank’s efforts at “credit easing.” The biggest portion of the purchases from Jan. 8 through Jan. 14 was $9.75 billion of 30-year debt with 4.5 percent coupons, the New York Fed said today on its Web site. Acquisitions since the program started total $33.6 billion. A gap near the largest on record between loan rates and bond yields will narrow as “capacity” in the mortgage industry builds, Nicholas Strand, a mortgage-bond analyst at Barclays Capital Inc. in New York, said in a Jan. 13 interview. That means rates may continue falling even if yields don’t.

- Nintendo Co. continued to dominate the U.S. video-game market in December, increasing sales of the Wii console by 59 percent and setting an industry record with more than 3 million purchases of its handheld players. Nintendo, the world’s largest maker of game consoles, sold 2.15 million Wii players last month, researcher NPD Group Inc. said today in a statement. Total U.S. video-game industry sales rose 9.3 percent to $5.29 billion in December, the Port Washington, New York-based group said today.

- Crude oil traded little changed, set for a two-week decline of more than 20 percent, after OPEC said demand will drop this year. Consumption of OPEC crude will shrink 4.2 percent to 29.5 million barrels a day, according to the group’s monthly report released yesterday. The discount of oil in New York to the Brent grade in London widened to as much as $10.79 a barrel yesterday, a record, because of rising supplies at Cushing, Oklahoma, the delivery point for barrels traded on the U.S. exchange. U.S. fuel demand fell 6 percent last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said yesterday. Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said. Frontline Ltd., the world’s biggest owner of supertankers, said Jan. 14 about 80 million barrels of crude oil is being stored in tankers, the most in 20 years.

- Rio Tinto Group(RTP), the world’s third- largest mining company, had its 2009 profit estimate reduced 40 percent by JPMorgan Chase & Co. because of forecast declines in metal prices and production.

- China faces an economic “hard landing” and the risk of social unrest with growth slowing to 6 percent or less this year, the weakest pace since 1990, Fitch Ratings said. As many as 4 million migrant workers lost their jobs last year as factories closed and that figure may jump by another 5 million in 2009, according to Credit Suisse AG. “The 6 percent number is already what we would call a hard landing in China, meaning rising unemployment and the need for an aggressive policy response,” McCormack said. “Social unrest is a big unknown.” Exports may decline 6 percent in 2009 from a year earlier because of the global recession, he said. That compares with a 17.2 percent gain last year and the 2.8 percent drop in December. China faces its biggest “employment adjustment” since reforms of state-owned enterprises in the 1990s, so social stability “is clearly an issue,” McCormack said. Waning exports have led to protests by fired employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong last year, and an urban unemployment rate estimated at more than 9 percent by the Chinese Academy of Social Sciences.

- Industrial & Commercial Bank of China Ltd., the nation’s largest, rose for the first time in nine days in Hong Kong trading after China’s $200 billion sovereign wealth fund said it’s been buying shares in the three biggest banks.

- The yen fell for a second day against the euro on speculation stock gains and measures to stabilize the U.S. financial system will encourage investors to buy higher-yielding assets funded in Japan’s currency.

Wall Street Journal:

- President George W. Bush delivered a farewell address aimed at reconnecting with a doubtful public, thanking Americans for his two terms in office and for the "countless acts of courage, generosity, and grace that I have witnessed these past eight years." Reflecting on tough times during his second term and his return to private life on Tuesday, Mr. Bush concluded with a touch of humility: "It has been the privilege of a lifetime to serve as your president. There have been good days and tough days. But every day I have been inspired by the greatness of our country and uplifted by the goodness of our people. "I have been blessed to represent this nation we love," he continued. "And I will always be honored to carry a title that means more to me than any other: citizen of the United States of America."

- House Democrats Thursday rolled out the details of an $825 billion economic stimulus package. Details of the two-year package, which calls for $550 billion in new spending and $275 billion in tax relief, will likely change as the bill works its way through Congress. But the document provides the first blueprint of how President-elect Barack Obama and congressional Democrats plan to fight the historic economic downturn, which has already wiped out 2.6 million jobs. Democrats said they emphasized government spending over tax relief because that was the best and fastest way to create jobs. Rep. David Obey (D., Wis.), chairman of the House Appropriations Committee, warned that the package may be insufficient -- and said another spending bill may be needed later this year. "We may need to do even more," he said. Power-equipment maker General Electric Co.(GE) lobbied for a slew of provisions in the bill and won several, including the production tax credit for renewables, $32 billion for a "smart" U.S. electrical grid for which it manufactures most components; and $300 million for rebates for consumers who buy energy efficient appliances, which GE sells.

- The economic-stimulus proposal contains a potential bonanza for technology companies, as well as $650 million to salvage the government's troubled effort to ease the transition to digital-television broadcasts. The package, which was unveiled by House Democratic leaders Thursday, includes $20 billion in proposed spending for health information technology. President-elect Barack Obama has said he wanted to include long-term investment in health IT as part of the stimulus package.

- A major labor union on Thursday launched a campaign against the Bank of America Corp. (BAC), accusing it of continuing poor business practices despite taking billions in taxpayer dollars. The effort comes as the U.S. Treasury Department is reportedly finalizing a deal to provide billions in additional aid to the nation's largest bank.

- Dendreon Corp. (DNDN) expects to report data from a key study of its prostate cancer vaccine, Provenge, by April. The Seattle drug developer had previously projected to have the results in the middle of 2009, but it recently received notice that the study met its threshold for completion, Chief Executive Mitchell Gold said at a JPMorgan healthcare conference.

MarketWatch.com:
- The U.S. Senate removed a key obstacle Thursday to passage of the second half of a $700 billion bank-bailout bill after the House of Representatives approved a measure that would impose conditions on the funds.

- The benchmark 30-year mortgage fell below 5% for the first time ever in Freddie Mac's weekly rate survey as economic weakness continued to push interest rates lower, the mortgage agency said Thursday. The national average rate on the 30-year loan fell to 4.96% in the week ending Jan. 15, down from 5.01% a week ago. That is the lowest on record. Freddie Mac began its rate survey in 1971. A year ago the loan averaged 5.69%. Adjustable-rate loans also fell. The 5-year, Treasury-indexed hybrid mortgage averaged 5.25%, down from 5.49%. A year ago the loan stood at 5.40% and has not been this low since September 2005. The 1-year, Treasury-indexed ARM averaged 4.89%, down from 4.95%. A year ago that loan was at 5.26%. The 15-year fixed-rate mortgage, a popular refinancing choice, edged up to 4.65% from 4.62% a week ago. Last year at this time the loan averaged 5.21%. Refinancing activity has been strong as mortgage rates have plumbed historic lows.

BusinessWeek:

- Two Indian-born technology executives are the leading candidates for the incoming Obama Administration's newly created position of federal chief technology officer, according to two sources with knowledge of the situation. They are Padmasree Warrior, the chief technology officer of Silicon Valley networking giant Cisco Systems (CSCO), and Vivek Kundra, who holds the same title in the government of Washington, D.C., the sources say.

- Madoff: Layers and Layers of Players. How a far-flung cadres of unregulated securities firms, investment managers – even doctors and lawyers – helped pull unwitting investors into the disgraced money manager’s orbit.

IBD:

- Myriad Genetics (MYGN) is the leader in the relatively new field of cancer predisposition testing. It has six tests on the market that tell patients whether their genes make them more likely that they'll get various types of cancer.

The Salt Lake City-based biotech company's most popular and biggest selling product is its BRACAnalysis, which stands for Be Ready Against Cancer.

Washington Post:

- President-elect Barack Obama will convene a "fiscal responsibility summit" in February designed to bring together a variety of voices on solving the long term problems with the economy and with a special focus on entitlements, he said during an interview with Washington Post reporters and editors this afternoon. "We need to send a signal that we are serious," said Obama of the summit. Obama said that he has made clear to his advisers that some of the difficult choices -- particularly in regards to entitlement programs like Social Security and Medicare -- should be made on his watch. "We've kicked this can down the road and now we are at the end of the road," he said.

FINalternatives:

- Global pension funds are sorely disappointed with the fees they pay for actively-managed funds of funds, according to a new survey. New findings from London-based bfinance indicate that a majority of pension schemes favor lower fees from their alternative managers. What’s more, they want discounts of between 10% and 30% without conceding to a one-, two- or three-year lock-up in exchange. However, 45% of investors said they are willing to consider trading liquidity for a reduction in fees.

Reuters:

- President-elect Barack Obama's pick to head the U.S. Securities and Exchange Commission told lawmakers she would reinvigorate an agency beset by regulatory missteps and blamed for missing one of the biggest investment frauds in history. Mary Schapiro, a veteran regulator, was greeted warmly on Thursday by members of the Senate Banking Committee, which is expected to swiftly approve her nomination.

Financial Times:
- Thomson Reuters, the information provider, will on Friday launch a system designed to predict market volatility using real-time news feeds, as traders focus on future price movements in preference to historical data as the main basis for their automated trading systems. It comes after a period of 18 months during which sudden spikes in volatility have become the norm and the quantitative and automated models used by many traders, the bulk of which rely largely on historical data, have proved unreliable at dealing with it. The Thomson Reuters system uses news alerts that feed directly into an algorithm, or computer model, to try to predict future market volatility which can in turn be used to better inform a trading decision or risk management process. Recent estimates suggest that almost 50 per cent of all equity trading is now done algorithmically. For all the benefits, the potential pitfalls of this greater reliance on algorithmic trading are clear.

- The Obama administration should buy problem mortgages from investors at a discount to facilitate the restructuring of these loans, Barney Frank, the chairman of the House financial services committee, has told the Financial Times. Mr Frank wants Barack Obama’s team to set aside $40bn to $100bn (€30bn- €76bn, £27bn-£69) from the second tranche of the troubled asset relief programme (Tarp) to finance anti-foreclosure efforts, and said the money to fund a mortgage purchase scheme could come out of that sum. He also wants the Obama administration to provide subsidies for cash flow relief to overstretched borrowers and for an existing programme to restructure and refinance loans worth more than the value of the underlying home.

- Jamie Dimon, JPMorgan Chase’s(JPM) chief executive, on Thursday attacked a proposed law to allow US judges to modify mortgages, saying it would have a “chilling effect” on consumer lending and lead to an increase in personal bankruptcies. Mr Dimon’s criticism of the planned legislation, which has received the surprise backing of Citigroup, came as JPMorgan reported a slump in fourth-quarter earnings to $702m – 76 per cent below last year’s levels. Under the planned mortgage law, which has the backing of congressional Democrats, judges would be allowed to modify the principal and interest rates on mortgages in an effort to stave off a wave of defaults. But Mr Dimon said the proposal would leave banks at the mercy of “the vagaries of the courts”, making them less willing to lend to consumers for fear that their loans would be significantly modified or never repaid. “If this is not done the right way, it will have a chilling effect not just on mortgages but on consumer lending,” he said. Banking lobby groups have also opposed the proposed law, but Citi, which has been rescued by the government in exchange for the rights to a large stake, surprised the industry last week when it backed the plan.

TimesOnline:
- A package of radical measures to get British banks lending more is due to be hammered out at the weekend in an attempt to prevent the recession souring into an even more serious downturn. Amid a growing sense of urgency, ministers are working on proposals paving the way for fresh capital injections into banks, for relaxation of rules on balance-sheet strength and for government guarantees of toxic assets on bank balance sheets.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (INTC), target $16.

- (INTC) guided C2009 Capex to $5B(flat to slightly down from $5.2B spent in C2008). This is significantly better than our and Street estimates of $4B. The extra $1B of spending adds 4% to our C2009 global capex estimate of $25B. In our coverage universe, (ATMI) is the most leveraged to INTC’s 32nm ramp, while others that should benefit are (AMAT), (NVLS), (ASML) and (KLAC). (LRCX), our top idea among majors, has notably no INTC exposure; however, it should be a major beneficiary of the pending release of additional leading edge capex from Samsung.

Deutsche Bank:

- (TMO), (ILMN) may gain from the stimulus plan.

Barclays:

- (APOL), schools may benefit from the stimulus plan.

Night Trading
Asian Indices are +.25% to +2.25% on average.
S&P 500 futures +.69%.
NASDAQ 100 futures +.74%.

Morning Preview

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Earnings of Note
Company/EPS Estimate
- (BAC)/.08

- (SCHW)/.26

- (C)/-1.19

- (JCI)/.01

- (PPG)/.40

- (FHN)/-.34

Economic Releases

8:30 am EST

- The Consumer Price Index for December is estimated to fall .9% versus a 1.7% decline in November.

- The CPI Ex Food & Energy for December is estimated to rise .1% versus unch. in November.

9:00 am EST

- Net Long-term TIC Flows for November are estimated to rise to $15.0B versus $1.5B in October.

9:15 am EST

- Industrial Production for December is estimated to fall 1.0% versus a .6% decline in November.

- Capacity Utilization for December is estimated to fall to 74.5% versus 75.4% in November.

10:00 am EST

- Preliminary Univ. of Mich. Consumer Confidence for January is estimated to fall to 59.0 from 60.1 in December.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lacker speaking and (TWX) Shareholders Meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by financial and technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing higher. The Portfolio is 100% net long heading into the day.