Stocks Finish Mostly Higher, Boosted by Financial, Commodity, Technology, REIT, Construction and HMO Shares

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Stocks Mostly Higher into Final Hour on Diminishing Economic Fears, Short-Covering, Less Financial Sector Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly lower, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is rising .34% and is elevated at 47.45. The ISE Sentiment Index is above average at 176.0 and the total put/call is below average at .76. Finally, the NYSE Arms has been running around average most of the day, hitting 1.54 at its intraday peak, and is currently .56. The Euro Financial Sector Credit Default Swap Index is rising 2.52% today to 121.66 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 2.32% to 213.20 basis points. The TED spread is rising .94% to 107 basis points. The TED spread is now down 359 basis points in just over three months. The 2-year swap spread is falling 2.93% to 66.25 basis points. The Libor-OIS spread is falling 1.34% to 92 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 14 basis points to .72%, which is down 198 basis points in just over six months and near 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 .10%, which is down 1 basis point today. Market-leading stocks are especially strong again today. Given the weakness in shares of (GE), the market’s resilience, especially the (XLF), today’s is very impressive. (GS)/(JPM) are sector leaders. Economically sensitive shares are outperforming substantially. Growth stocks are again outperforming value shares. The strong positive reaction in GOOG shares to their earnings report is a big positive for other growth-oriented named. Nikkei futures indicate an +135 open in Japan and DAX futures indicate an +33 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing economic pessimism, bargain-hunting and declining financial sector worries.

Today's Headlines

Bloomberg:

- AllianceBernstein Holding LP(AB) and TIAA-CREF are betting they have better timing in the credit markets than hedge fund Citadel Investment Group LLC and Deutsche Bank AG. They are part of a growing number of investors seeking to profit from a record-wide difference between corporate bond yields and the cost of protecting the securities from default. The gap exceeded 8 percentage points in some cases last month, meaning an investor would earn $800,000 a year for every $10 million put into the trade. At their core, so-called negative basis trades are essentially bets that the worst of the seizure in credit markets is over.

- The ruble may drop to the weakest end of its new trading band as further declines in the oil price and a worsening of Russia’s credit situation spur investors to sell the currency, State Street Corp. and Barclays Plc said. Sliding commodity prices, an internationally condemned war with neighboring Georgia and the worst economic crisis since Russia defaulted on $40 billion of debt in 1998 have soured investors on the country. Urals crude, Russia’s main export oil blend, plunged 70% from a record $142.94 in July, and now trades at $42.62 a barrel, below the $70 average required to balance Russia’s budget this year.

- Natural gas fell to the lowest price in more than two years in New York as demand for the industrial and heating fuel slumps. Natural gas for February delivery fell 18.8 cents, or 4 percent, to $4.493 per million British thermal units at 12:04 p.m. on the New York Mercantile Exchange. Prices touched $4.432, the lowest since Sept. 27, 2006. Gas has dropped 20 percent this year and is down 67 percent from the 2008 high of $13.694 reached on July 2.

- Gold producers are likely to follow the lead of Kinross Gold Corp. and take advantage of their rising shares by selling new stock to bolster cash reserves as the global economy slows, investors say. Gold prices had their eighth straight annual gain last year as fears the economy would melt down fanned investors’ demand for bullion as a safe-haven investment.

- Aflac Inc.(AFL), the largest seller of supplemental insurance, said it had at least $500 million in excess capital as of Dec. 31 and doesn’t need to raise more, a day after the shares plunged on concern of investment losses. The stock gained 20 percent.

- President Barack Obama pressed congressional leaders to reach a consensus on an $825 billion stimulus plan, warning the country may be facing an “unprecedented” economic crisis. Obama said that, while there are “some differences” between his administration and lawmakers on the details, the legislation is “on target” for passage by mid-February.

- Small Banks Move Into Mortgage Market.

- France’s AAA rating may be at risk as the deepening economic slump erodes tax revenue and forces the country to raise borrowing, according to ING Groep NV. Public debt will rise to as high as 70% of GDP this year, from 67% in 2008, Budget Minister Eric Woerth said.

- Pope Benedict XVI today debuted on YouTube, the video-sharing site owned by Google Inc.(GOOG), in the Vatican’s most radical move yet to embrace the Internet. The Vatican’s channel offers “news coverage of the main activities of the Holy Father and “access to the full and official texts of cited documents,” according to his user profile, which indicated that 200 people subscribed to the channel and 6,000 viewed it within hours of going online.

- General Electric Co.(GE) fell the most in more than a month after Chief Executive Officer Jeffrey Immelt failed to allay investor concerns that the company’s dividend or AAA credit rating may be at risk after quarterly profit plunged 43 percent. GE declined $1.07, or 7.9 percent, to $12.41 at 12:41 p.m. in New York Stock Exchange composite trading.

- Geron Corp.(GERN) gained the most in more than five years in Nasdaq trading after the company won approval from U.S. regulators to begin the first human test of embryonic stem cells on humans. The stem-cell test will attempt to restore movement to paralyzed people by injecting nerve cells made from embryonic cells to the site of injury. The U.S. Food and Drug Administration today lifted a hold placed on the research last May after Geron persuaded regulators the procedure is likely to be safe, said Thomas Okarma, chief executive officer of the Menlo Park, California-based company. The shares jumped by $2.48, or 54 percent, to $7.69 in composite trading at 12:35 p.m. New York time.

- Crude oil rose on speculation that stockpiles in consuming countries will decline as OPEC implements promised production cuts.

- Google Inc.(GOOG), owner of the most popular Internet search engine, beat fourth-quarter profit estimates yesterday after the company famous for boundless growth took a harder line on managing expenses. Google slashed capital spending by 46 percent last quarter and added just 100 employees, compared with about 500 in the third quarter. The company also began eliminating some recruiters, closing businesses and keeping a closer eye on waste. “They are doing better than everybody,” Ross Sandler, an analyst with RBC Capital Markets, said in an interview from New York. He expects Google shares to perform better than their peers. “They are managing growth and controlling costs at the same time, which is what we like to see.” “Business is quite healthy, especially given the tough economic environment,” Chief Executive Officer Eric Schmidt said on a conference call with analysts. “We have strong search query growth.” Revenue from Google’s own sites increased 22 percent to $3.81 billion, accounting for about two-thirds of overall sales, the company said.

- Greenlight Capital Inc., the hedge- fund firm run by David Einhorn, said its main fund lost 23 percent last year, its first annual loss, after wrong-way bets on Helix Energy Solutions Group Inc. and Volkswagen AG.

Wall Street Journal:

- Pfizer Inc.(PFE) is in talks to acquire rival drug maker Wyeth(WYE) in a deal that could be valued at more than $60 billion, said people familiar with the matter. A combination of these two U.S. pharmaceutical giants would redraw the boundaries of the global drug industry, which has suffered from flagging product development and high fixed costs.

- Troubled financial institutions and the Detroit auto makers continue to spend heavily on lobbying Congress while accepting billions of dollars in U.S. government money, reports to Congress suggest.

- Apollo Management has held a final closing of its latest fund, raising nearly $14.9 billion, according to people familiar with the matter.

- The debt markets for regulated utilities appear to have improved since December, a top executive at Puget Energy Inc. (PSD) unit Puget Sound Energy said Friday.

CNBC.com:
- Peter Fisher, managing director and co-head of fixed income at BlackRock Inc.(BLK), said debt of “quality” companies will do well as the economy recovers and corporate-debt spreads narrow. Debt of Verizon Communications, utilities and universities that sold bonds such as Duke, Harvard and Princeton are attractive, Fisher said.

- Analysts say both Wall Street and Washington are largely resolved to creating a government-run entity to buy troubled assets from banks and other struggling financial institutions. It's just a matter of how and when—and some say, the sooner the better.

NY Times:

- For Some in Euro Zone, Dream Turns Nightmarish.

LA Times:

- The economic stimulus package congressional leaders are drafting would wipe out nearly a quarter of California's budget shortfall, a potential windfall that could help end the impasse over how to close the nearly $42-billion gap. The House bill, which is likely to be voted on next week, would bring the state more than $11 billion in healthcare and education money that could go directly to reducing the deficit through mid-2010, state officials learned Thursday night.

MacDailyNews:

- Apple(AAPL) TV ‘Take 3’ Coming in February?

CNN:

- India Friday announced it has banned import of Chinese toys for six months.

Reuters:
- Republicans in the U.S. House of Representatives told President Barack Obama on Friday the best way to boost the economy would be to cut income taxes, rather than the Democratic plan which puts more focus on government spending. Republicans complain that $550 billion of the Democrats' $825 billion stimulus package was government spending, with only $275 billion in tax cuts which they say would better spur job growth and pull the economy out of a year-long recession.

- Treasury Secretary-nominee Timothy Geithner on Friday pledged to strengthen regulation of over-the-counter derivatives and pursue registration of hedge funds to improve market transparency.

- The US dollar climbed to a 23-year high against sterling and six-week high against the euro on Friday.

Kommersant:

- Russian movie ticket sales fell 45.5% in December.

Taiwan News:
- Apple Inc.'s(AAPL) iPhone helped Chunghwa Telecom Co., Taiwan's largest phone operator, boost subscribers and revenue during the first month the handset went on sale, a company executive said yesterday. Chunghwa's total subscribers for high-speed wireless services climbed 122,000 in December, 17 percent more than the monthly average additions for the year through November, according to Bloomberg calculations based on data from the Taipei-based operator.

Bear Radar

Style Underperformer:
Large-cap Value (+.41%)

Sector Underperformers:
Education (-1.82%), Medical Equipment (-1.60%) and Road & Rail (-.82%)

Stocks Falling on Unusual Volume:
CRXL, SI, GE, ICLR, BIIB, DRIV, LOGI, COF and HOG

Stocks With Unusual Put Option Activity:
1) WYE 2) DRI 3) ITMN 4) ACE 5) IP

Bull Radar

Style Outperformer:
Large-cap Growth (-.71%)

Sector Outperformers:
Semis (+4.70%), Oil Service (+3.59%) and REITs (+2.10%)

Stocks Rising on Unusual Volume:
AFL, SA, WFR, ATHR, AEM, SLB, GOOG, AKAM, WYE, TSU, USB, BK, TYC, MRK, SU, SYNA, IBOC, GTXI, EZPW, CBST, SCSC, KAMN, CREE, DMND, JJSF, BRCM, SIAL, FWLT, DSW, RWT and BXS

Stocks With Unusual Call Option Activity:
1) WYE 2) SCHW 3) CTX 4) COF 5) AKAM

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