Monday Watch

Weekend Headlines
Bloomberg:

- The administration of President Barack Obama plans to use tens of billions of dollars from its Troubled Asset Relief Program to “accelerate dramatically modification of mortgages” to limit foreclosures, HUD Secretary Shaun Donovan said during an interview on CNN. The administration is working on a plan that will create incentives such as government loan guarantees for lenders to modify mortgages, Donovan said. He said the Obama administration was considering using the mortgage modification program implemented by Sheila Bair, chairman of the Federal Deposit Insurance Corp., at IndyMac Bank as a model for its program.

- The Markit iTraxx Japan index fell 7 basis points to 392.5 as of 10:25 a.m. in Tokyo, Credit Suisse Group AG prices show. The Markit iTraxx Australia index was 10 basis points lower at 315 at 9:48 a.m. in Sydney, Citigroup Inc. data show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 7 basis points to 345 at 9:40 a.m. in Singapore while the region’s high-yield benchmark was quoted at 1,150 basis points, according to ABN Amro Holding NV.

- The Taiwan dollar is starting to feel the pain of China’s economic slowdown as exports from the island to the mainland decline. Changshu Shengtian Knitting & Clothing Co. in China stopped ordering cloth from Taiwan this year and began buying less-expensive local fabric because “there’s no sign of even a slight increase in overseas orders this year,” said Tang Zhenya, a salesman at the company in the eastern city of Changshu. “So we turned back to cheaper mainland suppliers.” China’s customs bureau reported that imports from the rest of Asia plunged to $43 billion in December, from a record of $70 billion in July. Asian countries that depend on exports to their neighbors will suffer the most from the 39 percent collapse in the trade, according to CLSA Asia-Pacific Markets, which predicted last week that Taiwan and Singapore’s economies will shrink at least 10 percent this year. “Intra-Asian trade has collapsed,” said Wai Ho Leong, a regional economist in Singapore at Barclays, the third-biggest foreign-exchange trader. “Taiwan, Singapore and Malaysia, export-oriented economies, can be expected to see their currencies drift lower.”

- The Australian dollar may slip below 60 U.S. cents to the weakest in almost six years as inventory stocks build to a record in Japan, the biggest buyer of the South Pacific nation’s exports. “Japan is seeing an inventory back-up that is much more catastrophic than anything seen during the Asian crisis,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “With inventory backing up violently in Asia, our exports will start falling as well. We expect the Australian dollar to test 60 U.S. cents this quarter and push beneath it.” Japan, China and South Korea are Australia’s biggest export markets, buying the nation’s raw materials including coal, iron ore and alumina in order to produce manufactured goods for shipment to the U.S. and Europe. China’s exports dropped 2.8 percent, the most in almost a decade in December, while Korea’s January exports tumbled a record 32.8 percent.

- The South Korean economy may contract 4.5% this year as exports shrink by more than 20$, Macquarie Group Ltd. said. The brokerage said it previously expected gross domestic product to contract 2.5% in 2009.

- Amazon.com Inc.(AMZN) is holding a press conference at the Morgan Library and Museum in New York tomorrow, fueling speculation that the company will release a new version of the Kindle, its electronic-book reader. Amazon.com hasn’t given a topic for the event, hosted by Chief Executive Officer Jeff Bezos. Still, blogs and analysts say the timing is right for a new Kindle. The current model sold out before the holidays -- the second year in a row that demand eclipsed supply.

- General Motors Corp.(GM) executives, advisers, bondholders and union officials plan to meet this week in Detroit to negotiate the government-ordered debt restructuring of the automaker, two people close to the talks said. The discussions, which are said to include all global debt holders, follow previous informal talks as part of the Detroit automaker’s plan to reduce $27.5 billion in unsecured debt to about $9.2 billion by swapping for equity, the people said. They asked not to be named because the meetings, scheduled for tomorrow and Feb. 10, are private.

- Chrysler LLC, working on a viability plan to submit to the U.S. government after receiving a $4 billion loan, will meet with union leaders and creditors this week as the Feb. 17 deadline to show progress approaches.

- More than 4,000 Chinese toy companies closed last year as the global recession cut demand and some countries tightened safety standards.

- The U.S. pushed European NATO allies to send more troops to Afghanistan, warning of a resurgence in terrorist violence in the country that gave rise to the Sept. 11 attacks.

- Former Iranian president Mohammad Khatami is likely to heed the people’s “invitation” and run against Mahmoud Ahmadinejad in the Persian Gulf country’s presidential election on June 12, a close associate said. The comments by Mohammad Ali Abtahi, who served as a vice- president under Khatami between 2001 and 2004, were the strongest indication yet that Khatami will run and followed an announcement yesterday that Ahmadinejad will seek a second term.

Wall Street Journal:

- Senate Democrats are confident they can push for a final vote on a revamped, $827 billion economic-stimulus package early this week, setting the stage for fresh battles as Democratic congressional leaders and the White House try to meld competing House and Senate bills. After cutting deals Friday with three moderate Republicans to pare the cost of the package, Senate Democrats, who control the chamber with a 58-41 majority, are confident of attracting the 60 votes needed to close off debate Monday. If approved as expected, the package would go to a vote Tuesday.

- William Ackman, the hedge-fund manager known for criticizing insurers and other companies over their performance, scrambled over the weekend to ease investor ire stemming from losses of his own. Investors smarting from a decline in Mr. Ackman's fund that bets exclusively on a resurgence of retailer Target Corp. are expected to be told about new breaks on fees and will be allowed to withdraw completely from the fund, a person familiar with the matter said.

- Last year's credit crisis hit the economy with a surprising jolt, and most economists expect the recession to drag on until at least the end of 2009, with only a meager recovery after that. But just as economists were caught flat-footed by the sharpness of the downturn, history says they could be surprised by the speed and strength of the recovery -- once the economy shows signs of turning around.

Barron’s:

- As financial markets came apart in October, more than 600,000 viewers turned to his Mad Money show -- the biggest crowd since the Nielsen Company started tracking the CNBC series. Jim Cramer is giving advice to huge audiences on NBC's Today Show and getting awestruck coverage in Esquire magazine. And why not? An earthquake has hit Wall Street, and the 53-year old broadcaster has spent more time there than most any TV journalist. He dispenses thousands of Buy/Sell recommendations a year and has declared that those stock picks will help you get rich. The only regrettable thing about any of this is that CNBC and Cramer won't meaningfully discuss how his advice pans out. Cramer's recommendations underperform the market by most measures. From May to December of last year, for example, the market lost about 30%. Heeding Cramer's Buys and Sells would have added another five percentage points to that loss, according to our latest tally.

MarketWatch.com:

- A key Obama administration official said Sunday that new, soon-to-be-announced financial measures by the Treasury will include creating incentives for the private sector to invest in troubled banks. "It can't all be private capital, but with the right kinds of government guarantees and the right kinds of financing, strategic approaches, [Treasury Secretary Timothy] Geithner believes we can bring in substantial private capital," said Obama's chief economic advisor Lawrence Summers on Fox News Sunday. One measure the Treasury is considering would create a "bad bank" or "aggregator bank" that would buy illiquid mortgage securities. It would be partly funded by some of the remaining money from the existing $700 billion Troubled Asset Relief Program fund, but the majority of the funds would come from the private sector, according to a Wall Street Journal report Sunday. In addition to the creation of a bad bank, the Treasury plans to guarantee mortgage securities, provide new capital injections into financial institutions, help out troubled homeowners on the verge of foreclosure and expand a consumer lending program. Geithner was scheduled to propose a "comprehensive" financial rescue plan Monday, but a Treasury statement Sunday said the announcement of such a program won't take place until Tuesday.

- Five reasons to buy a home this year. Affordability returns to housing, and buyers have loads of negotiating power. People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.

CNBC.com:
- Stimulus Plan Is Full of ‘Pork Barrel Politics.’ (video)

Fox News:

- President Obama is meeting Friday afternoon with the families of victims of the Sept. 11 attacks and the bombing of the USS Cole -- but some invited guests say they worry that the gesture is window-dressing, since the administration has suspended trials of detainees at Guantanamo Bay and a military judge on Thursday dropped charges against a suspect in the 2000 Cole bombing.

NY Times:

- Small Businesses Critical of Stimulus. “Small businesses are a job engine for the economy,” said David French, vice president for government relations at the International Franchise Association. “Unfortunately,” he said, the stimulus package offers “a thimble-full of fuel for this engine.” By his estimation, only 0.05 percent of the House bill is dedicated to small-business lending programs, and the Senate version is only slightly better. “It’s not a lot of money relative to the scale of the credit market problems,” Mr. French said.

- Environmentalists dream of a bigger and “smarter” electric grid that could move vast amounts of clean electricity from windswept plains and sunny deserts to distant cities. Such a grid, they argue, could help utilities match demand with supply on the hottest afternoons, allow customers to decide when to run their appliances and decrease the risk of blackouts, like the one that paralyzed much of the East in 2003. The Obama administration has vowed to make the grid smarter and tougher, allocating $11 billion in grants and loan guarantees to the task in the economic stimulus package passed by the House last week. But it will take a lot more than money to transform the grid from a form that served well in the last century, when electricity was produced mostly near the point of consumption, and when the imperative was meeting demand, no matter how high it grew. Opposition to power lines from landowners and neighbors, local officials or environmental groups, especially in rural areas, makes expansion difficult — even when the money for it is available.

- Does the Taganrog Automobile Factory have a deal for you! Rows of freshly minted Hyundai Santa Fe sport utility vehicles are available right now. In exchange — well, do you have any circuit boards? Or sheet metal? Or sneakers? Here is a sign of the financial times in Russia: Barter is back on the table.

- For the backers of Proposition 8, the state ballot measure to stop single-sex couples from marrying in California, victory has been soured by the ugly specter of intimidation. Some donors to groups supporting the measure have received death threats and envelopes containing a powdery white substance, and their businesses have been boycotted. The targets of this harassment blame a controversial and provocative Web site, eightmaps.com.

- Ticketmaster is expected on Monday to announce an agreement to merge with Live Nation in a deal that could reshape the music and live entertainment business.

Washington Post:
- Kansas Gov. Kathleen Sebelius is near the top of President Barack Obama's list of candidates to head the Health and Human Services Department at least partially on the strength of her long and close working relationship with the president, a senior administration official said. Other candidates, including former Clinton White House chief of staff John Podesta, remain in the mix. A decision is not imminent, a senior administration official said, speaking on the condition of anonymity to discuss private administration deliberations.

CNNMoney.com:

- Lists of the fastest-growing companies tend to be dominated by smaller firms. That makes sense; it’s a lot easier for a $30 million dollar enterprise to double in size than a $30 billion one. Which makes it all the more surprising to find Apple (AAPL) appearing for the first time in Forbes‘ ranking of America’s 25 Fastest-Growing Tech Companies — especially given the pummeling its shares have undergone over the past year (from nearly $200 a share in Dec. ‘07 to less than $100 today). But there Apple is, at the No. 14 spot, the largest company on the list — a Gulliver among Lilliputians — with sales of $33 billion, yet still growing at an annualized rate of 40% a year over the past five years.

Business Week:
- Across the nation, once-quiet farming villages and industrial towns were transformed over the past decade into boomtowns. Their rapid growth was fueled by cheap land, nearby job centers, easy transportation, and a steady influx of homebuyers seeking large spaces at affordable prices. Low interest rates and easy mortgages brought about a real estate explosion in much of the country in recent years. But in boomtowns, development powered on at a supercharged pace—sometimes sparked by a new sewer line, a new regional mall, or a new highway exit. It was good while it lasted. But the housing crisis and the recent economic downturn have forced many of the America's fastest-growing towns to adapt to the new reality of falling home prices and rising unemployment. And it's not clear whether the builders will return or whether the nation's next boomtowns will rise elsewhere.

Sarbanes-Oxley Compliance Journal:

- Until we address the root of the problem—fear and not greed—we’ll continue shooting ourselves in the collective foot wondering why poor impulsive choices persist long after greed has disappeared from the equation. Like our superstitious ancestors, we’ll continue trying to end a drought with the modern equivalent of human sacrifices and rain dances. We will try to cure a problem caused by fearful impulsivity by invoking a frightfully impulsive bailout, or some other knee-jerk reaction. If we are going to get out of this mess, we must stop digressing into the same old game of pin-the-blame-on-greed. It is time for cooler heads to prevail. It is time that all of us—congress, bankers, Americans—start addressing the real problem, and stop letting fearful impulses guide our decisions.

Politico:

- Sen. John McCain (R-Ariz.) said on Sunday he'll vote against President Barack Obama’s stimulus bill, calling the legislation “generational theft” in an interview on CBS’ “Face the Nation.” “I thought we were going to have change," he said, in a shot at Obama's campaign slogan, "and that change meant we work together. This is a setback. This is a setback to all Americans because you promised Americans we’d work in a more bipartisan fashion, and that certainly is not the case in this bill,” McCain said. McCain said the bill would saddle Americans with billions in future debt, and contained protectionist provisions that could be damaging to the economy.

Miami Herald:

- South Florida housing prices becoming affordable again.

USA Today:

- OK, let's just get it out there: The 2010 Ford(F) Fusion hybrid is the best gasoline-electric hybrid yet. What makes it best is a top-drawer blend of an already very good midsize sedan with the industry's smoothest, best-integrated gas-electric power system. It's so well-done that you have to look to the $107,000 Lexus LS 600h hybrid to come close.

Rasmussen Reports:

- The Rasmussen Reports daily Presidential Approval Index for Sunday shows that 36% of the nation’s voters now Strongly Approve of the way that Barack Obama is performing as President. Twenty-five percent (25%) Strongly Disapprove to give Obama a Presidential Approval Index rating of +11. One week ago today, 44% Strongly Approved and 23% Strongly Disapproved to give Obama a Presidential Approval Index rating of +21. In the first set of interviews conducted after inauguration day, 45% Strongly Approved of his performance while 16% Strongly Disapproved for a Presidential Approval Index rating of +29.

CFTC:

- The Commodity Futures Trading Commission has launched, on a six-month trial basis, a new monthly report: “This Month in Futures Markets.” The report, produced by the Commission’s Office of the Chief Economist, will add transparency to the information the Commission provides the public concerning regulated futures markets by providing graphical and tabular displays on the Commission’s website.

Reuters:

- Microsoft Corp (MSFT) is planning to offer new programs and services for mobile phones, including an "online bazaar" for software, the Wall Street Journal reported on Sunday.

- Thousands of groups of ardent fans of U.S. President Barack Obama met across the country during the weekend in hopes of converting the grassroots energy that fueled his election campaign into a durable movement. The meetings were the first test of Organizing for America, a body that wants the army of 13 million people who signed up for Obama's record-shattering campaign to be harnessed to his presidential agenda. But even supporters say they fear it could be difficult to sustain the campaign's momentum. A survey of nearly a dozen meetings out of thousands that occurred from Alaska to Florida showed mixed results.

Financial Times:

- Lloyd Blankfein, Goldman Sachs(GS)’ chief executive, has called for banks to adopt more stringent accounting practices, accept tougher regulation and give greater power to risk managers, in a trenchant analysis of the causes of the financial crisis and how they might be remedied. In an article for Monday’s Financial Times, as the Obama administration prepares to rewrite the rule book governing the US banking industry, Mr Blankfein outlines seven areas of misdemeanor – ranging from “complexity [getting] the better of us” to the “outsourcing of risk management” to ratings agencies.

- The black mood in the hedge fund industry began to lift in January as the leading operators made their first profits in months and the convertible bond market – dominated by hedge funds – started to move again.

- Steven Spielberg is on the verge of announcing a six-year, 30-film distribution deal with Walt Disney(DIS) after the collapse of negotiations last week with Universal Studios. The deal, which would combine Hollywood’s most commercially successful director with its most sophisticated marketing and distribution machine, could be unveiled by Monday.

TimesOnline:

- Every baby born a decade from now will have its genetic code mapped at birth, the head of the world's leading genome sequencing company has predicted. A complete DNA read-out for every newborn will be technically feasible and affordable in less than five years, promising a revolution in healthcare, says Jay Flatley, the chief executive of Illumina(ILMN).

The Financial Express:

- Even as the Indian steel companies have reduced their production to cope up with the shrinking demand, Steel Minister Ram Vilas Paswan today exuded confidence that India will become the world's second-largest steel maker after China by 2015. "We are already the world's fifth-largest steel producer and are poised to clinch the second slot by 2015 on the back of the capacity expansion lined up by the companies," Paswan told reporters after addressing the Golden Jubilee of state-run SAIL.

Business Times:

- Singapore’s economy may contract as much as 5.8% in the first quarter, citing a business-climate survey. Singapore’s economy will probably shrink as much as 5% this year, citing the Ministry of Trade and Industry.

Weekend Recommendations
Barron's:
- Made positive comments on (T), (UNH), (NTAP), (GE), (JNJ) and (BDX).

Citigroup:

- Reiterated Buy on (ETR), target $92.50.

Night Trading
Asian indices are -.25% to +1.25% on avg.
S&P 500 futures -1.27%.
NASDAQ 100 futures -1.18%.

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Earnings of Note
Company/Estimate
- (NYX)/.55

- (HAS)/.76

- (ENER)/.30

- (BZH)/-2.00

- (HEW)/.60

- (AS)/.43

- (AG)/1.00

- (CNA)/.52

- (ROH)/.67

- (WHR)/.76

- (NUAN)/.21

- (CUZ)/.26

- (VMC)/.31

- (BEC)/1.22

- (GNW)/.38

- (ASEI)/.89

Upcoming Splits

- (LPHI) 5-for-4

Economic Releases

- None of note

Other Potential Market Movers
- The Fed’s Fisher speaking, Thomas Weisel Tech/Telecom Conference, Barclays Industrial Conference, Sterne Agee & Leach Financial Services Symposium, UBS Global Healthcare Conference and BIO Investor Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

There are several economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Wholesale Inventories, IDP/TIPP Economic Optimism, weekly retail sales reports

Wed. – Weekly MBA mortgage applications report, weekly EIA energy inventory data, Monthly Budget Statement, Trade Balance

Thur. – Advance Retail Sales, Initial Jobless Claims, Business Inventories

Fri. – Univ. o Mich. Consumer Confidence

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

Mon. – NYSE Euronext(NYX), Hasbro(HAS), Energy Conversion(ENER), Beazer Homes(BZH), Loews Corp.(L), Administaff(ASF), AGCO(AG), CNA Financial(CNA), Whirlpool(WHR), Cousins Properties(CUZ), Becman Coulter(BEC), Vulcan Materials(VMC), Genworth Financial(GNW)

Tues. – IntercontinentalExchange(ICE), NetSuite(N), Applied Materials(AMAT), CB Richard Ellis(CBG), Nvidia Corp.(NVDA), Cerner Corp.(CERN), Terra Industries(TRA)

Wed. – PF Chang’s(PFCB), Chipotle Mexican Grill(CMG), Post Properties(PPS), Masco(MAS), NetApp(NTAP), Lincare Holdings(LNCR), Jones Apparel(JNY), Grubb & Ellis(GBE), Genzyme(GENZ), Marsh & McLennan(MMC)

Thur. – Marriott(MAR), Strayer Education(STRA), Coca-Cola(KO), Aetna(AET), Viacom(VIA/B), Cephalon(CEPH), Panera Bread(PNRA), Cheesecake Factory(CAKE), McAfee(MFE)

Fri. – Biogen Idec(BIIB), Hillenbrand(HI), LaBarge(LB), Weyerhaeuser(WY)

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

Mon. – Tim Geithner’s Financial System Recovery Plan, the Fed’s Fisher speaking, Thomas Weisel Tech/Telecom Conference, Barclays Industrial Conference, Sterne Agee & Leach Financial Services Symposium, UBS Global Healthcare Conference, BIO Investor Conference

Tue. – The Fed’s Dudley speaking, Geithner’s testimony on financial rescue program, Bernanke testifies, Deutsche Bank Growth Conference, BIO Investor Conference, UBS Global Healthcare Conference, Barclays Industrial Conference, Sterne Agee & Leach Financial Services Symposium, Goldman Ag Conference, Thomas Weisel Tech/Telecom Conference

Wed. – (BCE) analyst meeting, (BBT) investor & analyst day, (NYX) investor day, (DVA) capital markets day, the Fed’s Duke speaking, the Fed’s Evans speaking, Barclays Industrial Conference, UBS Global Healthcare Conference, BB&T Transports Conference, Deutsche Bank Growth Conference, Thomas Weisel Tech/Telecom Conference

Thur. – (ATW) annual meeting, (ISIL) analyst day, (QGEN) analyst day, Deutsche Bank Growth Conference, BB&T Transports Conference, Goldman Sachs Consumer Leveraged Finance Conference

Fri. – (JACK) shareholders meeting, (HAS) analyst meeting

BOTTOM LINE: I expect US stocks to finish the week modestly higher on bargain-hunting, technical buying, declining credit market angst, less severe economic fear, falling financial sector pessimism and short-covering. My trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 868.60 +5.17%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 868.60 +5.17%
DJIA 8,280.59 +3.50%
NASDAQ 1,591.71 +7.81%
Russell 2000 470.70 +6.13%
Wilshire 5000 8,746.09 +5.31%
Russell 1000 Growth 376.59 +6.65%
Russell 1000 Value 447.02 +3.94%
Morgan Stanley Consumer 531.77 +3.26%
Morgan Stanley Cyclical 431.13 +4.67%
Morgan Stanley Technology 370.19 +10.61%
Transports 3,203.74 +8.03%
Utilities 384.82 +4.09%
MSCI Emerging Markets 24.55 +7.88%

Sentiment/Internals
NYSE Cumulative A/D Line 20,630 -2.99%
Bloomberg New Highs-Lows Index -380 +65.01%
Bloomberg Crude Oil % Bulls 29.0 -23.7%
CFTC Oil Large Speculative Longs 234,724 +3.81%
Total Put/Call .72 -29.41%
OEX Put/Call .50 -5.66%
ISE Sentiment 132.0 +32.0%
NYSE Arms .39 -82.35%
Volatility(VIX) 43.37 -3.28%
G7 Currency Volatility (VXY) 17.88 -10.15%
Smart Money Flow Index 7,654.67 +1.95%
AAII % Bulls 24.63 -2.53%
AAII % Bears 44.03 -6.81%

Futures Spot Prices
Crude Oil 40.05 -4.05%
Reformulated Gasoline 124.40 -1.50%
Natural Gas 4.82 +9.44%
Heating Oil 136.0 -5.27%
Gold 912.40 -1.93%
Base Metals 112.77 +8.0%
Copper 162.75 +11.90%
Agriculture 300.67 +.51%

Economy
10-year US Treasury Yield 2.99% +15 basis points
10-year TIPS Spread 1.21% +11 basis points
TED Spread .97 +1 basis point
N. Amer. Investment Grade Credit Default Swap Index 193.49 -1.84%
Emerging Markets Credit Default Swap Index 744.79 +.31%
Citi US Economic Surprise Index -40.0 -2.04%
Fed Fund Futures imply 90.0% chance of no change, 10.0% chance of 25 basis point hike on 3/17
Iraqi 2028 Govt Bonds 46.0 +.12%
4-Wk MA of Jobless Claims 582,300 +7.2%
Average 30-year Mortgage Rate 5.25% +15 basis points
Weekly Mortgage Applications 795,400 +8.65%
Weekly Retail Sales -2.3%
Nationwide Gas $1.91/gallon +.06/gallon
US Heating Demand Next 7 Days 21.0% below normal
ECRI Weekly Leading Economic Index 106.10 -1.12%
US Dollar Index 85.35 -.76%
Baltic Dry Index 1,498 +40.0%
CRB Index 224.36 +1.81%

Best Performing Style
Mid-cap Growth +7.12%

Worst Performing Style
Large-cap Value +3.94%

Leading Sectors
Homebuilders +17.50%
Steel +15.59%
HMOs +12.50%
Computer Hardware +11.31%
I-Banks +11.17%

Lagging Sectors
Oil Tankers +2.62%
Gaming +1.10%
Foods -.14%
Defense -.47%
Papers -.88%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Sharply Higher, Boosted by Technology, Financial, Commodity, Airline, REIT, Homebuilding, Hospital and Construction Shares

Evening Review
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In Play

Stocks Soaring into Final Hour on Less Extreme Economic Pessimism, Short-Covering, Bargain-Hunting, Falling Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical longs, Financial longs, Internet longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling -2.04% and is very high at 42.85. The ISE Sentiment Index is about average at 153.0 and the total put/call is below average at .71. Finally, the NYSE Arms has been running low most of the day, hitting .22 at its intraday trough, and is currently .52. The Euro Financial Sector Credit Default Swap Index is falling 5.10% today to 109.0 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 falling 2.77% to 193.49 basis points. The TED spread is falling .21% to 97 basis points. The TED spread is now down 370 basis points in under four months. The 2-year swap spread is falling 2.75% to 62.25 basis points. The Libor-OIS spread is rising .97% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 10 basis points to 1.20%, which is down 150 basis points in under seven months. 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 .27%, which is unch. today. The large decline in the financial sector credit default swap index is a big positive. The Bank Index is +11.8% today, which is boosting the (XLF) 7.2%. Economically sensitive shares are today’s outstanding performers with the MS Cyclical Index jumping 4.0%. The MS Tech Index is now +8.44% ytd versus a -3.83% loss for the S&P 500. Given recent gains in copper and other economically sensitive commodities, oil’s recent relative weakness is noteworthy. I still view the commodity as significantly overvalued anywhere near current levels. There is a lot of talk this afternoon of a large “sell the news” reaction next week on the details of Geithner’s financial rescue plan and passage of the economic stimulus plan. I suspect many large hedge funds are getting substantially more short into today’s strength. While the broad market is getting a bit extended short-term, I expect any pullback from current levels to be relatively short-lived and mild in nature. The heavily-shorted (XLF) is still well below its 50-day moving average and substantially below its 200-day. These stocks can likely rally longer and further than most investors currently perceive. Nikkei futures indicate a +243 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, diminishing financial sector pessimism, falling credit market angst and less extreme economic pessimism.