Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for Stocks to Watch Monday by MarketWatch.

Click here for TradeTheNews.com Weekly Calendar.

BOTTOM LINE: I expect US stocks to finish the week modestly higher on less financial sector pessimism, diminishing economic fear, declining healthcare reform worries, short-covering, lower energy prices, technical buying and investment manager performance anxiety. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,042.73 +3.94%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,042.73 +3.94%
DJIA 9,605.41 +2.79%
NASDAQ 2,080.90 +4.93%
Russell 2000 593.59 +5.53%
Wilshire 5000 10,657.78 +4.22%
Russell 1000 Growth 458.99 +3.77%
Russell 1000 Value 538.70 +4.49%
Morgan Stanley Consumer 631.94 +3.72%
Morgan Stanley Cyclical 741.34 +6.31%
Morgan Stanley Technology 530.49 +6.0%
Transports 3,974.54 +7.74%
Utilities 369.74 +.29%
MSCI Emerging Markets 37.86 +6.15%

Lyxor L/S Equity Long Bias Index 923.95 +.50%

Lyxor L/S Equity Variable Bias Index 853.12 +.02%

Lyxor L/S Equity Short Bias Index 1,094.56 -1.11 %

Sentiment/Internals
NYSE Cumulative A/D Line +56,251 +16.19%
Bloomberg New Highs-Lows Index +374 +27.9%
Bloomberg Crude Oil % Bulls 32.0 +33.3%
CFTC Oil Net Speculative Position +33,112 +15.80%

CFTC Oil Total Open Interest 1,178,263 +1.18%
Total Put/Call .87 -6.45%
OEX Put/Call 1.56 +28.93%
ISE Sentiment 112.0 +30.23%
NYSE Arms 1.23 +108.47%
Volatility(VIX) 24.15 -10.89%
G7 Currency Volatility (VXY) 13.01 +1.25%
Smart Money Flow Index 9,320.40 +4.93%

Money Mkt Mutual Fund Assets $3.543 Trillion -.40%
AAII % Bulls 37.0 -2.63%
AAII % Bears 44.0 +15.79%

Futures Spot Prices
CRB Index 251.12 +.96%

Crude Oil 69.29 +1.73%
Reformulated Gasoline 175.98 -2.06%
Natural Gas 2.96 +18.76%
Heating Oil 173.08 -.29%
Gold 1,006.40 +1.47%
Bloomberg Base Metals 179.50 -.69%
Copper 284.65 -1.24%

US No. 1 Heavy Melt Scrap Steel 246.67 USD/Ton +3.07%

China Hot Rolled Domestic Steel Sheet 3,612 Yuan/Ton -3.73%

S&P GSCI Agriculture 296.25 -1.07%

Economy
ECRI Weekly Leading Economic Index 125.40 +.64%

Citi US Economic Surprise Index +44.70 -37.39%

Fed Fund Futures imply 68.0% chance of no change, 32.0% chance of 25 basis point cut on 9/23

US Dollar Index 76.61 -2.25%

Yield Curve 244.0 -6.0 basis points

10-year US Treasury Yield 3.35% -9 basis points

Federal Reserve’s Balance Sheet $2.072 Trillion +.17%

U.S. Sovereign Debt Credit Default Swap 22.0 -8.33%

10-year TIPS Spread 1.77% unch.
TED Spread 16.0 -3 basis points
N. Amer. Investment Grade Credit Default Swap Index 108.02 -11.47%

Euro Financial Sector Credit Default Swap Index 74.79 -15.53%
Emerging Markets Credit Default Swap Index 302.78 -3.67%
CMBS Super Senior AAA 10-year Treasury Spread 546.0 unch.

M1 Money Supply $1.636 Trillion -.20%

Business Loans 707.40 -.42%
4-Wk MA of Jobless Claims 570,000 -.50%

Continuing Claims Unemployment Rate 4.60% -10 basis points
Average 30-year Mortgage Rate 5.07% -1 basis point
Weekly Mortgage Applications 648,300 +17.0%

ABC Consumer Confidence -48 -3 points
Weekly Retail Sales -2.40% +190 basis points
Nationwide Gas $2.58/gallon -.01/gallon
US Cooling Demand Next 7 Days right at normal
Baltic Dry Index 2,492 +3.23%

Oil Tanker Rate(Arabian Gulf to US Gulf Coast) 22.50 -10.0%

Rail Freight Carloads 201,239 -.65%

Iraqi 2028 Govt Bonds 69.55 +1.06%

Best Performing Style
Small-Cap Value +5.65%

Worst Performing Style
Large-Cap Growth +3.77%

Leading Sectors
Airlines +13.11%

Disk Drives +11.74%

Networking +10.74%

Hospitals +9.86%
Alt Energy +8.66%

Lagging Sectors
Retail +1.36%
Computer Services +1.34%
Utilities +.29%
Restaurants +.18%
Education -1.92%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Slightly Lower, Weighed Down by Education, Homebuilding, Financial and Semi Shares

Evening Review
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Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses 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 negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is rising 2.55% and is high at 24.15. The ISE Sentiment Index is low at 107.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running above average most of the day, hitting 1.29 at its intraday peak, and is currently 1.27. The Euro Financial Sector Credit Default Swap Index is falling 4.48% today to 74.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.73% to 108.02 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.45% to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.98% to 31.0 basis points. The Libor-OIS spread is falling 6.70% to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.76%, which is down 91 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is down 1 basis point today. The Transports are jumping another 2.0% on an earnings boost from (FDX), which is a large broad market positive. Defense, Hospital and Oil Service shares are also outperforming substantially, rising 1%+. While the major averages have seen some selling today into good news, the S&P 500 is holding above the 1,035 level that was breached yesterday and the bears have been unable to gain any meaningful traction. I continue to hear analysts and pundits say that investors are overly complacent and way too bullish, notwithstanding data that suggests otherwise. The latest Greenwich Alternative Investments Market Sentiment Indicator for September shows that ONLY 13% OF MACRO HEDGE FUND MANAGERS ARE BULLISH ON THE S&P 500, WHILE 66% ARE BEARISH. This is a large positive. Today’s market action is indicative of just another temporary pause before another push higher in stocks next week. One of my longs, (GOOG), continues to trade well. I suspect the shares will begin another meaningful surge higher during 4Q. Nikkei futures indicate an +6 open in Japan and DAX futures indicate a -6 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, technical buying, falling long-term rates and investment manager performance anxiety.

Today's Headlines

Bloomberg:

- FedEx Corp.(FDX) rose to an 11-month high in New York trading after the second-largest U.S. package- shipping company said first-quarter profit topped its forecast. Earnings for the quarter ended Aug. 31 will be 58 cents a share, the Memphis, Tennessee-based company said today in posting preliminary results. FedEx had forecast 30 cents to 45 cents, and the average of 15 analyst estimates compiled by Bloomberg was for 45 cents. FedEx’s announcement suggests shipping demand is starting to pick up, particularly for higher-priced international service. FedEx and larger rival United Parcel Service Inc. are considered proxies for the U.S. economy because they handle almost 80 percent of domestic package shipments.

- Bank of America Corp.(BAC) and Deutsche Bank AG(DB) led institutions offering $1.34 billion of high-yield, high-risk loans this week as the new-issue market shows signs of reviving from a slump that began more than two years ago. JPMorgan Chase & Co. and Barclays Capital are among lenders announcing an additional $4.75 billion of loans for junk-rated companies, a sign that the freeze that set in when investors balked at financing leveraged buyouts may be abating. Banks are marketing the debt as the S&P/LSTA 100 Leveraged Loan index rose 43 percent this year after a record 28 percent drop in 2008.

- Poul Nyrup Rasmussen, the Socialist Party president who led a two-year campaign to introduce the first European Union regulation of the hedge fund industry, said he will next press firms to reduce their fees. Funds should cut the 2 percent of assets and 20 percent of profits many of them charge investors, Rasmussen told a meeting of 300 hedge fund and private equity executives at London’s Guildhall today. Firms could charge half a percent of assets and 15 percent of profit, he said. During the two-hour meeting, he repeatedly described himself as the industry’s “bogeyman.” “We’re in a new phase, guys, I wouldn’t say ‘friends,’” Rasmussen said. “Two plus 20 is not a state of nature. We need to go and review it,” he added. “You will not die of hunger.”

- The cost to protect against U.S. corporate bond defaults using a benchmark derivatives index declined for the fifth day and approached a 14-month low reached in August as demand for higher-yielding assets endured. Credit-default swaps on the Markit CDX North America Investment-Grade Index, used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, fell 3 basis points to a mid-price of 108 basis points as of 8:38 a.m. in New York, according to broker Phoenix Partners Group. The index, which has dropped about 16 basis points since Sept. 2, typically falls as investor confidence improves. The influx of investor cash into corporate bond funds that led to the biggest credit-market rally on record is likely to continue, though abated, as the Federal Reserve keeps its interest-rate target near zero, Bank of America Merrill Lynch strategists led by Jeffrey Rosenberg wrote in a note to clients yesterday. “Liquidity -- the ability to refinance debt -- stands as the largest determinant behind the improvements in credit markets,” the analysts wrote. With central banks unlikely to end their efforts to spur the economy anytime soon, “the liquidity trends supporting continued tightening in spreads, albeit at a much slower pace than those experienced to date, likely remain.”

- Investments in commodity products advanced to $2.63 billion last month, at least double the amount recorded for any August, with investors favoring Europe over the U.S., Barclays Capital said. Exchange-traded products got $1.74 billion and commodity- linked mutual funds took in $472 million, the bank said in a report late yesterday. The monthly figure includes structured products. European ETPs got more than their U.S. equivalents, the second time that’s ever happened, Barclays said. “Continued statements (although imprecise) from the CFTC suggesting a series of regulatory actions resulted in market participants preferring to reduce their exposure to U.S. commodity markets,” Barclays said. “This manifested itself through flows into European ETPs being higher than their U.S. counterparts for the first time in a year.” Investors also bought U.S. products perceived to have the least regulatory risk, Barclays said. Industrial-metal products got record inflows of $107 million, the bank said.

- Crude oil fell the most in four weeks after failing to break through $72.90, this month’s high, a signal for traders to sell futures. “The market failed to sustain the move higher,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “Oil took out the highs of the last two days, got up to $72.90, and ran out of steam. It then quickly retreated below the last two days’ lows.” Crude oil also dropped because of rising U.S. fuel stockpiles. Gasoline inventories rose for the first time in seven weeks and supplies of distillate fuels, including heating oil and diesel, climbed to the highest level in 26 years, a government report showed yesterday. “We may be seeing a delayed reaction to the ongoing accumulation in distillate supplies to the highest level since 1983,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Our tendency recently has been to react for 45 minutes to the data and then trade on other factors for the remainder of the week. This may be changing, which may signal that a correction is about to occur.”

- The U.S. corn crop will be 1.5 percent larger than forecast a month ago, the government said, as cool, wet Midwest weather in July and August raised prospects for record yields. Output will total 12.954 billion bushels, more than the 12.761 billion forecast last month and up 7 percent from last year's crop of 12.101 billion bushels, the U.S. Department of Agriculture said today in a report. Analysts surveyed by Bloomberg News expected 12.911 billion bushels, on average. Farmers collected a record 13.038 billion bushels in 2007.

- Confidence among U.S. consumers rose more than forecast in September as the pace of job losses slowed and the economy showed signs of pulling out of the recession. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 70.2 this month from 65.7 in August. The index was forecast to rise to 67.5, according to a Bloomberg survey of economists. A government report today showed inventories at U.S. wholesalers fell in July as higher sales helped distributors reduce excess supply.

- Senator Jack Reed, a Democrat on the Armed Services Committee, said the U.S. shouldn’t set a timeframe for withdrawing U.S. troops from Afghanistan and more U.S. trainers should be sent immediately. “If we’re going to make the Afghan army very rapidly an effective force, we have to have more trainers,” the Rhode Island Democrat and former Army Ranger said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. How many more U.S. combat forces are needed “is still in my view is subject to detailed analysis,” he said.

- Microsoft Corp.(MSFT) and Yahoo! Inc.(YHOO) have been asked by the U.S. Justice Department for more details on a proposed Internet-search partnership, expanding the agency’s review of the agreement. The request means regulators will do a more extensive examination, rather than approve the deal immediately.

- President Barack Obama vowed before a national television audience on Sept. 9 that his $900 billion proposal to overhaul health care wouldn’t add “one dime” to the federal deficit. So far, White House officials have offered few details on how they intend to pay for the plan. Instead, they’ve deferred to Congress on the issue, saying they’ll consider all options. With Obama this week declaring ownership of the plan to enact the most extensive changes in health care in more than four decades, the White House’s reluctance to break down how it would finance the measure is rankling some lawmakers. “He needs to put together a blisteringly specific plan that can be analyzed by the nonpartisan Congressional Budget Office or embrace legislation that is already being considered,” said Representative Mark Kirk, an Illinois Republican and member of the House Appropriations Committee. “Otherwise, all we have is non-specific assertions with no credible support.” Administration officials say two-thirds of the legislation will be financed by savings in the Medicare and Medicaid programs, and the elimination of “waste, fraud and abuse” in the health-care system. The remainder will come from revenue- raising measures, some of which have stirred opposition in Congress. As a result, some lawmakers and experts say Obama’s plans lack the clarity his aides promised before his speech.

- Credit Suisse Group AG, Switzerland’s second-largest bank, is among a “handful” of banks in Europe with sufficient capital to boost its dividend, analysts at Morgan Stanley said. Credit Suisse rose as much as 2.6 percent in Swiss trading after the analysts, including London-based Huw van Steenis, said it may pay a dividend of 2.50 francs ($2.41) a share for this year and 3 francs for 2010.

- The U.S. budget deficit was little changed last month from a year earlier and narrower than economists predicted as tax receipts and spending declined. The excess of spending over revenue totaled $111.4 billion in August, compared with $111.9 billion a year earlier, the Treasury reported in Washington. The shortfall totaled a record $1.38 trillion in the first 11 months of the fiscal year that ends Sept. 30.

- U.S. sales of new and existing homes may increase to an annual pace of 5.1 million in the current quarter, the highest in two years, according to a forecast by Freddie Mac, the government-run mortgage buyer. That would be an 11 percent gain from the second quarter’s annual pace of 4.61 million sales, the McLean, Virginia-based company said in a report today.

Wall Street Journal:

- Vowing to never falter in the pursuit of al Qaeda and its allies, President Barack Obama placed a wreath under rainy skies at the Pentagon in memory of the victims of 9/11 on the eighth anniversary of the terrorist attacks. "Let us renew our resolve against those who perpetrated this barbaric act and who plot against us still," Mr. Obama said. "In defense of our nation, we will never waver." Skies were also gray in New York City, and at the crash site of United Airlines Flight 93 in a Shanksville, Pa., field, where now-familiar ceremonies honored the nearly 3,000 people who were lost in the Sept. 11 attacks.

- Senate Finance Chairman Max Baucus said Friday a bipartisan negotiating group is "starting to reach closure" on health-care legislation, indicating he would end negotiations and move forward on a bill as soon as Monday.

- The thing about the bully pulpit is that Presidents can make the most fantastic claims and it takes days to sort the reality from the myths. So as a public service, let's try to navigate the, er, remarkable Medicare discussion that President Obama delivered on Wednesday. It isn't easy.

- New Federal Communications Commission chief Julius Genachowski says he wants to promote diversity in media ownership, but his recent decision to hire Mark Lloyd, a civil-rights attorney critical of corporate-owned media, to help with that effort has riled some talk-radio hosts who fear the agency is planning to go after them. The criticism comes as another Obama administration appointee, environmental jobs adviser Van Jones, resigned over the weekend following an outcry over things he said before joining the government. Mr. Lloyd was named in July to the new FCC post of chief diversity officer as part of what agency Chairman Julius Genachowski called an effort to "expand opportunities for women, minorities and small businesses to participate in the communications marketplace." Mr. Lloyd in the past has criticized corporate ownership of media outlets, saying it has led to conservative dominance of talk radio, among other things. He has called for a broader range of voices in the media and advocated taxing station owners to subsidize public broadcasters and local media. "If we as a nation...fully funded a broadcaster like the British citizens fund BBC, we might have an impact on what they cover and have more power to demand that they cover everything," Mr. Lloyd said at a 2008 media conference. In 2007, while a senior fellow at the Center for American Progress, a Democratic think tank with close ties to the Obama administration, Mr. Lloyd co-authored a report that proposed ways the FCC could change the balance of conservatives to progressives on talk radio by imposing new rules on the radio industry, such as more frequent license renewals and a national radio-ownership cap. His past statements have fueled an outcry among conservative commentators and lawmakers concerned that Mr. Lloyd's hiring signals the FCC will change rules to make it easier for interest groups unhappy with a local station's programming to threaten its license.

- Federal prosecutors, capping an 18-month investigation, are preparing to impanel a grand jury in Brooklyn, N.Y., to consider an indictment of a former senior American International Group Inc. executive, according to people familiar with the matter. The Justice Department and the Securities and Exchange Commission have been investigating whether Joseph Cassano, whose AIG Financial Products unit nearly brought down the insurer a year ago, committed securities fraud in allegedly misleading investors by overstating the value of mortgage-related contracts and failing to disclose material facts about them to AIG's outside auditor, the people said.

- Procter & Gamble Co.'s(PG) chief executive on Thursday laid out measures to address lackluster profits and sagging market share, including price cuts, overseas expansion and plans to reposition the Cheer brand as a low-price detergent.

- Worldwide semiconductor capital-equipment spending will rebound 47% in the second half of the year from the dour first part of 2009. Looking further ahead, Gartner sees a continued sales rebound, with 34% growth in 2010 and even stronger gains of 40% in 2011. "Capacity will begin to ramp in the second half of 2010 as businesses and consumers begin to open up their pocket books to purchase electronic goods, and more consistent semiconductor growth should be occurring worldwide," said Gartner analyst Dean Freeman. Most equipment purchases through the first half of 2010 will be technology, he added.

- James Gorman was chosen as future chief executive of Morgan Stanley (MS) for his management skills and his strategic expertise, rather than to signal a shift away from the brokerage's trading business. Several research analysts expressed concerns about his lack of experience in investment banking. But Gorman told employees in a town hall meeting Friday, according to an employee who attended: "The heart, the DNA, the fabric of this place has always been the institutional securities business and frankly should always be the institutional securities business."

- Further consolidation in the pharmacy benefits management business is only a matter of time, CVS Caremark Corp. (CVS) Chief Financial Officer David Rickard (CVS) said Friday. Speaking at Thomas Weisel Partners Healthcare Conference in Boston, Rickard didn't indicate whether CVS would be interested in making acquisitions of other pharmacy benefit management companies.

- The European Union's draft rules on regulation of the hedge fund and private equity industry need major surgery and are anti-competitive, U.K. City Minister Paul Myners told a conference Friday. Repeating earlier comments that regulation of alternative investments was necessary, Myners said the focus on hedge funds and private equity wasn't justified, the proposed rules should discriminate between fund types and investor protection shouldn't result in driving away foreign investment.

MarketWatch.com:
- China Mobile Ltd.(CHL) Chairman Wang Jianzhou said Friday the company is still in talks with Apple Inc. (AAPL) over selling iPhones in China. The deal between competitor China Unicom (Hong Kong) Ltd.(CHU) and Apple to sell iPhones in China is "absolutely not exclusive," and China Mobile still hopes to offer iPhones in China, Wang said on the sidelines of the World Economic Forum in the northeastern coastal city of Dalian. He also said China Mobile hopes to eventually sell Ophones, which run on Google Inc.'s (GOOG) open-source Android operating system, at prices as low as CNY1,000 (US$146.40) in China. Other smartphone models sell for CNY2,000-CNY5,000 in the country.

NY Times:

- Foreign Minister Sergey V. Lavrov on Thursday all but ruled out imposing new sanctions against Iran over its nuclear program, brushing aside growing Western concerns that Iran had made significant progress in recent months in a bid for nuclear weapons. Mr. Lavrov said he believed that a new set of proposals that Iran gave to European nations on Wednesday offered a viable basis for negotiations to end the dispute. He said he did not believe that the United Nations Security Council would approve new sanctions against Iran, which could ban Iran from exporting oil or importing gasoline. Mr. Lavrov’s comments underscored the challenge facing the Obama administration as it plans its next move in the United States’ longstanding struggle to prevent Iran from producing nuclear weapons. On Thursday, Ali Asghar Soltanieh, Iran’s ambassador to the International Atomic Energy Agency, the United Nations’ nuclear watchdog, said Iran would not negotiate further with the major powers about its nuclear program, Iranian news services reported.

Mlive.com:
- State police at the Corunna post have confirmed a well-known anti-abortion activist was shot multiple times and killed this morning in front of Owosso High School.

Vanity Fair:

- 100 to Blame: Jim Cramer, Credit-Default Swaps, and More.

Reuters:
- The 700,000 cars sold in the cash-for-clunkers program prompted U.S. automakers to boost 2009 production after a long period of inventory cuts, spurring North American steelmakers to restart idled mills. Now that the clunkers program has wound down, the steel industry is unsure whether demand will stay high enough to absorb the additional output. So far, analysts are not seeing a U.S. economic recovery robust enough to sustain the pick-up in steel demand.

- In obscure corners of the U.S. stock market -- where "flash orders," "dark pools" and other controversial practices thrive -- regulators are trying to shine a light to guard against unfair dealing. But a crackdown by the U.S. Securities and Exchange Commission, sought in recent months by some top lawmakers in Washington, won't come quickly and may not be as comprehensive as some desire.

- A weekly gauge of future U.S. economic growth hit a year-high in the latest week, sending its yearly growth rate to an all-time high that points to a more vigorous recovery than consensus has shown. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 125.4 in the week to Sept. 4 from a revised 124.6 the prior week, which was originally reported at 124.7. It was the highest WLI reading since Sept. 5, 2008, when it stood at 126.0. The index's annualized growth rate surged to a record high of 21.3 percent from 20.8 the previous week. "The rise in WLI growth to a record high reinforces our earlier forecast that at least the early stage of the current economic recovery will be more vigorous than the last two," said ECRI Managing Director Lakshman Achuthan. Achuthan recently told Reuters that a double-dip recession is highly unlikely, and that the United States is poised for a far stronger recovery than many are projecting. "We expect non-manufacturing employment -- which is where 91 percent of us work -- to be positive by year end," Achuthan said. "We are talking about recovery that includes jobs growth in the non-manufacturing sector, and we are talking about a recovery that includes increases in consumer spending. So, in spite of the fact that many people look at this recession as being unprecedented and unlike any other, what we're seeing in our indexes is that there are a lot of similarities to previous recessions and recoveries," he added.

AFP:

- China may see tens of millions of people infected with the H1N1 flu in coming months and deaths will be “unavoidable,” citing an official at the nation’s Ministry of Health. The spread of H1N1 in China has accelerated, citing Liang Wannian, deputy director of the ministry’s health emergency office.