BETWEEN THE HEDGES

Friday, January 22, 2010

Weekly Scoreboard*

Posted by Gary .....at 6:33 PM

Indices
S&P 500 1,091.76 -4.94%
DJIA 10,172.98 -5.02%
NASDAQ 2,205.29 -4.81%
Russell 2000 617.12 -4.53%
Wilshire 5000 11,182.39 -4.71%
Russell 1000 Growth 488.01 -4.51%
Russell 1000 Value 558.14 -5.17%
Morgan Stanley Consumer 663.87 -2.89%

Morgan Stanley Cyclical 815.73 -7.47%
Morgan Stanley Technology 551.75 -5.50%
Transports 4,005.08 -5.34%
Utilities 383.99 -3.89%
MSCI Emerging Markets 40.24 -5.33%

Lyxor L/S Equity Long Bias Index 985.51 +.11%

Lyxor L/S Equity Variable Bias Index 866.34 -.33%

Lyxor L/S Equity Short Bias Index 920.04 -1.45%

Sentiment/Internals
NYSE Cumulative A/D Line +69,553 -6.37%
Bloomberg New Highs-Lows Index +37 -603
Bloomberg Crude Oil % Bulls 38.0 +18.75%
CFTC Oil Net Speculative Position +134,381 -.95%

CFTC Oil Total Open Interest 1,324,903 +1.85%
Total Put/Call 1.07 +42.67%
OEX Put/Call 1.48 +2.78%
ISE Sentiment 98.0 -27.41%
NYSE Arms 1.78 +67.92%
Volatility(VIX) 27.31 +54.91%
G7 Currency Volatility (VXY) 12.19 +2.78%
Smart Money Flow Index 9,327.86 -1.39%

Money Mkt Mutual Fund Assets $3.240 Trillion -1.40%
AAII % Bulls 40.0 -15.68%
AAII % Bears 34.74 +29.05%

Futures Spot Prices
CRB Index 275.56 -3.11%

Crude Oil 74.54 -6.36%
Reformulated Gasoline 196.57 -5.05%
Natural Gas 5.82 +4.0%
Heating Oil 194.16 -6.47%
Gold 1,089.70 -4.58%
Bloomberg Base Metals 206.94 -3.33%
Copper 334.70 -1.67%

US No. 1 Heavy Melt Scrap Steel 260.0 USD/Ton unch.

China Hot Rolled Domestic Steel Sheet 3,827 Yuan/Ton -2.20%

S&P GSCI Agriculture 334.99 -2.45%

Economy
ECRI Weekly Leading Economic Index 132.20 +.08%

Citi US Economic Surprise Index -2.0 +83.87%

Fed Fund Futures imply 54.0% chance of no change, 46.0% chance of 25 basis point cut on 1/27

US Dollar Index 78.28 +2.01%

Yield Curve 282.0 +1 basis point

10-year US Treasury Yield 3.61% -6 basis points

Federal Reserve’s Balance Sheet $2.233 Trillion -1.79%

U.S. Sovereign Debt Credit Default Swap 38.0 +11.76%

Western Europe Sovereign Credit Default Swap Index 84.83 +7.38%

10-year TIPS Spread 2.29% -6 basis points
TED Spread 21.0 +1.0 basis point
N. Amer. Investment Grade Credit Default Swap Index 92.26 +11.09%

Euro Financial Sector Credit Default Swap Index 78.21 +22.55%
Emerging Markets Credit Default Swap Index 268.35 +9.23%
CMBS Super Senior AAA 10-year Treasury Spread 385.0 -10.0 basis points

M1 Money Supply $1.655 Trillion -2.89%

Business Loans 662.50 +.29%
4-Wk MA of Jobless Claims 448,300 +1.6%

Continuing Claims Unemployment Rate 3.5% unch.
Average 30-year Mortgage Rate 4.99% -7 basis points
Weekly Mortgage Applications 575.90 +9.05%

ABC Consumer Confidence -49 -2 points
Weekly Retail Sales +1.10% -30 basis points
Nationwide Gas $2.73/gallon -.03/gallon
US Heating Demand Next 7 Days 8.0% below normal
Baltic Dry Index 3,204 -2.88%

Oil Tanker Rate(Arabian Gulf to US Gulf Coast) 72.50 -3.33%

Rail Freight Carloads 201,728 +2.51%

Iraqi 2028 Govt Bonds 79.3.36%

Best Performing Style
Small-Cap Value -4.32%

Worst Performing Style
Large-Cap Value -5.17%

Leading Sectors
Education +1.33%

Restaurants -.27%

Biotech -2.15%

Retail -2.39%
Drugs -2.71%

Lagging Sectors
Hospitals -8.97%
Gold -9.59%
Alt Energy -9.96%

Oil Tankers -10.25%
Steel -11.28%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish at Session Lows, Weighed Down by Financial, Tech and Commodity Shares

Posted by Gary .....at 4:10 PM

Evening Review
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Stocks Falling into Final Hour on Political Fears, China Bubble Worries, European Sovereign Debt Concerns

Posted by Gary .....at 3:52 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Financial longs. I added to my (IWM)/(QQQQ) hedges, added to my (EEM) short and took some profits in select longs this morning, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is falling and volume is heavy. Investor anxiety is very high. Today’s overall market action is very bearish. The VIX is rising +16.93% and is high at 26.09. The ISE Sentiment Index is low at 108.0 and the total put/call is high at 1.06. Finally, the NYSE Arms has been running high most of the day, hitting 1.80 at its intraday peak, and is currently 1.46. The Euro Financial Sector Credit Default Swap Index is rising 11.34% to 77.81 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 rising +6.07% to 92.26 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down -1 basis point to 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +4.96% to 30.44 basis points. The Libor-OIS spread is down -1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -3 basis points to 2.29%, which is down -36 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .05%, which is up +1 basis point today. Large-cap tech shares are substantially underperforming today. I-Bank, Bank, Alt Energy, Oil Service and Steel shares are also weak, falling 2.50%+. Sovereign debt, new bank regulation/taxation and China bubble worries are weighing on the major averages again today. Moreover, the rising uncertainty over the outcome of Fed Chairman Bernanke's Senate confirmation is weighing on the averages. The 2-year swap spread is breaking out technically. As well, sovereign debt cds indices are hitting new highs today. The euro financial sector cds index is at the upper end of its 5-month trading range. On the positive side, Education, Restaurant, Retail, Construction, HMO, Biotech, Medical and Telecom stocks are holding up pretty well. Investor fear is spiking. There is much political and macro uncertainty right now. One of my longs, (ISRG), is surging 11% today to another new 52-week high on heavy volume. While the stock is short-term overbought, it still has substantial upside over the intermediate/long-term. Another one of my longs, (GOOG), is under pressure today, despite a good earnings report. This stock will be a good candidate to add long once the market stabilizes, in my opinion. If, over the weekend, it becomes apparent that Bernanke won’t be confirmed, another down market open Monday is likely. While I disagree with some of his decisions, his replacement would likely be less appealing to investors. Nikkei futures indicate a -180 open in Japan and DAX futures indicate a -102 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on rising political angst, china bubble worries, European sovereign debt worries and profit-taking.

Today's Headlines

Posted by Gary .....at 3:08 PM

Bloomberg:

- Greek bonds fell, pushing the yield to the highest relative to German bunds in more than 11 years, on concern that the government may have to offer a discount to attract buyers to a planned debt sale. The declines drove the yield on the 10-year bond up as much as 23 basis points. Greece hired six banks to sell a five-year note in euros. Spyros Papanicolaou, the head of the country’s debt-management agency, said earlier the nation plans to sell a minimum of 3 billion euros ($4.3 billion) of five- or 10-year bonds through banks in the “near future.” “You might argue that the spread at this level is attractive, but I wouldn’t catch a falling knife, and Greece is a falling knife,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion. “The spread reflects investor perception of Greece and I can’t ignore that. It will be a positive message if they manage to successfully raise funds in the capital market.”

- Employment dropped in 39 U.S. states in December, seven more than in the prior month, indicating job losses were widespread. Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop.

- Crude oil fell to a one-month low in New York after equities dropped on President Barack Obama’s proposed restrictions on risk-taking at financial institutions and on speculation China will raise interest rates.

- Representative Barney Frank said his committee will push to replace Fannie Mae and Freddie Mac, seized by regulators almost 17 months ago, with a different model for U.S. mortgage financing. “The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. “That’s the approach, rather than a piecemeal one.”

- China said remarks made by U.S. Secretary of State Hillary Clinton criticizing the country’s censorship of the Internet were unjustified and damaged bilateral ties. In a speech in Washington yesterday, Clinton called on U.S. technology companies to resist censorship of the Internet and said perpetrators of cyber attacks such as those who targeted Google Inc. must face consequences. Clinton also said China’s Internet controls could harm the Asian nation’s development. “We are firmly opposed to these words and deeds which are against the facts and damage Sino-U.S. relations,” Foreign Ministry Spokesman Ma Zhaoxu said in a Chinese-language statement posted on the ministry’s Web site. “We urge the U.S. side to respect facts and stop using the issue of so-called Internet freedom to make unjustified attacks on China.”

- Union membership in the private sector declined in 2009 to a record low of 7.2 percent, as a recession eroded employment in labor-organized industries such as construction and manufacturing, a U.S. report showed. The figure compares with 7.6 percent in 2008, according to data released today by the Labor Department. Union membership made up 12.3 percent of the total workforce, down from 12.4 percent in 2008. It increased among government workers to 37.4 percent from 36.8 percent.

Wall Street Journal:

- Federal Reserve Chairman Ben Bernanke's path to a second term got rockier as two more Democrats decided to vote against his nomination.

- When Rick Berry heard on Tuesday that a Republican had won the U.S. Senate race in Massachusetts, he emailed one of his friends: "Maybe there's hope for the country after all!" The message was bad news for Baron Hill, a five-term Democratic congressman who represents Mr. Berry's district. Mr. Berry, the president of Madison's city council, is a registered Democrat and a former supporter of Mr. Hill. The political winds that buffeted Massachusetts this week are now blowing across the cornfields of southeast Indiana—smack into Mr. Hill. After supporting President Barack Obama's health-care plan and his economic-stimulus package, the congressman stands accused by Mr. Berry and others here of jettisoning the Ninth District's bedrock fiscal conservatism. "Being a Democrat doesn't mean you want the government to take over every single aspect of your life," according to Mr. Berry, who owns a small embroidery business. "If that health-care legislation passes, I think it will be the death knell for the economy."

FoxNews:

- Which wireless carrier will offer Apple's(AAPL) soon-to-be-released mystery device? Will it be Verizon(VZ)? AT&T(T)? The answer, according to sources at the two companies, is both.

Washington Post:

- A Justice Department-led task force has concluded that nearly 50 of the 196 detainees at the U.S. military prison at Guantanamo Bay, Cuba, should be held indefinitely without trial under the laws of war, according to Obama administration officials. Human rights advocates have bemoaned the administration's failure to fulfill President Obama's promise last January to close the Guantanamo Bay facility within a year as well as its reliance on indefinite detention, a mechanism devised during George W. Bush's administration that they deem unconstitutional.

- The White House Correspondents Association has picked Jay Leno -- also known as this week's most publicly unpopular stand-up comic -- to headline the White House Correspondents Dinner in May.

The Business Insider:

- Despite strong global buzz for Obama's bank plan, the EU is not likely to adopt similar measures, according to Reuters. A failure to spread to other nations could make the Volcker Rule dead on arrival.

PRNewswire:

- President Obama's plan to regulate the banks is "not enough," says author and Wall Street insider Zubi Diamond. "If you do not understand the root cause of the problem you will never come up with a permanent solution." Diamond reveals how hedge fund short sellers lobbied the SEC to remove safeguard regulations in place since 1938 to prevent the stock market from crashing and then engineered the economic downfall. Diamond shared what he discovered in research with congressional leaders before publishing his book. As a result of Diamond's efforts, the SEC was asked to restore previous regulations but did so in a way to make the changes meaningless. At that point, Diamond decided to publish his recommendations. Reinstate the uptick rule. Remove mark-to-market accounting and replace it with historic cost accounting. Dismantle and discontinue trading on all the short Exchange Traded Funds (ETFs), also called leveraged inverse ETFs. Reinstate the circuit breakers and the trading curb to kick in whenever the Dow Jones drops 150 points. Regulate the Hedge Funds just like mutual funds and pension funds are regulated. Regulate speculation on crude oil futures by banning margin and leveraging except for the airline industry or any other end user.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -18 (see trends). Larry Sabato takes a look at Obama’s first year in office.

Politico:

- Congressional Democrats — stunned out of silence by Scott Brown’s victory in Massachusetts — say they’re done swallowing their anger with President Barack Obama and ready to go public with their gripes. If the sentiment isn’t quite heads-must-roll, it’s getting there. Hill Democrats are demanding that Obama’s brain trust — especially senior adviser David Axelrod and chief of staff Rahm Emanuel — shelve their grand legislative ambitions to focus on the economic issues that will determine the fates of shaky Democratic majorities in both houses.

- The one thing everyone agrees on about the Massachusetts Senate election is that it showed voters are frustrated and furious at politicians. President Barack Obama is rapidly joining Congress as a primary target. And after his Thursday news conference on bank regulatory reform, Obama may deserve to be the focus of this anger. Instead of bringing real change, Obama’s plans seem more likely to do the opposite of what he says he wants. Obama said that large financial institutions almost ruined the U.S. economy because they took “huge, reckless risks in pursuit of quick profits and massive bonuses.” Unfortunately his latest solution, long on political rhetoric and short on substance, is likely to make the financial system more fragile and more susceptible to government bailouts. You do not have to be a financial genius to figure this out.

- Rep. Michele Bachmann (R-Minn.) says she was “stunned at the arrogance” when Sen. Arlen Specter told her recently to “act like a lady.” The two were on a Philadelphia radio show Wednesday when the Pennsylvania Democrat grew frustrated with Bachmann. “I'm going to treat you like a lady,” Specter said to Bachmann. “Now act like one.”

EE Times:

- Global spending on semiconductor manufacturing equipment is expected to rise by 46.8 percent in 2010 compared in 2009, bringing an end to three consecutive years of decline, according to market research company iSuppli Corp.

USAToday:

- A majority of Americans say President Obama and congressional Democrats should suspend work on the health care bill that has been on the verge of passage and consider alternatives that would draw more Republican support, a USA TODAY/Gallup Poll finds. An overwhelming 72% of those surveyed Wednesday say the Bay State result "reflects frustrations shared by many Americans, and the president and members of Congress should pay attention to it." Eighteen percent say it "reflects political conditions in Massachusetts and doesn't have a larger meaning for national politics." One in four Democrats say lawmakers should draft a new bill, as do 56% of independents and 87% of Republicans.

Reuters:

- A weekly measure of future U.S. economic growth continued to rise in the latest week while its yearly growth rate slipped further, though the data still points to continued strides in economic recovery, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index inched higher to an 83-week high of 132.2 for the week ended Jan. 15, from 132.1 the prior week. The index's annualized growth rate slipped again to a 19-week low of 23.4 percent from 23.7 percent the previous week, which was revised up from an original 23.5 percent. It marked the lowest yearly growth reading since the gauge reached a record high in October. Still, with WLI levels continuing to rise, the recovery "will continue to gain ground in the months ahead," said Lakshman Achuthan, managing director at ECRI, who has recently forecast that the index's steady growth points to improvement in the jobs market in the near term.

Bull Radar

Posted by Gary .....at 11:10 AM

Style Outperformer:
Small-Cap Growth (-.01%)

Sector Outperformers:
Education (+1.28%), HMOs (+1.05%) and Restaurants (+.56%)

Stocks Rising on Unusual Volume:
ISRG, JCOM, ARTC, AIZ, GE, HMY, AEM, UNH, TIN, IPGP, VECO, EWBC, GIB, HMSY, IBN, EFII, DLLR, TRGL, RINO, JJSF, MNTA, MATK, CELG, CME and CNC

Stocks With Unusual Call Option Activity:
1) GFI 2) ISRG 3) KMB 4) HES 5) WDC