Weekly Outlook

U.S. Week Ahead by MarketWatch (video).Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising financial sector pessimism, rising global debt angst, global growth worries, technical selling, more shorting and emerging market inflation fears. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,155.46 +2.12%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,155.46 +2.12%
  
• DJIA 11,103.10 +1.74%
  
• NASDAQ 2,479.35 +2.65%
  
• Russell 2000 656.21 +1.87%
  
• Wilshire 5000 11,920.60 +2.09%
  
• Russell 1000 Growth 540.33 +2.46%
  
• Russell 1000 Value 567.38 +1.77%
  
• Morgan Stanley Consumer 695.26 +1.32%
  
• Morgan Stanley Cyclical 798.73 +4.39%
• Morgan Stanley Technology 587.80 +5.48%
  
• Transports 4,359.55 +4.06%
  
• Utilities 431.34 -.47%
  
• MSCI Emerging Markets 36.55 +.71%
  
• Lyxor L/S Equity Long Bias Index 907.10 -3.68%
  
• Lyxor L/S Equity Variable Bias Index 837.32 -1.73%
  
• Lyxor L/S Equity Short Bias Index 659.06 +2.42%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 116,868 +.35%
  
• Bloomberg New Highs-Lows Index -290 +496
  
• Bloomberg Crude Oil % Bulls 27.0 -6.90%
  
• CFTC Oil Net Speculative Position 108,164 -21.44%
  
• CFTC Oil Total Open Interest 1,431,783 +3.71%
  
• Total Put/Call 1.11 -10.48%
  
• OEX Put/Call 1.94 -2.02%
  
• ISE Sentiment 66.0 -25.84%
  
• NYSE Arms 1.64 -57.84%
  
• Volatility(VIX) 36.20 -15.74%
• S&P 500 Implied Correlation 82.32 -8.82%
  
• G7 Currency Volatility (VXY) 13.14 -7.72%
  
• Smart Money Flow Index 10,341.11 +4.86%
  
• Money Mkt Mutual Fund Assets $2.639 Trillion +.20%
  
• AAII % Bulls 35.24 +8.40%
  
• AAII % Bears 45.71 -2.33%

Futures Spot Prices

• CRB Index 303.52 +1.80%
  
• Crude Oil 82.98 +5.37%
  
• Reformulated Gasoline 264.76 +4.26%
  
• Natural Gas 3.48 -4.94%
  
• Heating Oil 285.88 +2.61%
  
• Gold 1,635.80 +.57%
  
• Bloomberg Base Metals 204.58 +.52%
  
• Copper 327.35 +5.21%
  
• US No. 1 Heavy Melt Scrap Steel 418.33 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,616 Yuan/Ton unch.
  
• UBS-Bloomberg Agriculture 1,510.26 -.47%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -8.10% -90 basis points
  
• S&P 500 EPS Estimates 1 Year Mean 95.85 -.04%
  
• Citi US Economic Surprise Index -7.50 +22.0 points
  
• Fed Fund Futures imply 31.7% chance of no change, 68.3% chance of 25 basis point cut on 11/02
• US Dollar Index 78.75 -.06%
  
• Yield Curve 179.0 +12 basis points
  
• 10-Year US Treasury Yield 2.08% +16 basis points
  
• Federal Reserve's Balance Sheet $2.843 Trillion +.30%
  
• U.S. Sovereign Debt Credit Default Swap 48.80 -6.59%
  
• Illinois Municipal Debt Credit Default Swap 270.0 +2.38%
  
• Western Europe Sovereign Debt Credit Default Swap Index 340.05 -.52%
• Emerging Markets Sovereign Debt CDS Index 284.50 -1.95%
  
• Saudi Sovereign Debt Credit Default Swap 129.0 +2.92%
• Iraqi 2028 Government Bonds 77.83 -3.24%
• China Blended Corporate Spread Index 896.0 -16 basis points
  
• 10-Year TIPS Spread 1.95% +19 basis points
  
• TED Spread 39.0 +4 basis points
• 3-Month Euribor/OIS Spread 72.0 -9 basis points
  
• N. America Investment Grade Credit Default Swap Index 138.31 -1.85%
  
• Euro Financial Sector Credit Default Swap Index 238.36 -6.27%
  
• Emerging Markets Credit Default Swap Index 346.07 -6.29%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 301.0 unch.
  
• M1 Money Supply $2.137 Trillion +1.48%
  
• Commercial Paper Outstanding 985.4B -2.20%
  
• 4-Week Moving Average of Jobless Claims 414,000 -1.0%
  
• Continuing Claims Unemployment Rate 2.9% -10 basis points
  
• Average 30-Year Mortgage Rate 3.94% -7 basis points
  
• Weekly Mortgage Applications 734.90 -4.30%
  
• Bloomberg Consumer Comfort -50.2 +2.8 points
  
• Weekly Retail Sales +4.40% unch.
  
• Nationwide Gas $3.39/gallon -.06/gallon
  
• U.S. Cooling Demand Next 7 Days 10.0% below normal
• Baltic Dry Index 2,000 +5.32%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 unch.
  
• Rail Freight Carloads 250,864 +.99%
  

Best Performing Style

• Mid-Cap Growth +2.61%

Worst Performing Style

• Small-Cap Value +1.22%

Leading Sectors

• Education +8.30%
  
• Road & Rail +7.36%
• Construction +7.33%
  
• Semis +5.87%
• Disk Drives +5.36%

Lagging Sectors

• Telecom -1.24%
• Airlines -1.35%
  
• Hospitals -1.37%
  
• REITs -1.89%
  
• Oil Tankers -7.17%

Weekly High-Volume Stock Gainers (7)

• PPDI, EBS, MDCO, TNGO, MEAS, TISI and RECN
  

Weekly High-Volume Stock Losers (12)

• OCR, APKT, NU, PMC, IRM, SXC, CNS, CJES, AM, OSG, AMED and KIOR
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, More Financial Sector Pessimism, Technical Selling, More Shorting

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: About Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 36.87 +1.65%
  
• ISE Sentiment Index 65.0 -26.97%
  
• Total Put/Call 1.13 -5.04%
  
• NYSE Arms 1.20 +238.41%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 138.31 -2.68%
  
• European Financial Sector CDS Index 237.83 -.40%
  
• Western Europe Sovereign Debt CDS Index 340.38 +.19%
  
• Emerging Market CDS Index 346.27 -.55%
  
• 2-Year Swap Spread 40.0 +1 bp
  
• TED Spread 39.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 178.0 +5 bps
  
• China Import Iron Ore Spot $170.0/Metric Tonne unch.
  
• Citi US Economic Surprise Index -7.50 +7.2 points
  
• 10-Year TIPS Spread 1.94 +5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating -21 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail/Medical sector longs, Emerging Markets shorts and Index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses lower again near its downward sloping 50-day moving average on rising Eurozone debt angst, more financial sector pessimism and global growth worries. On the positive side, Semi and Retail shares are especially strong, rising more than +.5%. Copper is rising +1.66%, the Bloomberg-UBS Ag Spot Index is declining -.10% and Gold is falling -.62%. The 10-year yield is rising +9 bps to 2.07%. The Japan sovereign cds is falling -7.78% to 126.25 bps, the China sovereign cds is down -4.2% to 172.04 bps and the Brazil sovereign cds is falling -6.73% to 178.37 bps. Major Asian indices surged 1-3% overnight. On the negative side, Coal, Alt Energy, Oil Service, Steel, Wireless, Bank, I-Bank, Biotech, Insurance, REIT and Airline shares are under meaningful pressure, falling more than -1.75%. Small-cap and Cyclical shares are substantially underperforming. Oil is gaining +.56% and Lumber is falling -3.5%. Rice is still close to its multi-year high, rising +24.0% in about 12 weeks. The Germany sovereign cds is rising +1.2% to 98.17 bps, the France sovereign cds is gaining +2.02% to 176.67 bps, the Spain sovereign cds is jumping +7.74% to 368.67 bps and the UK sovereign cds is gaining +3.4% to 92.76 bps. The Libor-OIS Spread is rising +1 bps to 31.0 bps, which is the highest since July 2010. The FRA/OIS Spread is rising 3.42 bps to 54.3 bps, which is also the highest since July 2010. As well, the TED and 2-Year Swap Spreads haven't come in at all, which is also noteworthy considering the recent strong equity advance. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. Ukraine shares fell another -1.2% today, notwithstanding gains in much of Europe, and are now down -47.2% ytd. As well, Brazilian equities fell -2.2% today and are now down -25.8% ytd. Various global credit angst gauges continue to trend higher, despite recent pullbacks, which remains a large negative. The average stock, as measured by the Value Line Geometric Growth Index, fell about -2.0% today. I still believe investors have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe. Moreover, even if another "kick the can" solution is imminent, the economies in the region will likely continue to deteriorate as the massive tax hikes and spending cuts intensify, which will further exacerbate their debt issues over the longer-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, more financial sector pessimism, global growth worries, technical selling, more shorting and profit taking.

Today's Headlines

Bloomberg:

• Spain, Italy Credit Ratings Cut by Fitch on European Debt Crisis. Italy and Spain had their long-term issuer default ratings cut by Fitch Ratings, which cited factors including their vulnerability to the “Euro zone crisis.”Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ‘AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative. Fitch also said it was cutting its estimate of Spain’s medium-term growth. The ratings company maintained a rating watch negative on Portugal, indicating the nation may still be cut. Portugal’s foreign and local currency long-term issuer default ratings are ‘BBB-.’ Fitch said it still intends to complete its review in the fourth quarter.
• Moody's Lowers Its Senior Debt, Deposit Ratings for Nine Portuguese Banks. Nine Portuguese banks had their debt ratings cut by Moody’s Investors Service by one or two levels, which cited concern about funding, bad loans and holdings of government debt. Moody’s cut the “standalone” debt ratings of three banks, Banco Espirito Santo SA (BES), Banco Comercial Portugues SA (BCP) and Banco BPI SA (BPI), by two levels, the ratings company said in a statement today. The downgrades for BCP and BPI reflected Greek sovereign- debt holdings, potential lack of access to wholesale debt markets and “increased asset risk” caused by holdings of Portuguese government bonds, Moody’s said. The moves conclude a review begun on July 15, when Portugal’s sovereign rating was cut to Ba2 with a negative outlook from Baa1.
• ATP of Denmark Snubs French, Italian Bonds for Collateral. ATP, Denmark’s biggest pension fund, said it renegotiated contracts to avoid having to accept top- rated French sovereign bonds as collateral for funding. The 711 billion-kroner ($122 billion) fund reworked swap agreements to exclude the use of bonds sold by France, Italy and other southern European governments as collateral against equity derivatives, interest-rate swaps and repurchase agreements, or repos, Chief Executive Officer Lars Rohde said. Hilleroed, Denmark-based ATP holds 173 billion kroner of collateral, according to its 2011 half-year report. “We have changed the contracts,” Rohde said in an interview with Bloomberg’s Risk Newsletter this week. “We put ourselves in a position where we only receive the very highest quality collateral, which is German, Danish and U.S. government bonds.” The cost of insuring against default on French debt almost trebled in the past six months amid concern the nation will lose its top credit rating while having to bail out lenders hurt in the sovereign crisis.
• Payrolls Beat Forecast as Concerns Ease. American employers added more workers in September than forecast and figures for the prior two months were revised higher, easing concern the economy is tipping into another recession. Payrolls rose by 103,000 after a 57,000 gain in August, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for an increase of 60,000. The figures reflected the end of a strike at Verizon Communications Inc. (VZ) that brought 45,000 people back to work. The jobless rate held at 9.1 percent. More Americans who would like a full-time job are settling for part-time work instead. They are counted in the underemployment rate, which increased to 16.5 percent, the highest this year, from 16.2 percent. The number of people working part-time for “economic reasons” jumped 444,000 to 9.3 million. Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.
• U.S. Regional Mall Vacancies at Decade High. Vacancies at U.S. shopping malls climbed to the highest in at least a decade as feeble employment growth restrained consumer spending, Reis Inc. (REIS) said. Regional and super-regional mall vacancies rose to 9.4 percent in the three months ended Sept. 30 from 8.8 percent a year earlier and 9.3 percent in the second quarter, according to the New York-based property-research company. It was the highest since Reis began publishing the data in 2000. Store owners’ revenue is falling as the U.S. unemployment rate hovers above 9 percent, depressing consumer confidence, and online stores capture more customers.
• China Baby Formula Maker Buying Arsenic Debt Reveals Unsecured Trust Loans. A Chinese baby-formula maker selling imported Australian milk to safety-conscious parents invested in the risky debt of lead, arsenic and cadmium refiners, seeking higher returns for its cash. The uncollateralized investment, sold by a middleman known as a trust, promises to pay Ausnutria Dairy Corp. about double China’s benchmark savings rate. It’s an example of how companies are undermining government efforts to cool lending that has led to soaring property prices and inflation of 6.2 percent, near a three-year high.
• Copper Traders the Most Bullish Since August After Biggest Rout Since '08. Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Gold, sugar, corn and soybeans may also climb. Ten of 15 respondents surveyed by Bloomberg expect copper to rise next week and 5 predicted a drop, the most bullish reading in six weeks. It’s the first time in four weeks that the separate surveys forecast gains for all five commodities.

Wall Street Journal:

• AFL-CIO President Visits Wall Street Protesters. The Wall Street protesters have gotten a boost from the leader of a big trade union federation. AFL-CIO President Richard Trumka appeared Friday morning at Manhattan's Zuccotti Park. Trumka said he came to show his support and hear the protesters' perspective. He also brought bagels, water and other supplies. Protesters have been camping out for weeks at the park near Wall Street.
• ECRI Weekly Leading Index Still Drilling Downward. (graph) The Economic Cycle Research Institute, which has declared that a recession is coming — and, like the whacking of Tommy DeVito in Goodfellas, “we couldn’t do nothing about it” — offers up another piece of evidence this morning. Its weekly leading index fell again this week, and its rolling growth rate dropped to -8.1%, the lowest in at least a year.
  

MarketWatch:

• 12 Lessons For Us All From The Life Of Steve Jobs.
• Illumina(ILMN) Woes Shine Light on Industry Trouble. A dire revenue warning from biotech firm Illumina Inc. swept away nearly a third of the company’s market value Friday and caused other players in the sector to tumble as investors feared the worst.

CNBC.com:

• Solyndra Casts Shadow on US Energy Loan Aid. Political furor over the Solyndra bankruptcy has dealt a body blow to the idea that the U.S. government should try to help clean tech start-ups through the costly "valley of death" to commercial viability.

Business Insider:

• Chart of the Day: Jobs.
• JPMorgan Presents: 12 Bullish Charts.
  

Zero Hedge:

• Hedge Fund Pound-O-Rama: Full Performance Update Through Months End.
• PrimeX - The Time For The NExt "Subprime Trade" Has Come. (graphs)
• Did Iran Just Retaliate For Stuxnet? Computer Virus Infects US Predator Drone System.
  

New York Times:

• Hedge Funds' Next Target: Hungary? French and Belgian bank stocks have crashed and the bond yields of Greece, Italy and Portugal may be peaking. Now hedge funds and bond vigilantes have begun to zero in on Hungary as the fashionable European country to bet against.

The Daily Caller:

• White House Changes Tune on Double-Dip Recession. White House officials are using a new set of talking points to sell their stimulus plan: The economy’s possible slide into a second recession. During the summer, officials denied a double-dip recession was on the horizon. But yesterday and today, President Barack Obama and his deputies said the $447 billion jobs-stimulus bill is needed to prevent a “double-dip recession.”

Gallup:

• Obama Job Approval: 53% Disapprove, 38% Approve. (graph)

Politico:

• Michael Bloomberg Tells Occupy Wall Street Protestors to Lay Off Banks. New York Mayor Michael Bloomberg slammed the Occupy Wall Street protesters on Friday, saying their attacks on banks could harm one of the city’s major employers. “Everyone’s got a thing they want to protest, some of which is not realistic,” Bloomberg said during his weekly radio show on Friday, according to The Village Voice. “And if you focus for example on driving the banks out of New York City, you know those are our jobs … You can’t have it both ways: If you want jobs you have to assist companies and give them confidence to go and hire people.”

Reuters:

• Moody's Cuts Credit Ratings on UK Banks RBS and Lloyds. Credit rating agency Moody's downgraded Britain's part-nationalized banks Lloyds and Royal Bank of Scotland on Friday, although Britain's finance minister said UK banks were well-placed to cope with a European debt crisis. The cuts to RBS and Lloyds formed part of a broader downgrade of 12 British financial companies by Moody's, which had already been flagged by the agency earlier in the year. Moody's cut RBS by two notches to A2 from Aa3, and downgraded Lloyds TSB by one notch to A1 from Aa3. It also cut its ratings on Santander UK, the Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies.
• Hedge Funds Slide Deeper Into The Red In September. For hedge funds, September was even worse than August. The average fund lost 3.7 percent last month after dropping 3.4 percent in August, according to data released on Friday by industry consultant Hennessee Group. The third quarter is being called the worst in three years, and the average hedge fund is now down 5.2 percent this year. For many of the industry's most established stars, the news is even worse.
• Brazil Inflation Hits 6-Year High, But Rate Cut Seen.
• Germany, France Split on Bank Aid Before Summit. Germany and France were split ahead of crucial talks on Sunday over how to strengthen shaky European banks and fight financial market contagion to prepare for a possible Greek default. Under strong U.S. and market pressure -- and further downgrades to Italy and Spain late on Friday -- Chancellor Angela Merkel and President Nicolas Sarkozy will try to bridge differences on how to use the euro zone's financial firepower to counter a sovereign debt crisis that threatens the global economic recovery. A German source said Paris wanted to be able to tap the euro zone's 440 billion euro rescue fund to recapitalise its own banks, which have the largest exposure to peripheral euro zone debt, while Berlin insisted the fund should be used only as a last resort when no national funds are available. After meeting Dutch premier Mark Rutte, Merkel confirmed the German position was that the European Financial Stability Facility was a backstop to be used "only if that country is unable to cope on its own". A French Treasury source told Reuters that Paris believed banks unable to raise capital on the open market should be able to tap the fund, but talk of divergences with Berlin was premature since the issue had not yet been debated.
• US Coal Consumption Down 13% Last Week.
  

Financial Times:

• The Mystery of US Banks' European Exposure. This might just be the most important piece of paper in US banking right now:
• Russia Urged to Monitor Banks. The International Monetary Fund has called for greater oversight of Russia’s banks, warning that the $14bn Bank of Moscow bail-out this summer raised serious concerns about the industry’s practices and transparency. Antonio Borges, the IMF’s Europe director, said the central bank’s discovery of a massive hole on Bank of Moscow’s balance sheet following its acquisition by state lender VTB caused a loss of confidence in the Russian banking sector.

Telegraph:

• Debt Crisis: Live.

Frankfurter Allgemeine Zeitung:

• European Union banks may need as much as $53.7 billion in fresh capital should they write down the value of debt issued by some European countries, citing calculations by JPMorgan.
• The European Commission proposed cutting countries' access to structural aid funds if they repeatedly breach the region's Stability and Growth Pact, citing a presentation by European Regional Affairs Commissioner Johannes Hahn.
  

Bild:

• Germany should seek a collateral deal modeled on the Finnish agreement in exchange for aid to debt-strapped Greece, junior lawmakers from Chancellor Angela Merkel's coalition parties said. If Greece doesn't sell government property, pledging it as collateral for guarantees should be considered, Oliver Luksic, a member of parliament for Merkel's Free Democratic Party coalition partner, was quoted as saying. The government should "definitely" check whether it is possible to demand collateral from Greece, Christian Hirte, a lawmaker from Merkel's Christian Democratic Union, said.
• Peter Gauweiler, a federal lawmaker from the Bavarian sister party of Chancellor Angela Merkel's Christian Democrats, has urged German President Christian Wulff to veto enhancements to the euro rescue fund that were passed in parliament last week. The last to strengthen the EFSF is violating the German constitution, Gauweiler wrote in a letter to Wulff, Bild said.
  

Xinhua:

• China Shipbuilders' Deliveries Dropped 9% Year-Over-Year in August. Total deliveries were 4.7 million DWTs, citing the National Development and Reform Commission. The industry had 175.8m DWTs of orders on hand Aug. 31, down 9.4% y/y and 10% from end-2010. Eight-month orders fell 37% to 28.1 DWTs. August new orders plunged 60% to 4.49m DWTs. 40% of dockyards have had no new orders in 2011.

Bear Radar

Style Underperformer:

• Small-Cap Value (-2.10%)

Sector Underperformers:

• 1) Banks -3.71% 2) Alt Energy -3.70% 3) I-Banks -3.07%

Stocks Falling on Unusual Volume:

• FSLR, RMBS, UBS, CHL, ILMN, FIBK, LIFE, LMNX, HWCC, WYNN, QGEN, ANEN, SNDA, COLM, ISCA, SIAL, SINA, HAIN, HELE, NIHD, FNSR, FLDM, PKI, WAT, TMO, BRKR, ITC, MWE, RGP and LMNX
  

Stocks With Unusual Put Option Activity:

• 1) ILMN 2) SWY 3) GNW 4) ACN 5) A
  

Stocks With Most Negative News Mentions:

• 1) ILMN 2) ICE 3) LM 4) KEY 5) BAC
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume