Bear Radar

Style Underperformer:

• Small-Cap Growth -.32%

Sector Underperformers:

• 1) Biotech -1.80% 2) Gold & Silver -1.80% 3) Steel -1.50%

Stocks Falling on Unusual Volume:

• GILD, RP, QLIK, LIFE, AEM, CLF, NTT, ARTC, WOOF, TNGO, ARUN, HMSY, MDRX, MXWL, BIDU, LPNT, BMRN, BJRI, NTES, NVDA, Z, ONXX, PLCE, SCX, GIS, EVN, OIS, BMRN and TNGO
  

Stocks With Unusual Put Option Activity:

• 1) ERIC 2) BBD 3) AET 4) TBT 5) XHB
  

Stocks With Most Negative News Mentions:

• 1) DHI 2) CLF 3) VLO 4) WMT 5) CBEY
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.08%

Sector Outperformers:

• 1) Education +.79% 2) Retail +.77% 3) Telecom +.58%

Stocks Rising on Unusual Volume:

• ACHN, AIXG, VRTX, IDIX, CPA, RAIL, VVUS, WWWW, PFCB, ROVI, FSLR, AGP, CAB, FIO, BGS, HP and CLD
  

Stocks With Unusual Call Option Activity:

• 1) CSIQ 2) MIPS 3) IMAX 4) SVU 5) MCK
  

Stocks With Most Positive News Mentions:

• 1) CHK 2) CSX 3) BIDU 4) K 5) AMAT
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Friday Watch

Evening Headlines
Bloomberg:

• Germany Eyes Approval for Greek Rescue. Germany wants euro-area finance chiefs to avoid splitting consideration of a 130 billion-euro ($171 billion) Greek rescue and a bond swap to cut the nation’s debt load at a meeting next week, coalition lawmakers were told by German government officials in a briefing. As long as Greece meets conditions for the aid, the finance chiefs will probably approve the package along with the debt exchange, three German officials involved in the telephone briefing yesterday said. A Finance Ministry spokesman declined to comment. Wrangling among euro-area finance ministers on a Feb. 15 conference call over how to reduce Greece’s debt load and tighten control of the aid raised the prospect of a two-step process, according to two people familiar with the talks. In that scenario, the ministers’ Feb. 20 gathering in Brussels would be limited to kicking off the bond exchange and deferring decision on the rest of the bailout funds. As recriminations fly between Greece and its northern European creditors, the clock is ticking toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history. “We expect the Greeks to rise to their responsibilities,” German Deputy Finance Minister Steffen Kampeter told a group of lawyers in Hamburg yesterday. “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”
• Stress Stops Easing With Greek Debt Faltering: Credit Markets. Measures of stress in global credit markets have stopped easing as a rescue plan for Greece threatens to unravel and some of the largest U.S. and European banks face potential ratings cuts. Interest-rate swap spreads, which gauge fear in debt markets, and benchmark measures of corporate credit risk in the U.S. and Europe touched the highest level in more than two weeks yesterday. Sales of bonds in dollars are poised for the slowest week this year. Relative yields on bank bonds worldwide climbed for a second day after an eight-week decline.
• Euro May Fall to Lowest in Two Years on 'Bear Trend': Technical Analysis. The euro may fall toward its lowest level in more than two years against the dollar after dropping below a key support level, Bank of America Corp. said, citing trading patterns. The 17-nation currency’s slide below $1.3026 yesterday confirmed its decline through the 21-day moving average and signals a “larger bear trend,” according to a report by MacNeil Curry, the bank’s New York-based head of foreign- exchange and interest-rates technical strategy. “The subsequent close through the 21-day and break of $1.3026 intra-day pivot points to a resumption of the larger bear trend targeting $1.2644/$1.2510 area support,” Curry wrote in the research note published yesterday.
• Singapore Exports Drop on Europe Fallout. Singapore’s exports fell for the first time in three months in January on lower electronics and petrochemical shipments, as Europe’s debt crisis crimped demand and the Chinese New Year holiday shortened the working month. Non-oil domestic exports slid 2.1 percent from a year earlier, after a 9 percent gain in December, the trade promotion agency said in a statement today. The median of 15 estimates in a Bloomberg News survey was for a 1.6 percent decline. Shipments to Europe plunged 14.5 percent. Singapore’s electronics shipments by companies including contract manufacturer Venture Corp. fell 10.9 percent in January from a year earlier, after declining a revised 4.2 percent the previous month. “The manufacturing sector, and the electronics cluster in particular, have been hit hard by the weakness in final demand from the U.S. and Europe,” said Leif Eskesen, an economist in Singapore at HSBC Holdings Plc. “This is likely to persist. Moreover, slower growth in China and the rest of Asia will also dampen external demand in 2012.”
• Egypt-U.S. Rift Hangs Over IMF Loan Talks as Reserves Plunge. Egypt’s politicians and media are issuing ever-louder accusations of American meddling just as the country seeks loans from the International Monetary Fund, where the U.S. is the biggest shareholder. “America is behind the chaos,” blared a red headline on the front page of state-run Al-Gomhuria newspaper this week. The Muslim Brotherhood said U.S. money was being spent “to destroy Egypt and ruin its society.” The dispute over the prosecution of employees at U.S.-based NGOs, accused of breaking rules on foreign financing, has opened the deepest rift for decades between the military allies. It’s happening as the government prepares to submit an economic program to parliament that will be the basis for its application for a $3.2 billion IMF credit.
• Yelp(YELP) to Raise as Much as $100 Million in IPO. Yelp Inc., the user-generated review website, plans to raise as much as $100 million in what may be the first initial public offering from a major Internet company this year. Yelp, based in San Francisco, said it will offer 7.15 million shares for $12 to $14 each, according to a regulatory filing today. The stock will trade on the New York Stock Exchange under the ticker YELP. The IPO will probably come ahead of Facebook Inc., the biggest social-networking website, which filed to raise $5 billion on Feb. 1, without setting terms. At the midpoint of the price range, Yelp’s offering would value the company at about $778 million, or about 9.3 times last year’s sales. That compares with 5.2 times for Google Inc. and 3.8 times for Yahoo! Inc., which Yelp lists as competitors in its IPO prospectus.
• Al-Qaeda Bid for Role in Syria Cited by Panetta as U.S. Concern. U.S. Defense Secretary Leon Panetta expressed concern that al-Qaeda has voiced support for the opposition in Syria, a sign the group may be seeking a role in the conflict there. “It does raise concerns for us that al-Qaeda is trying to assert a presence there,” Panetta said yesterday in response to a question during a briefing at the Pentagon. “The situation there has become that much more serious as a result of that.”
• U.S Volcker Rule Could Hurt Liquidity, Bipartisan Senators Say. A proposed U.S. ban on proprietary trading may limit liquidity and restrict bank market-making for clients, six Republican and Democratic senators told the Federal Reserve and other regulators. “The proposed rule, as drafted, could adversely affect Main Street businesses by reducing market liquidity and increasing the cost of capital,” the senators said in a letter today. “There is evidence that this is already beginning to occur.” The letter was signed by Democratic Senators Tom Carper of Delaware, Mark Warner of Virginia and Chris Coons of Delaware; and Republicans Pat Toomey of Pennsylvania, Mike Crapo of Idaho and Scott Brown of Massachusetts.
• Most-Hated Stocks Burn Short Sellers as Sears(SHLD), Netflix(NFLX) Lead S&P. The companies investors hated the most in 2011 have returned twice as much as the Standard & Poor’s 500 Index this year, burning speculators who bet stocks from Sears Holdings Corp. to Netflix Inc. would keep falling. The 26 companies in the S&P 500 with the highest so-called short interest relative to shares available for trading rallied 18 percent this year, compared with 8 percent for the full index, data compiled by Bloomberg show.

Wall Street Journal:

• Change In Loan-Tallying Method. Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting, shielding them from swings in the value of some loans made to companies. After several months of internal discussion, the two companies are making an accounting change affecting a portion of corporate loans that have a combined value of more than $100 billion. The change will value that portion using so-called historical-cost accounting, according to financial filings and people familiar with the matter. Under that accounting method, assets generally are held at their original value or purchase price. Goldman and Morgan Stanley could set aside reserves against possible losses on the loans and hedge them in other ways. The banks are making the change in part because, as a result of regulators' rules, securities firms using historical-cost accounting won't have to hold much-larger amounts of capital against the assets if their values go down. There also will be less fluctuation in Goldman and Morgan Stanley's earnings, because marking the loans to market creates immediate gains or losses for the companies as the values of the loans fluctuate.
• Applied Materials(AMAT) 1Q Profit Falls 77%; 2Q Outlook Sunny. Applied Materials Inc.'s (AMAT) fiscal first-quarter profit slumped 77% on weaker sales and acquisition costs, though the semiconductor-equipment maker said recent orders would deliver a stronger result in the second quarter. Shares jumped 4.8% to $13.84 after hours as results topped expectations and the company projected current-quarter earnings between 20 cents and 28 cents a share, including some acquisition costs, as sales grow 5% to 15% from the prior quarter. Revenue would reach between $2.3 billion and $2.52 billion at that pace. Analysts polled by Thomson Reuters were looking for 15-cent profit and $2.08 billion in revenue.
• Qualcomm(QCOM) President: Continuing With Technology M&As.
• Traders Manipulated Key Rate, Bank Says. A group of traders and brokers successfully managed to manipulate an interest rate that affects loans around the world, one of the banks being investigated has told regulators. In a court filing in Ottawa, Canada's Competition Bureau said a bank it didn't identify has told the agency's investigators that people involved in the alleged scheme "were able to move" interest rates. People familiar with the situation said the "cooperating party" is UBS AG.
• Lehman Brothers Subpoenas Geithner In JPMorgan(JPM) Fight. Lehman Brothers Holdings Inc. (LEHMQ) and its creditors late Thursday said they want to subpoena Treasury Secretary Timothy Geithner to question him under oath over allegations J.P. Morgan Chase & Co., (JPM) illegally siphoned billions of dollars from the collapsing investment bank in the days before it filed for the largest bankruptcy in U.S. history.
• Syrian Conflict Spills to Neighbors. Syria's civil conflict is rapidly expanding into a regional proxy battle that threatens to cleave neighboring countries, including Lebanon and Iraq, as their populations harden along sectarian lines. Syria's struggle is reopening sectarian fault lines in places like Tripoli, a city in northern Lebanon where tensions have long simmered. The area's minority Alawite residents belong to the same Muslim offshoot sect as Syrian President Bashar al-Assad, and have long supported the family regime. Meanwhile, Sunni residents in recent months have provided shelter, hospitals and a base for arms trade to Syrian rebels, all sides acknowledge.
• The War on Wyden. For daring to work on Medicare reform with Republican Paul Ryan, the Democratic senator from Oregon is lambasted by keepers of the liberal flame. Ticked off by Washington's failure to tackle big problems? Spare a moment for Oregon's senior senator. Mr. Wyden is the Democrat who in December had the audacity to team up with House Republican Paul Ryan on a proposal to reform and strengthen Medicare—the entitlement that is pushing the country, and seniors, off a cliff. As bipartisan exercises go, this was big, thoughtful, promising.

Business Insider:

• Oppenheimer: This Is Why EU Leaders Don't Want A Greek Credit Event.
• GMO: Here's A 3-Tiered Way To Short China.
• Chart of the Day: All of the Stock Market Sentiment Indicators Combined Into One Index.
  

Zero Hedge:

• Housing Settlement To Be Taxpayer Funded Confirming Big Banks Are Truly Beyond The Law. The epic farce continues again as the FT reports tonight that the foreclosure settlement over their improper seizure of tax-paying US citizens' homes will in fact be subsidized by those very same US taxpayers. It is a hidden clause (that has not been made public yet) that allows the banks to count future loan modifications under the $30bn (taxpayer funded) HAMP initiative towards their $35bn agreement to restructure obligations under the new settlement.
• Bank Bonds Not Buying The Rally. (graphs)
• Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased".

CNBC:

• Rising Gas Prices May Limit Payroll - Tax Cut Savings. Rising gasoline prices could bite into any savings from the expected extension of the payroll tax cut, but for now the higher costs could be somewhat offset by lower winter heating bills.

CNN:

• Is China Faking Its Economic Growth? Influential short-seller Jim Chanos is still on a China rampage. He thinks the Chinese government is understating its inflation problem -- thereby making its economy look stronger than it actually is. "One of the things I'm pretty convinced of based on our analysis, is that inflation is under-reported in China by as much as 4 to 5% a year," he told CNNMoney's Poppy Harlow in an interview. If Chanos is right and the Chinese government is under-reporting its inflation data, its measure of economic growth would also be off-kilter. While economists are often skeptical of China's government figures, Chanos estimates those numbers are way off. "We are seeing rapid falloffs in demand in things like construction equipment, railway construction over there, housing sales -- so lots of things are slowing down pretty quickly over there," he said. "It remains to be seen whether that's going to go into a full-fledged recession. I do think the property sector which is where we're focused on, is going to enter -- or has entered a recession."
  

Financial Times:

• Athens Faces Tough Bail-Out Terms. The agreement, which officials hope to finalise on Monday, is likely to include an escrow account that must always contain enough cash to pay Greece’s debt for nine to 12 months. If the account falls below that level, money will be taken from funds earmarked to run the Greek government, according to people briefed on the talks. In addition, the bail-out will include a permanent and beefed-up presence of international monitors who will attempt to keep real-time tabs on the Greek government’s spending decisions, officials said.
• Berlin Keeps Unearthly Hush On Eurozone Crisis. Sitting in Berlin in the midst of the eurozone crisis feels like being trapped in the eye of a hurricane. All around Europe the storms of alarm and despondency rage, but in the German capital there is an unearthly hush.

Telegraph:

• Just as Greece Complies at Last, Europe Pulls the Plug. Officials from the EU and the International Monetary Fund made two grave errors when they swooped into Greece in mid-2010 and dictated the now hated "Memorandum".

Economic Information Daily:

• China will "unwaveringly" maintain property curbs in both the long and short term, citing Qin Hong, head of the policy research center under the Ministry of Housing and Urban-Rural Development. Local governments will face "relatively large" fiscal pressure this year because of public housing investment and debt repayment, according to Qin.

21st Century Business Herald:

• Beijing 2011 Land Sales Slump 33% on China Property Curbs. Income from land sales in China's capital city drops to 105.4b yuan last year from 156.2b yuan a year earlier, citing Centaline Property data. Residential site sales plunged 50% year/year in Beijing to 49.8b yuan. Developers remain cautious on buying land this year. 2012 land sales may be less than 100b yuan.
• China will support some banks in securitizing local government debt that have "good qualities" this year.
  

Evening Recommendations
Raymond James:

• Raised (GEOY) to Strong Buy, target $36.
  
• Rated (DGI) to Strong Buy, target $25.

Night Trading

• Asian equity indices are +.50% to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 164.0 -5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 141.75 +4.5 basis points.
• FTSE-100 futures +.35%.
  
• S&P 500 futures unch.
  
• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (B)/.32
• (CPB)/.62
• (ECA)/.09
• (FRO)/-.58
• (HNZ)/.85
• (HMSY)/.16
• (PPC)/-.31

Economic Releases
8:30 am EST

• The Consumer Price Index for January is estimated to rise +.3% versus unch. in December.
• The CPI Ex Food & Energy for January is estimated to rise +.2% versus a +.1% gain in December.
  

10:00 am EST

• Leading Indicators for January are estimated to rise +.5% versus a +.4% gain in December.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

BOTTOM LINE: Asian indices are lower, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Surging into Final Hour on Euro Bounce, Better US Economic Data, More Tech/Financial Sector Optimism, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 19.34 -8.51%
  
• ISE Sentiment Index 109.0 +73.02%
  
• Total Put/Call .87 -20.18%
  
• NYSE Arms .53 -60.62%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.14 +.55%
  
• European Financial Sector CDS Index 191.95 -4.16%
  
• Western Europe Sovereign Debt CDS Index 348.21 -.46%
  
• Emerging Market CDS Index 259.67 -2.03%
  
• 2-Year Swap Spread 29.25 +.75 bp
  
• TED Spread 39.50 +.75 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -72.0 +.25 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -2 bps
  
• Yield Curve 170.0 +5 bps
  
• China Import Iron Ore Spot $136.80/Metric Tonne -.44%
• Citi US Economic Surprise Index 65.50 +2.2 points
  
• 10-Year TIPS Spread 2.25 +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +130 open in Japan
• DAX Futures: Indicating +48 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Retail, Medical and Tech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs on a bounce in the euro, better US economic data, short-covering, a reversal higher in (AAPL), more financial/tech sector optimism and investor performance angst. On the positive side, Alt Energy, Software, Computer, Semi, Disk Drive, Airline, Bank and Oil Tanker shares are especially strong, rising more than +2.0%. Small-cap and Cyclical shares are relatively strong. Tech and Financial shares are also outperforming. Oil and Gold are flat. The 10Y Yield is rising +6 bps to 1.98%. The Germany sovereign cds is falling -1.23% to 87.67 bps. On the negative side, Ag, Drug, Homebuilding, Education and Road & Rail shares are lower-to-flat on the day. Copper and Lumber are flat with the UBS-Bloomberg Ag Spot Index rising +.5%. The Spain sovereign cds is up +2.45% to 401.0 bps, the Italy sovereign cds is up +1.2% to 420.0 bps, the Belgium sovereign cds is gaining +2.4% to 240.50 bps and the Saudi sovereign cds is gaining +3.2% to 135.68 bps. Moreover, the Emerging Markets Sovereign CDS Index is jumping +7.2% to 267.33 bps. Lumber is -6.0% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauges have meaningfully deteriorated over the last week and remain at stressed levels. China Iron Ore Spot has plunged -24.6% since Sept. 7th of last year. Shanghai Copper Inventories are up +728.0% ytd to another new all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. The AAII % Bulls fell to 42.7% this week, while the % Bears rose to 26.6. Overall, investor complacency is still fairly high, but performance angst is likely kicking in again with the S&P 500 breaking out from its recent range. Stocks are strengthening on a bounce in the euro off the lows and better US economic data. While I do think the US economy is still improving, I do not think it is improving as much as perceived. As well, the recent deterioration in credit gauges is more noteworthy than the bounce in the euro off the lows. However, today's convincing break above S&P 500 1,350 should lead to further near-term gains. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the euro, better US economic data, short-covering, a reversal higher in (AAPL), more financial/tech sector optimism, technical buying and investor performance angst.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.82%

Sector Underperformers:

• 1) Education -1.75% 2) Homebuilders -.06% 3) Foods +.12%

Stocks Falling on Unusual Volume:

• STRA, ONE, SKX, WM, RP, UPL, VIP, SNCR, NILE, DGIT, RP, ACOM, AIMC, CAR, RPXC, NTES, SNCR, DTV, MELI, QCOR, AMZN, STJ, HBI, ABB, HTZ and KRO
  

Stocks With Unusual Put Option Activity:

• 1) WY 2) XEC 3) KMI 4) DECK 5) MS
  

Stocks With Most Negative News Mentions:

• 1) DE 2) PHM 3) AMZN 4) NHI 5) DGIT
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.89%

Sector Outperformers:

• 1) Computer Hardware +1.58% 2) Oil Tankers +1.15% 3) Utilities +1.10%

Stocks Rising on Unusual Volume:

• SYNT, AAP, EGOV, CAB, MITK, OVTI, CLR, ITRI, NTAP, EQIX, ACTG, PCAR, EXPD, AEA, RUK, TRW, HOS, TEX, VCI, IPI, GNC, SEE, TRN and TAP
  

Stocks With Unusual Call Option Activity:

• 1) TLM 2) HTZ 3) MTG 4) SWN 5) NVS
  

Stocks With Most Positive News Mentions:

• 1) ITRI 2) FRED 3) NTAP 4) DTV 5) GIS
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume