Stocks Reversing Lower into Final Hour on Rising Energy Prices, Rising Eurozone Debt Angst, Profit-Taking, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.31 +2.98%
  
• ISE Sentiment Index 102.0 -27.14%
  
• Total Put/Call .76 -10.59%
  
• NYSE Arms .89 -16.33%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.14 -.13%
  
• European Financial Sector CDS Index 178.23 -.39%
  
• Western Europe Sovereign Debt CDS Index 342.02 +2.02%
  
• Emerging Market CDS Index 253.57 -.52%
  
• 2-Year Swap Spread 29.50 -1 bp
  
• TED Spread 42.0 +.25 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -68.50 +1.75 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 bp
  
• Yield Curve 174.0 +2 bps
  
• China Import Iron Ore Spot $135.40/Metric Tonne +.22%
• Citi US Economic Surprise Index 61.80 -3.1 points
  
• 10-Year TIPS Spread 2.29 +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -5 open in Japan
• DAX Futures: Indicating -31 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and 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 morning gains and trades near session lows on rising Eurozone debt angst, rising energy prices, profit-taking, technical selling and more shorting. On the positive side, Coal shares are especially strong, rising more than +.75%. Copper is rising +3.0%. The 10Y Yield is rising +5 bps to 2.5%. The Russia sovereign cds is falling -3.2% to 203.0 bps and the Hungary sovereign cds is falling -3.9% to 531.0 bps. Moreover, the European Investment Grade CDS Index is falling -4.0% to 117.49 bps. On the negative side, Oil Tanker, Semi, Disk Drive, Medical, Biotech, Hospital, Homebuilding, REIT, Retail, Education and Airline shares are under meaningful pressure, falling more than -1.0%. Tech shares are underperforming today and the Transports continue to trade poorly. The Transportation Index is now down -4.0% since Feb. 3 versus a +1.3% gain for the S&P 500. Oil is gaining +2.2%, Gold is surging +2.0% and Lumber is falling -1.1%. Oil has broken out from its recent range, which is a large negative. Retail sales have already decelerated to below average rates and this will provide another headwind. Lumber is -5.2% 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 deteriorated recently despite the Greece debt deal and remain at stressed levels. China Iron Ore Spot has plunged -25.5% since Sept. 7th of last year. Shanghai Copper Inventories are up +676.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major Asian indices were mostly higher overnight, led by a +.75% gain in Shanghai. Asian indices did not trade as well as I would have expected given the recent RRR cut in China and Greece debt deal announcement overnight. As well, major European indices were mostly lower today, led by a -.65% decline in Spanish shares. The Bloomberg European Financial Services/Bank Index is falling -.69%. The Greece debt deal may buy politicians some more time, however I still believe the European debt crisis will flare up again in even more intense fashion down the road. US stocks are technically extended short-term and are right at intermediate-term resistance with bullish sentiment elevated and quite a bit of good news likely priced in. One of my longs, (AAPL), is helping once again to mask broad market weakness today. 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 modestly lower into the close from current levels on rising Eurozone debt angst, rising energy prices, profit-taking, technical selling and more shorting.

Today's Headlines

Bloomberg:

• Greek Rescue Leaves Europe Default Risk Alive as Austerity Bites. Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years. Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year. Even with investors and central bankers chipping in to relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession, looming elections and social unrest. The upshot could be the removal of aid and renewed debate over the merits of fresh assistance before year-end as policy makers shift toward doing more to inoculate the rest of Europe from contagion. “The bailout bandage is on, but it won’t take much to unravel,” said David Miller, partner at Cheviot Asset Management in London. “The euro zone has done its best to ensure that Greece will deliver on promises, but there is considerable scope for backtracking on deficit reduction.” Financial markets signaled doubt the accord will fix Greece’s travails permanently or spell an end to the two-year debt crisis. The euro surrendered initial gains against the dollar and European stocks fell from a six-month high.
• Sovereign Credit-Default Swaps Rise Amid Greek Bailout Concerns. The cost of insuring against default on European sovereign bonds rose on concern the 130 billion-euro ($173 billion) bailout for Greece will fail to resolve the region’s debt crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments increased eight basis points to 342 basis points at 11:26 a.m. in London. The Greek government’s decision to introduce legislation for so-called collective action clauses, allowing it to enforce losses on bondholders, makes it more likely that default swaps on the nation’s debt will be triggered. An International Swaps & Derivatives Association official said in an interview that the group is monitoring the situation “diligently.” The cost of insuring against losses on corporate debt also rose, with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 7.5 basis points to 575.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.25 basis points to 133.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased nine basis points to 222 and the subordinated gauge was 10 higher at 372.5.
• Oil Rises to Highest Level in Nine Months on Greek Aid, Iran Exports. Oil rose to the highest level in more than nine months after euro-area finance ministers agreed on a second bailout for Greece and Iran said it stopped selling oil to France and Britain. Prices gained as much as 2.1 percent after the ministers awarded 130 billion euros ($173 billion) in aid, wrung concessions from Greece’s private investors and engineered a profit transfer by the European Central Bank. Iran stopped selling oil to the two countries yesterday to preempt a European Union ban, according to an official news website. Oil for March delivery gained $1.61, or 1.6 percent, to $104.85 a barrel at 12:40 p.m. on the New York Mercantile Exchange after climbing to $105.44, the highest intraday price since May 5. Futures have risen 6.1 percent this year. The March contract expires at the close of floor trading today. The more actively traded April contract increased $1.56, or 1.5 percent, to $105.16 on the Nymex. Floor trading was closed yesterday because of the U.S. Presidents Day holiday. Brent oil for April settlement rose 52 cents, or 0.4 percent, to $120.57 a barrel on the ICE Futures Europe exchange in London.
• Wal-Mart Profit Trails Estimates as Low Prices Hurt Margins. Wal-Mart Stores Inc., the world’s largest retailer, reported fourth-quarter profit that trailed analysts’ estimates as an emphasis on low prices hurt margins.
• Home Depot(HD) Profit Beats Analysts' Estimates on Warm Weather. Home Depot Inc., the world's largest home-improvement retailer, reported fourth-quarter profit that exceeded analysts' estimates as warmer weather helped spur an increase in residential spending.
• Iran Vows to Press On With Its Atomic Program as IAEA Visits. Iran pledged to press on with its efforts to develop atomic energy as the United Nations nuclear watchdog started a second day of meetings in Tehran to clarify aspects of the country’s activities. Iran has mastered the full nuclear-fuel cycle and the International Atomic Energy Agency supervises its work, Ramin Mehmanparast, a Foreign Ministry spokesman, told reporters in Tehran today. Iran is exercising its “right to peaceful nuclear energy,” he said in comments aired live by the state-run Press TV news channel. “There is nothing to negotiate.”
  

Wall Street Journal:

• Top Banks in EU Rush for Safety. Top European banks, responding to new regulations and wary of lending, are stashing increasingly large sums of money at central banks around the world in a collective flight to safety. The eight giant European banks that have disclosed their annual results in recent weeks reported holding a total of about $816 billion in cash and deposits at central banks as of Dec. 31, according to calculations by The Wall Street Journal. That is up 50% from a year earlier, when the same banks were holding roughly $543 billion.
• Paulson Sued Over Sino-Forest Wager. A former investor in John Paulson's hedge funds is suing Mr. Paulson's firm, alleging it failed to conduct sufficient due diligence into Sino-Forest Corp. before and after purchasing shares of the Chinese forestry company, an investment that cost Paulson & Co. about $500 million last year.
• Comcast(CMCSA) Is Launching a Netflix(NFLX) Competitor.
  

CNBC.com:

• Closures, Losses Push Bank Asia Hedge Fund Industry.
• Sallie Krawcheck: The Euro Is "Fundamentally Flawed".
• Greece Deal Will Only Last Until Next Election: Gartman.
  

Business Insider:

• China's Great Rail Leap Forward Is Looking More And More Like A Disaster.
• Lloyd Blankfein Seen Lunching With Bill Clinton in Boca.
• Chart of the Day: The Rosy Assumptions Behind The Entire Greek Bailout.
• The Social Gaming Market Will Explode To $5+ Billion By 2015.
  

Zero Hedge:

• Greece Debt Deal: "Kicking Giant Beer Keg Down Road Risks Destroying The Road".
• China Moves From Currency Wars to Trade Wars.
• Same Time, Same Place - Greek Labor Unions Waste No Time In Scheduling Tomorrow's Athens Protest.
• Quiet 2 Year Bond Auction Adds $35 Billion To Total Debt, US Debt To GDP Now At 101%.
  

FA:

• Citigroup(C) to Allow Hedge Fund Managers Ownership Stakes Ahead of Volcker Rule. Citigroup Inc., the third-biggest U.S. bank by assets, will let managers of its hedge funds own part of the business ahead of rules that limit shareholders' cash in the unit, Chief Operating Officer John Havens said. Employees in the Citi Capital Advisors division, or CCA, will get a "significant" stake in managing the funds, Havens said in an interview. This will increase, he said, as New York-based Citigroup withdraws its own money and attracts outside investors to comply with the Volcker rule, which restricts deposit-taking banks from making bets with their own capital.

Time U.S.:

• Jerry Brown's Risky Crusade: How to Raise Taxes in California.

Reuters:

• Insight: ECB Preparing to Close Liquidity Floodgates. The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future. Powerful members of the central bank's 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last. Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.
• Gold Up One Percent On Greek Deal, Economic Uncertainty. Gold rose about one percent on Tuesday, outpacing gains in the euro and equities, as a massive European bailout deal as investors bought the metal amid doubts the bailout will work. Spot gold rose 1.2 percent on the day to $1,755.19 an ounce by 11:30 a.m. EST (1630 GMT), having earlier hit a high of $1,756.41, the loftiest price since February 3.
• Airline Shares Tumble on Oil Price Rally. Airline shares fell broadly on Tuesday, with US Airways Group's stock leading the decline, as the price of oil rallied, which directly influences the cost of jet fuel. US Airways shares plummeted 10.4 percent to $7.97 on the New York Stock Exchange. Shares of United Continental Holdings were down 7.78 percent at $21.55, and Delta Air Lines' shares fell 6 percent to $10.18, both on the NYSE.

Financial Times:

• Wolf and Authers on Greece. (video)
• US Feels Pinch From High Petrol Prices. The average cost of a gallon of regular fuel has hit $3.49 a gallon, a record high for February and up sharply from $2.25 five years ago.

Telegraph:

• Debt Crisis: Live.
• France and Germany to 'Harmonize' Corporate Tax Rates. Germany and France moved even closer to full fiscal union by announcing they will be "harmonising" their corporate tax rates by 2013 - a move that will increase the prospect of an EU-wide enforced tax rate that Ireland and the UK have been heavily opposed to.

Der Spiegel:

• Portugal Needs More Money To Stay Afloat. With its massive austerity measures, Portugal has become the poster child of the troika of the EU, ECB and IMF. But the country is still stuck in a deep recession and it is unclear how it will return to growth. It may need to rely on European loans for years to come.

Imerisia:

• Greek banks will have to raise 50 billion euros of extra capital, rather than the 30 billion euros, originally estimated, citing a report on Greece's debt sustainability by the IMF, the EC and the ECB, the so-called troika.
  

Athens News:

• New Measures 'Murdering the Market', Retailers Warn. Retailers are warning that new austerity measures set to be approved by parliament this week are "murdering the market" and worsening the country's recession. "Rampant over-taxation and failed recessionary measures are murdering the market and throwing Greek society into a Third World environment."

Bear Radar

Style Underperformer:

• Small-Cap Growth -.41%

Sector Underperformers:

• 1) Airlines -6.07% 2) REITs -1.51% 3) Homebuilders -1.30%

Stocks Falling on Unusual Volume:

• WMT, KLAC, HCN, SAVE, UAL, TSRA, MXWL, Z, CTRP, VVUS, TSRA, CIEN, SHPGY, RYAAY, CALL, MDVN, STMP, SATS, DAKT, ALGT, GILD, REGN, ITRI, TECH, GLNG, WFT, CTGX, RUK, NVE, MOH and CIE
  

Stocks With Unusual Put Option Activity:

• 1) STI 2) ASIA 3) HRB 4) YOKU 5) APC
  

Stocks With Most Negative News Mentions:

• 1) CTRP 2) KLAC 3) SINA 4) WMT 5) JCP
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.59%

Sector Outperformers:

• 1) Gold & Silver +2.59% 2) Alt Energy +1.19% 3) Coal +1.18%

Stocks Rising on Unusual Volume:

• SWC, RIC, AUY, SKS, WYNN, ASIA, DWA, WPRT, PCYC, CHG, PBH, PBT, CHH, SWC, QCOR, CJES, PPO, PCYC, M and RRD
  

Stocks With Unusual Call Option Activity:

• 1) SWC 2) CIEN 3) HUM 4) LEAP 5) NI
  

Stocks With Most Positive News Mentions:

• 1) BRCM 2) GRMN 3) JEC 4) WYNN 5) ETN
  

Charts:

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

Tuesday Watch

Weekend Headlines
Bloomberg:

• Euro Ministers Reach Agreement on Second Greek Bailout. Euro-area finance ministers reached agreement on a second bailout package for Greece that is vital to staving off a default next month. The deal includes a 53.5 percent writedown for investors in Greek bonds, Luxembourg’s Jean-Claude Juncker, who led the meeting, told reporters early this morning. Debt-swap bonds will have a coupon of 2 percent in 2014, rising to 3 percent in 2015- 2020 and to 4.3 percent after that, he said. Finance ministers haggled into the night in Brussels over the terms of new loans to Greece and a possible contribution by central banks, and leaned on investors to accept bigger write- offs in a bond exchange. Ministers were discussing a Greek debt target of 121 percent of gross domestic product by 2020. European Central Bank President Mario Draghi called the deal “a very good agreement.” Italian Prime Minister Mario Monti said private bondholders agreed to take a bigger writeoff on their Greek debt after “intense” negotiations. The euro surged on news of a deal, rising as high as $1.3293 and trading up 0.1 percent at $1.3262 at 5:30 a.m. in Brussels. European governments need to weld together the program to give enough time for the bond exchange -- designed ultimately to write off about 100 billion euros of Greek debt -- to go ahead by a mid-March deadline. The target is for the swap offer to run from Feb. 22 to March 9, so the exchange takes place in time for Greece to escape the full 14.5 billion-euro cost of a March 20 bond redemption, German lawmakers were told last week by government officials.
• Merkel as Debt Crisis Iron Lady Bucks German Street on Greek Aid. Angela Merkel is having a Margaret Thatcher moment. Having spent six years in office defying comparison with Britain’s first woman prime minister, Merkel is being likened to Thatcher as she steers Europe’s response to the financial crisis with demands for debt reduction and tighter economic controls. Media including the Frankfurter Allgemeine Zeitung, the newspaper of record in Germany’s financial hub, dub her “Europe’s Iron Lady.” Strengthened by record-low joblessness at home, Merkel has rejected calls to either cut Greece loose from the euro area or ease her conditions for aid. By bucking the German street and steering the middle course, she is gambling that policy makers will continue to prevent a euro meltdown, helping her win re- election next year and match Thatcher’s third term. “If Merkel were to go into elections with a collapsed euro zone she’d have a lot of difficulty winning,” Giles Merritt, head of Friends of Europe, a Brussels-based research group that promotes debate on the European Union, said in an interview. “Finally her statesman side is kicking in.”
  
• Spain Sinks Deeper Into Periphery on Debt Rise. Spain’s debt load is set to double from where it was when Europe’s sovereign debt crisis began, eroding the economic advantages that distinguished it from the region’s periphery and helped shield it from Greek (1004Z) contagion. Finance chiefs meet in Brussels today in the latest effort to save Greece from default. Spain went into the crisis with public debt of 40 percent of its gross domestic product, compared with an average ratio of 70 percent in the euro region. The European Union forecasts its debt will have almost doubled by next year, as Moody’s Investors Service says Spain is losing one of its “key relative credit strengths.” Investors give Spain a discount of just 30 basis points on borrowing for a decade compared with what they charge Italy, down from 200 basis points at the end of last year. Spain’s 10- year yield is 5.18 percent, up 33 basis points since Feb. 1. “Time is working against Spain and that is why deficits have to be brought down sharply before the critical 100 percent debt-to-GDP mark is breached,” said Georg Grodzki, who helps oversee $515 billion as global head of credit research at Legal & General Investment Management in London.
• China January Home Prices Worst in a Year. China’s January home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains as Premier Wen Jiabao reiterated his determination to maintain property curbs. Prices in 47 of the cities fell, while home values in the remaining 23 were unchanged from December, the National Statistics Bureau said in a statement on its website on Feb. 18. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a fourth month. None of the cities posted gains in home prices for the first time since the government began releasing at the start of 2011 prices for 70 cities surveyed instead of a national average. China won’t waver on the real-estate controls and efforts to bring prices down to a reasonable level to ensure fairness and stability, Wen said on Feb. 12. “The data wasn’t a surprise as the government maintained its property policies, and home prices will continue to fall till at least the later half of the year,” said Ting Lu, a Hong Kong-based economist at Bank of America Corp. unit Merrill Lynch.
• Apple(AAPL) Partner Foxconn Has 'Tons of Issues,' Labor Group Says. The Fair Labor Association, a watchdog monitoring working conditions at makers of Apple Inc. products, has uncovered “tons of issues” that need to be addressed at a Foxconn Technology Group plant in Shenzhen, China, FLA Chief Executive Officer Auret van Heerden said. Van Heerden made the comments in a telephone interview after a multiday inspection of the factory. Apple, the first technology company to join the FLA, said on Feb. 13 that it asked the Washington-based nonprofit organization to inspect plants owned by three of its largest manufacturing partners. “We’re finding tons of issues,” van Heerden said en route to a meeting where FLA inspectors were scheduled to present preliminary findings to Foxconn management. “I believe we’re going to see some very significant announcements in the near future.”
• Speculators Boost Bullish Wagers to Highest Since September: Commodities. Hedge funds increased commodity bets to the highest in almost five months on signs that a rescue plan for Greece and faster U.S. growth will buoy demand as supplies shrink for everything from soybeans to copper. Money managers boosted net-long position across 18 U.S. futures and options by 2.9 percent to 956,313 contracts in the week ended Feb. 14, the most since Sept. 20, government data show. Soybean wagers jumped 29 percent to a five-month high. Silver holdings rose for a seventh straight week, the longest advance in almost three years.
• Democrat Conrad Says Economic Crisis Would Be Prod to Lawmakers on Debt. An economic catastrophe like the debt crisis in Europe or a Middle East conflict may be the only way to get congressional action this year on a broad reduction of the U.S. deficit, Senate Budget Committee Chairman Kent Conrad said. “If Europe tanks and begins to drag us down, it may become an acute situation that requires a response,” Conrad said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Second possibility is Israel attacking Iran. That could create a big run-up in oil prices. That could have dramatic economic effects and also require a fuller long-term response by the United States.” The North Dakota Democrat, who has been in the Senate since 1987, said he blames lawmakers in both political parties -- and the voters who elected them -- for intransigence on tax increases, entitlement cuts and other tough choices that last year quashed an effort to craft a 10-year debt-cutting plan.
• Egypt to Put 19 U.S. Citizens on Trial on Feb. 26, MENA Reports. Egypt will start the trial of 43 people, including 19 U.S. citizens, on Feb. 26 for breaking rules on foreign financing of NGOs, the official Middle East News Agency reported, citing a court announcement in Cairo.
• Death Toll Mounts in Syria, Officials Killed. Opponents of Syrian President Bashar al-Assad’s rule stepped up their deadly attacks against government officials as the violence of the past 11 months pushes the country toward civil war. Gunmen killed Syrian Public Prosecutor Nidal Ghazal, Judge Mohammed Ziyadeh and their driver in Idlib, the official Syrian Arab News Agency said. The international community is divided on how to resolve the conflict as the daily death toll mounts. Forces loyal to the president are using tanks and artillery to try to crush a rebellion aimed at toppling Assad’s regime. Syrian government forces killed 27 people across the country yesterday, Al Jazeera reported, citing activists. “I’m worried that Syria is going to slide into a civil war,” U.K. Foreign Secretary William Hague told the BBC’s Andrew Marr show yesterday.
• Iran Stops Oil Shipments to U.K., French Buyers, Ministry Says. Iran halted crude exports to French and British companies, the oil ministry’s news website Shana reported, citing Alireza Nikzad Rahbar, a ministry spokesman. Iran “will give its crude oil to new customers instead of French and U.K. companies,” Rahbar said. The halt followed a warning by the oil minister that the Persian Gulf country might act preemptively ahead of a European Union ban on purchases of Iranian crude planned to start in July, he said without giving further details, according to the report yesterday.
• Japan Trade Deficit Widens to Record as Exports Slump: Economy. Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded manufacturers’ profits and slowed the nation’s recovery from last year’s earthquake and tsunami. The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported in Tokyo today. Shipments to China, Japan’s largest market, fell 20 percent from a year earlier, the biggest decline since Aug. 2009. Exports to European Union slid 7.7 percent and shipments to the U.S. advanced 0.6 percent.
• Oil Profits Falling Fastest Since Lehman From Exxon(XOM) to Chesapeake(CHK): Energy. Profits for the biggest U.S. energy producers including Exxon Mobil Corp. (XOM) are poised to decline the most since the financial meltdown of 2008-09 as the drilling technique known as fracking collapses natural gas prices. Exxon and Chesapeake Energy Corp. (CHK), which today reports 2011 earnings, will see net income in 2012 slide 7 percent and 10 percent, respectively, according to the mean of analyst estimates compiled by Bloomberg. That would be the biggest drop since 2009 for the companies, the largest U.S. gas producers. While higher global demand for transportation fuels drove up crude prices about 30 percent since 2009, the domestic gas glut is pinching earnings for producers even as it pushes the U.S. toward energy independence. Especially hurt are Chesapeake and ConocoPhillips, which amassed gas assets before the full impact of fracking on supply growth was apparent, said Michael McMahon, a managing director for energy investments at Pine Brook Partners LLC, a private equity firm in New York. “Fracking has opened up vast areas of development on a scale that’s practically overwhelming for the industry,” said William Dutcher, president of Dutcher and Co., an Oklahoma City- based operator of 1,300 oil and gas wells. Oil output from U.S. fields including in shale rock is at a nine-year high and gas production hasn’t been this robust in almost four decades, Energy Department figures show. “Shale has driven the gas price down to where it’s creating economic hardship for producers, especially those that made acquisitions in 2006 and 2007, when gas was so expensive,” Dutcher said.
• Rio(RIO) Sees 'Volatile' First-Half Ore Prices on China. Rio Tinto Group (RIO), the second-biggest iron ore exporter, expects prices to remain volatile in the first half as demand slows from Chinese steel mills and the European debt crisis crimps the outlook for global growth. “We believe we’ll go through a period of uncertainty probably in the first six months of the year with volatility, then we see some smoother sailing,” Sam Walsh, the company’s iron ore and Australia chief executive officer, told reporters in Perth. “Trying to resolve the issues in Greece and elsewhere creates an amount of uncertainty. People are holding back waiting for things to be resolved, waiting for the comfort that they can see where the economy will be going.”
• Boomers' Drug Use Pushes Hepatitis Deaths Past HIV, Study Finds. Deaths attributed to hepatitis in the U.S. rose during the past decade to surpass those from HIV, posing a future public health burden as most people aren't aware they are infected. The baby boom generation, those born from 1946 to 1964, are the most at risk to the bloodborne virus, said John Ward, director of the Centers for Disease Control and Prevention's hepatitis division, and an author of the study. “Injection drug use was frequent in this age group, and even one-time exposure to injection drug use carries a high risk,” Ward said in an interview. “Seventy-five percent of the mortality is in this age group, and that mortality is increasing. That's the sobering facts for the baby boom generation.”

Wall Street Journal:

• Fed Writes Sweeping Rules From Behind Closed Doors. The Federal Reserve has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system, a stark contrast with its push for transparency in its interest-rate policies and emergency-lending programs. While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions.
• UBS Launches New E-Trading Platform For Credit-Default Swaps. STAMFORD, Conn. (Dow Jones)--Seeing that a pending regulatory overhaul of the $708 trillion private derivatives market will bring down the curtain on the lucrative business of dealing in swaps, UBS (UBS, UBSN.VX) is looking for a new way to stay in the game. In a wholesale shift in how credit derivatives have been traded, the Swiss banking giant has launched an electronic market for credit-default swaps, allowing customers to buy or sell the insurance-like instruments directly with other customers on-screen.
• Ex-Bond Highflier Is Warned by SEC. U.S. securities regulators have warned a former top architect of the structured-finance boom that they are considering civil charges alleging he misled investors in a mortgage-bond deal that imploded, people familiar with the situation said. Alexander Rekeda, who led Japanese bank Mizuho Financial Group Inc.'s charge into the then-red-hot business of U.S. subprime debt in 2006, was warned by the Securities and Exchange Commission in October that he faces the potential charges, according to a regulatory filing.
• Fed Raises Bar For Bank Deals. U.S. regulators eventually gave the green light to the $9 billion merger of Capital One Financial Corp. and ING Direct in a key test of the financial rules-of-the-road since the Dodd-Frank Act. But the Federal Reserve Board may be less accommodating to more-complex medium and large banks, analysts and experts said.
  
• Concerned Scientists Reply on Global Warming. The authors of the Jan. 27 Wall Street Journal op-ed, 'No Need to Panic about Global Warming,' respond to their critics.

Marketwatch.com:

• Many U.K. Directors See Big Risk Of Euro-Zone End.

Business Insider:

• Look At All The Other Junk Stuck In The Payroll Tax Cut Extension.
• Leaked Memo Blows The Lid Off Of The Entire Greek Bailout.
  
• Steve Wynn Just Forcibly Ousted The Co-Founder Of Wynn Resorts(WYNN), His Former Best Friend, From The Company.
• Fearing The West, Putin Pledges Biggest Military Buildup Since Cold War.
• The West Is Losing The Chess Game With Iran.
• The Leasing Industry Is Fighting An Accounting Change That Would Expose $1.5 Trillion In Debt.
• Uh Oh: Gas Prices Are Getting Close To The Magic Freak-Out Point.
  

Zero Hedge:

• The Great ECB-OSI Bond-Swap Scam.
• European Insurers: How Long Before Capital Denial Becomes Capital Punishment.
• Presenting The Full Greek Sustainability Analysis - Take It Away German Media.
• Tomorrow and Tomorrow and Tomorrow.
  

CNBC:

• Saudi Arabia Cuts Oil Output, Export: Industry Report. The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data.
• Bullish Hedge Funds Hike Their Bets in 2012 Rally. Hedge funds are cranking up their bets in equities and credit in 2012's buoyant markets in the belief that the euro zone, U.S. and Chinese economies will fare better than many were fearing last year.
• Recession Looms as Growth Slows in Developed Countries. Economic growth in developed economies almost ground to a halt in the last three months of 2011, with the U.S. driving what growth there was, according to the Organisation for Economic Co-operation and Development (OECD).
• China Telecom in Deal to Sell iPhone in the Mainland.
  

Wall Street All-Stars:

• S&P 500 Corporate Earnings Update.
  

NY Times:

• For Women Under 30, Most Births Occur Outside Marriage. It used to be called illegitimacy. Now it is the new normal. After steadily rising for five decades, the share of children born to unmarried women has crossed a threshold: more than half of births to American women under 30 occur outside marriage. Once largely limited to poor women and minorities, motherhood without marriage has settled deeply into middle America. The fastest growth in the last two decades has occurred among white women in their 20s who have some college education but no four-year degree, according to Child Trends, a Washington research group that analyzed government data. Among mothers of all ages, a majority — 59 percent in 2009 — are married when they have children. But the surge of births outside marriage among younger women — nearly two-thirds of children in the United States are born to mothers under 30 — is both a symbol of the transforming family and a hint of coming generational change. One group still largely resists the trend: college graduates, who overwhelmingly marry before having children. That is turning family structure into a new class divide, with the economic and social rewards of marriage increasingly reserved for people with the most education.
• Bonds Backed by Mortgages Regain Allure. Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart. Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted. Mr. Lippmann is joined by other big-money investors — mutual funds like Fidelity as well as hedge funds — in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.

Chicago Tribune:

• Chicago New Condo Sales Plunge More Than 50% in 2011.
• Falcone Sticks With Plan, Hit by Lawsuit. Hedge fund manager Philip Falcone told investors he is sticking by plans to build a national mobile broadband service even as an investor charged in a lawsuit that he deceptively raised billions of dollars that went to the struggling venture.
  

Reuters:

• Exclusive: SEC Widens Probe of ETFs. U.S. securities regulators have widened their inquiry into the trillion-dollar market for exchange-traded funds, according to a person familiar with the matter. Prompted by a delay in a big trade at a popular ETF, the U.S. Securities and Exchange Commission is taking a closer look at a possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and instances where ETF trades fail to settle on time, this person said. The SEC's inquiry is part of a wider probe that began last year and focused on complex ETFs that allow investors to magnify returns or bet against stock indexes.
  

Financial Times:

• Impact of Insider Crackdown Spreads. As regulators crack down on inside information, particularly in the US, asset managers say increased scrutiny and prosecutions have made it more difficult to talk to companies and affected equity returns.
• Hedge Funds 'Have to Try Harder'. Hedge funds are on their final warning with investors, according to research from SEI. Although institutional investors have not yet wavered in their commitment to hedge funds, despite disappointing performance in recent years, they are now likely to be more demanding, both in terms of performance and of transparency.
• Investors Seek Hedge Against Euro Split. Leading investment banks are considering creating currency products that would protect companies and investors in the event of a partial break-up of the euro. Banks report that some clients have asked them to provide a hedging tool that would protect their exposure in countries that reintroduced their national currency. “There’s a lot of interest in this,” said Bernie Sinniah, global head of corporate sales at Citigroup, one of the largest foreign exchange dealers.
• European Union rules set to be approved by ministers tomorrow would force euro-area countries to seek EU approval of their yearly tax and spending budgets before presenting them to their national parliaments for approval, citing a draft of the regulations.
• US Corporates Shy To Offer Guidance. US companies are more uncertain about the future than at any point since the financial crisis, with just one in five of the country’s biggest corporations making any predictions as they published fourth-quarter results. “We’re seeing a marked reluctance from companies to be concrete in their forecasts,” said Christine Short at data provider Standard & Poor’s Capital IQ.

The Telegraph:

• Iran Risks Nuclear Cold War. Iran's pursuit of weapons of mass destruction is threatening to trigger a “new Cold War” that poses an even greater threat of nuclear conflict than the stand-off between the USSR and the West, William Hague warns.
• Debt Crisis: Live.
  

BBC:

• Iran 'May Boost Nuclear Program', Diplomat Warns. Iran may be poised to expand its nuclear programme at an underground site near the city of Qom, a Vienna-based diplomat has told the BBC. It appears to be ready to install thousands of new-generation centrifuges at the fortified underground plant, the diplomat said. They could speed up the production of enriched uranium - required for both power generation and nuclear weapons.

Welt am Sonntag:

• The German Economy Minister said Greek reforms are "insufficient," citing an internal working paper from the ministry. "The implementation from the Greek side remains insufficient," citing the document.

El Pais:

• Around one million people marched in Spain's capital and other main cities to protest against Prime Minister Mariano Rajoy's labor rules overhaul, citing the countries' two main unions, CCOO and UGT. "Spain needs to avoid being the European country that most destroys jobs," Rajoy said early today during a televised speech at a People's Party convention in Sevilla.
  

Securities Times:

• Outstanding non-performing loans at publicly traded banks in China may increase 26% this year from a year earlier, citing a China International Capital Corp. report. Non-performing loans may keep rising, according to the report.

Study Times:

• China plans to push forward property tax reform trials this year, citing finance minister Xie Xuren. The country also plans to prevent redundant construction and limit new projects, Xie said. China will limit local governments' new debts, citing Xie.

Weekend Recommendations
Barron's:

• Made positive comments on (CIT) and (GLW).
• Made negative comments on (HPQ).
  

Night Trading

• Asian indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 158.50 unch.
• Asia Pacific Sovereign CDS Index 133.50 -1.5 basis points.
• FTSE-100 futures unch.
  
• S&P 500 futures +.40%.
• NASDAQ 100 futures +.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DTG)/.74
• (MYL)/.50
• (MHS)/1.17
• (GPC)/.83
• (HD)/.42
• (WMT)/1.45
• (BYD)/-.01
• (CBRL)/1.14
• (MDT)/.84
• (SKS)/.14
• (M)/1.65
• (BKS)/.92
• (INTU)/.45
• (FST)/.26
• (CAKE)/.52
• (CHK)/.59
• (CUZ)/.12
• (DELL)/.51
• (KFT)/.57
• (EXPD)/.47

Economic Releases
8:30 am EST

• The Chicago Fed Nat Activity Index for January is estimated to rise to .22 versus .17 in December.

Upcoming Splits

• None of note
  

Other Potential Market Mover7s

• The 2Y T-Note Auction, Ecofin Meeting of EU Finance Ministers, (MYL) Investor Day and the Enercom Oil/Gas Services Conference could also impact trading today.
  

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

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week mixed as profit-taking, global growth fears and rising energy prices offsets better US economic data, less Eurozone debt angst and short-covering. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.