Confidence Near 2003 Bear Market Lows

- Consumer Confidence for November fell to 87.3 versus estimates of 91.0 and a reading of 95.2 in October.

BOTTOM LINE: Consumer confidence fell more than forecast in November, Bloomberg reported. The Present Conditions component of the index fell to 115.4 from 118 the prior month. The Expectations component fell to 68.7, the lowest since March 2003, right near the major bear market bottom. The proportion of people who said jobs are hard to get fell to 21.3% from 22.8% the prior month. I expect consumer confidence to bounce back in December as energy prices fall, the job market remains healthy and stocks rebound.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Citigroup(C), the US bank searching for a new CEO as it faces at least $8 billion of writedowns, agreed to sell as much as 4.9% of the company to the government of Abu Dhabi for $7.5 billion.
- The yen declined against all of the world’s 16 most-active currencies after Abu Dhabi Investment Authority agreed to invest in Citigroup(C), prompting investors to buy higher-yielding assets with loans from Japan.
- The yen’s gain to a more than two-year high against the dollar may stall, according to a technical indicator some traders use to predict currency movements. The dollar’s 14-day relative strength index to the yen was 26.59 today. A level below 30 signals a reversal in direction. Futures traders also raised their bets to the most in almost three years on the yen to advance against the dollar, suggesting the Japanese currency is vulnerable to a decline.

Wall Street Journal:
- Google Inc.(GOOG) is planning to offer a service that allows people to store files such as word-processing documents, pictures and music files on the Internet company’s hard drives. The service would allow customers to access the files through the Internet, with some storage being offered for free and additional space costing a fee.
- Pardus Capital Management LP, the $3 billion hedge fund that owns stakes in Delta Air Lines(DAL) and UAL’s United Airlines, is seeking their merger, a push that may be winning support from other shareholders.

MarketWatch.com:
- Obsessive attention to a company’s financial condition and surrounding Wall Street sentiment is giving mutual fund manager Tim Guinness reason to stick with technology sector stocks.
- The “Bold Bulls” is my name for the three letters that called the end of the bear market after a particularly dramatic down day in early 2003: Index Rx, Marketimer, Profitable Investing. I check in with the Bold Bulls whenever the markets get particularly interesting.

BusinessWeek:
- An auction of wireless airwaves could create a new breed of wireless players that lease network space to upstarts.

CNNMoney.com:
- Online retailers hit 4.6 million visitors a minute. Cyber Monday traffic and sales reported at a blistering pace.

USA Today.com:
- Widgets make a big splash on the Net.
- Sony(SNE), Apple(AAPL) and other tech companies want more computer programmers to write software for their products – even if the programmers aren’t employees.

Financial Times:
- US online retail sales have been growing at better-than-expected rates in the run-up to the holidays, according to Wall Street analysts and internet retailers.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MAR), target $62.
- Reiterated Buy on (WSH), target $47.
- Reiterated Buy on (DKS), target $37.

Night Trading
Asian Indices are -1.75% to -.25% on average.
S&P 500 futures +.84%.
NASDAQ 100 futures +.59%.

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Earnings of Note
Company/EPS Estimate
- (JTX)/-.60
- (AEO)/.45
- (TECD)/.60
- (SPLS)/.40
- (DBRN)/.31
- (TLB)/-.23
- (PBY)/.02
- (SMTC)/.21
- (CENT)/.03
- (HDL)/-.20
- (PLL)/.57
- (ADI)/.39
- (MRVL)/.08

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for November is estimated to fall to 91.0 versus 95.6 in October.

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Plosser speaking, weekly retail sales reports, S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index, CSFB Tech Conference, Piper Jaffray Healthcare Conference, Friedman Billings Investor Conference, Lazard Healthcare Conference, JPMorgan Homebuilding & Building Products Conference, CIBC Mid & Small Cap “Best Ideas” Conference and Merrill Lynch Health Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and automaker stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Lower on Global Growth Worries, Financial Sector Concerns

Indices
S&P 500 1,407.22 -2.32%
DJIA 12,743.44 -1.83%
NASDAQ 2,540.99 -2.14%
Russell 2000 735.07 -2.64%
Wilshire 5000 14,151.62 -2.17%
Russell 1000 Growth 587.11 -1.86%
Russell 1000 Value 762.17 -2.56%
Morgan Stanley Consumer 728.91 -1.22%
Morgan Stanley Cyclical 936.36 -1.93%
Morgan Stanley Technology 590.43 -2.37%
Transports 4,384.36 -1.50%
Utilities 520.12 -.69%
MSCI Emerging Markets 146.17 -.54%

Sentiment/Internals
Total Put/Call .97 +15.48%
NYSE Arms 1.99 +411.32%
Volatility(VIX) 28.91 +12.89%
ISE Sentiment 103.0 -29.93%

Futures Spot Prices
Crude Oil $97.08 -1.12%
Reformulated Gasoline 242.79 -1.58%
Natural Gas 7.72 +.31%
Heating Oil 269.57 -.31%
Gold 823.10 -.19%
Base Metals 222.72 +1.80%
Copper 299.50 -1.14%

Economy
10-year US Treasury Yield 3.84% -16 basis points
US Dollar 74.79 -.35%
CRB Index 353.37 -.26%

Leading Sectors
HMOs +.34%
Hospitals -.54%
Utilities -.69%

Lagging Sectors
Steel -4.0%
Banks -4.5%
Homebuilders -5.43%

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Afternoon Recommendations
Oppenheimer:
- Rated (RDEA) Buy, target $15.

Afternoon/Evening Headlines
Bloomberg:
- Countrywide Financial(CFC) fell more than 10% in NYSE trading after NY Democratic Senator Charles Schumer urged the Federal Home Loan Bank system to probe cash advances to the largest US mortgage lender.
- A US court won’t reconsider its ruling last month that companies operating fantasy sports leagues have a First Amendment right to use players’ names and statistics for free.
- Al Qaeda leader Osama bin Laden plans to release a message intended for Europeans, private intelligence company SITE Intelligence Group said today.

CNBC:
- Yahoo! Inc.’s(YHOO) servers for small businesses have not been operating since this morning, citing customers.

Nikkei English News:
- Matsushita Electric Industrial and Ebara Corp. are among Japanese companies planning to mass produce residential fuel cells.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Retail longs, Biotech longs and Semi longs more than offset gains in my (TLT) long, commodities shorts, emerging market shorts and index hedges. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was about average. Measures of investor anxiety were high into the close. Today's overall market action was very bearish. Investors are once again ignoring the positives and focusing on the negatives. Nikkei futures are indicating a down -285 open in Japan. I still think an imminent recession in the U.S. is virtually impossible if not accompanied by a significant slowdown overseas. Investors continue to price in this scenario, despite little evidence its occurrence.

Stocks Lower into Final Hour on Global Growth Concerns, Financial Sector Worries

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Computer longs, (TLT) long, commodities shorts and emerging market shorts offset losses in my Semi longs, Software longs and Retail longs. I added to my (EEM) short and added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Investor anxiety is high again. The 10-year yield is plunging 18 basis points on worries over slowing global growth. I see little evidence of a meaningful global growth slowdown, however a continuation of the recent weakness in global equity markets could provide the catalyst for one. The 10-year swap rate is trading at 73.4 basis points over Treasuries, down 3.1 basis points today and down 14.1 basis points over the last three days, which is a big positive. Fed funds futures imply a 96% chance for another 25-basis-point cut at the upcoming December meeting. With several Fed speakers this week, I suspect we will have a much better idea over the next few days whether or not they are on the same page with traders. The AAII percentage of bulls dropped to 25.6% last week from 33.0% the prior week. This reading is now at depressed levels. The AAII percentage of bears rose to 52.7% last week from 51.4% the prior week. This reading is still at elevated levels. The AAII Bull Ratio 4-week Average is a depressed .42. It has only been lower during 6 other periods the last ten years. Moreover, the 10-week moving average of the percentage of bears is currently at 39.1%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. The 50-week moving average of the percentage of bears is currently 37.6%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990 to July 1991 and March 2003 to May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently still close to eclipsing the peak in long-term bearish sentiment during the 2000 to 2003 market meltdown. I find this astonishing, notwithstanding the recent pullback, given that the S&P 500 is 97.6% higher from the October 2002 major bear market lows and just 7.7% off a record high. It is also noteworthy that as pessimism grows ever thicker, corporate insider activity remains very bullish. Prior to the 2000 economic downturn, insiders were bailing in droves. Sales rose 8.3 percent on "Black Friday" compared with the same day a year ago, according to the National Retail Sales Estimate from ShopperTrak. Moreover, online retail spending on “Black Friday” soared 22% over last year. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector concerns and global economic worries.

Today's Headlines

Bloomberg:
- US retailers may see record holiday Internet purchases after slashing prices on high-definition televisions and leather jackets to attract customers over the Thanksgiving weekend.
- The Federal Reserve sought to ease concern that banks will be short of cash next month by planning its first long-term injection of year-end funds in two years.
- F5 Networks(FFIV), the maker of equipment that helps manage computer networks, rose as much as 6.3% on the Nasdaq after an analyst said partnerships with Microsoft(MSFT) and SAP AG(SAP) may help almost double sales.
- Royal Philips Electronics NV, the world’s largest maker of light bulbs, agreed to buy lighting fixtures manufacturer Genlyte Group(GLYT) for $2.7 billion, its largest purchase ever.
- SkillSoft Plc(SKIL), the maker of employee-training software for Hewlett-Packard(HPQ) and Yahoo!(YHOO), rose the most in three months after posting third-quarter profit and revenue that beat estimates.

Wall Street Journal:
- With the start of the holiday season and worries over the safety of imported toys, leading retailers say they are stepping up testing before toys hit store shelves, retesting toys already in their inventories and toughening demands on manufacturers and importers.

NY Times:
- ABC News and Facebook in Joint Effort to Bring Viewers Closer to Political Coverage.
- NY’s Construction Boom Puts More Women in Hard Hats.

BusinessWeek.com:
- China: Wind Power’s New Force. Beijing spent some $2 billion on the renewable energy source last year, and the mainland is on track to eclipse Europe, Japan, and the US in a few years.

Mediaweek:
- NBC’s Viewers Decline During November Sweeps.

CNBC:
- Saudi Arabia is increasing oil production this month ahead of OPEC’s Dec. 5 meeting.

Valor Economico:
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, will need to invest an additional $15 billion to $20 billion in exploration and extraction as it seeks to boost reefing output.