Monday Watch

Weekend Headlines
Bloomberg:
- Barack Obama, who won the Iowa caucuses, leads Hillary Clinton in New Hampshire by 12 percentage points among likely voters in the Jan. 8 Democratic presidential primary, according to an American Research Group poll.
- European Central Bank President Trichet and his Group of 10 colleagues may signal today that their efforts to calm money markets are making headway.
- Venezuelan President Hugo Chavez said he’ll have to slow his plan to implement “21^st-century socialism” after voters rejected his proposal to overhaul the constitution.
- Citigroup’s(C) Tobias Levkovich and Goldman Sachs’(GS) Abby Joseph Cohen see 14% advance for S&P 500 this year.
- President Bush said he will press for progress in the Israeli-Palestinian peace process during his trip to the Middle East next week, and he will reassure Arab allies of US support.
- OPEC is supplying the international market with enough crude and can’t be blamed for record prices, the group’s new president, Chakib Khelil, said. OPEC seems happy with prices as they are,” said John Hall, managing director of UK-based John Hall Assoc. energy consultants. “Otherwise, it would be thinking of increasing output to help the global economy and to meet rising demand from China and India.
- Federal Reserve Vice Chairman Donald Kohn said the central bank has increased its communication on policy views to the public in the wake of the financial-market “turmoil” that began in August.
- Ford Motor Co.(F) plans to introduce a new, more fuel-efficient engine as the company tries to halt a sales slide in its home market.
- The yen fell against all 16 of the world’s most-active currencies as Japanese investors put money into funds seeking higher yields overseas.

Wall Street Journal:
- LG Develops Way to Transmit Digital TV Signals to Gadgets.
- Clinton Camp’s Challenge: How Hard to Hit Obama?

TradingMarkets.com:
- Sigma(SIGM) Media Processor to Power Sharp’s Aquos Blu-ray Disc Players, Recorders.

NY Times:
- President Bush’s 2003 plan to help the hardest-hit nations in Africa and the Caribbean cope with the AIDS epidemic has blunted the disease’s spread, citing the administration, doctors and even his political opponents.
- Many US workers use computers to watch news and entertainment clips from Web sites as CNN.com and Google’s YouTube as lunch-break diversions, and companies are responding to those viewers.
- Clorox Co.(CLX) will use its purchase of lip balm and soap maker Burt’s Bees to create environmentally friendly products and business practices.
- Yale’s Cash Sets Agenda for Urban Infrastructure.
- Pessimism about globalization seems downright un-American. It is also fundamentally illogical.
- Money managers are betting on what has often been a riskier segment of the market: growth stocks.

CNBC.com:
- The Consumer Electronics Show, the industry’s largest exposition in the US, kicked off on Sunday with a flurry of announcements by such giants as Sony, Sharp, Panasonic and Toshiba. Here are some of the highlights.
- S&P’s 40 PowerPicks Stocks for 2008.
- Warner Brothers: Going All The Way With Blu-ray.

MarketWatch.com:
- Declines right after New Year’s don’t necessarily spell big trouble.
- Some unexpected winners and losers will likely emerge from the Beijing games this summer in a corporate sense, that is if the experience of previous nations that have hosted the Olympics is any indication.
- ‘Digital lifestyle’ still focus for electronics makers. CES set for more ‘evolution than revolution,” but Apple(AAPL) again casts a shadow.

IBD:
- The electrical equipment industry is surging.

TheStreet.com:
- Potential Short-Squeeze Plays for the New Year.

Washington Post:
- The Mortgage Crisis Is One of Confidence.

SmartMoney:
- Fundamentals Favor Another Good Year for Tech.

CFO.com:
- A Hedge-Fund Mystery. Why did a number of equity hedge funds suffer big losses in August 2007 – and what do those losses say about systemic risk?

Chicagotribune.com:
- Ending the year on a strong note, Citadel Investment Group LLC gained 30% in a volatile market in 2007, and the Chicago-based hedge fund has reached $20 billion in assets, according to a source familiar with the company’s results.

Business Week:
- Apple(AAPL): More Than a Pretty Face.
- Stars Align for Renewable Energy. Around the world, investment in renewable energy projects is skyrocketing.

Seattle Post-Intelligencer:
- Washington state bank robberies dropped to a 20-year low last year after companies such as Bank of America(BAC) implemented FBI suggestions about more actively greeting customers.

USA Today:
- Solar power systems arrive in more stores.
- Kids need financial lessons early and often, parents tell us.
- Q&A: Intel CEO sets sights on consumer electronics.
- Language group pick’s ‘subprime’ as Word of the Year.

CNNMoney.com:
- PlayStation 3 is big holiday hit. Sony said 1.2 million of its PS3 game consoles were sold in North America during the holiday shopping season, boosting the strength of the electronics giant’s Blu-ray next generation video format.
- GM(GM) touts driverless cars.
- Gadgetmania. A look at some of the technology that will be unveiled at the Consumer Electronics Show in Las Vegas this week.

Forbes.com:
- State oil giant Saudi Aramco is on track to hit its oil production capacity target of 12 million barrels per day in 2009, an Aramco official said. Aramco aims to increase the recovery rate of oil from its fields to 70% from 50% through the use of advanced technology. That would help add around another 80 billion barrels to recoverable reserves in the next 20 years. Total discovered oil resources – including proven, produced and oil in the ground currently seen as unrecoverable – stands at 722 billion barrels. The kingdom plans to raise this figure to 900 billion barrels through exploration over the next 20 years.

Reuters:
- Saudi Arabia says market determines oil prices.

ByteandSwitch:
- Border security, gaming, and cities’ anti-terrorist plans will all swallow storage this year.

Financial Times:
- Private equity interest in financial services, particularly in the mid-market, looks set to continue in 2008.

TimesOnline:
- Barack Obama races to 10-point lead as Hillary lashes out. Barack Obama, the 46-year-old senator aiming to become America’s first black president, has stormed into a 10-point lead over Hillary Clinton in this week’s critical New Hampshire primary, threatening to send her campaign into meltdown.

AFP:
- A team of officers from Britain’s Scotland Yard started investigations yesterday into the killings of Pakistan’s opposition leader Benazir Bhutto.

Nikkei:
-.Sony Computer Entertainment Inc. will team up with Skype Technologies SA to add an Internet phone service to its PlayStation Portable gaming device.

Yomiuri:
- Japan, the US and the EU will propose formation of an international body this year to promote energy conservation. The new organization would be part of the International Energy Agency. The body will aim at transferring the conservation know-how and knowledge of developed countries to other energy-consuming nations. It will also propose energy-saving policies to the eight industrialized nations, IEA member states, and China and India.

Weekend Recommendations
Barron's:
- Made positive comments on (PLD).

Citigroup:
- Smartphones will increasingly displace voice-centric handsets and should grow 50-60% over the next few years compared to Citigroup’s Global Handset forecast of 14% in 07, 11% in 08 and 9% in 09. We expect smarphones to capture 22% of 2009 market versus 8.5% in 06. We view messaging, WiFi, and GPS as key enterprise drivers and converged functionality and broadband access as consumer drivers. (RIMM) will benefit from Prosumer adoption, intl. expansion, and software/services revenues, driving revenue/EPS growth of 50% with 31% operating margins. RIM can grow units at 50%+ through 09 and still be 2% of total market, 7% of smartphones. (AAPL)’s iPhone is the style setter; we expect 10M unit in CY08 helping to drive 25-30% EPS growth through 2010. (NOK) is a key beneficiary with 50% share in smartphones compared to 40% overall share; should benefit from high smartphone growth. Segment dominance, higher ASP/gross margins will drive continued EPS growth. (TXN) should see above seasonal 2H08 growth as handset share loss hands off to (MOT) and (SNE)-(ERIC) ramp. (ALTR) has potential to beat consensus as comms-related demand shows signs of bottoming. (IFX) should see a recovery in Comm’s unit profitability driven by wins at Tier 1 OEMs. (BRCM) will benefit from increasing handset connectivity. Applications processors and increasing NAND used in smartphones should benefit (MRVL) and (SNDK), respectively. (MSFT) is challenged by carrier/OEM need to minimize costs associated with OS layer, but will still double shipments in 08 to 20M units. Handsets are potentially game changing opportunity for (WIND), but faces uncertainty on monetization/timing.
- Maintain Buy on (SNDK), target $57.
- Reiterated Buy on (CBEY), target $53.
- Reiterated Buy on (GLBC), target $25.
- Reiterated Buy on (EQIX), target $139.
- With buyers still on the sidelines given macro demand concerns major semiconductor equipment stocks like (AMAT), (KLAC), (LRCX), (NVLS), (TER) as a group are now back to being as inexpensive relative to the S&P 500 as in 2001 and have only ever traded at a larger discount to the market in the fall of 1998.

Night Trading
Asian indices are -2.5% to -.50% on avg.
S&P 500 futures +.28%.
NASDAQ 100 futures +.25%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (SCHN)/1.07
- (LWSN)/.07
- (BLUD)/.23

Upcoming Splits
- None of note

Economic Data
- None of note

Other Potential Market Movers
- The Consumer Electronics Show, JPMorgan Healthcare Conference and JPMorgan Tech Forum could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and commodity 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 week.

Weekly Outlook

Click here for the weekly economic preview by MarketWatch.com.

There are a few economic reports of note and significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Pending Home Sales, weekly retail sales reports, Consumer Credit

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory report

Thur. – Initial Jobless Claims, Wholesale Inventories, ICSC Chain Store Sales

Fri. – Trade Balance, Import Price Index, Monthly Budget Statement

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Schnitzer Steel(SCHN), Immucor Inc.(BLUD), Lawson Software(LWSN)

Tues. – KB Home(KBH), Constellation Brands(STZ), Acuity Brands(AYI), Family Dollar Stores(FDO), Apollo Group(APOL), Safeway Inc.(SWY), SUPERVALU Inc.(SVU)

Wed. – Mosaic Co.(MOS), Audiovox Corp.(VOXX), Alcoa Inc.(AA), Ruby Tuesday(RT), WD-40 Co.(WDFC), Norfolk Southern(NSC)

Thur. – Shuffle Master(SHFL), Chevron Corp.(CVX)

Fri. – AMR Corp.(AMR)

Other events that have market-moving potential this week include:

Mon. – Consumer Electronics Show, JPMorgan Healthcare Conference, JPMorgan Tech Forum

Tue. – Fed’s Plosser speaking, JPMorgan Healthcare Conference, Needham Growth Conference, Citigroup Entertainment Conference, Consumer Electronics Show, JPMorgan Global Energy Day, Raymond James Government Services & Technology Summit

Wed. – (VFC) analyst meeting, JPMorgan Healthcare Conference, Consumer Electronics Show, Citigroup Entertainment Conference, Needham Growth Conference

Thur. – Fed’s Bernanke speaking, (MMSI) investor meeting, Fed’s Hoenig speaking, Needham Growth Conference, Consumer Electronics Show, Citigroup Entertainment Conference, JPMorgan Healthcare Conference

Fri. – Fed’s Mishkin speaking, (MMSI) investor meeting, Needham Growth Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a firmer US dollar, lower energy prices, diminishing credit market anxiety, more constructive Fed comments, bargain hunting and short-covering. My trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,411.63 -4.39%*

Click here for the Weekly Wrap by Briefing.com.

Weekly Scoreboard*

Indices
S&P 500 1,411.63 -4.39%
DJIA 12,800.18 -4.19%
NASDAQ 2,504.65 -6.43%
Russell 2000 721.60 -6.71%
Wilshire 5000 14,154.51 -4.56%
Russell 1000 Growth 585.92 -4.87%
Russell 1000 Value 767.30 -3.98%
Morgan Stanley Consumer 712.75 -4.07%
Morgan Stanley Cyclical 939.56 -6.03%
Morgan Stanley Technology 583.50 -7.20%
Transports 4,260.39 -7.78%
Utilities 532.08 -.17%
MSCI Emerging Markets 147.41 -3.36%

Sentiment/Internals
NYSE Cumulative A/D Line 59,948 -3.63%
Bloomberg New Highs-Lows Index -545
Bloomberg Crude Oil % Bulls 52.0 +26.8%
CFTC Oil Large Speculative Longs 238,361 +8.65%
Total Put/Call +1.12 +16.7%
NYSE Arms 4.33 +93.3%
Volatility(VIX) 23.94 +18.16%
ISE Sentiment 93.0 -23.8%
AAII % Bulls 25.7 -14.3%
AAII % Bears 55.2 +10.5%

Futures Spot Prices
Crude Oil 97.69 +.96%
Reformulated Gasoline 251.0 -.73%
Natural Gas 7.84 +9.48%
Heating Oil 268.35 +.17%
Gold 862.50 +4.1%
Base Metals 225.79 +5.2%
Copper 313.30 +1.0%

Economy
10-year US Treasury Yield 3.87% -21 basis points
4-Wk MA of Jobless Claims 343,800 -.2%
Average 30-year Mortgage Rate 6.07% -10 basis points
Weekly Mortgage Applications 533,900 -11.6%
Weekly Retail Sales +1.4%
Nationwide Gas $3.07/gallon +.03/gallon
US Heating Demand Next 7 Days 33.0% below normal
ECRI Weekly Leading Economic Index 135.10 +.07%
US Dollar Index 75.92 -1.06%
CRB Index 366.22 +1.79%

Best Performing Style
Large-cap Value -3.98%

Worst Performing Style
Small-cap Value -7.06%

Leading Sectors
Utilities -.17%
HMOs -.65%
Oil Service -1.57%
Construction -1.58%
Foods -1.91%

Lagging Sectors
Retail -9.17%
Semis -9.36%
Computer Hardware -9.94%
Airlines -10.62%
Homebuilders -10.94%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Sharply Lower into Final Hour on Spike in Economic Pessimism, Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Computer longs, Retail longs and Medical longs. I added to my (SIGM) long and took some profits in my (TLT) long 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, every sector is declining and volume is above average. Investor anxiety is very elevated. Today’s overall market action is bearish. Trading this afternoon has taken on a panicky tone, which is usually indicative of at the very least a tradable bottom. The total put/call hit a high 1.42 again this morning and the ISE Sentiment Index hit a depressed 80.0. For the seventh day in a row, the NYSE Arms is high, hitting a very elevated 3.68. The VIX is surging 7% to a high 24.1. Today’s biggest losers are last year’s biggest winners. This is creating an excellent buying opportunity in many true growth stocks. I still expect large buyers to emerge next week. The 10-year swap spread is falling substantially to 61.36 basis points over Treasuries today, down from a peak of 87.50 in November, as credit market anxiety continues to diminish. I expect US stocks to trade higher into the close from current levels on short-covering and bargain-hunting.

Bearish Sentiment Still Exceeds Levels Seen at Lows of 2000-2003 Bear Market

* Notwithstanding historical individual investor pessimism, corporate insiders continue to buy their own stocks.

The AAII percentage of bulls dropped to 25.71% this week from 30.0% the prior week. This reading remains at depressed levels. The AAII percentage of bears rose to 55.24% this week from 50.0% the prior week. This reading remains at an elevated level. Moreover, the 10-week moving average of the percentage of bears is currently at 47.4%, a very elevated level. It has only been higher one other period in its history, which was September 1990-December 1990. Moreover, the 10-week moving average of the percentage of bears peaked at 43.0% right near the major bear market low during 2002. It is astonishing that the 10-week moving average of the % bears is currently greater than at any time during the bubble bursting meltdown of 2000-2003, which was arguably the worst stock market decline since the Great Depression.

Furthermore, the 50-week moving average of the percentage of bears is currently 39.1%, also a very elevated level seen during only one other period since tracking began in the 80s. That period was October 1990-July 1991, right near another major stock market bottom. The extreme reading of the 50-week moving average of the percentage of bears during that period peaked at 41.6% on Jan. 31, 1991. The current reading of 39.1% is above the peak during the 2000-2003 bear market, which was 38.1% on April 10, 2003. I find this even more astonishing, notwithstanding the recent pullback, given that the S&P 500 is currently 96.9% higher from the October 2002 major bear market lows and 8.6% off its recent record high.

Individual investor pessimism towards US stocks is currently deep-seated and historical in nature. This is just more evidence of the current “US negativity bubble.” It is also noteworthy that as investor pessimism grows ever thicker, corporate insiders continue to display downright giddy behavior with their recent stock activity during this pullback. It is even more interesting that the retail sector is seeing substantial insider buying, notwithstanding the current extreme investor pessimism towards the prospects for consumer spending. Prior to the 2000 economic downturn, insiders were bailing in droves. I still expect US stocks to turn in a positive return for this quarter as the undying belief in an imminent recession begins to fade and the uncertainty currently surrounding the financial sector lifts substantially.

Fewer Jobs Created Than Expected, Unemployment Rises, Average Hourly Earnings Very Healthy, ISM Non-Manufacturing Better Than Estimates

- The Change in Non-farm Payrolls for December was 18K versus estimates of 70K and an upwardly revised 115K in November.

- The Unemployment Rate in December rose to 5.0% versus estimates of 4.8% and a reading of 4.7% in November.

- Average Hourly Earnings for November rose .4% versus estimates of a .3% increase and a .4% gain in November.

- ISM Non-Manufacturing for December fell to 53.9 versus estimates of 53.5 and a reading of 54.1 in November.

BOTTOM LINE: Hiring in the US slowed more than forecast in December and unemployment rose to the highest level since 2006, Bloomberg reported. Service industries, which includes banks, insurance companies and restaurants, added 93,000 workers last month. Builders reduced payrolls by 49,000 versus a 37,000 decline in November. Unemployment, while rising, is still historically low. The average unemployment rate over the last 50 years is 5.9%. Moreover, non-farm payrolls are quite volatile and a 3-month average is more appropriate to gauge the health of the job market. Non-farm payrolls have seen average gains of 97,330 over the last three months, which isn’t too bad. Average Hourly Earnings are rising at a 3.7% rate year-over-year, which is very good by historic standards. The 12-month moving average of average hourly earnings is currently rising at a 3.9% rate year-over-year. The only period during the entire 90s expansion that saw a greater increase in Americans' hourly earnings was early 98-early 99. This has helped contribute to the all-time high in Americans’ net worth that was reached again last quarter. A calming of the credit markets should lead to better economic data later this quarter. It appears to me that investors are once again pricing in the worst case scenario and are overreacting to today’s data. Fed fund futures now imply a 54.0% chance for a 50 basis point rate cut at the upcoming Fed meeting, up from 34.0% yesterday and 0% one week ago. The odds of a recession beginning this year have barely budged today, according to Intrade.com. The 10-year yield is only 3 basis points lower on today's news. Current gauges of investor angst indicate we are very close to another meaningful bottom in US stocks. I expect non-farm payrolls to rise more next month and the unemployment rate to tick slightly lower.

US service industries expanded in December slightly more than economists expected, Bloomberg reported. The new orders component of the index rose to 53.5 versus 51.1 the prior month. The Employment Component of the index rose to 53.5 from 51.1 the prior month. The Inventories component was unchanged at 50.5. The Prices Paid component fell to 72.5 from 76.5 the prior month. This gauge of the health of the largest part of the US economy is still indicating expansion. I still expect US 4Q GDP growth of around 1% and growth to average around 2% for all of this year. I expect the ISM Non-Manufacturing Index to rise next month.

Bull Radar

Style Outperformer:

Large-cap Value(-1.0%)

Sector Outperformers:

HMOs (-.11%), Telecom (-.45%) and Drugs (-.48%)

Stocks Rising on Unusual Volume:

AHD, PZE, AZZ, JTX, PNM, OSIR, AKNS, SONC, OSIP, CRXL, HGSI, SHLM, PPDI, ITMN, DWSN, CREE, RJET, GENZ and KPN

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote

Dow Jones Hedge Fund Indexes

Friday Watch

Late-Night Headlines
Bloomberg:
- President Bush will meet with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke tomorrow as he considers whether to announce a new economic stimulus package.

Wall Street Journal:
- Cloned Livestock Poised To Receive FDA Clearance.
- Obama, Huckabee Emerge As Winners of Iowa Caucus.

MarketWatch.com:
- No need to worry. The oldest boomers are in better shape for retirement than thought.

IBD:
- Telecom Carrier Verizon Is Tuning Up Its FiOS TV Service.
- Financials Drag Down Large-Cap And Value Funds In December.

USA Today.com:
- Female CEOs Make More Gains in 2007.
- GPS gadget Spot can save your hide, for a price.
- iPhone’s future intrigues observers.
- Big restaurant chains are rushing into what could be the future of takeout and delivery food; text ordering.

Reuters:
- Bonds of US banks and brokers should turn around in 2008, helped by interest rate cuts and capital infusions, Bank of America strategists said on Thursday.
- Boeing Co.(BA) said on Thursday it delivered 441 commercial aircraft in 2007, its best performance in six years and up 11% from 2006.
- Top-20 selling vehicles in US through December.

Financial Times:
- Chinese state investor buys Australian bank stakes.

China Daily:
- The US encourages high-tech exports to China, US Commerce Secretary Carlos M. Gutierrez has said amid calls in his country for suspension of a program under which high-tech products are sold to China.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (DPZ), target $20.
- Reiterated Buy on (URBN), target $35.
- Reiterated Buy on (MON), raised target to $140.

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 futures +.24%.
NASDAQ 100 futures +.28%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (TXI)/.88
- (AZZ)/.54
- (SHLM)/.26

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for December is estimated at 70K versus 94K in November.
- The Unemployment Rate for December is estimated at 4.8% versus 4.7% in November.
- Average Hourly Earnings for December are estimated to rise .3% versus a .5% gain in November.

10:00 am EST
- ISM Non-Manufacturing for December is estimated to fall to 53.6 from 54.1.

Other Potential Market Movers
- The Fed’s Kohn speaking, weekly EIA natural gas inventory report and Morgan Stanley Pharmaceutical Conference could also impact trading today.

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

Stocks Finish Mostly Lower Ahead of Jobs Report

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Mostly Lower into Final Hour on Rising Anxiety Ahead of Tomorrow's Jobs Report

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, sector performance is mostly negative and volume is about average. Investor anxiety is high again. Today’s overall market action is mildly bearish. The total put/call hit a high 1.24 again this morning and the ISE Sentiment Index hit a depressed 82.0. For the sixth day in a row, the NYSE Arms is high, hitting an elevated 1.77. Fed funds futures now imply a 24.1% chance for a 50 basis point rate cut at the upcoming Fed meeting, up from a 7.8% chance last week. Trading has a very sloppy/choppy feel to it today. Retail stocks are under significant pressure, which is weighing on the broad market. It looks to me like there is a lot of beginning of the year profit-taking still going on in last year’s winners. As well, it seems new shorts are being placed on last year’s already heavily shorted losers. I still see few signs that large buyers are stepping up. I suspect we will see large buyers finally emerge next week. I expect US stocks to trade mixed into the close from current levels as more economic pessimism, increased shorting and rising anxiety ahead of tomorrow’s jobs report offsets bargain hunting, lower energy prices and seasonal strength.

Today's Headlines

Bloomberg:
- SunTrust Banks(STI) bought a minority interest in Alpha Equity Management LLC to expand its hedge fund offerings.
- For the first time since the August freeze in the credit markets, companies issued more IOUs backed by collateral as the cost to borrow in the short-term debt fell to the lowest in 22 months.
- The cost of borrowing in euros, dollars and pounds fell for a fourth day, suggesting central bank efforts at reviving interbank lending are working.
- Crude oil fell after an Energy Dept. report showed that US gasoline and diesel inventories rose as refineries increased operating rates.
- US airline delays in November fell for the third consecutive month.
- Monsanto Co.(MON) more than doubled first-quarter profit and raised this year’s earnings forecast after demand for food and biofuels boosted corn plantings in South America.
- Average global temperatures will be lower in 2008 than in any year since 2000 because of cooling waters in the Pacific Ocean, according to an estimate from the Met office, the UK weather forecaster.

Wall Street Journal:
- New Office for Macs Speeds Up Programs, Integrates Formats.
- Wireless HDTVs to Be on View at Tech Show.
- China Stocks Could Be Hindered In 2008 by Slower Profit Growth.

ABC News:
- Housing Slump?” Not in Manhattan.

IBD:
- The Big 10: Top Hedge Fund Trades of 2007.

AFP:
- Iran would receive “no benefit” by opening diplomatic or trade relations with the US administration, Supreme Leader Ayatollah Ali Khamenei said.

Bear Radar

Style Underperformer:

Small-cap Value (-.86%)

Sector Underperformers:

Coal (-3.86%), Retail (-2.42%) and REITs (-1.94%)

Stocks Falling on Unusual Volume:

JTX, CVS, SFG, SFLY, OSIP, CYMI, BLOG, VRTX, PCBC, PNRA, YRCW, SONC, LVS and ALJ

Initial Jobless Claims Fall, Job Cuts Decline, Factory Orders Surge

- Initial Jobless Claims for this week fell to 336K versus estimates of 345K and 357K the prior week.

- Continuing Claims rose to 2761K versus estimates of 2675K and 2715K prior.

- Factory Orders for November rose 1.5% versus estimates of a .5% gain and an upwardly revised .7% increase in October.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell last week, Bloomberg reported. A private survey based on payroll data from ADP showed the US created 40,000 jobs in December, 7,000 more than estimates. The four-week moving average of jobless claims fell to 343,750 from 344,500 the prior week. Moreover, Challenger Job Cuts fell -18.7% in December from year ago levels. The unemployment rate among people eligible to collect benefits, which tracks the US unemployment rate, rose to 2.1% from 2.0% the prior week. Jobless claims would have to move above 370,000 to be indicative of a broad economic contraction. I suspect the change in non-farm payrolls for December, released tomorrow, will come in slightly below estimates of 70K. As well, the unemployment rate is likely to come in around estimates of 4.8%, which is still low by historic standards. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Orders to US factories rose more than forecast in November, Bloomberg reported. The 1.5% gain in orders was the most in four months. Excluding transportation, bookings rose 1.4%. Bookings for non-durable goods surged 3%, the most since March 2005. Commercial aircraft orders rose 21%. Orders for non-defense capital goods excluding aircraft, a gauge of future business spending, fell .1% versus a 3% decline in October. Shipments of those goods, which are used to calculate GDP, rose .2% versus a 1.2% decline in October. Manufacturers had 1.22 months of goods on hand versus 1.23 months worth in October. I continue to expect manufacturing to help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of record high exports.

Bull Radar

Style Outperformer:

Large-cap Value(+.38%)

Sector Outperformers:

Construction (+2.43%), Defense (+1.13%) and Utilities (+1.10%)

Stocks Rising on Unusual Volume:

SPN, RC, SYT, UNF, MON, STT, KFS, FTI, VE, AKNS, SCRX, ITWO, WATG, SOLF, CRXL, AIXG, THRX, SINA, CSIQ, DRIV, PHRM, IIVI, NURO, HSTX, CALM, HERO, CELG, CMED, TRA, TOT, BP, ISIL, MHS, ESRX and ETN

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- EDP-Energias de Portugal SA said GE Energy Financial Services and Wachovia Investment Holdings LLC agreed to invest in four wind energy farms that Portugal’s biggest electricity provider is developing in the US. The investors will spend $260 million on the wind projects this year, adding to $340 million they invested in 2007, EDP said.

Wall Street Journal:
- Oil prices only briefly touched $100 a barrel yesterday, but a prolonged stay at that level could soften the world’s strong economic growth.
- Oil’s Surge Reshapes the World. The surging price of oil, from just over $10 a barrel a decade ago to $100 yesterday, is altering the wealth and influence of nations and industries around the world.

NY Times:
- Practicing the Subtle Sell of Placing Products on Webisodes.
- Netflix(NFLX) Partners with LG to Bring Movies Straight to TV.

MarketWatch.com:
- Stocks look better than gold for 2008.

BusinessWeek.com:
- Junk Bonds: A Brighter 2008? S&P thinks high-yield issues could be a good investment in the coming year, as investors shake off their aversions to risk.

CNNMoney.com:
- Analyst: Citi has ‘enormous earnings power’
- Fed to investors: More cuts coming. Ben Bernanke and other Fed members say ‘substantial easing’ may be needed.

SmartMoney.com:
- Mutual Fund Report Card for 2007.

IBD:
- Upturn in Biotech Spending Drives Covance’s(CVD) Growth.

USA Today.com:
- New-generation GPS offers a lot more than maps, traffic data.

Reuters:
- Post-holiday discounts and shoppers redeeming gift cards helped boost retail sales 14% for the last full week of December. ShopperTrak RCT, which tracks sales at more than 50,000 US retail locations, also found that retail traffic rose 7% over a year ago during the week ended December 29.
- OPEC may raise output at Feb. 1 meeting.

Financial Times:
- Is “quant” a busted flush? Since last summer’s crisis, when fund managers following quantitative strategies started claming black swans, most have suffered net outflows, while many weaker funds have been badly hurt. Even where money has stayed put, no fund-of-funds manager or other investor is looking at quant in quite the same way.
- Stock exchanges outside the US – including the London Stock Exchange – could provide direct trading access to US investors through US-based brokers for the first time under proposals being prepared by the SEC.
- This year could see consolidation in the US airlines industry, with the fate of Delta Air Lines(DAL) likely to prove pivotal, executives, bankers and investors say.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GPS), target raised to $25.
- Maintain Buy on (MAN), target $90.

Night Trading
Asian Indices are -1.5% to -.50% on average.
S&P 500 futures +.27%.
NASDAQ 100 futures +.29%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (TXI)/.88
- (MON)/.35
- (SONC)/.21
- (FINL)/-.15
- (GPN)/.45
- (BBBY)/.52

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to fall to 345K versus 349K the prior week.
- Continuing Claims are estimated to fall to 2675K versus 2713K prior.

10:00 am EST
- Factory Orders for November are estimated to rise .5% versus a .5% gain in October.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -2,175,000 barrels versus a -3,299,000 barrel decline the prior week. Gasoline supplies are expected to rise by 1,750,000 barrels versus a 636,000 barrel increase the prior week. Distillate supplies are expected to fall by -250,000 barrels versus a -2,768,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise .5% versus a .25% increase the prior week.

Afternoon:
- Total Vehicle Sales for December are estimated to fall to 16.0M versus 16.2M in November.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, Challenger Job Cuts report and ADP Employment Change report could also impact trading today.

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

Stocks Finish Sharply Lower on Higher Energy Prices, Rising Economic Pessimism

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Sharply Lower into Final Hour on Higher Energy Prices, Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Biotech longs and Software longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is elevated. Today’s overall market action is bearish. I do have an unusual amount of stocks on my monitor pages in positive territory given today’s headline losses. As well, very few stocks are falling on above-average volume. Volume is below average on the NYSE and Nasdaq and above average on the AMEX, where many ETFs trade. This likely indicates quite a bit of new shorting and selling by hedge funds which were already positioned very bearishly, according to most recent data. The VIX is surging 6% to 24, the total put/call is a high 1.25 and the ISE Sentiment Index hit a depressed 68.0 this morning. For the fifth day in a row, the NYSE Arms is high, hitting an elevated 2.58. The 30-day US asset backed commercial paper yield is plunging another 81 basis points today and is down 155 basis points in three weeks and down 170 basis points from September highs. Fed funds futures now imply a 58.8% chance for another 25 basis point rate cut at the upcoming Fed meeting, up from a 46.8% chance last week. The last time the DJIA fell this much on a percentage basis on the first day of the year was 1983. However, the DJIA finished the year 20.3% higher that year. I suspect Asia will trade lower again tonight which could pressure stocks here further in the morning. I still expect a decent rally to materialize in the broad market over the next few days. I expect US stocks to trade mixed into the close from current levels as more economic pessimism, increased shorting and higher energy prices offsets bargain hunting and seasonal strength.

Today's Headlines

Bloomberg:
- Federal Reserve officials said economic growth in 2008 will be less than forecast.
- The cost of borrowing in dollars, euros and pounds fell, extending more than two weeks of declines, as central bank measures to relieve a year-end logjam in money markets continued to show signs of success.
- US gasoline demand fell last week, according to Mastercard Inc. Consumers purchased an average 9.5 million barrels of gasoline a day in the week ended December 28, down 5.5% from the same week last year.
- Crude oil reached a record $100 a barrel and gold rose to a record on commodity/hedge fund inflows and a weaker dollar.
- Ken Miller, vice president for crude oil and refining analysis at Purvin & Gertz in Houston, says “there’s no justification for any of these prices levels. There’s no shortage of crude anywere.”

Wall Street Journal:
- President Bush to Push Congress for Housing Remedy.
- Democratic presidential candidate John Edwards said he would cap executive pay.
- United Technologies(UTX) may say today that it’s teaming with US Renewables Group to introduce a technology that uses molten sale to store solar heat for conversion to electrical power even when the sun isn’t shining.
- Financial, Housing Stocks and High-Yield Bonds Draw Interest From Bargain Hunters.

NY Times:
- John Edwards says that if elected president he would withdraw the American troops who are training the Iraqi army and police as part of a broader plan to remove virtually all American forces within 10 months.

CNNMoney.com:
- $100 oil and the ‘S’ word. Is it growing demand and tight supply, or merely rampant speculation that has pushed crude to record highs?

Handelsblatt:
- Agco Corp.(AG), a US maker of tractors and combine harvesters, expects sales to increase to $8 billion by 2011, $1 billion more than previously estimated, citing CEO Martin Richengagen.

Seoul Economic Daily:
- EBay(EBAY) is in talks to buy South Korean online auctioneer Gmarket Inc.(GMKT) for more than $427 million to expand its operations in the country.

ISM Manufacturing Declines, Construction Spending Unexpectedly Rises

- ISM Manufacturing for December fell to 47.7 versus estimates of 50.5 and a reading of 50.8 in November.

- ISM Prices Paid for December rose to 68.0 versus estimates of 65.0 and 67.5 in November.

- Construction Spending for November rose .1% versus estimates of a .4% decline and an upwardly revised .4% decline in October.

BOTTOM LINE: Manufacturing in the US fell, triggering speculation that the Fed will cut interest rates by half a percentage point, Bloomberg reported. According to Norbert Ore, chairman of the ISM’s survey, the index would have to fall below 41.9 for two consecutive quarters to indicate the potential for a recession across the broad economy. The New Orders component of the index fell to 45.7 from 52.6 the prior month. The Inventories component fell to 45.5 from 46.9 in November. The Employment component of the index rose to 48 from 47.8 the prior month. The ISM Manufacturing Index fell below current levels for nine months during the 1995/1996 mid-cycle slowdown without pushing the economy into recession. It also fell below today’s reading in December 1998 during the Asian crisis without signaling contraction in the broad economy. I continue to believe the economy will grow around 1% in 4Q, but rebound to average around 2% GDP growth for all of 2008. I expect the ISM Manufacturing Index to bounce back next month on inventory rebuilding.

Spending on US construction projects unexpectedly rose in November as work on schools, power plants and factories surged, Bloomberg reported. However, construction on private homebuilding fell 2.5%, the most in five years, versus a 2.3% decline the prior month. Home construction has now declined for 21 consecutive months. Non-residential building jumped 18% from year ago levels. Private non-residential construction climbed 1.7% for the month. I continue to expect overall construction to remain muted over the intermediate-term as homebuilders work down inventories.

Bear Radar

Style Underperformer:

Small-cap Value (-2.0%)

Sector Underperformers:

Semis (-3.59%), Airlines (-3.47%) and Retail (-3.06%)

Stocks Falling on Unusual Volume:

HHS, NCMI, MELI, PANL, COCO, TISI, CACB, POWI, FOSL and WAL

Bull Radar

Style Outperformer:

Mid-cap Growth(-.40%)

Sector Outperformers:

Oil Service (+.49%), Construction (+.38%) and HMOs (+.33%)

Stocks Rising on Unusual Volume:

MTE, FFH, GHI, AKNS, GLAD, CMED, HOKU, ULBI, SYNA, EPIQ, FISV, GPOR, GMKT, CTXS, CSUN, AMZN, GRNB, PLLL, PCLN, MLNM, HGSI, HDNG, MSSR, AUY, KGC, ANW, CAM, MLNX and HLIT

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Wednesday Watch

Late-Night Headlines
Bloomberg:
- The steepest yearend slump in global stocks since 2000 left equities with the cheapest valuations in 34 years. Equities yield 4.17 percentage points more in projected earnings than 10-year government bonds paid in interest at the end of 2007, according to an analysis of 29 countries by New York-based Lehman Brothers Holdings Inc. The gap is now the widest since September 1974, when adjusted for volatility, the data show. The last time the spread was wider, equities outperformed debt by 24 percentage points in the next 12 months, according to Lehman.
- Australian manufacturing expanded at the fastest pace in more than five years in December, buoyed by consumer and business spending.
- Candidates Kick Off 36-Hour Marathon of Campaigning in Iowa.
- Democratic presidential candidate Barack Obama is in first place in Iowa, and former Arkansas Governor Mike Huckabee is leading the Republican field, according to a Des Moines Register poll.

NY Times:
- US Educators Taking Aim on Boys’ Classroom Skills.
- Outside Groups Spend Heavily and Visibly to Sway 08 Election.

CNNMoney.com:
- The top 10 wireless trends for 2008.
- Energy and the presidential race. Where the top candidates stand on everything from a gas tax to a carbon cap to drilling in the Arctic National Wildlife Refuge.
- Survey: Mac OS hit record 7.3% share in December; iPhone up 33%. Reflecting strong holiday sales of both MacBooks and iPhones, Apple’s(AAPL) market share grew sharply in December, as measured by a Net Applications survey released today.

CNBC TV18:
- India will allow investors to short-sell stocks starting February 1.

IBD:
- Funds Notch Gains For Fifth Year In A Row. US diversified stock funds racked up a total return of 6.85% for the year through Dec. 27, according to Lipper Inc. Growth walloped value in all size groups. Mid-cap growth beat all other categories, averaging 17.04%.

Washingtonpost.com:
- Stock Market Shows Resilience In a Year of Economic Turmoil. Analysts Predict Continued Growth and Volatility in 2008.

Reuters:
- Home builders and financial issues, the biggest casualties of the subprime lending meltdown, were hit again by tax-motivated selling in recent weeks but could rebound a bit early in the new year, money managers said.
- Best and worst of the Dow’s 30 stocks for 2007.
- Mortgage and vehicle fleet company PHH Corp said on Tuesday it terminated its nearly $2 billion sale to General Electric Co and Blackstone, after the private equity firm failed to obtain required financing for the deal.
- California’s gasoline consumption drops again.
- Citigroup, Merrill top Wall St underwriters in 2007.

Financial Times:
- The Kuwait Investment Authority is following its peers in the Middle East in the hope of finding bargain investments in the US in the wake of the subprime mortgage crisis.

globeandmail.com:
- Commodities set to take breather in ’08.

Xinhua:
- Beijing started enforcing a stricter auto fuel standard yesterday as part of efforts to reduce pollution in time for the Olympic Games in August.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 futures n/a.
NASDAQ 100 futures n/a.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- ISM Manufacturing for December is estimated to fall to 50.5 versus 50.8 in November.
- ISM Prices Paid for December is estimated to fall to 64.9 from 67.5 in November.
- Construction Spending for November is estimated to fall .4% versus a .8% decline in November.

2:00 pm EST
- Dec. 11 FOMC Minutes.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are mixed as gains in energy shares offset losses in technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.