Monday, January 28, 2008

Stocks Finish at Session Highs, Despite Overseas Weakness

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After-hours Commentary
After-hours Movers

After-hours Stock Quote

In Play

Stocks Higher into Final Hour, Boosted by Financial and Homebuilding Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Healthcare longs and Medical longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is bullish. Considering the outsized losses overseas last night and this morning, today’s action is impressive. Small-caps are especially strong. The only real areas of weakness are the restaurant sector and large-cap growth stock leaders. The rotation into the most heavily-shorted and beaten up sectors remains pronounced. I suspect this will last a bit longer, but is not the beginning of a longer-term trend of outperformance by these groups. The VIX is falling 2.75% today, but remains high at 28.3. Insider buying was brisk again last week. GE, PH, MON, TIE, JCI, T and CHK all saw meaningful insider purchases. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- US stocks rose, extending the market’s first weekly gain this year, as odds increased that the Fed will cut its benchmark lending rate by half a percentage point this week.
- The risk of SLM Corp.(SLM) defaulting on its debt fell to the lowest in almost two weeks after the biggest US student lender received $31 billion in new bank financing needed to keep the company running.
- Subprime-Loan Contracts May Rally on Fed Cuts, JPMorgan(JPM) Says.
- How to survive the fortune you made shorting subprime.
- Intel Corp.(INTC), the world’s biggest computer-chip maker, will buy renewable energy certificates form solar power generators and wind farms equal to the electricity needed to power 130,000 average US homes a year.

- NASDAQ Short Interest by Industries. Total Nasdaq short interest surged 7.24% during the first two weeks of January.
- CME Group(CME), the world’s largest futures exchange, is in talks to acquire Nymex Holding(NMX) for more than $11 billion to gain the biggest energy-trading market.
- Current Media(CRTM), the television new network co-founded by former US VP Al Gore, plans to raise as much as $100 million in an IPO.

Wall Street Journal:
- AMD(AMD) Graphics Card May Test Nvidia(NVDA).

NY Times:
- LeapFrog(LF) Hopes for Next Hit With Interactive Reading Toy.

Reuters:
- The rally in sugar prices is likely to end because of a record cane crop coming out of Brazil and high global stockpiles, citing the International Sugar Organization.
-
A hefty Federal Reserve rate cut and a stimulus plan that would expand the availability of home loans may reinvigorate the beleaguered U.S. housing market and help the broader economy along with it.

Financial Times:
- French CEOs are best paid in Europe. Total US pay for CEOs is two and a half times that of European CEOs, but most of that is in bonuses and long-term incentives. Basic salaries of European CEOs on average exceed US base salaries by 20%.

Bear Radar

Style Underperformer:

Large-cap Growth (+.72%)

Sector Underperformers:

Restaurants (-4.39%), Software (-.55%) and Defense(-.33%)

Stocks Falling on Unusual Volume:

ADS, MCD, FDG, MOH, MELI and YRCW

New Home Sales Below Estimates

- New Home Sales for December fell to 604K versus estimates of 647K and 634K in November.

BOTTOM LINE: Purchases of new homes in the US fell more-than-expected in December, Bloomberg reported. The median price of a new home fell to $219,200 during the month. At the current sales pace, inventories rose to 9.6 months worth of new homes. The average 30-year mortgage rate has plunged 70 basis points over the last month to a historically low 5.48%. It has also dropped 127 basis points from the middle of last year. Fed fund futures now imply an 84% chance for a 50 basis point cut at the upcoming meeting and a 14% chance for a 25 basis point cut. I continue to believe home sales will surprise on the upside over the coming months on pent-up demand, less economic pessimism and very low rates.

Bull Radar

Style Outperformer:

Large-cap Value (+.91%)

Sector Outperformers:

Airlines (+1.96%), Retail (+1.56%) and Banks (+1.58%)

Stocks Rising on Unusual Volume:

WMS, TPL, LNY, ACV, NMX, KWD, BKD, KTC, ACOR, MATR, MDVN, SILC, PTRY, AUXL, POOL, ATHR, ABFS, JRCC, ZINC, ENOC, SPWR, RGLD, MASI, PRXL, ICFI, LPHI, CPTS, TKLC, VCBI and CSTR