Stocks Finish Mixed as Lingering Credit Fears Offset Healthy Retail Sales

Indices
S&P 500 1,452.92 -.05%
DJIA 13,236.53 -.02%
NASDAQ 2,542.24 -.10%
Russell 2000 779.81 -1.14%
Wilshire 5000 14,590.18 -.07%
Russell 1000 Growth 586.06 +.17%
Russell 1000 Value 812.20 -.15%
Morgan Stanley Consumer 715.56 +.28%
Morgan Stanley Cyclical 1,025.10 +1.48%
Morgan Stanley Technology 623.73 +.42%
Transports 5,011.49 +1.0%
Utilities 493.50 +.44%
MSCI Emerging Markets 129.61 +.60%

Sentiment/Internals
Total Put/Call 1.0 -8.26%
NYSE Arms .85 +16.09%
Volatility(VIX) 26.57 -6.11%
ISE Sentiment 107.0 +.94%

Futures Spot Prices
Crude Oil 71.53 +.08%
Reformulated Gasoline 193.45 -1.04%
Natural Gas 6.83 +.10%
Heating Oil 196.75 -.19%
Gold 679.90 -.25%
Base Metals 242.0 +2.51%
Copper 342.20 +1.86%

Economy
10-year US Treasury Yield 4.76% -5 basis points
US Dollar 81.10 +.53%
CRB Index 311.57 +.21%

Leading Sectors
Wireless +1.78%
HMOs +1.43%
Computer Hardware +1.31%

Lagging Sectors
Alternative Energy -2.78%
Homebuilders -3.23%
Coal -3.42%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Aegon NV, the second-largest Dutch insurer, said it agreed to buy two life insurance units from Merrill Lynch(MER) for $1.3 billion in cash.
- Smokers are four times more likely to develop macular degeneration, the leading cause of blindness in the elderly, compared with people who never puffed a cigarette, Australian researchers said.
- Johnson & Johnson(JNJ) returned to the bond market after a four-year absence, raising $2.6 billion in its largest ever debt offering.
- Time Warner Cable Inc., the second-largest US cable company, plans to expand a service that lets viewers watch shows when they want as long as they sit through the commercials.
- Chinese toothpaste distributed to hotels worldwide by a US company has been recalled because it may contain a chemical used in antifreeze, adding to recent cases of unsafe food and drug imports.

Wall Street Journal:
- US retail gasoline fell another 6.7 cents/gallon to $2.77/gallon in the latest week, the lowest since April 9.

CNNMoney.com:
- Credit crunch: Blackstone smells opportunity. President Tony James says the private equity firm has an eye on debt that has been oversold in the market.

Times Online:
- Almost every big quantitative fund using a strategy similar to Goldman’s(GS) – known as equity market neutral (EMN) strategy – was suffering in its own way. The result has been a rout of one of the most popular types of quant fund. Hedge Fund Research’s EMN Index had lost 7.6% by last Thursday.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Biotech longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished mildly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were elevated into the close. Today's overall market action was neutral. Growth outperformed value again today, with growth stock leaders especially strong. Areas of weakness were once again homebuilders, financials and commodities. Oil continues to trade very poorly. The long natural gas/short oil trade I suggested a couple of weeks ago has worked very well so far. I still think oil has put in place a major double top and will begin an accelerated downward move within the month. I would take off the long natural gas hedge as that move commences. The Nikkei, which barely rose last night, is indicated down about 60 on the open in Japan. While today's performance was likely frustrating for the bulls and bears, given the news after the close on Friday, I think a mixed performance was pretty good. Every day that goes by without another dip lower and more uncertainty lifting puts more pressure on the many bearishly positioned investors, in my opinion. For some time I have argued that the extreme popularity of the market neutral hedge fund strategy has been a large contributing force to the current US negativity bubble, helping to send short interest into the stratosphere. There are always exceptions, but in general this strategy has performed very poorly on a risk-adjusted basis for years. Last week, I wondered whether market neutral funds had really been run in a net short manner during this bull market. Then on Thursday when the market fell almost 3%, market neutral funds still fell 1.8%, according to Dow Jones. They are now down -5.3% for the month and -3.5% for the year. They had only returned an annualized 2.8% over the last 3 years even before the recent carnage. I continue to believe this strategy has seen its peak in popularity and that a majority of the vast amount of capital that has been deployed into these funds since the bubble burst in 2000 will begin to find its way into more positively correlated US stock strategies.