Tuesday, November 20, 2007

Stocks Lower into Final Hour on Rise in Oil, Financial Sector Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs and Software longs. I covered some of my (EEM) short and my (QQQQ/(IWM) hedges this morning, then added back to my (EEM) short and added (IWM)/(QQQQ) hedges this afternoon, 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 above average. Investor anxiety is high again. Weekly retail sales rose 2.3% vs. 2.4% last week and up from 1.4% in early July. There remains much evidence that consumer spending is modestly below-average but little evidence of the imminent plunge in spending that has been predicted for years and is being priced into many stocks at current levels. Building permits were the lowest in 14 years, which is a positive as homebuilders work down inventory. UBS upgraded Under Armour (UA) to Buy, saying its channel checks indicate sales have accelerated significantly over the last few weeks as weather turned more seasonal. The firm said that UA sales growth at some retailers was in the triple-digit range. I think the stock remains very attractive at current levels. Research In Motion (RIMM) said today at the Scotia Capital Telecom & Tech Conference that the company wasn't worried about a macroeconomic slowdown, especially in the financial services sector. Worries over a possible slowdown at RIMM have been weighing on the tech sector. Thomas Weisel initiated the company with an Overweight rating today. Nordstrom (JWN) is soaring 11.5% after yesterday's beat and raise. The company also expanded its buyback by $2.5 billion. I said yesterday that longer-term investors would regret selling Google (GOOG) into recent broad market weakness. Today, CSFB upped its target on the stock to $900, and it is jumping 2.2%, despite broad market weakness. The stock remains my large equity long position, and I still see substantial upside from current levels. Last night in Asia, the Nikkei and Hang Seng saw large reversals, with both opening down over 3% and both finishing at session highs, rising over 1% for the day. Oil is rising $3.76 per barrel on a 0.72% decline in the dollar index and still looks poised to test $100 per barrel, which could finally provide the negative catalyst to demand for a substantial decline in the commodity into year-end. The release of the FOMC minutes today showed the Fed believes US economic growth will come in around 1.8%-2.5% in 2008, which is near my prediction of 2-2.5% over the intermediate-term. I continue to believe true growth stocks will outperform the broad market substantially given the current macro backdrop. I expect US stocks to trade mixed-to-lower into the close from current levels on another rise in oil and global economic worries.

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