Wednesday, November 07, 2007

Stocks Sharply Lower into Final Hour on Continuing Weakness in Financials

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs, Medical longs and Software longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, every sector is falling and volume is above average. Investor anxiety is high. The total put/call is an above-average 1.08. The ISE Sentiment Index is plunging 29%, to a below-average 115. The NYSE Arms is an above-average 1.2. The VIX is spiking 16% to a relatively high 24.9. Toyota Motor (TM), which is heavily dependent on the U.S. consumer, said profit rose 21% in the first half of the year and boosted its forecast for the entire year. The latest Rasmussen consumer survey showed 22% rate their finances as poor, while 75% say they are fair to excellent. Distillate supplies rose again, which is rare for this time of the year. Oil is falling slightly on the news despite the 0.9% decline in the U.S. Dollar Index. The Fed's Mishkin said this morning that the supply of credit to small businesses remains healthy and that the recent market turmoil has had a limited effect on them. He also said that the lower dollar's effect on inflation is limited and that the vast majority of U.S. banks are well-capitalized. Other statements he made left the door open for further rate cuts if necessary. Fed fund futures now imply a 64% chance for another 25-basis-point cut at the December meeting, up from 62% yesterday and 42% one week ago. Greenspan said today that he still thinks the odds the U.S. falls into recession next year are less than 50%. Growth stocks are once again outperforming value stocks. Growth leaders are especially strong. I am seeing some signs of stabilization in the financials. Tech leaders Research In Motion (RIMM) and Google (GOOG) are back near session highs. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

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