Monday, November 05, 2007

Stocks Slightly Lower into Final Hour on Lingering Credit Worries

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Internet longs, Medical longs and Commodity shorts are offsetting losses in my Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, sector performance is negative and volume is above-average. Retail sales likely remained modestly below average in October as weather nationwide remained exceptionally warm. However, given how despised and beaten down many retail stocks have become, with more seasonal weather predicted, I expect to see some short-covering and bargain-hunting in the shares on the report. Google (GOOG) is pushing to another all-time high on details of its mobile strategy and an Oppenheimer target upgrade to $850. I still think analysts' forward estimates on Google are too low and that the stock is finally in the initial stages of moving toward a premium valuation. The Fed's Mishkin made several comments today, which were mostly positive on the economy. He said the Fed needs to be timely, decisive and flexible and that third-quarter GDP showed considerable underlying strength. He also said that it is remarkable how well anchored price expectations are but that the Fed can never take its eye off the inflation ball. I still see little evidence of the imminent recession thesis. Fed fund futures still imply a 70% chance for another 25-basis-point cut in December, up from 66% a week ago, despite today's data and Fed commentary. Goldman Sachs (GS) is now 6 points off its lows over the last hour. The firm denied rumors of an impending writedown or hidden losses to CNBC. I am actually surprised it isn't up more on the news. This is helping to lift the broker/dealer index, which is also boosting the broad market to session highs. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, lower energy prices and short-covering

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