Thursday, January 31, 2008

Friday Watch

Late-Night Headlines
Bloomberg:
- The Russell 2000 Index gained almost twice as much as the S&P 500 Index after JPMorgan Chase(JPM) said the measure of small US companies will surge because its members are cheap and investors are too pessimistc.
- OPEC Leaders to Keep Production Levels, Consider Cuts in March.
- Matsushita Electric Industrial, the world’s largest consumer electronics maker, climbed to the highest in a month in Tokyo trading after profit rose to a record on demand for its Lumix cameras and Viera flat-panel televisions.

- Financial Guaranty Insurance Co., the world’s fourth-largest bond insurer, lost its AAA credit rating at Standard & Poor’s, which said it may cut the top ranking on MBIA’s(MBI) insurance unit as well. Ambac Financial’s insurer unit had its AAA credit rating affirmed by S&P.
- Intuitive Surgical Inc.(ISRG) jumped 15.4%, to $293.05 in extended trading. The maker of the da Vinci Surgical System for robot-assisted surgery said fourth- quarter profit doubled on sales of new systems. Profit was $1.24 a share, beating the average $1.02 estimate of five analysts, according to a Bloomberg survey.
- Google Inc.(GOOG) dropped 6.5% percent, to $527.40 in extended trading. The owner of the most popular Internet search engine reported fourth-quarter profit and sales that trailed analysts' estimates, signaling that an economic slowdown may be cutting into online advertising.
- Motorola Inc.(MOT) climbed 10.8%, to $12.75 in extended trading. The biggest mobile-phone maker in the U.S. said it plans to review whether to split off its mobile-phone unit.
- Altera Corp.(ALTR) rose 4.2%, to $17.60 after the official close of U.S. exchanges. The world's second-biggest maker of programmable semiconductors said it expects revenue of at least $323.2 million in the first quarter. That exceeded the average estimate of $320.6 million from analysts in a Bloomberg survey.

Wall Street Journal:
- Clinton, Obama Mix Praise, Jabs in Debate.

NY Times:
- While interest in alternative energy is climbing across the US, solar power especially is risng in California, the product of billions of dollars in investment and mountains of enthusiasm.
- Google(GOOG) said it has seen no effect from a slowing economy on its advertising business, as it reported a 17% jump in profit and 51% growth in revenue in the fourth quarter.

CNNMoney.com:
- Fear! Panic! Time to buy. Wall Street is focusing only on bad news. That means there are opportunities to scoop up quality companies on sale.
- New $20 Billion subprime bailout on the table.
- Old Crocs(CROX) come back to life. The shoe company’s SolesUnited initiative recycles its used plastic footwear to provide shoes for the needy.

IBD:
- Tractor Maker Plows A Course To Growth As Agriculture Booms.

Financial Times:
- Intercontinental Exchange(ICE), owner of Europe’s largest energy market, held talks with a new futures exchange backed by some of Wall Street’s biggest banks.
- Big investors in hedge funds are banding together to produce a guide to the industry in part to head off concerns that neophyte pension fund trustees have been pushed into piling money into risky funds.
- Russia’s most likely next president has urged his country’s business people to follow the Chinese example and go on a buying spree of foreign companies to bolster the economy.
- Bank of America’s(BAC) $4.1bn offer for Countrywide Financial(CFC) was thrown into doubt on Thursday when a large shareholder in the biggest US mortgage lender said it would vote against the deal.
SRM Global Fund said the offer “considerably undervalued” Countrywide.
- Cash-rich financiers including Warren Buffett, Wilbur Ross and Ron Perelman are preparing to pounce on US companies hit by the financial turmoil – moves that could herald a new era of “vulture investing.”

TimesOnline:
- Oil production in Iraq is at its highest level since 2003, reaching 2.4 million barrels a day, thanks largely to improved security measures in the north.

Australian:
- David Hicks, the first Guantanamo Bay detainee to be convicted by a US military commission, has fielded 30 offers from media companies to tell his story. The race to sign up the convicted terrorism supporter, who was released from an Australian prison on Dec. 29, involves television networks in Australia, the US and Italy, Hick’s lawyer said. Television, book and magazine rights could generate as much as $900,000 for the 32-year-old Hicks.

Late Buy/Sell Recommendations
Citigroup:

- Maintain Buy on (LLL), target $129.
- Maintained Buy on (HOLX), target $81.

CSFB:
- Reiterated Outperform on (GOOG). Google reported 4Q results slightly below expectations. The company posted revenue of $3.39 billion(+12.5% q/q, +52% y/y) below consensus at $3.45 billion, as the growth in paid clicks decelerated to 30% y/y from 45% in Q4, due primarily to changes in algorithms designed to improve advertisers conversion rates. Pro-operating margin fell 50 bps q/q to 49.8% due to a similar decline in gross margin as Traffic Acquisition Costs spiked 400bp due to issues with the company’s social networking inventory. This was clearly a transition quarter for Google. With the algorithm changes slowing revenue growth, though improving advertiser returns, and the lag between the development of social networking as an effective advertising medium and scheduled minimum payments, coming at the same time the impact was significant. Long term, we believe both factors will be positives for Google, the former manifesting itself in higher CPC’s and the latter targeted, high volume display inventories. With the stock trading at 25x ’08 EPS, below its long term growth rate of +30% we believe this is an extremely attractive entry point into what we believe is, by far, the strongest growth story in the sector.

Night Trading
Asian Indices are -.25% to +1.50% on average.
S&P 500 futures -.27%.
NASDAQ 100 futures -.37%.

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Earnings of Note
Company/EPS Estimate
- (GCI)/1.29
- (CVX)/2.29
- (CMI)/1.05
- (R)/1.08
- (XOM)/1.97
- (TDW)/1.52
- (NMX)/.65
- (ACI)/.47
- (MAN)/1.53
- (ADP)/.53
- (EL)/1.14

Upcoming Splits
- (PEG) 2-for-1

Economic Releases
8:30 am EST

- The Change in Non-farm Payrolls for January is estimated at +70,000 versus +14,000 in December.
- The Unemployment Rate for January is estimated at 5.0% versus 5.0% in December.
- Average Hourly Earnings for January are estimated to rise .3% versus a .4% gain in December.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for January is estimated to fall to 79.0 versus a prior estimate of 80.5.
- ISM Manufacturing for January is estimated to fall to 47.4 versus 48.4 in December.
- ISM Prices Paid for January is estimated at 68.0 versus 68.0 in December.
- Construction Spending for December is estimated to fall .5% versus a .1% increase in November.

Afternoon:
- Total Vehicle Sales for January are estimated to fall to 16.0M versus 16.3M in December.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and mining stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply High on Strength in Retail, Financial, Homebuilding Shares

Evening Review
Market Summary
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In Play

Stocks Soaring on Heavy Volume into Final Hour on Less Extreme Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs, Semi longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges, added to my (WMS)/(PWR) longs and covered some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average, despite today’s gains. Today’s overall market action is very bullish. The VIX is falling 5.0% today, but remains high at 26.0. The total put/call hit an above average 1.14 and the ISE Sentiment Index hit a depressed 72.0 today. Moreover, the 3-month T-Bill yield is plunging 21 basis points to 1.94%, the lowest since October 2004. Short interest on the S&P 500 is at the highest level since January 2002. I still suspect a very large percentage of the investors are watching the long side from the sidelines, convinced that a complete retest of the lows or new lows are a certainty. Gartner Group said today that (AAPL) would get over 12% of the US PC market by 2011. I think that is a conservative estimate. The 30-day asset backed commercial paper yield is dropping another 22 basis points today to 3.22%, the lowest since June 2005. The 10-year/TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 2.33% today, down from 2.48% in November, despite the huge stimuli that will hit the economy over the next year. The JPMorgan Emerging Market Bond Index has risen .32% over the last five days and the Bear Stearns High Yield Index has surged 1.9% over that period. Fed fund futures imply a 74% chance for another 50 basis point rate at the March 18 meeting. In my opinion, the Fed is now “ahead of the curve.” Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +100 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- U.S. stocks rose, sparing the Standard & Poor's 500 Index from its worst January ever, after the nation's largest bond insurer said it expects to keep its AAA credit rating.
- The Bush administration is looking for “additional measures” to limit foreclosures.
- President Bush said the Senate should quickly pass the $146 billion economic stimulus plan already approved by the House so there is no delay in the effort to boost a slowing US economy.

- Google Inc.(GOOG) succeeded in its push to force the winner of airwaves being sold by the US government to open its network to any mobile device.
- The series of rate cuts by the Fed will benefit companies that rely on debt based on LIBOR, including leveraged loan borrowers, according to analysts at Merrill Lynch(MER).
- Copper is rising 2.5% on speculation lower US borrowing costs will bolster economic growth.

- An Islamic Web site has announced the death of Abu Laith al-Libi, a senior al-Qaeda commander in Afghanistan.
- MasterCard Inc.(MA), the second-biggest payment-card network, said fourth-quarter profit climbed senvenfold as US consumers spent more. The shares are soaring 14.4% on the news.
- Concur Technologies(CNQR) rose the most in almost seven years on the Nasdaq after boosting its forecast as business travel exceeded its expectations.

- Sony Corp.(SNE), the world’s second-largest maker of consumer electronics, reported record quarterly earnings after the PlayStation 3 unit turned profitable.

Wall Street Journal:
- Multitouch Interface Is Starting to Spread Among New Devices.
- New research analyzing more than 22,000 US cases of aortic aneurysm repair is likely to hasten the trend toward more procedures being done with a device called a stent-graft instead of the typical surgery that requires up to eight weeks of recovery.

NY Times:
- Bill Clinton’s Ties to Kazakhstan Deal Examined.

CNNMoney.com:
- MBIA(MBI) Confident In Ability To Maintain AAA Rating. CEO Dunton mounted a spirited defense on a conference call against “fear mongering” and “distortions” by short-sellers that he said have contributed to last year’s dramatic stock-price decline. He also said that MBIA’s capital plan currently exceeds all stated rating agency requirements. The stock is soaring from morning lows on the news.

Briefing.com:
- MBIA(MBI) management again says very clearly that there is no scenario that they can identify that would result in MBI becoming insolvent, having a liquidity event, becoming intervened with, or having a default of any kind.

Mediaweek:
- News Corp.’s(NWS/A) Fox may get as much as $260 million in ad revenue for its Super Bowl programming on Feb. 3, including the broadcast of the game and the four-hour pre-game show.

Financial Times:
- OPEC policies set to ensure oil prices stay on the boil. Iran and Venezuela have injected anti-US and radical positions on to the OPEC agenda.

globeandmail:
- Kerviel made millions from mortgage meltdown.

Incomes/Spending Rise More Than Estimates, Inflation Gauge Muted, Jobless Claims Rise, Chicago PMI Falls From 6-Month High

- Personal Income for December rose .5% versus estimates of a .4% increase and a .4% gain in November.

- Personal Spending for December rose .2% versus estimates of a .1% gain and a 1.0% increase in November.

- The PCE Core for December rose .2% versus estimates of a .2% gain and a .2% increase in November.

- Initial Jobless Claims for this week rose to 375K versus estimates of 319K and 306K the prior week.

- Continuing Claims rose to 2716K versus estimates of 2685K and 2669K prior.

- The 4Q Employment Cost Index rose .8% versus estimates of a .8% gain and a .8% increase in 3Q.

- The Chicago Purchasing Manager for January fell to 51.5 versus estimates of 52.0 and a reading of 56.4 in December.

- The Help Wanted Index for December rose to 22 versus estimates of 20 and a reading of 21 in November.

BOTTOM LINE: Personal spending and income growth exceeded estimates in December, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose 2.2% year-over-year in December, the same as November. For all of 2007, spending rose 5.5%. Personal income growth of .5% is right at the 20-year average. Personal spending rose less than the long-term average, but over the last four months it is .5%, slightly above the long-term average. I expect personal spending to pick up, income growth to remain healthy and inflation to decelerate over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits rose more than forecast this week, Bloomberg reported. This week’s report was distorted by difficulties adjusting for the Martin Luther King holiday, a Labor Department spokesman said. The four-week moving average of jobless claims rose to 325,750 from 315,500 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at a historically low 2.0%. Today’s report showed 50 states and territories reported a decrease in new claims, while three had an increase. The Employment Cost Index for December rose .8%, below the long-term average of .9%. Economists have increased their consensus forecast for tomorrow’s jobs report to +70,000. I suspect we will come in around or above that estimate, despite today’s jobless claims report. I expect jobless claims to fall next week and the labor market to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

A measure of US business activity fell this month from a six-month high, Bloomberg said. The New Orders component of the index fell to 44.7 from 56.7 the prior month. The Prices Paid component rose to 81.7 from 67.4. The Employment component fell to 47 from 49.3. The Inventories component rose to 51.1 from 44.3. I expect the Chicago PMI to bounce higher next month on inventory rebuilding as exports continue to boom.

Bear Radar

Style Underperformer:

Mid-cap Growth (+.29%)

Sector Underperformers:

Gold (-2.15%), Oil Service (-1.63%) and Energy (-1.07%)

Stocks Falling on Unusual Volume:

CDNS, MRX, DCP, DYS, CVD, HSTX, BPHX, BLOG, SBNY, RNOW, NEWP, AWBC, LAVA, SNPS, GSOL and CAM

Bull Radar

Style Outperformer:

Small-cap Value (+1.63%)

Sector Outperformers:

Retail (+4.22%), Airlines (+2.14%) and Banks (+1.88%)

Stocks Rising on Unusual Volume:

IAT, MBR, OI, IVC, ADS, SNA, CCK, WCC, ADBL, CNQR, ODFL, TSCO, AMAG, EXPO, MLNX, WBSN, WPPGY, GMCR, ALGT, EMKR, PCCC, ININ, HINT, UFPI, RDWR, INFA, RSTI, HURC, MA, CCRT, SHLD, MI, JCP, WSBC, TLK, RTP, FCX, BZP, SFG, HP, ESV, GOLD and BP

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories

IBD Breaking News

Movers & Shakers

Upgrades/Downgrades

In Play

NYSE Unusual Volume

NASDAQ Unusual Volume

Hot Spots

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Dow Jones Hedge Fund Indexes

Wednesday, January 30, 2008

Thursday Watch

Late-Night Headlines
Bloomberg:
- The Senate Finance Committee adopted a one-year extension of tax credits for renewable electricity production as part of an economic stimulus measure approved today.
- An economic-stimulus plan approved by a US Senate committee would provide a windfall worth millions of dollars to the same banks, lenders and homebuilders that some say helped cause the subprime-mortgage crisis.
- S&P lowered or may cut ratings on $534 billion of residential mortgage securities and collateralized debt obligations.
- Amazon.com(AMZN), the world’s largest Internet retailer, said fourth-quarter profit more than doubled on higher holiday sales of electronics, video games and toys. The shares fell 12% in late US trading after it forecast operating income that trailed analysts’ estimates.

- Goldman Sachs(GS) and Fidelity Intl. will need to pare holdings in India’s commodity exchanges after the government dropped plans to allow overseas investors to own larger stakes.
- Crude oil fell for the first time in six days after a US government report showed that gasoline demand fell to its lowest in two years.
- Japan’s wages fell at the fastest pace in more than three years in December as bonuses plunged.
- Lenovo Group Ltd., Asia’s second-largest maker of personal computers, tripled profit after increasing sales to customers in the US, India and China.
- Barack Obama said his party needs to select a presidential nominee who will break with the past, in a veiled swipe today at his leading opponent for the Democratic Party’s nomination, Hillary Clinton.
- Romney Questions McCain’s Conservative Credentials in Debate.

CNBC:
- Latest Rate Cut Could Energize Housing Market.
- US Mortgage Applications Near 4-Year High: MBA

CNNMoney.com:
- More than half of the respondents in a recent survey said that prices for gasoline and home heating oil were their number one economic concern for 2008, topping recession, foreclosure, and unemployment.
- Survey: 49% of US tweens buy music on iTunes.

Forbes.com:
- America’s Fastest-Growing Metros.

USA Today.com:
- 58% of delinquent homeowners don’t know their lenders may offer ways to help them keep their homes, and 56% don’t know that free counseling exists to help them, a survey found.

Financial Times:
- John Thain, Merrill Lynch’s(MER) new CEO, said he expected individual credit insurers would receive capital infusions from investors, but that it would be difficult to craft an “industry-wide” bail-out for the beleaguered guarantors.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (OI), target $55.

Night Trading
Asian Indices are -.50% to +1.5% on average.
S&P 500 futures -.36%.
NASDAQ 100 futures -.87%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
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Top 25 Stories

Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (MA)/.73
- (MAT)/.73
- (LEA)/.67
- (GR)/.92
- (BMY)/.34
- (LLL)/1.61
- (CVS)/.55
- (HOT)/.66
- (BKC)/.32
- (UA)/.31
- (RTN)/.91
- (ATK)/1.59
- (HOLX)/.49
- (MCK)/.80
- (VRSN)/.29
- (CA)/.26
- (DRIV)/.53
- (MNST)/.38
- (ISRG)/1.05
- (CERN)/.51
- (OMCL)/.27
- (DLB)/.34
- (GOOG)/4.45
- (ERTS)/.91
- (ICE)/.92
- (GMCR)/.11
- (ACS)/.83
- (SAF)/1.44
- (BTU)/.79
- (WYE)/.79
- (MBI)/-2.98
- (PG)/.97
- (ALTR)/.19
- (BUD)/.32
- (CELG)/.31
- (CL)/.89
- (IMCL)/.26

Upcoming Splits
- (PEG) 2-for-1

Economic Releases
8:30 am EST

- Personal Income for December is estimated to rise .4% versus a .4% gain in November.
- Personal Spending for December is estimated to rise .1% versus a 1.1% increase in November.
- The PCE Core for December is estimated to rise .2% versus .2% gain in November.
- Initial Jobless Claims for this week are estimated to rise to 320K versus 301K the prior week.
- Continuing Claims are estimated to rise to 2675K versus 2672K prior.
- The 4Q Employment Cost Index is estimated to rise .8% versus a .8% gain in 3Q.

9:45 am EST
- The Chicago Purchasing Manager report for January is estimated to fall to 52.0 versus 56.4 in December.

Other Potential Market Movers
- The weekly EIA natural gas inventory data, NAPM-Milwaukee, Help Wanted Index, (TEC) Analyst Meeting, Wachovia Healthcare Conference, Banc of America Gaming Conference and Raymond James Growth Airline Conference could also impacting trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Lower on Profit-taking, Bond Insurer Worries

Evening Review
Market Summary
Today’s Movers
Market Performance Summary

WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers

After-hours Stock Quote

In Play

Stocks Higher into Close on 50 Basis Point Fed Rate Cut

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs and Biotech longs. I added to my (GILD) long and took profits in a trading long today, thus leaving the Portfolio 75% net long. The overall tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is slightly above average. Today’s overall market action is very bullish. Technology and financial shares are especially strong. The financials ability to build on recent gains despite news that a bond insurer will be downgraded today is very impressive. I suspect this is mainly due to the fact that it is very likely the most heavily shorted sector in US history. I also suspect the many bears will begin to switch their arguments again to a focus on inflation and away from a recession over the coming months. We will also likely hear more stagflation talk even though data are no where near stagflation levels. There remain a very large number of investors still on the sidelines who believe a complete retest or new market lows are a certainty. I continue to believe this should keep pullbacks in the major averages relatively mild and short-term in nature. The VIX is falling 5.0% today, but remains high at 26.0. Nikkei futures indicate an +300 open in Japan and DAX futures indicate an +125 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and bargain-hunting.

Today's Headlines

Bloomberg:
- The Fed lowered its benchmark interest rate by half a percentage point to 3%, the second cut in as many weeks.
- David Dreman Sees ‘Major Opportunity’ in Financials.
- Fed Cuts May Prevent Subprime Shock, Analysts Say.
- Mortgage applications in the US increased last week, led by a surge in refinancing as borrowing costs hovered near two-year lows.
- Qatar Energy Minister Abdullah bin Hamad al-Attiyah says OPEC may consider an output cut.
- Yahoo! Inc.(YHOO) may be a takeover target following a 40% drop in its stock price.
- Ten-year Treasury notes fell a third day as a private report indicated US job growth accelerated this month, demonstrating strength in the job market.

Wall Street Journal:
- Big Investors Intrigued by Retail Stocks.
- US legislators may raise the amount of cash states can borrow to finance housing projects, as a way of helping homeowners who need refinancing.
- US Government Awards $114M To 4 Companies For Cellulosic Ethanol Projects.

NY Times:
- Rule Change to Help Smaller Companies Raise Funds.

Wired:
- One company looks particularly well-positioned to weather a potential economic downturn. Google’s(GOOG) focus on highly targeted, measurable advertising makes it more recession-proof than many other businesses in tech.

Barron’s:
- Investors Use Options to Hedge Before Fed Move.

USA Today:
- Nearly five years after the US-led invasion of Iraq, allied countries have paid 16% of what they pledged to help rebuild the war-torn country.

ZDNet:
- iPhone to Provide Access to Corporate Emails.

Washingtonpost.com:
- Sprint(S) Tries to Connect With Other Firms. Talks on National Network Includes Intel(INTC), Google(GOOG), Clearwire(CLWR).

Bear Radar

Style Underperformer:

Small-cap Growth (-.72%)

Sector Underperformers:

Oil Service (-2.07%), Homebuilders (-1.92%) and Drugs (-1.52%)

Stocks Falling on Unusual Volume:

STE, IFF, AMAG, HWAY, HTCH, NATI, CYMI, ALGN, YHOO, FDRY, MELI, CLWR, HANS, TRMB and STL

4Q GDP Rises Less-Than-Estimates, Mortgage Applications Surge Again, ADP Employment Above Estimates

- Advance 4Q GDP rose .6% versus estimates of a 1.2% gain and a 4.9% increase in 3Q.

- Advance 4Q Personal Consumption rose 2.6% versus estimates of a 2.0% gain and a 2.8% increase in 3Q.

- Advance 4Q GDP Price Index rose 2.6% versus estimates of a 2.6% increase and a 1.0% gain in 3Q.

- Advance 4Q Core PCE rose 2.7% versus estimates of a 2.5% increase and a 2.0% gain in 3Q.

BOTTOM LINE: The US economy grew less-than-expected in the fourth quarter, Bloomberg reported. Home construction fell 24% last quarter, the eighth consecutive drop, which subtracted 1.2 percentage points from growth. The GDP deflator rose 2.5% versus a 1.0% increase the prior quarter. Consumer spending contributed 1.4 percentage points to growth during the fourth quarter. Business spending rose at a 7.5% pace. An unexpected drop in inventories was one of the main reasons growth wasn’t stronger during the quarter. Inventories fell at a $3.4 billion annual rate, the largest drop in almost six years, which subtracted 1.3 percentage points from growth. For all of 2007, international trade contributed .55 percentage points to growth, the greatest since 1991. I expect GDP growth this quarter to accelerate modestly on inventory rebuilding and a smaller increase in the deflator.

MBA mortgage applications jumped another 7.5% this week, led by a 22.2% surge in re-financings. The four-week average of re-financings is at the highest level since April 2004 as mortgage rates continue to plunge. The ADP Employment change for January was +130,000 jobs versus estimates of +40,000 and +37,000 in December. I suspect this Friday’s January employment report will modestly exceed estimates of +65,000. According to Intrade.com, the odds the US enters recession this year have fallen from 77.5% to 59.9% over the last week. I continue to believe the overwhelming majority of investors have already priced a recession into most stocks, despite the fact that most datapoints indicate slow growth, not a recession. Fed fund futures now imply a 74.0% chance for a 50 basis point rate cut and 26.0% chance for a 25 basis point cut today.

Bull Radar

Style Outperformer:

Large-cap Growth (+.15%)

Sector Outperformers:

I-Banks (+1.36%), Airlines (+.77%) and Restaurants (+.43%)

Stocks Rising on Unusual Volume:

FPO, TUP, BCA, CGX, OPY, FTD, JLL, UDR, WBSN, EGLT, BBOX, NETL, KNSY, SLAB, ZINC, CYBS, INFA, FLEX, JBHT, HLIT, UTEK, QMAR, RMBS, JRJC, ERTS, CHRW, IBCP, GILD, DSPG, ACV, ESRX, MHS, BA, SU, CLWR, DCM and DLLR

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories

IBD Breaking News

Movers & Shakers

Upgrades/Downgrades

In Play

NYSE Unusual Volume

NASDAQ Unusual Volume

Hot Spots

Option Dragon

NASDAQ 100 Heatmap

DJIA Quick Charts

Chart Toppers

Intraday Chart/Quote

Dow Jones Hedge Fund Indexes

Tuesday, January 29, 2008

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Andrew Liveris, CEO of Dow Chemical(DOW), Doesn’t See Recession for US in 2008. (video)
- Copper Jumps the Most in Three Weeks as US Growth Concerns Ease.

- Uranium fell to a three-month low after Australia and Kazakhstan, two of the world’s three-biggest producers, reported higher output.
- Lehman Brothers Holdings(LEH) boosted the dividend on its stock by 13%, extending a 12-year streak of increases after posting smaller mortgage losses than rivals.
- The FBI is investigating 14 corporations for possible accounting fraud and other crimes related to the subprime lending crisis, officials said.
- Yahoo! Inc.(YHOO) said fourth-quarter profit fell 23% and projected revenue that missed some estimates after some customers switched to Google Inc.(GOOG) for online searches.
The shares fell 10% in extended trading.
- JB Hunt Transport Services(JBHT) reported fourth quarter revenue rose 11% from year ago levels. The stock jumped 6.1% in after-hours trading.
- China deployed half a million soldiers to help restore transport links, power supplies and clear debris as the nation’s worst snowstorms in 50 years stranded migrant workers before the Lunar New Year holidays.

Wall Street Journal:
- Ford Motor(F) plans to bring its European commercial van, known as Transit Connect, to the US.
- The SEC and the China Banking Regulatory Commission will sign an agreement to allow Chinese banks to develop US mutual funds. The agreement is expected to be signed in the next few days and will let Chinese citizens invest savings in US markets.
- Arizona Sen. John McCain won Florida’s presidential primary, according to media projections, thrusting him into the forefront of the Republican race.

MarketWatch.com:
- The NY Insurance Department said on Tuesday that it hopes to have enough time to resolve bond insurer problems, ahead of possible decisions by rating agencies S&P and Moody’s Investors Service to downgrade leading companies in the $2.4 trillion industry.

CNBC:
- French Trader: Bosses Knew About Risky Trades.

Forbes.com:
- WaMu CEO Sees Boost From Fed Rate Cuts.

MSNBC.com:
- Former NYC mayor Rudy Giuliani will endorse Senator John McCain as the Republican nominee for president on Wednesday.

USA Today.com:
- Independent hotels cater to elite business travelers.
- Airlines blame fuel prices for losses but see solid demand.

Australian:
- Rio Tinto Group’s(RTP) advisers say BHP Billiton(BHP) can afford to increase its takeover offer to as much as five shares for one.

Business Times:
- Government of Singapore Investment Corp. could still invest in another distressed bank if the deal is worthwhile, citing Tony Tan, deputy chairman of the fund.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (LEA), target $42.
- Reiterated Buy on (GKSR), target $49.
- Reiterated Buy (STLD), target $66.

Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 futures -.27%.
NASDAQ 100 futures -.30%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories

Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (D)/.55
- (AGN)/.58
- (BHI)/1.28
- (SEE)/.43
- (RCL)/.34
- (NCR)/.52
- (K)/.44
- (CEG)/1.42
- (WWW)/.44
- (MRK)/.73
- (KFT)/.44
- (EK)/.50
- (HES)/1.72
- (SO)/.24
- (BA)/1.33
- (UPS)/1.13
- (ITW)/.84
- (PHM)/-.76
- (SBUX)/ .27
- (AFL)/.80
- (NVLS)/.37
- (MUR)/1.24
- (ADS)/.68
- (AMZN)/.47
- (MBI)/-2.98
- (OI)/.42
- (MO)/.97

Upcoming Splits
- (KWK) 2-for-1

Economic Releases
8:30 am EST

- Advance 4Q GDP is estimated to rise 1.2% versus a 4.9% gain in 3Q.
- Advance 4Q Personal Consumption is estimated to rise 2.6% versus a 2.8% gain in 3Q.
- Advance 4Q GDP Price Index is estimated to rise 2.6% versus a 1.0% gain in 3Q.
- Advance 4Q Core PCE is estimated to rise 2.5% versus a 2.0% gain in 3Q.

2:15 pm EST
- The FOMC is expected to lower the benchmark fed funds rate to 3.0% from 3.5%.

Other Potential Market Movers
- The ADP Employment Change report, weekly EIA energy inventory report, weekly MBA mortgage applications report, (NNDS) Investor Day, (BLC) Analyst Meeting, (VDSI) Investor Conference and (CLWR) Investor Day could also impacting trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by shipbuilding and utility stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Session Highs, Boosted Again by Financials, Homebuilders, Retailers

Evening Review
Market Summary
Today’s Movers
Market Performance Summary

WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers

After-hours Stock Quote

In Play

Stocks Higher into Final Hour on Less Economic Pessimism

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Computer longs, Retail longs and Commodity shorts offset losses in my Internet longs and Medical longs. I added (IWM)/(QQQQ) hedges, added (ISRG) puts and added to my (EEM) short today, thus leaving the Portfolio 75% 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 again. Today’s overall market action is bullish. Cyclicals, specifically transports, are especially strong. The heavily shorted and beaten-up financials, retailers and homebuilders are also strong again today. These groups have become very extended and short-term traders will likely take profits on tomorrow’s economic data and FOMC announcement. I wouldn't be surprised to see 4Q GDP and ADP Employment, which are released before the open tomorrow, surprise on the upside. This could also lead to weakness in the broad market, as traders cut expectations for a 50 basis point cut in the afternoon. I still sense there are a very large number of investors still on the sidelines who believe a complete retest or new lows are a certainty. This should keep pullbacks in the major averages relatively mild and short-term in nature. The VIX is falling 3.0% today, but remains high at 27.0. Weekly retail sales rose .7% this week, which is sluggish, but not recessionary. GM’s CFO said this afternoon that he does not see the US economy sliding into recession, as well. Fed fund futures now imply a 74% chance of a 50 basis point rate cut and a 26% chance for a 25 basis point cut tomorrow. 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:
- Goldman Sachs Group’s(GS) Global Alpha hedge fund, once the firm’s biggest, fell about 40% last year because of wrong-way bets on currencies, equities and bonds worldwide, according to a report sent to investors.
- The European benchmark speculative grade credit default swap index is falling 17 basis points today to 438, down from 530 a week ago.
- Travelers Cos.(TRV), the second-largest US commercial insurer, increased its holdings of securities backed by subprime mortgages in the fourth quarter. The company “took advantage of favorable pricing” to purchase the securities, an executive said.
- Ethanol tariffs will be addressed in the 2009 budget, Energy Secretary Samuel Bodman said. The ethanol industry is “close,” to being able to stand on its own, he said.
- Turkey plans to develop a wind-turbine industry worth as much as $15 billion alongside a new wind energy market, Energy Minister Hilmi Guler said. Record demand for wind turbines has companies like General Electric(GE), the world’s second-biggest turbine marker, sold out through 2009 and has driven the cost of the equipment higher.
- Clearwire Corp.(CLWR), the wireless Internet company founded by mobile-phone pioneer Craig McCaw, rose as much as 23% in Nasdaq trading after the Wall Street Journal said talks about a venture with Sprint Nextel(S) have restarted.
- NYC traffic and pedestrian fatalities dropped to a record low in 2007, Mayor Bloomberg said.
- Unisys Corp.(UIS) climbed the most in five years in NY trading after fourth-quarter revenue and profit topped some analysts’ estimates.

- Lexmark Intl.(LXK), the second-biggest US printer maker, posted fourth-quarter earnings that beat analysts’ estimates on record sales to business clients and new, more profitable products.
- Bank of America(BAC) said its purchase of Countrywide Financial(CFC) is proceeding and the bank doesn’t need more capital.
- The IMF cut its forecast for global growth this year to a still healthy 4.1%, down from 4.9% in 2007.

Wall Street Journal:
- Despite calls by the Bush administration and European governments for OPEC to pump more oil, the cartel may actually look to cut output this spring if signs continue to point to increasing oil supplies and diminishing demand.

- Studies Cite Head Injuries As Factor in Some Social Ills.

Forbes.com:
- Abengoa SA unit Abengoa-Solar expects solar panels to be available for every Spanish home within 5-10 years.

USA Today:
- Governor Kathleen Sebelius on Tuesday endorsed Barack Obama for president, a Super Tuesday boost in a GOP-leading state that Democrats hope to reclaim in the White House campaign.

The Hindu:
- The US offered to provide technical support and equipment to fight an outbreak of avian influenza in India. Drugs such as Tamiflu will be made available and the US will assist West Bengal state with diagnosing potential cases of human infection.

Nikkei English News:
- Sanyo Electric Co. will increase production of digital cameras 60% to 15 million units this business year.

Bear Radar

Style Underperformer:

Large-cap Growth (+.72%)

Sector Underperformers:

Coal (-3.13%), Oil Service (-1.26%) and Internet (-1.24%)

Stocks Falling on Unusual Volume:

ALB, SII, CCU, EMC, ICUI, NHWK, ZRAN, JDAS, EWBC, AMLN, OXPS, CBST and PBG

Durable Goods Orders Very Strong, Overall Consumer Sentiment Slightly Better-Than-Expected, Present Situation Component Rises

- Durable Goods Orders for December rose 5.2% versus estimates of a 1.6% increase and an upwardly revised .5% gain in November.

- Durables Ex Transports for December rose 2.6% versus estimates of a .1% increase and an upwardly revised .4% decline in November.

- Consumer Confidence for January fell to 87.9 versus estimates of 87.0 and an upwardly revised 90.6 in December.

BOTTOM LINE: Orders for US durable goods rose substantially more than forecast in December, indicating business investment remains healthy. Bloomberg reported. The 5.2% surge in demand for computers, aircraft and other items made to last several years was the largest since July 2007. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, jumped 4.4%, the most since March of last year. Shipments of those items, used in determining GDP, rose 2%, the most since March of 2006. The rise in total orders was led by the largest gain in machinery bookings since December 2006, a jump in commercial aircraft and a 12% surge in communications gear. Shipments to international buyers set a ninth consecutive monthly record. To put today’s 5.2% jump in Durable Goods Orders in perspective, March 1993-February 1996, Sept. 1998-November 1999 and August 2002-February 2004 were periods in which Durable Goods Orders never rose above 5%. We were told by the many bears that the US economy was plunging into recession in 3Q when the credit turmoil began to intensify, but in actuality US GDP was rising at a very powerful 4.9% rate. The bears were even more certain that 4Q growth would be negative, however that now appears unlikely. Growth should come in around 1.5%. Now there doesn’t even seem to be a debate in many quarters, it is just assumed that we are now in a recession, which is defined as two consecutive quarters of GDP contraction. I continue to see little data to indicate we are now in a recession even as this is priced into stocks at current levels. I still expect US growth to average around 2% for the year.

Consumer confidence fell in January less than economists expected, Bloomberg reported. The Present Situation component rose to 115.3 from 112.9 the prior month. The Expectations component fell to 69.6 from 75.8 in December. The share of consumers who said jobs are plentiful rose to 23.9% versus 23.6% the prior month. The percentage of people that said jobs are hard to get fell to 20.1% from 22.7% in December. The percentage of consumers planning to buy an automobile rose to 6.7% from 6.3% the prior month. Those planning to buy an appliance rose to 30.5% from 28.1% prior. There remains a historically wide gap between consumers’ perceptions of their current financial situation and their views of the future. This is a direct result of the current “US negativity bubble,” in my opinion. Consumers have been told by so many high profile market participants, with negative political and/or financial agendas, for so many years that an imminent economic collapse is just around the corner that when we get a slowdown it is just assumed by most that the collapse in finally occurring, even though they don’t see it in their own finances. I suspect we have now seen the lows for the year in consumer sentiment gauges as economic pessimism begins to wane, home sales bounce unexpectedly, interest rates remain low, inflation decelerates, stocks rise and the job market remains healthy.

Bull Radar

Style Outperformer:

Large-cap Value (+1.11%)

Sector Outperformers:

Telecom (+1.96%), Airlines (+1.75%) and Computer Hardware (+1.32%)

Stocks Rising on Unusual Volume:

CXG, TAR, ZMH, KFN, AXE, FTO, SMG, CR, CNW, LXK, CHTT, QMAR, NNDS, ENDP, SMTS, GASS, MATR, SONC, ALGN, CENX, RATE, TECH, NICE, IBKR, ALDN, DBTK, ABK, THG, TNE, GEOY, EE, KFN and JOE

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories

IBD Breaking News

Movers & Shakers

Upgrades/Downgrades

In Play

NYSE Unusual Volume

NASDAQ Unusual Volume

Hot Spots

Option Dragon

NASDAQ 100 Heatmap

DJIA Quick Charts

Chart Toppers

Intraday Chart/Quote

Dow Jones Hedge Fund Indexes

Monday, January 28, 2008

Tuesday Watch

Late-Night Headlines
Bloomberg:
- VMware Inc.(VMW) said fourth-quarter profit more than doubled. Sales missed analysts’ estimates, sending the shares down 24% in late trading.
- California Governor Arnold Schwarzenegger’s $15 billion plan to provide health insurance for everyone in the most populous US state was rejected by a Senate committee on concerns it would cost too much.

Wall Street Journal:
- Bush’s Aim Is to Reassure a Worried Country.
- Liberty Media Corp., the media company controlled by billionaire John Malone, is trying to force Barry Diller out of IAC/InteractiveCorp.

NY Times:
- The credibility of Societe Generale’s management came under fresh scrutiny Monday after Jerome Kerviel told French prosecutors that his fictitious trading started as far back as 2005 – a year earlier than the bank had acknowledged.
- Edward S. Lampert has a new strategy for Sears(SHLD): less Edward S. Lampert.

- Good News in the 1 Million Missing iPhones.

BusinessWeek.com:
- Cisco Systems(CSCO) revealed a major offensive today in its ongoing assault on the data center market.
- Top Tech Trends in ’08.
- Broadband’s Growing ‘Need for Speed’

CNNMoney.com:
- Bush hammers home on economy. Bush lobbies for enactment of $150 billion stimulus plan ‘as soon as possible’ and calls for permanent extension of tax cuts.

Forbes.com:
- America’s Richest Counties.
- iPhone Apps In The Works.

Reuters:
- US Treasury Assistant Secretary Anthony Ryan said on Monday there were signs that market liquidity was starting to return but it won’t happen overnight and requires greater investor caution in future.
- JPMorgan(JPM) disclosed on Monday that it has raised its stake in bond insurer AMBAC Financial Group(ABK) to 7.7% from 5.4%.


Financial Times:
- Efforts to shore up US bond insurers gathered pace yesterday as NY state regulators appointed investment bankers to advise on a rescue plan that could include back-up credit lines for the troubled guarantors.

TimesOnline:
- Hedge funds worldwide are heading for their worst monthly performance in almost ten years amid signs that the credit crunch is claiming fresh victims across the investment markets.
- India’s love affair with gold is waning as high prices deter casual buyers in the world’s largest gold importer and savvy housewives try to sell their spare jewelry to capitalize on rocketing prices.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (CBG), target lowered to $31.
- Downgraded (DIS) to Sell, target $26.
- Reiterated Buy on (ACV), target raised to $30.
- Reiterated Buy on (MCD), target lowered to $64.
- Raised (GASS) to Buy, target $20.
- Reiterated Buy on (VZ), target $45.

Night Trading
Asian Indices are +.25% to +2.0% on average.
S&P 500 futures -.04%.
NASDAQ 100 futures -.44%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories

Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (NNDS)/.61
- (X)/2.22
- (CAH)/.88
- (LLY)/.89
- (COCO)/.10
- (DOW)/.80
- (ENR)/2.21
- (OXY)/1.69
- (TRV)/1.61
- (UIS)/.14
- (CNX)/.34
- (LXK)/.56
- (VLO)/.59
- (SII)/.88
- (MMM)/1.17
- (PII)/1.04
- (CFC)/-.28
- (BNI)/1.39
- (SHW)/.85
- (ALL)/1.34
- (YHOO)/.11
- (CB)/1.47
- (ZMH)/1.04
- (CTX)/-1.06
- (JBHT)/.40
- (EMC)/.22
- (FLEX)/.26
- (PPC)/.38
- (RHI)/.47
- (HTCH)/.35

Upcoming Splits
- (BTJ) 3-for-2
- (KWK) 2-for-1

Economic Releases
8:30 am EST

- Durable Goods Orders for December are estimated to rise 1.6% versus a -.1% decline in November.
- Durables Ex Transports for December are estimated to rise .1% versus a -.8% decline in November.

8:30 am EST
- Consumer Confidence for January is estimated to fall to 87.0 versus a reading of 88.6 in December.

Other Potential Market Movers
- The S&P/CS Home Price Index, weekly retail sales reports, Wachovia Healthcare Conference, Banc of America Gaming Conference and Citigroup Financial Services Conference could also impacting trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and automaker stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.