Market Week in Review

S&P 500 825.88 -.73%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 825.88 -.73%
DJIA 8,000.86 -.95%
NASDAQ 1,476.42 -.06%
Russell 2000 444.53 -.19%
Wilshire 5000 8,305.12 -.62%
Russell 1000 Growth 353.11 -.53%
Russell 1000 Value 430.08 -.97%
Morgan Stanley Consumer 514.99 -1.21%
Morgan Stanley Cyclical 411.91 -3.20%
Morgan Stanley Technology 334.68 -.49%
Transports 2,965.69 unch.
Utilities 369.70 +.96%
MSCI Emerging Markets 22.76 +3.21%

Sentiment/Internals
NYSE Cumulative A/D Line 19,831 +3.99%
Bloomberg New Highs-Lows Index -410 +25.18%
Bloomberg Crude Oil % Bulls 38.0 -11.63%
CFTC Oil Large Speculative Longs 226,101 +.30%
Total Put/Call 1.02 +34.21%
OEX Put/Call .53 -49.04%
ISE Sentiment 100.0 -41.86%
NYSE Arms 2.21 +262.29%
Volatility(VIX) 44.84 -5.14%
G7 Currency Volatility (VXY) 19.90 -4.41%
Smart Money Flow Index 7,508.50 +1.43%
AAII % Bulls 25.27 -7.13%
AAII % Bears 47.25 +2.01%

Futures Spot Prices
Crude Oil 41.68 -9.35%
Reformulated Gasoline 126.87 +8.44%
Natural Gas 4.42 -1.43%
Heating Oil 143.40 +.48%
Gold 927.30 +3.18%
Base Metals 104.42 +1.15%
Copper 146.85 -.17%
Agriculture 299.15 -2.14%

Economy
10-year US Treasury Yield 2.84% +22 basis points
10-year TIPS Spread 1.10% +38 basis points
TED Spread .96 -11 basis points
N. Amer. Investment Grade Credit Default Swap Index 197.12 -7.54%
Emerging Markets Credit Default Swap Index 742.48 -1.53%
Citi US Economic Surprise Index -39.20 +48.62%
Fed Fund Futures imply 82.0% chance of no change, 18.0% chance of 25 basis point hike on 3/17
Iraqi 2028 Govt Bonds 45.75 +12.21%
4-Wk MA of Jobless Claims 542,500 +4.7%
Average 30-year Mortgage Rate 5.10% -2 basis points
Weekly Mortgage Applications 732,100 -38.75%
Weekly Retail Sales -2.20%
Nationwide Gas $1.85/gallon unch.
US Heating Demand Next 7 Days 2.0% below normal
ECRI Weekly Leading Economic Index 107.30 -.19%
US Dollar Index 86.0 +.46%
Baltic Dry Index 1,070 +9.18%
CRB Index 220.37 -2.40%

Best Performing Style
Small-cap Growth +.93%

Worst Performing Style
Mid-cap Value -2.16%

Leading Sectors
Road & Rail +5.13%
Medical Equipment +4.72%
HMOs +4.60%
Biotech +3.42%
Alternative Energy +3.20%

Lagging Sectors
REITs -4.13%
Construction -4.26%
Education -4.29%
Networking -5.60%
Airlines -13.05%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Lower, Weighed Down by Coal, Airline, Construction, Financial, Networking, Computer and Steel Shares

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In Play

Stocks Lower into Final Hour on Financial Sector Pessimism, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Financial longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is falling and volume is below average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 6.4% and is very high at 45.38. The ISE Sentiment Index is low at 91.0 and the total put/call is above average at 1.01. Finally, the NYSE Arms has been running very high most of the day, hitting 6.58 at its intraday peak, and is currently 2.62. The Euro Financial Sector Credit Default Swap Index is rising 2.98% today to 117.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising .87% to 197.12 basis points. The TED spread is rising .66% to 96 basis points. The TED spread is now down 370 basis points in over three months. The 2-year swap spread is rising 6.01% to 61.75 basis points. The Libor-OIS spread is falling 2.56% to 92 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 9 basis points to 1.11%, which is down 159 basis points in over six months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .23%, which is unch. today. Stocks are falling today on increasingly hostile rhetoric from the new administration towards the business community and disappointment over news that the government is temporarily abandoning the “bad bank” idea to buy troubled assets. Given stock losses this month, it is also a negative that stocks were unable to bounce on today’s better-than-feared GDP report or month-end short-covering. On the positive side, market-leading stocks are holding up relatively well again. There is also an unusual number of stocks rising on volume today given the losses in the major averages. Stockpicking skills are becoming increasingly important. Last year, the vast majority of stocks fell despite their fundamentals or valuation. This year, select stocks that can grow relatively well in this environment should continue to outperform the S&P 500 significantly. Nikkei futures indicate a -110 open in Japan and DAX futures indicate a -15 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on more shorting and financial sector pessimism.

Today's Headlines

Bloomberg:

- Fortress(FIG) Blocks Redemptions as Shareholders Lose 96% Since IPO.

- Dealers of credit-default swaps plan to overhaul the $28 trillion market in March to make the derivatives more like bonds and create a body that will arbitrate disputes. For the first time, the market will have a committee of banks and investors making binding decisions that determine when buyers of the insurance-like derivatives can demand payment and could influence how much they get, industry leaders said yesterday at a conference in New York. Traders also will revamp the way the contracts are traded, including requiring upfront payments to make them more like the bonds they’re linked to.

- Plunging DVD sales threaten to reduce profit for studio owners Time Warner Inc.,Walt Disney Co., Viacom Inc. and News Corp., and may force them to write down the value of movies, analysts said. Fourth-quarter shipments fell 32 percent in the U.S. and Canada to 453.6 million DVDs, according to Los Angeles-based Digital Entertainment Group. The drop is the biggest since the industry-funded researcher started keeping track in 1997. The decline is being fueled by viewer shifts toward rental services such as Netflix Inc.(NFLX), the U.S. recession and technology that makes it easier to stream Web videos to televisions.

- Northern Trust Corp.’s withdrawal from exchange-traded funds foreshadows a shakeout that will reduce the number of U.S. funds for the first time, according to Ronald E. Rowland, chief investment officer of Capital Cities Asset Management.

Wall Street Journal:

- Peter Schiff predicted a collapse of the U.S. financial system. The bust-up he didn't foresee was the one that made mincemeat of investors who took his advice in 2008. Mr. Schiff's Darien, Conn., broker-dealer firm, Euro Pacific Capital Inc., advised its clients to bet that the dollar would weaken significantly and that foreign stocks would outpace their U.S. peers. Instead, the dollar advanced against most currencies, magnifying the losses from foreign stocks Mr. Schiff steered his investors into. Investors open accounts at Euro Pacific to take advantage of Mr. Schiff's investment advice, which generally involves shunning investments in dollars. Individual returns can vary. Some investors may like gold-mining stocks, while others prefer energy-focused stocks. Most had one thing in common last year: heavy losses. A number of investors said their Euro Pacific portfolios lost 50% or more in 2008, worse than the 38% drop in the Standard & Poor's 500-stock index last year. People familiar with the firm say that hardly any securities recommended by Euro Pacific brokers gained ground in 2008. In 2008, investors nervous about the state of the U.S. economy who were impressed by Mr. Schiff's track record poured money into Euro Pacific, nearly doubling the number of accounts to 16,000. But many did so at the worst time possible, much like investors who piled into Internet stocks as the dot-com bubble peaked. Mr. Schiff is still riding high on his housing-market call. This week, he spoke at a global competitiveness conference in Riyadh, Saudi Arabia, alongside former heads of state, prime ministers and American gold-medal swimmer Michael Phelps. He is the subject of more than 3,000 YouTube videos, including one called "Peter Schiff Was Right." His admirers even created Web sites supporting a possible run for the U.S. Senate in 2010. Mr. Schiff, who was economic adviser to independent presidential candidate Ron Paul in 2008, says he has no plans to run for the Senate but "anything's possible." Early last year, Richard De Gennaro, a retired Harvard University librarian, put $100,000, about 15% of his assets, into a Euro Pacific account that included Canadian Oil Sands Trust, which focuses on crude-oil projects in Canada, and the India Capital Growth Fund, which holds investments in companies that do business in India. Both investments took big hits in 2008, compounded by the fact that the Canadian dollar and the Indian rupee fell 18% and 19%, respectively, against the U.S. dollar. The 83-year-old retiree's account is now worth about $37,000, a 63% plunge. Mr. Schiff "goes around saying that he was right," says Mr. De Gennaro. "He was right about one thing and wrong about everything else."

- The nation's top economic officials are discussing a new way to stabilize the financial system by buying a portion of banks' bad assets and offering guarantees against future losses on some of the remainder, in an effort to help banks while trying to mitigate the cost to taxpayers.

NY Times:

- A month after imposing a property tax increase, Mayor Michael R. Bloomberg is expected to call for a $900 million increase in the city’s sales tax on Friday, as the city confronts a loss of revenue due to the economic downturn. New York City already has one of the highest sales taxes in the nation, at 8.375 percent, and retailers are likely to fight the increase.

Boston Globe:

- A day after handing labor unions a major victory by signing an equal-pay law, President Obama today issued a series of executive orders that he said should "level the playing field" for labor against management. The orders, which union officials say will undo Bush administration policies that favored employers, will:

-- Require federal contractors to offer jobs to current workers when contracts change.
-- Reverse a Bush order requiring federal contractors to post notices that workers can limit financial support of unions.
-- Prevent federal contractors from being reimbursed for expenses meant to influence workers deciding whether to form a union.

"I do not view the labor movement as part of the problem. To me, it's part of the solution," Obama said to applause as he signed the orders at a launch of a task force on the middle class, where its chairman, Vice President Biden, explicitly welcomed labor leaders back to the White House.

Washington Post:

- The Obama administration is delaying a planned crackdown on federal contractors that hire illegal immigrants to determine if the electronic system set up to check workers' documents can handle the surge in workload, Homeland Security Secretary Janet Napolitano said yesterday. The federal government planned to require all contractors to use that government system, known as E-Verify, to screen all workers on contracts worth more than $100,000 after Jan. 15, but the Bush administration delayed the rule until Feb. 20 because of a lawsuit filed by the U.S. Chamber of Commerce. This week, the new administration postponed it until May 21 to give itself "an adequate opportunity to review the rule."

LA Times:

- Civic activists in LA have growing appetite to curb medical marijuana clinics.

Portfolio.com:

- Russia isn't officially in a recession, but economic troubles have hit luxury brands in the country as high-end boutiques like Alexander McQueen and Stella McCartney shut down.

Reuters:
- President Barack Obama is considering picking Republican Senator Judd Gregg of New Hampshire as commerce secretary, a Democratic source said on Thursday. If Gregg left the Senate, the state's Democratic governor, John Lynch, could name a Democrat to replace him. If that occurred and Al Franken survives a court challenge to his apparent narrow victory in Minnesota, the Democrats would have a majority of 60 seats in the Senate, enough to prevent procedural roadblocks to legislation. But the source predicted Lynch would more likely appoint a Republican, saying that naming a fellow Democrat "could be a highly unpopular move in the state." Obama's first pick for the commerce post, New Mexico Governor Bill Richardson, withdrew from consideration earlier this month in the face of a legal inquiry.

- U.S. Senator John McCain said on Friday he and other Republican senators are working to develop a package that would be an alternative to President Barack Obama's economic stimulus plan. Speaking to Reuters, McCain said the alternative package would include what he described as "more effective tax cuts, such as a payroll tax cuts" and spending on projects aimed at immediately creating jobs.

Bear Radar

Style Underperformer:
Mid-cap Value (-2.71%)

Sector Underperformers:
Airlines (-7.01%), Networking (-4.48%) and Steel (-3.88%)

Stocks Falling on Unusual Volume:
PCU, LUK, SGP, PG, DDUP, RPRX, JNPR, AVID, COLM, BRCM, WYNN, RDK, WMS, LNN, VMI, PKI and WL

Stocks With Unusual Put Option Activity:
1) MAS 2) DDUP 3) AUY 4) GCI 5) PCU

Bull Radar

Style Outperformer:
Large-cap Value (-1.04%)

Sector Outperformers:
Medical Equipment (-.04%), Biotech (-.12%) and Energy (-.18%)

Stocks Rising on Unusual Volume:
AMZN, MA, UBS, NYB, FDO, DB, VRUS, CHA, NTLS, RTN, NEOG, SPWRA, STAR, CYBS, ABAX, NCMI, DRIV, IDXX, HUBG, OSIS, OSTK, KLAC, CPSI, CA, VRUS, DNEX, MCHP and PCAR

Stocks With Unusual Call Option Activity:
1) RYL 2) COH 3) ATHR 4) MDR 5) SPG

Links of Interest

Market Snapshot Commentary
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In Play
NYSE Unusual Volume
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Hot Spots
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Chart Toppers
Real-Time Intraday Quote/Chart
HFR Global Hedge Fund Indices

Friday Watch

Late-Night Headlines
Bloomberg:

-. Amazon.com Inc.(AMZN), the world’s largest Internet retailer, posted an 8.7 percent rise in fourth-quarter profit after promotions and discounts lured consumers to its Web site. Sales beat estimates, sending the shares up 13 percent in after-hours trading.

- Quality Systems, Inc. (NASDAQ:QSII) today announced the results of operations for its fiscal 2009 third quarter ended December 31, 2008. The Company posted record net revenues of $65.5 million in the third quarter, an increase of 36% from the $48.1 million generated during the same quarter of the prior year. The shares rose 8.5% in after-hours trading.

- Juniper Networks Inc.(JNPR), the second- largest maker of networking equipment, reported fourth-quarter sales that fell short of analysts’ estimates and said it deferred some revenue from Japan after a routine audit. Juniper dropped $1.77, or 10 percent, to $15.20 in extended trading after declining 7.5 percent to $16.97 at 4 p.m. New York time on the Nasdaq Stock Market.

- Japan headed for its worst postwar recession in December as factory output slumped an unprecedented 9.6 percent, unemployment surged and households cut spending. The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.

- Australian bank lending unexpectedly fell in December for the first time since 1992 as borrowing by companies slumped, increasing pressure on the central bank to cut interest rates next week.

- The US dollar headed for its largest monthly gain against the euro since October on speculation growing evidence of a global slowdown will increase the appeal of the currency to investors as a haven. The euro is poised for the biggest loss versus the yen in three months after Austria’s Der Standard newspaper reported that billionaire George Soros said the euro may not “survive” unless the European Union pushes for a global plan to deal with toxic debt.

- Admiral Michael Mullen, the most senior American military officer, said the U.S. will probably deploy close to 30,000 additional troops to Afghanistan to shore up deteriorating security there. In an interview, Mullen, the chairman of the Joint Chiefs, also said he is hopeful that other NATO nations will contribute additional military and civilian resources this year to the fight against a resurgent Taliban.

Wall Street Journal:

- Rod Blagojevich became the first U.S. governor in 21 years to be removed from office following a vote by state lawmakers Thursday, nearly two months after he was led from his home in handcuffs by federal authorities on suspicion of influence peddling. The 59 Illinois senators voted unanimously to oust the two-term Democrat, who was the first Illinois governor to be impeached in the state's 190-year history and the first governor ousted since Arizona's Evan Mecham in 1988. The senators then voted to bar Mr. Blagojevich from public office in Illinois. Mr. Blagojevich, 52 years old, still faces the threat of federal charges of conspiring to use his office to extract campaign contributions in exchange for signing bills or awarding contracts, as well as seeking to sell President Barack Obama's vacated Senate seat. Authorities are building a case from interviews with federal informants and secretly recorded conversations last fall.

- The Senate began jockeying Thursday over details of its nearly $900 billion economic-stimulus plan, amid bipartisan calls to ensure that jobs created by the measure go to American workers, not foreign companies or illegal immigrants. Sens. Ben Nelson (D., Neb.) and Jeff Sessions (R., Ala.) want to mandate that businesses benefiting from the stimulus verify the citizenship of workers, under a government program that is currently voluntary. Already in the legislation are "Buy America" provisions intended to ensure U.S.-made goods are used in projects spurred by the package. These proposals have stirred concerns in the business community that other nations could retaliate against U.S.-made goods with new trade restrictions. There is also pressure in the Senate to sharpen the focus of the stimulus package to address more directly the nation's housing woes. Senate Budget Chairman Kent Conrad (D., N.D.) is pushing a proposal to broaden the existing home-buyer tax credit, which now benefits only first-time buyers, to cover purchases of all primary residences. Senate Banking Chairman Chris Dodd (D., Conn.) is suggesting a moratorium on foreclosures be added to the package. "Housing is a tremendous accelerator" for the economy, he said. "If you can generate activity in housing, the benefits of that are phenomenal in terms of the credit markets."

- US officials are considering a plan that would offer as much as $4,500 in tax credits to consumer who replace old automobiles with poor gas mileage with new, more fuel-efficient cars. US automaker executives haven’t endorsed the plan, which aims to spur car sales, partly because of fear consumers may replace cars made in the US with ones produced by foreign competitors.

CNBC.com:
- Officials from the Obama administration are holding around the clock meetings with senior Wall Street executives on how to create a new government bank to buy bad assets from major financial firms. However, people with direct knowledge of the talks tell CNBC there is no consensus on how such an entity would work or whether a plan could materialize any time soon or possibly ever.

- Last night’s House vote on the Democratic stimulus package, where not a single Republican voted in favor, was another shot across the bow for this incredibly unmanageable $900 billion behemoth of a program that truly will not stimulate the economy. Team Obama is now regrouping in the face of mounting criticism of this package.

- If at first you don't succeed ... It looks like Dell(DELL) will try its hand once again on a smart, handheld device with apparent plans to jump into the smart phone market. The Wall Street Journal says Dell has come up with handsets running both Android from Google and Windows Mobile from Microsoft, a version with a touchscreen, ala Apple's iPhone and Pre from Palm, and one with a slide-out QWERTY keypad. Is anyone surprised by this?

NY Times:

- Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all. Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington. “The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

Forbes:

- These technology companies look cheap relative to their profit potential.

The economic situation is ugly, but it is quite possible that the stock market has overreacted to all the bad news. If so, this is an opportunity to buy good technology growth stocks on the cheap.

IBD:

- Patterson is chairman and chief executive of Cerner (CERN), a health industry information technology firm. And that Bic he worries about is in the cool, steady hand of a surgeon.

PocketGamer.biz:

- Apple(AAPL) is planning to introduce a premium games section to its App Store where it will sell a range of iPhone games for $19.99, sources tell PocketGamer.biz. However, the initiative will only be open to a restricted number of large publishers, rather than the thousands of smaller developers currently selling their titles on the main App Store.

TechCrunch:

- Google(GOOG) ended the year with 63.5 percent market share of all search queries performed in the U.S., estimates comScore. And that market share has inched up steadily from 58.5 percent in January, 2008. But the market share numbers mask the absolute growth in searches and how Google has ben able to Gobble up all of that growth.

Miami Herald:

- He calls himself the "Iraqi Obama" and hopes to channel President Barack Obama's good luck by becoming the first black Iraqi to win an election. Salah al-Rekhayis lives in a town southwest of Basra called Zubayr, and with the help of his campaign manager-sister and brother, has pasted campaign posters urging citizens to vote for him in Saturday's provincial elections.

USA Today.com:

- Mortgage companies modified a record 122,000 loans in December to try to avoid foreclosures, an industry group said Thursday. In a separate report, Freddie Mac said Thursday that rates on 30-year mortgages edged down this week, but remained above 5%. Hope Now, a coalition of mortgage servicers, lenders and counselors, said total "workouts," including negotiated payment plans designed to avert foreclosure, increased to a record 239,000 last month. Modifications are permanent contract changes to lower payments.

AP:

- Samantha Power, the Harvard University professor who earned notoriety for calling Hillary Rodham Clinton a "monster" while working to elect Barack Obama president, will take a senior foreign policy job at the White House, The Associated Press has learned. Officials familiar with the decision say Obama has tapped Power to be senior director for multilateral affairs at the National Security Council, a job that will require close contact and potential travel with Clinton, who is now secretary of state.

Reuters:

- Researchers in Canada have developed a blood test that can diagnose fatal chronic wasting disease in elk, and believe it may provide a cheap way to screen cattle for mad cow disease. The test looks for signs of damaged cells in the blood, they reported in the journal Nucleic Acids Research. It may also offer a way to diagnose people with a related disease called Creutzfeldt-Jakob disease, or CJD, they said on Thursday.

- E-commerce will slow this year to a growth rate of 11 percent. Forrester Research projected the total to be spent online in 2009 at $156 billion, up from $141 billion last year, with growth slowing from 13 percent in 2008 and 18 percent the prior year.

National Post:

- Prime Minister Stephen Harper expressed serious concern Thursday over a provision of the U.S. stimulus bill that would require infrastructure projects to use American steel, putting Canada on the edge of its first trade dispute with the United States since Barack Obama was inaugurated. The "Buy American" clause would ban the use of most foreign iron and steel from infrastructure projects funded under the US$819-billion stimulus bill, which passed the U.S. House of Representatives on Wednesday. Thursday, Mr. Harper added Canada's name to the growing list of U.S. trade partners, from the European Union to Australia, who are seeking to overturn the provision. "This is obviously a serious matter and a serious concern to us," Mr. Harper told the House of Commons, adding that he had spoken about the matter with Canada's ambassador to the U.S., Michael Wilson.

South China Morning Post:

- Macau’s casino revenue fell for a fourth month in five, hurt by the global financial crisis and travel restrictions on mainland visitors. Casino revenue for most of this month dropped 30% to $901 million from January a year earlier.

Late Buy/Sell Recommendations
Citigroup:
- Downgraded (UA) to Sell, target $15.

Night Trading
Asian Indices are -1.50% to -.25% on average.
S&P 500 futures +.34%.
NASDAQ 100 futures +.02%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (ACI)/.39

- (CVX)/1.81

- (XOM)/1.45

- (HON)/.97

- (PG)/1.58

- (SPG)/.81

Economic Releases

8:30 am EST

- Advance 4Q GDP is estimated to fall 5.5% versus a .5% decline in 3Q.

- Advance 4Q Personal Consumption is estimated to fall 3.5% versus a 3.8% decline in 3Q.

- Advance 4Q GDP Price Index is estimated to rise .4% versus a 3.9% gain in 3Q.

- Advance 4Q Core PCE is estimated to rise 1.0% versus a 2.4% gain in 3Q.

- Advance 4Q Employment Cost Index is estimated to rise .7% versus a .7% increase in 3Q.

9:45 am EST

- Chicago Purchasing Manager for January is estimated to fall to 34.9 versus 35.1 in December.

10:00 am EST

- Final Univ. of Mich. Consumer Confidence for January is estimated at 61.9 versus a prior estimate of 61.9.

Upcoming Splits
- None of note

Other Potential Market Movers
- The World Economic Forum and NAPM-Milwaukee could also impact trading today.

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

Stocks Finish at Session Lows, Weighed Down by REIT, Financial, Semi and Insurance Shares

Evening Review
Market Summary
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In Play

Stocks Falling into Final Hour on Rising Long-Term Rates, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Financial longs. I added to my (IWM)/(QQQQ) hedges this morning and then covered them this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is falling and volume is below average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is falling rising 7.03% and is very high at 42.45. The ISE Sentiment Index is below average at 122.0 and the total put/call is slightly above average at .94. Finally, the NYSE Arms has been running very high most of the day, hitting 3.88 at its intraday peak, and is currently 1.45. The Euro Financial Sector Credit Default Swap Index is rising 5.39% today to 114.67 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 1.32% to 195.42 basis points. The TED spread is falling 5.21% to 95 basis points. The TED spread is now down 371 basis points in over three months. The 2-year swap spread is rising 8.22% to 59.25 basis points. The Libor-OIS spread is falling 1.25% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 13 basis points to 1.02%, which is down 168 basis points in over six months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .23%, which is up 5 basis points today. Market-leading stocks are holding up relatively well. “Growth” stocks are again outperforming “value” shares. The AAII % Bulls fell to 25.27%, while the % Bears rose to 47.25% this week. I suspect the rise in gold and the 10-year yield is starting to bother the broad US stock market. Gold is likely rising on European buying as their economies and currency continue to weaken. The 10-year is supposedly falling on supply concerns. Economists expect US 4Q GDP, which is released tomorrow, to fall 5.5%. I suspect the decline in growth won’t be as bad as feared, which could also be pressuring bonds today. I expect the Fed’s quantitative easing initiative to kick into full gear on any meaningful rise in long-term rates from current levels. Volume has been light, with a high NYSE Arms reading, on today’s sell-off, which is a positive. Nikkei futures indicate a -175 open in Japan and DAX futures indicate a -22 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on more shorting, financial sector pessimism and rising long-term rates.