Tuesday, August 31, 2010

Stocks Slightly Lower into Final Hour on Rising Sovereign Debt Angst, Increasing Economic Fear, Tech Sector Weakness


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 27.03 -.66%
  • ISE Sentiment Index 94.0 +14.63%
  • Total Put/Call .93 -4.12%
  • NYSE Arms 1.12 -72.80%
Credit Investor Angst:
  • North American Investment Grade CDS Index 113.75 bps +1.34%
  • European Financial Sector CDS Index 132.02 bps +1.28%
  • Western Europe Sovereign Debt CDS Index 155.0 bps +.43%
  • Emerging Market CDS Index 263.73 bps +.32%
  • 2-Year Swap Spread 18.0 +1 bp
  • TED Spread 17.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .13% unch.
  • Yield Curve 199.0 -6 bps
  • China Import Iron Ore Spot $141.50/Metric Tonne -.98%
  • Citi US Economic Surprise Index -53.10 +5.5 points
  • 10-Year TIPS Spread 1.55% -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +1 open in Japan
  • DAX Futures: Indicating -32 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Tech and Medical long positions
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 moves back near session lows despite a morning reversal higher off S&P 500 1,040, a firmer euro and better action in beaten-up bank stocks. On the positive side, Coal, Gold, Paper, Telecom, Insurance, REIT and Airline stocks are relatively strong, rising .50%+. (XLF) and (IYR) have outperformed throughout the day. Oil trades as if another meaningful break lower is in the offing over the coming weeks. Weekly retail sales rose +2.8% this week versus a +2.7% gain the prior week. On the negative side, Education, Networking, Disk Drive, Computer, Gaming, HMO, Medical and Oil Service shares are especially weak, falling more than 1.25%. Technology sector shares are heavy. The 10-year yield is falling another -6 bps to 2.47%, which is back near its recent lows, which is a big negative. Copper is falling -1.9% and Lumber is down -3.3% today. The Hungary sovereign cds is rising +4.21% to 368.59 bps, the Greece sovereign cds is gaining another +2.13% to 957.16 bps, the Ireland sovereign cds is rising +2.43% to 341.0 bps and the Japan sovereign cds is gaining +2.94% to 69.52 bps. Overall, key cds indices continue their recent worrisome trend higher. Broad market action is worse than the major averages suggest again today. However, volume remains light and the bears were unable to break the market convincingly lower so far this afternoon. If the bears are unable to break the S&P 500 below 1,040 by tomorrow's close, I suspect we could see a surge in short-covering into week's end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and technical buying.

Today's Headlines


Bloomberg:

  • Corporate Default Swaps Head for Biggest Monthly Rise Since May in Europe. The cost of insuring against losses on European corporate bonds rose, posting the biggest monthly increase since May, on concern a slowdown in the U.S. recovery will trigger a global double-dip recession. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings climbed 53 basis points this month to 532, and was 7 basis points higher today, according to JPMorgan Chase & Co. at 4 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 13.25 basis points this month and 0.75 basis points today to 118.25, JPMorgan prices show. The index is up 45 basis points this year. The Markit iTraxx Financial Index of 25 banks and insurers is up 32.5 basis points this month and 1.5 basis points today at 148, the highest level since July 7. The gauge has more than doubled since the start of the year. Ireland led an increase in the cost of insuring against losses on government debt, with credit-default swaps on the nation climbing 10.5 basis points to 252, the highest level since March 2009, according to data provider CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 43.25 basis points this month to 158, the biggest monthly increase since it started trading last year. The gauge is 2 basis points higher today and up from about 69 basis points at the start of the year.
  • Fed Saw Risk August Decision Would Send Wrong Signal. Some Federal Reserve officials were concerned last month that a decision to stop their securities holdings from shrinking would send the wrong signal that the central bank was ready to resume large-scale asset purchases, minutes of the Aug. 10 meeting showed. Also, a few policy makers said the economic effects of the decision “likely would be quite small,” the Fed’s Open Market Committee said in a report today in Washington. At the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth.”
  • Business Activity in U.S. Expands at Slower Pace Than Estimated, ISM Says. Business activity in the U.S. expanded in August at the slowest rate this year, a private survey showed, adding to evidence the recovery is cooling. The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 56.7 this month, the lowest since November, from 62.3 in July.
  • Banks in Europe Would Face Fines for Failing to Report Derivatives Trading. Banks and companies that fail to report trading in over-the-counter derivatives face fines under rules being considered by the European Union. The draft law would force traders to “report the details of any OTC derivative contract” they have entered into “no later than the working day following the execution” of the trade, according to a European Commission document obtained by Bloomberg News.
  • Irish Government, Banks Debt Risk Rises, Default Swaps Show. The cost of insuring against default on Irish government and bank debt rose, according to data provider CMA. Credit-default swaps on Irish sovereign debt climbed 10.5 basis points to 352, the highest level since March 2009. Contracts on Allied Irish Banks Plc increased 22.5 basis points to 523.5, the highest since April 2009. Swaps on Anglo Irish Bank Corp. jumped 15 basis points to 614, the highest in more than 13 months. Irish Life & Permanent Group Holdings Plc increased 14.5 to 396 and Bank of Ireland rose 15 to 393.5, both the highest since July.
  • Gold Advances to Two-Month High on Haven Demand Amid Global Equity Slump. Gold futures rose to a two-month high as slumping global equity markets boosted the appeal of bullion for investors seeking a haven. The MSCI World Index of stocks has dropped about 4 percent in August, heading for the biggest monthly decline since May, on concern that the economic rebound is slowing. Before today, gold gained 13 percent this year, reaching a record $1,266.50 an ounce in June. “Gold is the primary beneficiary of this general angst over the economy,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “The flight-to-safety bid is back on, and Treasury yields are a joke now. That’s a good setup for gold to go higher.” Gold futures for December delivery rose $8.60, or 0.7 percent, to $1,247.80 an ounce at 11:11 a.m. on the Comex in New York. Earlier, the price touched $1,249.40, the highest since June 28.
  • Summer Movie Attendance Falls to Lowest Since 1997.
  • Yuan Set for Biggest Monthly Drop Since 1994 as Economy Slows, Dollar Gains. The yuan had its biggest monthly loss since January 1994 after China’s government sought to support economic growth and the U.S. currency rallied. The yuan declined 0.5 percent in August, trimming gains since the central bank ended a two-year dollar peg on June 19 to 0.3 percent. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners, gained 2 percent this month. Central bank governor Zhou Xiaochuan yesterday told a meeting in Beijing that policy makers should maintain financial stability, amid calls for faster appreciation in the currency from trading partners. “Policy makers didn’t allow fast appreciation of the yuan because economic growth has slowed,” said Guan Jiaying, a Beijing-based currency analyst at China Citic Bank Corp.
  • Panasonic Says Samsung Starts Price War for 3-D TVs in U.S. Panasonic Corp., the world’s largest maker of plasma televisions, said it may fail to meet its sales target for 3-D sets after Samsung Electronics Co. unleashed an “unexpected” price war in the U.S. “No one can keep up” with price cuts by Samsung in the world’s biggest TV market, Yoshiiku Miyata, a managing executive officer at Osaka-based Panasonic’s TV business, said in an Aug. 30 interview.
  • Apple(AAPL) May Unveil New iPod, TV-Show Rental Service at Annual iTunes Event. Apple Inc., hosting an annual event devoted to music and media tomorrow, may introduce a revamped iTunes site, an upgraded iPod and push deeper into consumers’ living rooms with a new TV set-top box that plays video.
  • Hurricane Earl Puts U.S. East Coast on Evacuation Alert Should Path Shift.
  • Chinese Aluminum Goods to Face Higher U.S. Tariffs After Subsidies Ruling. Chinese exporters of aluminum products used in window and door frames will face higher U.S. tariffs after the Commerce Department ruled that they receive unfair government subsidies. In a preliminary decision released today, the department said the additional tariff would be as much as 138 percent in a case brought by the United Steelworkers union and closely held aluminum manufacturers in nine U.S. states.
  • RIM(RIMM) Falls as Survey Shows BlackBerry Corporate Loyalty Fading.

Wall Street Journal:
  • Why We Fourth and What We Achieved. Saddam had launched multiple wars, used weapons of mass destruction and aided global terrorism. Now Iraq's government is an ally and represents all the Iraqi people. The U.S. effort in Iraq is not over. Some 50,000 U.S. troops, together with a robust diplomatic presence, continue to train and assist Iraq's security forces and support its democratic progress. The American people, our coalition allies and especially the Iraqi people have paid an enormous price. It is important to remember why.
Business Insider:
Boston Herald:
  • Local Cos.: Credit Still Tight at Bigger Banks. Despite two years of the Fed pumping massive amounts of money into the banking system, some local business owners say credit is still too tight to meet the financial needs of many firms. Large national and “super-regional” banks are simply not providing enough commercial credit, though smaller community banks are trying to step up to the plate, business executives say
Sidley Austin:
Rasmussen Reports:
Politico:
  • Public Sours on Health Care Reform as Midterms Loom. A new poll shows that public support for health care reform dropped sharply in August — a dagger in Democrats’ hopes that their landmark legislation will help them in November’s midterm.
  • Democrats Seek Separation From Nancy Pelosi. Some of the Democratic Party’s most endangered lawmakers are taking steps to distance themselves from Speaker Nancy Pelosi in an attempt to inoculate themselves from charges that they are beholden to the unpopular House leader and supportive of the ambitious national Democratic agenda.
Reuters:
  • Gartner Lowers Second-Half PC Sales Forecast. Technology research firm Gartner cut its forecast for personal computer sales for the second half of the year by 2 percent, signaling that a resurgence in tech spending that started earlier this year may not be as strong as expected. Worldwide PC shipments are now projected to grow by just over 15 percent for July through December, said Gartner. That's slightly lower than its previous forecast, largely due to the return of economic uncertainty in the United States and Western Europe.
Xinhua:
  • China's banking regulator will "strictly implement" government policies aimed at curbing soaring housing prices, citing Ye Yanfei, a China Banking Regulatory Commission official. Ye, deputy head of the CBRC's statistics department, said the agency will restrain "speculative" investment in real estate, support the construction of affordable housing and control risk.
DigiTimes:
  • Intel(INTC) Almost Halves Prices for Core i7-950. Intel recently dropped the price of its quad-core Core i7-950 processors to US$294 from US$562 to defend from AMD's recent price cuts for its quad-core Athlon II X4 640 CPU from US$122 to US$99, according to sources from motherboard makers.
  • DRAM Contract Prices Continue to Fall, Says DRAMeXchange. DRAM contract prices continue trending downwards in the second half of August, according to DRAMeXchange. Pricing in the spot market is also facing a continual drop amid weak demand. Late August contract prices for mainstream 1Gb DDR3 chips have gone down by up to 5% to US$2.22-2.41, driving the price of 2GB DDR3 modules to US$40 on average, DRAMeXchange data show. Meanwhile, same-density DDR2 parts have slid by up to 2% for the same period slashing 2GB DDR3 module prices to US$36. The recent fall in DRAM prices is encouraging PC makers to increase memory content per PC. However, demand is growing at a slower pace than output from the supply side, commented Nobunaga Chai, analyst for semiconductor at Digitimes Research.

Bear Radar


Style Underperformer:

  • Large-Cap Growth (-.14%)
Sector Underperformers:
  • 1) Education -2.87% 2) Disk Drives -1.63% 3) Oil Service -.99%
Stocks Falling on Unusual Volume:
  • SU, RMD, RIMM, BRCM, AMMD, ATHR, HP, CHBT, STRA, POWI, SYNA, IPGP, UEPS, ODFL, ASIA, SAIA, MON and IHG
Stocks With Unusual Put Option Activity:
  • 1) HRB 2) SKS 3) BK 4) APA 5) COH
Stocks With Most Negative News Mentions:
  • 1) XEL 2) MON 3) RIG 4) DELL 5) PRU

Bull Radar


Style Outperformer:

  • Small-Cap Value (+.65%)
Sector Outperformers:
  • 1) Gold +1.92% 2) Homebuilders +1.75% 3) Airlines +1.52%
Stocks Rising on Unusual Volume:
  • IAG, SWC, EGO, DGIT, ARMH and LULU
Stocks With Unusual Call Option Activity:
  • 1) OCR 2) NOVL 3) DF 4) K 5) HTZ
Stocks With Most Positive News Mentions:
  • 1) MMM 2) GOOG 3) DE 4) AAPL 5) BA

Tuesday Watch


Evening Headlines

Bloomberg:

  • Australia's Bank Bonds Punished on Housing Bubble Concern: Credit Markets. Investors in U.S. dollar-denominated bonds issued by Australian banks are demanding higher relative yields on concern the country’s property market is overheating.
  • Oil Supply Climbing to One-Month High in Bloomberg Survey: Energy Markets. U.S. crude oil inventories probably increased to a one-month high last week amid signs that U.S. economic growth is slowing, a Bloomberg News survey showed. Supplies rose 1.55 million barrels, or 0.4 percent, in the seven days ended Aug. 27 from 358.3 million a week earlier, according to the median of 12 analyst estimates before an Energy Department report tomorrow. The gain would leave stockpiles at the highest level since July 23. “These inventory numbers are getting too big to ignore, particularly because this is the case across the board,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “At the very least they will present the market with a strong headwind.” Prices may drop as stockpiles approach the 2010 high of 365 million reached on May 21. Demand is set to decline during the next two months as refineries idle units to perform seasonal maintenance. Inventories of distillate fuel, a category that includes heating oil and diesel, probably climbed 1 million barrels, or 0.6 percent, from 176 million, the survey showed. Stockpiles in the week ended Aug. 20 were the highest since 1983. “We’re looking at the highest inventory levels in a generation,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “You have to go back at the early years of Ronald Reagan’s administration to find distillate supplies this high.” U.S. stockpiles of oil and fuel climbed 8.9 million barrels to 1.14 billion in the week ended Aug. 20, the highest level since at least 1990, when the Energy Department began to collect weekly data. On a monthly basis, supplies are at the highest level since October 1983. Inventories have climbed for eleven weeks, the longest stretch since July 2007.
  • Potash(POT) Says BHP(BHP) Cold-Calling Its Customers as Part of $40 Billion Takeover. Potash Corp. of Saskatchewan Inc. said BHP Billiton Ltd. has been cold-calling some of its customers as part of a $40 billion “hostile takeover effort.”
  • IMF Changes, Expands Crisis-Prevention Credit Lines. The International Monetary Fund, which has shored up economies from Romania to Greece over the past 18 months, approved changes to its credit line program to encourage countries to turn to the fund before crises develop. Its flexible credit line, reserved for countries that pre- qualify based on sound fundamentals, will be extended for up to two years and have no set limits. A new credit line with additional policy requirements for economies with “moderate vulnerabilities” also was created, the IMF said in a statement.
  • ACLU Sues U.S. Over Targeted Killing of Citizens. The American Civil Liberties Union sued the U.S. government over an alleged policy of killing American citizens who are suspected of terrorism. The lawsuit, filed today in federal court in Washington, argued that such targeted assassinations by the government are unconstitutional. “A program that authorizes killing U.S. citizens, without judicial oversight, due process or disclosed standards is unconstitutional, unlawful and un-American,” ACLU Executive Director Anthony Romero said in a statement announcing the filing of the case against U.S. President Barack Obama, the Defense Department and the Central Intelligence Agency.
  • Toyota Prius May Lead Japan Car Sale Collapse as Subsidies End. The Prius hybrid has spearheaded sales growth for Toyota Motor Corp. in Japan for more than a year, helped by government subsidies. The model will likely bear the brunt of plunging demand as the support ends. “A collapse in sales is unavoidable,” said Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”
  • Buy Stocks as Municipal Yields Reach 43-Year Lows: Commentary by Joe Mysak. Don’t worry about too much red ink in state and local budgets and not enough money in public pension plans. Forget about the prospect of inflation. That’s what the municipal market is telling investors. The last time yields were this low, Jacqueline Susann had been on the bestseller list with “Valley of the Dolls” for 62 weeks. The oldest gauge of yields in the market, the Bond Buyer 20-General Obligation Bond Index, fell to 3.88 percent last week, below the recent record low of 3.94 percent it reached in October 2009. Yields were last this low on May 11, 1967.
  • Hon Hai, Foxconn International Shares Tumble After Earnings Miss Estimates. Hon Hai Precision Industry Co., the largest contract manufacturer of electronics, and handset unit Foxconn International Holdings Ltd. fell in Asian trading after they reported earnings that missed analysts’ estimates. Hon Hai lost 6.6 percent to NT$113 as of 10:27 a.m. in Taipei, set for its biggest decline since May 2009. Foxconn International, the world’s biggest contract manufacturer of mobile phones, dropped 9 percent to HK$5.06 in Hong Kong, widening its lead as the worst performer on the benchmark Hang Seng Index this year.

Wall Street Journal:
  • With Cash on Hand and Shares Falling, Companies Look to Spend. With a big drop in the major stock indexes this month, corporations are increasingly looking for opportunities to buy battered shares--both their own and those belonging to other companies. Investors remain skittish, sending the Dow Jones Industrial Average down 3.8% in August and opening the door for U.S. companies sitting on some $2.03 trillion in cash to grab undervalued stocks caught in the selloff. And with another $20 billion or so in proposed deals occurring since Friday's close, the merger-and-acquisition market remains a big area of spending.
  • The Surge and Afghanistan by John McCain. Unless he understands the reason for success in Iraq, the president is unlikely to lead a successful strategy against the Taliban. Today President Obama will deliver a major speech to mark the draw down of U.S. forces in Iraq to 50,000 troops. He will likely point out, as his administration has rightly argued, that Iraq still faces major challenges—foremost its inability to form a government—and that neither American sacrifice nor our commitment to Iraq's success is ending today. Yet our troops are returning with honor, which makes this a fitting time to reflect on the causes of their victory and on what lessons from Iraq can help us win the war in Afghanistan.
  • House Travel Stipends Probed. Congressional investigators are questioning a half-dozen lawmakers for possibly misspending government funds meant to pay for overseas travel, according to people familiar with the matter. The investigation follows a Wall Street Journal article in March that said lawmakers had used daily cash stipends, meant to cover certain costs of official government travel overseas, to cover expenses that appeared to be unauthorized by House rules. An independent ethics board has referred the matter to the House ethics committee.
  • U.S. Wants Report Card for Cars. System Would Rate Fuel Economy, Emissions; Industry Says Government Veers Into Issuing Opinions. The government proposed labeling each new passenger vehicle with a letter grade from A to D based on its fuel efficiency and emissions, part of a broader effort by the Obama administration to promote electric cars and other advanced-technology vehicles. The proposed new rules, released jointly Monday by the Environmental Protection Agency and the Transportation Department, would be the most substantial change in 30 years to the familiar price-and-mileage labels affixed to the windows of new cars at dealerships. The proposed changes —which come as the Obama administration enforces stringent new rules to boost overall fuel economy—were criticized by the car industry, which said the government would be crossing the line between requiring responsible advertising and making value judgments about vehicles. "The proposed letter grade falls short because it is imbued with school-yard memories of passing and failing," said Dave McCurdy, president of the Alliance of Automobile Manufacturers, the industry's largest trade group. A spokeswoman for the alliance added that "grades may inadvertently suggest a government label of approval."
  • The Jewelry Prescription. Medical Bracelets Go High-Tech. Style Aside, More People Find They Should Wear Them.
  • Social Security Bait and Switch.
MarketWatch:
  • High Altitude, Low Visibility by Andy Xie. Commentary: China's astonishing ascent has concealed many flaws.
  • Small-Business Hiring Shows Net Gain, But Pace Slows. Owners of small businesses sour on economy, ease back on hiring, surveys find. Small businesses in the U.S. saw net employment gains in August, but their hiring pace slowed from earlier this year, and small-business owners' outlook for the economy worsened significantly from July to August, according to two surveys released Monday.
IBD:
NY Times:
  • Why Wall St. Is Deserting Obama. Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign. A registered Democrat, Mr. Loeb has given and raised hundreds of thousands of dollars for Democrats. Less than a year ago, he was considered to be among the Wall Street elite still close enough to the White House to be invited to a speech in Lower Manhattan, where President Obama outlined the need for a financial regulatory overhaul. So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend. “As every student of American history knows, this country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination,” he wrote. “Washington has taken actions over the past months, like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.” Over the weekend, the letter, with quotations from Thomas Jefferson, Ronald Reagan and President Obama, was forwarded around the circles of the moneyed elite, from the Hamptons to Silicon Valley. Mr. Loeb’s jeremiad illustrates how some of the president’s former friends on Wall Street and in business now feel about Washington. Mr. Loeb isn’t the first Wall Streeter to turn on the president.
Business Insider:
Zero Hedge:
Seeking Alpha:
  • State Default Risk. Below is a chart highlighting default risk for sixteen states that we have credit default swap (CDS) pricing for.
Politico:
  • Tidal Wave? 10-Point Poll Edge for GOP. Democrats thought things couldn't get much worse on the electoral front — and then they went home to campaign. A new Gallup poll released Monday shows Republicans with a record 10-point edge over Democrats on the "generic ballot" test — the question of whether voters prefer a Democratic or Republican congressional candidate. It’s the largest GOP polling edge at this stage in the 68 years of the generic ballot poll. The Gallup poll, coming at the end of a brutal August for Democrats and President Barack Obama, reinforces the rapidly forming prevailing view that the horizon is as bleak for Democrats as it ever has been.
  • Homebuyer's Tax Break Isn't 'High' on President's List. President Obama will be exploring a number of new options to jump-start the flagging economy – but reinstating the first-time homebuyer’s tax credit to prop up housing sales isn’t likely to be one of them, White House press secretary Robert Gibbs says.
USA Today:
  • Survey: Mortgage Closing Costs 37% Higher. A recent survey by Bankrate.com found that, on average, origination and third-party fees on a $200,000 purchase mortgage added up to $3,741 — a 37% jump over last year's average of $2,739. The fees can include appraisals, credit reports, a closing or settlement attorney and surveys. Some housing experts say costs are rising because lenders have had to hire more staff to comply with the requirements of the Jan. 1 rule. That includes auditors, inspection experts and others who make sure estimates are accurate. "Lenders have had to hire compliance people," David Leoncavallo, president of GFEazy, a Salt Lake City provider of compliance and other data for lenders. "To go up from $2,700 to $3,700 overnight is insane. Consumers should be upset."
Reuters:
  • Iran to Make Medical Reactor Fuel in Year - Report. Iran said it would produce in a year the nuclear fuel needed for a medical reactor in Tehran, a news agency reported on Monday, days after the Islamic state began loading fuel into its first atomic power plant. Iran's nuclear chief Ali Akbar Salehi said Tehran so far had produced 25 kg (55 lb) of uranium to a level of 20 percent purity for the Tehran reactor, the official Irna news agency quoted Salehi as saying in an interview with the country's Arabic-language TV station, Al-Alam.
  • Japan August Manufacturing PMI Lowest in 14 Months.
  • Hedge Fund Managers More Bearish on US Stocks - Report. Almost half of all hedge fund managers are bearish about the U.S. stock market, up from 33 percent a month earlier, according to a new report released on Monday. Forty-seven percent of 104 hedge fund managers polled by TrimTabs and BarclayHedge in the last week said they were bearish on the Standard & Poor's 500 index, the research groups said. Only about 17 percent respondents said they were bullish on the S&P 500, down from 34 percent a month ago, they noted.
Financial Times:
  • US Housing Woes Compound Labor Concerns. Concerns that the depressed US housing sector will remain a drag on the US labor market have mounted following the loss of nearly 120,000 jobs in construction and related businesses in the last three months for which statistics were available. According to Financial Times analysis, the decline in housing-related employment was the biggest weight on private sector job creation as it slowed to an average of 51,000 jobs a month during the May-July period from 153,000 a month in February-April. US Labor Department data show that some 61,000 construction jobs were lost between May and July, with another 56,000 positions shed in ancillary areas, such as furniture, building products and financial services related to property.
China Business News:
  • China and Iran will sign a $2 billion contract to build railway networks in western Iran on Sept. 12, citing Iran's Roads and Transportation Minister Hamid Behbahani.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -2.0% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.50 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 121.25 -4.25 basis points.
  • S&P 500 futures +.04%.
  • NASDAQ 100 futures +.02%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DG)/.38
  • (DSW)/.45
  • (ABM)/.41
Economic Releases
9:00 am EST
  • S&P/CaseShiller 20 City Home Price Index for June is estimated to rise +.2% versus a +.47% gain in May.
9:45 am EST
  • The Chicago Purchasing Manager for August is estimated to fall to 57.0 versus a reading of 62.3 in July.
10:00 am EST
  • Consumer Confidence for August is estimated to rise to 50.7 versus a reading of 50.4 in July.
2:00 pm EST
  • FOMC Minutes
Upcoming Splits
  • (TSCO) 2-for-1
Other Potential Market Movers
  • The NAPM-Milwaukee for August, Bloomberg FCI for August, weekly ABC Consumer Confidence reading, weekly retail sales reports, Morgan Stanley Global Industrials Conference and the (GES) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Monday, August 30, 2010

Stocks Reversing Lower into Final Hour on Rising Economic Fear, More Shorting, Technical Selling, Increasing Sovereign Debt Angst


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 26.21 +7.24%
  • ISE Sentiment Index 87.0 -20.91%
  • Total Put/Call .97 +21.25%
  • NYSE Arms 1.91 +263.93%
Credit Investor Angst:
  • North American Investment Grade CDS Index 112.25 bps -.58%
  • European Financial Sector CDS Index 131.08 bps +.56%
  • Western Europe Sovereign Debt CDS Index 154.33 bps -.21%
  • Emerging Market CDS Index 260.81 bps +.74%
  • 2-Year Swap Spread 17.0 unch.
  • TED Spread 17.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% -1 bp
  • Yield Curve 205.0 -4 bps
  • China Import Iron Ore Spot $142.90/Metric Tonne n/a
  • Citi US Economic Surprise Index -59.60 unch.
  • 10-Year TIPS Spread 1.57% -7 bps
Overseas Futures:
  • Nikkei Futures: Indicating -119 open in Japan
  • DAX Futures: Indicating -5 open in Germany
Portfolio:
  • Lower: On losses in my Tech, Medical, Retail and Biotech long positions
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 reverses lower on light volume despite strength in Asian shares and Friday's US stock reversal higher. On the positive side, Disk Drive and Education stocks are especially strong, rising .75%+. Copper is rising +1.03%, Lumber is gaining +1.66% and the S&P GSCI Ag Spot Index is gaining +.69%. On the negative side, HMO, Bank, Gaming, Homebuilding, I-Banking, Semi, Paper, Oil Tanker and Coal shares are especially weak, falling more than 2%. Small-caps and cyclicals are underperforming. The US sovereign cds is rising +2.67% today to 48.9 bps and is up +4.13% over the last 5 days. The Portugal sovereign cds is rising +1.96% to 338.81 bps and the Greece sovereign cds is gaining another +1.60% to 948.71 bps. Overall, key cds indices continue their recent worrisome trend higher. The euro continues to trade very poorly. I still believe the currency has much further downside over the long-term term. I am surprised at the extent of today's weakness after Friday's reversal higher. Broad market action is even worse than the major averages suggest. However, volume is very light. I will add further downside protection on any convincing break below S&P 500 1,040. I expect US stocks to trade modestly lower into the close from current levels on rising economic fear, more shorting, technical selling, china worries and rising sovereign debt angst.

Today's Headlines


Bloomberg:

  • Consumer Spending in U.S. Tops Forecast, Incomes Lag. Consumer spending in the U.S. rose more than forecast in July, exceeding gains in incomes and indicating the economy may avoid slipping back into a recession. Purchases rose 0.4 percent, the most since March, after little change the prior month, Commerce Department figures showed today in Washington. Incomes climbed 0.2 percent, less than projected, and the savings rate dropped. Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation, showing how the lack of jobs may prevent spending from strengthening. “It’ll be a real slog,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “We’ll see very slow growth, but it’s a far cry from a double dip,” he said, referring to the economy lapsing into another economic slump.
  • Treasuries Advance After BOJ Says U.S. Economic Uncertainty Is Increasing. Treasuries rose, erasing their losses from last week, after the Bank of Japan said “uncertainty” regarding the American economy is growing, reviving demand for safety. U.S. government notes headed for a fifth monthly gain as the BOJ’s expansion of a bank-loan program fell short of traders’ expectations. The Federal Reserve bought $360 million of Treasury Inflation Protected Securities, the least amount since it resumed buying government debt this month. “The market was looking for a broader expansion of the package from the Bank of Japan and stronger steps to shore up their market,” said Christian Cooper, senior rates trader in New York at Jefferies Group Inc., one of the 18 primary dealers that trade directly with the Fed. “The increasing uncertainty that was mentioned also set the tone for the bid this morning. It’s positive for fixed income.” The 10-year yield fell 11 basis points, or 0.11 percentage point, to 2.54 percent at 12:29 p.m. in New York, according to BGCantor Market Data.
  • Intel(INTC) Buys Infineon Wireless Radio Chip Unit for $1.4 Billion. Intel Corp., the world’s largest chipmaker, agreed to buy Infineon Technologies AG’s wireless unit for about $1.4 billion, gaining a foothold in the mobile- phone business it has struggled to crack for more than a decade. The all-cash transaction is expected to close in the first quarter of 2011, Infineon, Europe’s second-largest semiconductor maker, said in a statement today.
  • HP(HPQ) Board Authorizes $10 Billion for Share Buybacks. Hewlett-Packard Co.(HPQ), the personal- computer maker in a $2 billion bidding war for data-storage provider 3Par Inc., said its board approved an additional $10 billion for share repurchases. The move, which adds to the $4.9 billion already available, will help offset dilution from employee stock purchases, the Palo Alto, California-based company said today in a statement. HP will repurchase at least $3 billion in shares in the fiscal fourth quarter ending in October, Cathie Lesjak, interim chief executive officer, said in the statement.
  • Corn Advances to 14-Month High on U.S. Crop Demand; Wheat, Soybeans Climb. Corn futures climbed to a 14-month high on speculation the U.S., the top producer and exporter, may miss a record harvest and as growing areas in China face floods. Corn in Dalian gained to the highest level since at least 2004. December-delivery corn rallied as much as 2 percent to $4.4475 a bushel, the highest price for the most-active contract in Chicago since June 15, 2009.
  • UN Climate Panel Should Change Management, Study Says. The UN climate-science agency that was criticized for errors in forecasting when Himalayan glaciers may melt should “fundamentally change its management structure,” a review of the Nobel Prize-winning body said. The United Nations-sponsored Intergovernmental Panel on Climate Change should appoint an executive director and name an executive committee with members who are outside of the IPCC or even are not part of the climate-science community, the Amsterdam-based InterAcademy Council said today on its website. The review by economists and scientists at the InterAcademy Council was called for in March by UN Secretary-General Ban Ki- moon after errors on glacier melt rates and flooding were flagged in 2010 by readers, more than two years after the IPCC published an assessment report that said scientists were more than 90 percent certain that humans are causing global warming. Climate-change skeptics including U.S. Senator Jim Inhofe, an Oklahoma Republican, have pointed to the errors by the IPCC as proof that the earth is not being warmed by human-caused carbon emissions.
  • 3M(MMM) Agrees to Acquire Cogent Inc.(CGNT) for $943 Million. agreed to buy 3M Co.Cogent Inc., a manufacturer of fingerprint-identification systems for governments and companies, for $943 million to expand its security-services products. The offer is for $10.50 a share, 3M said today in a statement, or 18 percent more than Pasadena, California-based Cogent’s closing price on Aug. 27.

Wall Street Journal:
CNBC:
  • Why Even Central Bankers Are Unsure What to Do Now.
  • Another Home Buyer Tax Credit? Just when I thought the housing market was finally being left to correct on its own, I'm starting to hear talk regarding yet another home buyer tax credit. From HUD to the hedge funds, it sounds as if it is gaining steam yet again. This one could involve not just first time/move-up buyers, but a credit for buyers purchasing foreclosed properties or short sale.
MarketWatch:
Business Insider:
  • China Has Picked The Wrong Time To End Its Love Affair With Capitalism.
    Michael Wines has an excellent report in today’s New York Times, about the rising dominance of China’s state-owned enterprises, at the expense of the once-vibrant private sector. Although partly an unanticipated consequence of China’s big stimulus push, he notes, the trend may — to some degree — reflect a more profound shift in philosophy:
  • Dallas Fed: Manufacturing Is a Mess. The Dallas Fed Manufacturing Index declined by 13.5%, worse than the forecast -10%. Texas activity declined for the third month in a row. New orders, shipments, and other indices for Texas were also negative or flat:
Zero Hedge:
  • Greeks "In Over Their Heads in Debt" Means Non Performing Loans Poised to Surge. A Bloomberg TV report looks at a troubling and all too expected trend developing currently in Greece: namely the overabundance of easy credit provided to Greek consumers to fund unprofitable business, and which loans the recipients have no intention of every paying back.
  • Moody's Issues Stern Warning on China's Pyramid Bank Recapitalization Scheme; Has CIC Entered a Funding Crisis? Moody's is out with a surprisingly frank appraisal of the Chinese banking system's precarious capitalization trend, by looking at the recent RMB 54 billion capital raise in the interbank market by the domestic arm of the Chinese Sovereign Wealth fund (CIC), which was "the first part of an RMB 187.5 billion overall fund-raising program mainly to provide additional capital to the three largest state-owned banks, a policy lender, and a policy insurance company." As Moody's oh so correctly concludes: "Recapitalizing banks with bond proceeds from banks is credit negative because it increases the effective leverage of the banking system.
TechCrunch:
Stratfor:
Rasmussen Reports:
  • 58% Favor Repeal of the Health Care Law, 36% Are Opposed. Just over half of U.S. voters continue to believe that the new health care law will increase the cost of care and believe the law will be bad for the country. A new Rasmussen Reports national telephone survey finds that 58% favor repeal of the new national health care law while 36% are opposed. These figures include 46% who Strongly Favor repeal and 28% who are Strongly Opposed.
USA Today:
  • Record Number in Government Anti-Poverty Programs. Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand. More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007. "Virtually every Medicaid director in the country would say that their current enrollment is the highest on record," says Vernon Smith of Health Management Associates, which surveys states for Kaiser Family Foundation. The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. "Private physicians are already indicating that they're at their limit," says Dan Hawkins of the National Association of Community Health Centers. More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years. Caseloads have risen as more people become eligible. The economic stimulus law signed by President Obama last year also boosted benefits.
AP:
  • China has gone on a global management recruiting campaign as part of a plan to build 30 to 50 state companies that will become national champions in oil, banking, airlines and other businesses, citing an announcement by the State Asset Supervision and Administration Commission.
Financial Times:
  • Oil Exploration in Cuba Expected to Go Ahead. Preparations for full-scale oil exploration are gaining momentum in Cuba’s Gulf of Mexico waters just 50 miles from the US, testing the limits of the trade embargo on the Caribbean nation. Cubapetroleo, the state oil monopoly, says seven exploration wells are scheduled for the Cuban waters up to the end of 2012. A new Chinese deep-water rig, owned by Saipem, a unit of Italian oil company Eni SpA, is scheduled to leave its shipyard by the end of 2010 for the two-month trek to Cuba. The rig was built to get around the 10 per cent limit on US technology demanded under the US trade embargo of Cuba. Preparatory work is moving ahead at Mariel, a port west of Havana, the staging area for drilling operations, diplomatic and industry sources said, and some companies have opened bidding for well casing. “It is ridiculous that Repsol, a Spanish oil company, is paying an Italian firm to build an oil rig in China that will be used next year to explore for oil 50 miles from Florida,” Sarah Stephens, executive director of the Center for Democracy in the Americas, said.
Telegraph:
  • Backlash Over China Curb on Metal Exports. China's draconian export curbs on rare earth minerals needed by the rest of the world for frontier technologies is escalating into a serious diplomatic and trade clash with the United States and other leading powers. Japan's foreign minister Katsuya Okada issued what amounted to a formal protest at top-level meeting with Chinese officials in Beijing over the weekend, saying the sudden cut-off was "affecting the global production chain". It is the latest sign of rising pressure after angry complaints by companies outside China that rely on this family of 17 metals for hybrid cars, mobile phones, superconductors, navigation, and a host of high-tech industries.
Economic Times:
  • Some banks in the Chinese municipality of Chongqing raised loan rates for first-home purchases by reducing discounts, citing people from two banks' Chongqing branches. Buyers can only get a 10% to 15% discount for interest rates paid on loans to buy first homes, compared with an earlier 25% to 30% off.
WAM:
  • Ground Zero Mosque Leader: Radicalism Common Threat to Muslims and Non-Muslims. Imam Feisal Abdul Rauf, a central figure in plans to build a Muslim community center in Lower Manhattan, New York, near the site of attacks of Sept. 11, 2001, urged followers of all faiths to join hands against radicalism which he says exists in all religions. "We are all in this together.. there is a common threat: radicalism which exists in all religions," Abdul Rauf told WAM in an interview in Abu Dhabi. "The real battle front is not between Muslims and non-Muslims. The real battle front is between moderates and extremists." He is in the UAE as part of a mission from the United States government to promote religious tolerance in the Arab world. The Imam's trip also took in Bahrain and Qatar. While in the UAE, Feisal Abdul Rauf is holding meetings with senior officials, Muslim scholars and university students.

Bear Radar


Style Underperformer:

  • Small-Cap Growth (-1.49%)
Sector Underperformers:
  • 1) Semis -2.44% 2) Banks -2.06% 3) Coal -2.05%
Stocks Falling on Unusual Volume:
  • ISIL, DGIT, FNGN, LULU, ARST, UEPS, CHKE, KALU, NCMI, JST, ANDE, ANSS, QCOR, CSH and SIG
Stocks With Unusual Put Option Activity:
  • 1) OVTI 2) AKS 3) CTRP 4) LFC 5) ADBE
Stocks With Most Negative News Mentions:
  • 1) RIMM 2) DAL 3) GS 4) TXN 5) BAC

Bull Radar


Style Outperformer:

  • Large-Cap Growth (-.30%)
Sector Outperformers:
  • 1) Education +1.52% 2) Airlines +.59% 3) Disk Drives +52%
Stocks Rising on Unusual Volume:
  • XRTX, HPQ, DELL, AAPL, IPGP, QLGC, PTNR, COGT, GENZ, FOSL, FIZZ, LOGM, UAUA, CSGS, FSYS, UEIC, VECO, MRX and JKS
Stocks With Unusual Call Option Activity:
  • 1) AMR 2) CB 3) AKS 4) COST 5) TXN
Stocks With Most Positive News Mentions:
  • 1) HPQ 2) INTC 3) AAPL 4) SCHW 5) GENZ

Sunday, August 29, 2010

Monday Watch


Weekend Recommendations
Citigroup:
  • Reiterated Buy on (TGT), target $72.
Night Trading
  • Asian indices are +1.0% to +2.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 130.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 125.50 +3.0 basis points.
  • S&P 500 futures +.53%.
  • NASDAQ 100 futures +.54%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DCI)/.64
  • (WINN)/.12
Economic Releases
8:30 am EST
  • Personal Income for July is estimated to rise +.3% versus unch. in June.
  • Personal Spending for July is estimated to rise +.3% versus unch. in June.
  • The PCE Core for July is estimated to rise +.1% versus unch. in June.
10:30 am EST
  • Dallas Fed Manufacturing Activity for August is estimated to fall -16.0% versus a -21.0% decline in July.
Upcoming Splits
  • (TSCO) 2-for-1
Other Potential Market Movers
  • The Fed's Bullard speaking could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly higher on buyout speculation, technical buying, less sovereign debt angst, falling financial sector pessimism, bargain-hunting and short-covering. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 100% net long heading into the week.

Friday, August 27, 2010

Market Week in Review


S&P 500 1,064.59 -.66%*

Photobucket

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*


Indices

  • S&P 500 1,064.59 -.66%
  • DJIA 10,150.65 -.62%
  • NASDAQ 2,153.63 -1.20%
  • Russell 2000 616.17 +.98%
  • Wilshire 5000 10,980.08 -.51%
  • Russell 1000 Growth 474.54 -1.0%
  • Russell 1000 Value 547.63 -.28%
  • Morgan Stanley Consumer 657.87 -.46%
  • Morgan Stanley Cyclical 809.78 -1.23%
  • Morgan Stanley Technology 530.47 -2.02%
  • Transports 4,184.90 -.58%
  • Utilities 392.46 +1.77%
  • MSCI Emerging Markets 40.27 -1.79%
  • Lyxor L/S Equity Long Bias Index 950.39 -.68%
  • Lyxor L/S Equity Variable Bias Index 843.93 -.02%
  • Lyxor L/S Equity Short Bias Index 864.54 +2.02%
Sentiment/Internals
  • NYSE Cumulative A/D Line +91,538 -1.38%
  • Bloomberg New Highs-Lows Index -169 +7
  • Bloomberg Crude Oil % Bulls 41.0 +28.13%
  • CFTC Oil Net Speculative Position +27,323 -55.97%
  • CFTC Oil Total Open Interest 1,246,784 -1.62%
  • Total Put/Call .80 -22.33%
  • OEX Put/Call 1.18 -3.28%
  • ISE Sentiment 110.0 +35.80%
  • NYSE Arms .53 -69.71%
  • Volatility(VIX) 24.45 -4.08%
  • G7 Currency Volatility (VXY) 12.41 +2.82%
  • Smart Money Flow Index 8,951.42 -1.20%
  • Money Mkt Mutual Fund Assets $2.834 Trillion +.1%
  • AAII % Bulls 20.74 -31.12%
  • AAII % Bears 49.47 +16.48%
Futures Spot Prices
  • CRB Index 267.27 +.10%
  • Crude Oil 75.17 +1.69%
  • Reformulated Gasoline 194.79 +1.18%
  • Natural Gas 3.70 -10.94%
  • Heating Oil 204.43 +3.51%
  • Gold 1,237.90 +.66%
  • Bloomberg Base Metals 203.76 -.46%
  • Copper 338.45 +2.10%
  • US No. 1 Heavy Melt Scrap Steel 323.0 USD/Ton +8.88%
  • China Hot Rolled Domestic Steel Sheet 4,176 Yuan/Ton -1.95%
  • S&P GSCI Agriculture 372.61 -.40%
Economy
  • ECRI Weekly Leading Economic Index 120.90 +17%
  • Citi US Economic Surprise Index -59.60 -.6 points
  • Fed Fund Futures imply 72.0% chance of no change, 28.0% chance of 25 basis point cut on 9/21
  • US Dollar Index 82.92 -.17%
  • Yield Curve 209.0 -3 basis points
  • 10-Year US Treasury Yield 2.64% +3 basis points
  • Federal Reserve's Balance Sheet $2.284 Trillion -.55%
  • U.S. Sovereign Debt Credit Default Swap 48.85 +4.50%
  • U.S. Municipal CDS Index 232.29 +3.70%
  • Western Europe Sovereign Debt Credit Default Swap Index 154.66 +6.72%
  • 10-Year TIPS Spread 1.63% +4 basis points
  • TED Spread 16.0 -2 basis points
  • N. America Investment Grade Credit Default Swap Index 112.90 +2.68%
  • Euro Financial Sector Credit Default Swap Index 130.35 +8.30%
  • Emerging Markets Credit Default Swap Index 258.89 +10.51%
  • CMBS Super Senior AAA 10-Year Treasury Spread 257.0 -10 basis points
  • M1 Money Supply $1.723 Trillion -.67%
  • Business Loans 607.20 +.28%
  • 4-Week Moving Average of Jobless Claims 486,800 +.7%
  • Continuing Claims Unemployment Rate 3.5% unch.
  • Average 30-Year Mortgage Rate 4.36% -6 basis points
  • Weekly Mortgage Applications 870.30 +4.89%
  • ABC Consumer Confidence -44 +1 point
  • Weekly Retail Sales +2.70% -10 basis points
  • Nationwide Gas $2.68/gallon -.04/gallon
  • U.S. Cooling Demand Next 7 Days 27.0% above normal
  • Baltic Dry Index 2,712 -1.60%
  • Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 -6.25%
  • Rail Freight Carloads 236,404 +1.13%
  • Iraqi 2028 Government Bonds 86.50 -1.12%
Best Performing Style
  • Small-Cap Growth +1.14%
Worst Performing Style
  • Large-Cap Growth -1.0%
Leading Sectors
  • Education +3.05%
  • Gold +2.97%
  • HMOs +2.06%
  • REITs +1.85%
  • Utilities +1.77%
Lagging Sectors
  • I-Banks -2.79%
  • Medical Equipment -2.92%
  • Airlines -3.07%
  • Oil Tankers -4.58%
  • Coal -5.77%
One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Reversing Higher into Final Hour on Less Economic Fear, Short-Covering, Buyout Speculation, Bargain-Hunting


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 25.10 -8.26%
  • ISE Sentiment Index 101.0 -5.61%
  • Total Put/Call .82 -8.89%
  • NYSE Arms .61 -65.76%
Credit Investor Angst:
  • North American Investment Grade CDS Index 112.90 bps +.57%
  • European Financial Sector CDS Index 131.07 bps +.76%
  • Western Europe Sovereign Debt CDS Index 154.33 bps +.95%
  • Emerging Market CDS Index 258.11 bps +.40%
  • 2-Year Swap Spread 17.0 +1 bp
  • TED Spread 16.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .14% -1 bp
  • Yield Curve 209.0 +11 bps
  • China Import Iron Ore Spot $142.90/Metric Tonne -.56%
  • Citi US Economic Surprise Index -59.60 +3.2 points
  • 10-Year TIPS Spread 1.64% +7 bps
Overseas Futures:
  • Nikkei Futures: Indicating +89 open in Japan
  • DAX Futures: Indicating +5 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Medical, Ag and Biotech long positions
  • Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 reverses higher on better volume despite weaker economic data, Intel's lowered guidance, retail sector worries and some initial disappointment over Bernanke's comments. On the positive side, Airline, Gaming, Disk Drive, Computer, Oil Service, Coal, Road&Rail, Construction, Insurance, Steel, Energy and Alt Energy stocks are especially strong, rising 2.75%+. Cyclicals and small-caps are outperforming. Copper is rising +2.18% and the S&P GSCI Ag Spot Index is gaining +1.39%. The US scrap steel benchmark index is rising another +4.6% and has risen 8.9% over the last five days. The 10-year yield is reversing +19 points higher from session lows to 2.66%, which is a large positive. On the negative side, Retail and Oil Tanker shares are underperforming, rising less than +.5%. The Ireland sovereign cds is gaining +2.72% to 333.83 bps. The main cds indices are not confirming today's equity rally. As well, the euro trades poorly considering today's stock rally and Bernanke's comments. The large reversal higher in the 10-year yield off today's news likely indicates much of the recent turn lower in economic activity is now priced in and higher yields are likely over the coming weeks. I suspect US stocks can build on today's gains next week. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less economic fear, technical buying and buyout speculation.

Bear Radar


Style Underperformer:

  • Large-Cap Growth (+1.07%)
Sector Underperformers:
  • 1) Retail +.28% 2) Hospitals +.33% 3) Oil Tankers +.39%
Stocks Falling on Unusual Volume:
  • UEPS, DGIT, SNDK, LULU, JCG, TIF and OB
Stocks With Unusual Put Option Activity:
  • 1) HL 2) JCG 3) OVTI 4) ARUN 5) MMR
Stocks With Most Negative News Mentions:
  • 1) C 2) ISCA 3) TRB 4) MF 5) RIG

Bull Radar


Style Outperformer:

  • Small-Cap Growth (+1.69%)
Sector Outperformers:
  • 1) Disk Drives +2.40% 2) Oil Service +2.28% 3) Steel +2.20%
Stocks Rising on Unusual Volume:
  • TSO, COLB, TKC, OXY, LUK, REP, ARST, DLLR, FIRE, ARUN, MCRS, FTNT, SPWRA, CRMT, CREE, SCOK, AIRM, RVBD, FLIR, NTAP, SPMD, SWKS, SIRO, CVLT, IAT, PEO, CUK, CGX and TPX
Stocks With Unusual Call Option Activity:
  • 1) ONNN 2) LNC 3) TIF 4) TXN 5) ARUN
Stocks With Most Positive News Mentions:
  • 1) TIF 2) HPQ 3) GOOG 4) BA 5) AAPL

Friday Watch


Evening Headlines

Bloomberg:

  • Wal-Mart(WMT) Bonds Rising, IOUs Falling Signal Weaker Economy: Credit Markets. Wal-Mart Stores Inc. bonds are rallying and short-term business borrowing is falling the most in three months in a sign credit markets are increasingly concerned that the economic recovery is stumbling. Bonds from Wal-Mart gained 3.98 percent this month, the most of the 50 biggest issuers in Bank of America Merrill Lynch’s Global Broad Market Industrial index, which has gained 2.28 percent. Commercial paper outstanding fell $23.7 billion in the week ended Aug. 25, the biggest drop since the period ended May 19, according to the Federal Reserve.
  • HP(HPQ) Tops Dell's(DELL) 3Par(PAR) Bid Again, Offering $1.8 Billion. Hewlett-Packard Co., waging a bidding war with Dell Inc., said it would pay $1.8 billion for 3Par Inc. -- about $200 million more than a Dell offer from earlier today. HP’s price of $27 a share in cash marks the second time HP has outbid Dell, which originally agreed to buy 3Par on Aug. 16 for about $1.15 billion, or $18 a share. The latest price is 11 percent more than Dell’s last bid of $24.30 a share, or about $1.6 billion, an offer 3Par accepted this morning.
  • RIM(RIMM) Falls to 17-Month Low as India BlackBerry Service Ban Looms.
  • China Begs, Borrows, Steals American Know-How: Peter Navarro. China’s fourth-largest steel producer, government-owned Anshan Iron & Steel Group, wants to buy a stake in the U.S. Steel Development Co. The plan is to build five new mills, with the first adding 120 jobs to one of America’s most economically depressed states, Mississippi. What could be wrong with that? Plenty, says a bipartisan group of 50 members of Congress. They are demanding an investigation by the Obama administration on economic and national-security grounds.
  • Japan's Consumer Prices Slide, Adding to Risk of Slower Growth. Japan’s consumer prices fell for a 17th month and household spending rose less than forecast, driving stocks lower on concern that the nation’s economic recovery is faltering.
  • Gold Demand to Soar in Vietnam as 'Shelter' From Devaluations, Stock Slump. Gold demand in Vietnam, which consumes more of the precious metal per head than India and China, is set to surge as the third devaluation in the past year and a stock-market slump combine to spur sales.
  • Investors Pull $7.1 Billion From Stock Funds Globally, Buy Emerging Bonds. Investors withdrew a net $7.1 billion from global-tracked equity funds in the week to Aug. 25 and put some $5.2 billion into bond funds amid concern economies in the U.S. and Europe are losing momentum, EPFR Global said.

Wall Street Journal:
  • Report Finds Debt Wall May Be Falling. The wall of debt maturities on the horizon may not be as insurmountable at it seemed a few months ago, according to a new report from investment bank Morgan Joseph LLC. Many expected that the amount of corporate debt coming due could spark another round of restructurings as soon as next year if demand for refinancing outstrips available credit. But the report released this week found that the threat may be pushed back by a few years, if not eliminated.
  • ArcSight(ARST) Puts Itself on Block. Security software maker ArcSight Inc. put itself on the auction block and potential bidders, including Oracle Corp.(ORCL) and Hewlett-Packard Co.(HPQ), could pay up to $1.5 billion for the company, people familiar with the matter said. The Cupertino, Calif., company has been quietly shopping itself to a handful of big technology suppliers interested in its software, these people said. In addition to Oracle and H-P, EMC Corp, International Business Machines Corp. and CA Inc., are prospective bidders, they said.
  • UAW Fund Picks BlackRock(BLK), State Street(STT) to Manage $6 Billion. An independent health-care trust for retired auto workers will place $6 billion in the hands of two investment firms, one of the first steps in the trust's move to shift part of its billions of dollars into more-passive investing. The Retiree Medical Benefits Trust for the United Auto Workers union will divide the $6 billion equally between Boston-based State Street Corp. and BlackRock Inc. of New York, according to Eric Henry, the trust's chief investment officer.
  • Time for Obama to Pull a Clinton by Douglas E. Schoen. When I met with the president in early 1995, I warned him he would not be re-elected unless he changed his reputation. As campaign season heats up—for the midterms, of course, as well as for 2012—President Obama is pursuing a strategy that is bound to fail. To secure his political future, he needs to change his approach in the way that Bill Clinton did halfway through his first term. I first met with Mr. Clinton privately in early 1995, after the Republicans gained control of Congress for the first time since 1954. I warned him that he could not be re-elected in 1996 unless he turned around his administration's reputation: from one of big-spending liberalism (represented by his attempt to massively overhaul the health-care system) to one of fiscal discipline and economic growth. Mr. Clinton did just that, and now Mr. Obama must do the same—and quickly.
Bloomberg Businessweek:
CNBC:
Business Insider:
Zero Hedge:
CNNMoney:
The Detroit News:
  • House Democrat Wants GM to Use Female, Minority-Owned Banks in IPO. A House Democrat wants General Motors to explain why it isn't using any female or minority-owned underwriters for its planned public offering this fall. Rep. Maxine Waters, D-Calif., said in a letter released today to Treasury Secretary Timothy Geithner and Securities and Exchange Commission chair Mary Schapiro that she is concerned that the sale of the first chunk of the government's 61 percent stake in GM won't include any female or minority-owned underwriters.
Washington Post:
  • Why Another Fiscal Stimulus Won't Do by Mohamed A. El-Erian. The great hope a few months ago was for a "recovery summer," with the economy responding favorably to various policy initiatives. Yet the recovery has lost momentum, and while the end of the year will not be as gut-wrenching as the final 3 1/2 months of 2008, when the global economy suffered a cardiac arrest, it will be as consequential in affecting the welfare of millions of people.
LA Times:
ProPublica:
  • Banks' Self-Dealing Super-Charged Financial Crisis. Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history. Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses: They created fake demand. A ProPublica analysis shows for the first time the extent to which banks -- primarily Merrill Lynch, but also Citigroup, UBS and others -- bought their own products and cranked up an assembly line that otherwise should have flagged. The products they were buying and selling were at the heart of the 2008 meltdown -- collections of mortgage bonds known as collateralized debt obligations, or CDOs.
Rasmussen Reports:
People's Daily:
  • The world shouldn't expect China to take on international responsibilities equal to being the world's second largest economy as it exceeds the nation's capabilities, citing Pei Changhong, a researcher from the Chinese Academy of Social Sciences.
Oriental Morning Post:
  • Chinese central bank adviser Xia Bin said the nation's new bank lending in 2011 won't fall below the 7.5 trillion yuan target set for this year. The nation will in the second half strictly adhere to its 7.5 trillion yuan target for new lending this year, Xia said. China should maintain its property control measures, Xia said.
Evening Recommendations
Citigroup:
  • Rated (GSIC) Buy, target $29.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 133.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 122.50 -.5 basis point.
  • S&P 500 futures +.27%.
  • NASDAQ 100 futures +16%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (TIF)/.52
  • (FRO)/.67
Economic Releases
8:30 am EST
  • 2Q GDP is estimated to rise +1.4% versus a prior estimate of a +2.4% gain.
  • 2Q Personal Consumption is estimated to rise +1.6% versus a prior estimate of a +1.6% gain.
  • 2Q GDP Price Index is estimated to rise +1.8% versus a prior estimate of a +1.8% increase.
  • 2Q Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.1% rise.
9:55 am EST
  • Final Univ. of Mich. Consumer Confidence for July is estimated at 69.6 versus a prior estimate of 69.6.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • Fed Chairman Bernanke's speech could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.