Stocks Finish Sharply Higher on Strength in Financial Sector, Falling Energy Prices

Indices
S&P 500 1,428.23 +1.49%
DJIA 12,958.44 +1.69%
NASDAQ 2,580.80 +1.57%
Russell 2000 743.27 +1.12%
Wilshire 5000 14,343.23 +1.35%
Russell 1000 Growth 595.33 +1.4%
Russell 1000 Value 773.09 +1.43%
Morgan Stanley Consumer 738.35 +1.3%
Morgan Stanley Cyclical 947.63 +1.2%
Morgan Stanley Technology 602.08 +1.97%
Transports 4,466.78 +1.88%
Utilities 523.36 +.62%
MSCI Emerging Markets 146.54 +.15%

Sentiment/Internals
Total Put/Call .81 -16.49%
NYSE Arms .70 -64.47%
Volatility(VIX) 26.28 -9.1%
ISE Sentiment 132.0 +28.16%

Futures Spot Prices
Crude Oil $94.58 -3.19%
Reformulated Gasoline 237.10 -2.88%
Natural Gas 7.56 -2.10%
Heating Oil 265.95 -1.74%
Gold 810.50 -1.94%
Base Metals 220.43 -1.03%
Copper 297.85 -2.36%

Economy
10-year US Treasury Yield 3.95% +11 basis points
US Dollar 75.13 +.36%
CRB Index 347.77 -1.58%

Leading Sectors
I-Banks +3.31%
Banks +2.6%
REITs +2.21%

Lagging Sectors
Gold -.25%
Energy -.73%
Oil Service -1.4%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Wells Fargo(WFC) will take a $1.4 billion pretax charge in the fourth quarter because of increased losses on home equity loans.
- Freddie Mac(FRE) plans to sell $6 billion in preferred stock and cut its dividend in half to shore up capital.
- Youths fought police for a second night in suburbs north of Paris, injuring more than 60 officers, as unrest triggered by the death of two teenagers spread.
- Crude oil fell more than $3 a barrel in NY after Saudi Arabia’s oil minister, Ali al-Naimi, said the country increased production to the highest this year.

globeandmail.com:
- Movie rental chain Blockbuster Inc. is in talks with all the major mobile phone makers about partnerships aimed at making it easier for consumers to watch movies on the go, CEO Keyes said.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Biotech longs, Semi longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was above average. Measures of investor anxiety were about average into the close. Today's overall market action was bullish. Market leading growth stocks gained meaningful traction on the close with many substantially outperforming the broad market once again. I continue to believe true “growth” stocks will outperform “value” stocks for the foreseeable future. The 10-year swap spread fell another 1.9 basis points today to 69.6 basis points over Treasuries. This is down from 87.5 basis points over Treasuries just five days ago, which is a big positive. It is also interesting to note that the yen remained weak throughout the day, notwithstanding the intraday pullback we experienced in the broad US stock market, which is a positive. As well, the G-7 Currency volatility index reversed lower today and is close to breaking down, which is also a positive. Nikkei futures are indicating a +50 open in Japan.

Stocks Higher into Final Hour on Falling Oil and Financial Sector Strength

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs, Biotech longs and commodity shorts. I covered some of my (EEM) short and my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is slightly higher, most sectors are rising and volume is above average. Investor anxiety is above average. The NYSE reported last Wednesday that total short interest on the exchange rose another 3.8% over the first two weeks of the month, to 12.38 billion shares. Moreover, short interest on the Amex, where many ETFs trade, jumped 11.9%. Short interest in the Financial Select Sector SPDR (XLF) rose by 18,739,906 shares, to 116,045,478 shares. It is still the second most heavily shorted security on the exchange and the most heavily shorted sector ETF. The (XLF) is rising 1.6% on today’s Citigroup news. Breadth is weaker than I would like to see and we have given back too much of today’s earlier gains. I expect US stocks to trade mixed into the close from current levels as financial sector strength and lower energy prices offset global economic concerns.

Today's Headlines

Bloomberg:
- Google Inc.(GOOG) created a research group aimed at developing cheaper renewable energy sources, focusing on solar, wind and other alternative forms of power.
- MBIA Inc.(MBI) and Ambac Financial(ABK), the two largest bond insurers, are considering raising capital through reinsurance or sales of debt or stock to maintain their AAA ratings, executives said.
- Cheng Jian Wei, on a 24-hour visit to NY from China, was willing to risk missing his bus to the airport for the chance to buy his son an iPod at Apple’s(AAPL) Fifth Avenue store.
- Treasury two-year notes fell the most in more than three years after Abu Dhabi agreed to invest $7.5 billion in Citigroup(C), boosting stocks and easing demand for the relative safety of government debt.
- Carlyle Group’s Blue Wave hedge fund has lost 9.3% since being started in March by the Washington-based firm to expand beyond buyouts. The fund, overseen by former Deutsche Bank AG executives Rick Goldsmith and Ralph Reynolds, fell 9.5% in October after beginning the month with $690 million in assets.
- Thornburg Mortgage(TMA) will reinstate its dividend, possibly as early as next month, said COO Larry goldstone.
- The Baltic Dry Index, a measure of the cost of hauling commodities, posted its longest losing streak since May amid a decline in Chinese iron-ore imports and expectations that global economic growth with slow.
- Crude oil is falling more than $3/bbl. in NY after Saudi Arabia’s oil minister said the country increased production to the highest this year.
- Gold is falling the most in a week after a decline in energy costs reduced demand for the precious metal as a hedge against inflation.

Wall Street Journal:
- NBC Universal agreed to become the first major television broadcaster to use TiVo’s viewership data and ad products.

NY Times:
- California’s Orange County Water District plans to start the world’s largest plant to purify sewer water enough for it to be drinkable.

Boston Herald:
- Massachusetts may become the first state in the nation to make it illegal for parents to slap or spank their children.

USA Today:
- The Department of Homeland Security is creating new technologies including camera systems and chemical sensors to detect improvised explosive devices.

Dow Jones:
- OPEC is discussing a 750,000-barrel-a-day increase in production because of concerns about the effect of oil prices on the US economy, citing an OPEC delegate.

Confidence Near 2003 Bear Market Lows

- Consumer Confidence for November fell to 87.3 versus estimates of 91.0 and a reading of 95.2 in October.

BOTTOM LINE: Consumer confidence fell more than forecast in November, Bloomberg reported. The Present Conditions component of the index fell to 115.4 from 118 the prior month. The Expectations component fell to 68.7, the lowest since March 2003, right near the major bear market bottom. The proportion of people who said jobs are hard to get fell to 21.3% from 22.8% the prior month. I expect consumer confidence to bounce back in December as energy prices fall, the job market remains healthy and stocks rebound.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Citigroup(C), the US bank searching for a new CEO as it faces at least $8 billion of writedowns, agreed to sell as much as 4.9% of the company to the government of Abu Dhabi for $7.5 billion.
- The yen declined against all of the world’s 16 most-active currencies after Abu Dhabi Investment Authority agreed to invest in Citigroup(C), prompting investors to buy higher-yielding assets with loans from Japan.
- The yen’s gain to a more than two-year high against the dollar may stall, according to a technical indicator some traders use to predict currency movements. The dollar’s 14-day relative strength index to the yen was 26.59 today. A level below 30 signals a reversal in direction. Futures traders also raised their bets to the most in almost three years on the yen to advance against the dollar, suggesting the Japanese currency is vulnerable to a decline.

Wall Street Journal:
- Google Inc.(GOOG) is planning to offer a service that allows people to store files such as word-processing documents, pictures and music files on the Internet company’s hard drives. The service would allow customers to access the files through the Internet, with some storage being offered for free and additional space costing a fee.
- Pardus Capital Management LP, the $3 billion hedge fund that owns stakes in Delta Air Lines(DAL) and UAL’s United Airlines, is seeking their merger, a push that may be winning support from other shareholders.

MarketWatch.com:
- Obsessive attention to a company’s financial condition and surrounding Wall Street sentiment is giving mutual fund manager Tim Guinness reason to stick with technology sector stocks.
- The “Bold Bulls” is my name for the three letters that called the end of the bear market after a particularly dramatic down day in early 2003: Index Rx, Marketimer, Profitable Investing. I check in with the Bold Bulls whenever the markets get particularly interesting.

BusinessWeek:
- An auction of wireless airwaves could create a new breed of wireless players that lease network space to upstarts.

CNNMoney.com:
- Online retailers hit 4.6 million visitors a minute. Cyber Monday traffic and sales reported at a blistering pace.

USA Today.com:
- Widgets make a big splash on the Net.
- Sony(SNE), Apple(AAPL) and other tech companies want more computer programmers to write software for their products – even if the programmers aren’t employees.

Financial Times:
- US online retail sales have been growing at better-than-expected rates in the run-up to the holidays, according to Wall Street analysts and internet retailers.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MAR), target $62.
- Reiterated Buy on (WSH), target $47.
- Reiterated Buy on (DKS), target $37.

Night Trading
Asian Indices are -1.75% to -.25% on average.
S&P 500 futures +.84%.
NASDAQ 100 futures +.59%.

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Earnings of Note
Company/EPS Estimate
- (JTX)/-.60
- (AEO)/.45
- (TECD)/.60
- (SPLS)/.40
- (DBRN)/.31
- (TLB)/-.23
- (PBY)/.02
- (SMTC)/.21
- (CENT)/.03
- (HDL)/-.20
- (PLL)/.57
- (ADI)/.39
- (MRVL)/.08

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for November is estimated to fall to 91.0 versus 95.6 in October.

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Plosser speaking, weekly retail sales reports, S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index, CSFB Tech Conference, Piper Jaffray Healthcare Conference, Friedman Billings Investor Conference, Lazard Healthcare Conference, JPMorgan Homebuilding & Building Products Conference, CIBC Mid & Small Cap “Best Ideas” Conference and Merrill Lynch Health Services Conference could also impact trading today.

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