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

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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%.

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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

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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.