Stocks Rebounding into Final Hour on Short-Covering, Lower Energy Prices, Less Economic Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Computer longs, Internet longs, Biotech longs and Medical longs. I covered all of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is bullish. Nikkei futures indicate an +65 open in Japan and DAX futures indicate an +37 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and less economic sector pessimism.

Today's Headlines

Bloomberg:

- Fiber Optics Bring Faster Internet, DVDs on Demand.

- European industrial production dropped the most on record in December, pointing to a deepening economic slump in the fourth quarter. Output in the euro region fell 12 percent from the year- earlier month after an 8.4 percent decline in November, the European Union’s statistics office in Luxembourg said today.

- The London interbank offered rate, or Libor, for overnight loans in British pounds fell below 1 percent for the first time amid expectations the Bank of England will cut its key interest rate to near zero. The rate dropped more than half a basis point to 99 basis points today, the British Bankers’ Association said, the lowest since the trade group began compiling the data in January 2001. The three-month pound overnight index swap rate, which shows traders’ expectations for the central bank’s key rate, was at 55 basis points, from 72 basis points a week ago.

- The average U.S. rate on a 30-year fixed mortgage fell this week as federal lawmakers negotiated an economic stimulus plan to revive the economy and resuscitate the housing market. The rate fell to 5.16 percent from 5.25 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer said today.

- Families whose children developed autism after taking vaccine combinations that contained thimerosal aren’t entitled to compensation from a $2.5 billion government trust fund, a panel of court-appointed experts ruled. Three “special masters” appointed by the U.S. Court of Federal Claims in Washington found today that the families failed to show thimerosal-containing vaccines taken with an “MMR” shot for measles, mumps and rubella can contribute to causing autism, immune-system dysfunction or gastrointestinal dysfunction.

- Crude oil fell to a three-week low in New York after a U.S. government report yesterday showed a bigger-than-expected increase in inventories. Supplies have gained in 18 of the past 20 weeks, leaving stockpiles the highest since July 2007, the Energy Department report showed. World oil consumption will drop 1.7 percent to 84.3 million barrels a day this year, consultant Wood Mackenzie said in a report today. “Inventories keep increasing and we continue to get reports downgrading demand forecasts,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “There’s increasing pressure on crude oil, especially the front month.” Supplies at Cushing, Oklahoma, where West Texas Intermediate oil is stored, climbed 1.7 percent to 34.9 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location. The International Energy Agency yesterday reduced its global oil demand forecast for 2009, projecting consumption will decline by 1 million barrels a day, the biggest drop since 1982. The adviser to 28 developed nations trimmed its 2009 forecast by 570,000 barrels to 84.7 million a day because of a weaker economic outlook from the International Monetary Fund.

Wall Street Journal:

- The stock market tanked Tuesday after disappointment with the presentation from Treasury Secretary Tim Geithner. Many thought hedge-fund redemptions were a major catalyst, but they probably were not. Today’s selloff, however, could be the result of this. With many hedge fund withdrawal requests due 45 days before the end of the quarter — which would be Sunday for the quarter ending March 31 — traders are acting under the assumption that funds this week will be pushing for cash in an inevitable wave of selling out to meet redemptions.

- Even as job losses mount and profits plunge, some glimmers of stabilization are emerging in global markets. In the U.S., Europe and China, separate surveys of manufacturers' purchasing managers all inched upward in January, suggesting that the contraction in manufacturing activity could be slowing. The interest rates at which banks lend to one another are easing. And some credit markets are thawing. Analysts say rock-bottom official interest rates, promises of massive fiscal-stimulus packages and central banks' other efforts to revive markets have helped ease some tensions in financial markets and may help put a floor under falling business confidence.

CNBC.com:
- How worried was Wall Street about a lack clarity in Treasury Secretary Tim Geithner’s plan to save the banking system by buying toxic debt? So worried that Goldman Sachs(GS) called a meeting to figure out how to fix the problem. —This meeting known as the “Goldman Sachs rountable” took place just hours after Geithner’s speech (and the dismal market reaction) on Tuesday at the headquarters of Goldman Sachs(GS) in lower Manhattan. —Around 20 of the firm’s biggest hedge fund and private equity clients from around the country showed up—a testament to just how concerned financial industry insiders are about what few details Geithner presented.

Barron’s:

- Bernstein Research analyst Toni Sacconaghi asserted in a research note this morning that Apple (AAPL) officials in a briefing this week “appeared confident” about its guidance for the fiscal second quarter ending in March. Sacconaghi met this week with COO Tim Cook, CFO Peter Oppenheimer and SVP-Product Marketing Phil Schiller and says the three “projected a confident and unwavering tone.” In his note, Sacconaghi reported back on his meeting; here are some key bullet points:

NY Times:

- Laid-Off Foreigners Flee as Dubai Spirals Down.

KansasCityStar:

- It's still rough going out there. But a couple of executives from companies with a big local presence expressed some hope that maybe the nation's economy has stopped its downward spiral. Bill Zollars, chairman of trucking giant YRC Worldwide Inc.(YRCW), reiterated on Wednesday what he said at the end of January. "It appears to us that things have stabilizied a little bit in February," Zollars told transportation analysts at a conference in Florida.

San Francisco Chronicle:

- What Blu-ray is to high-def DVDs, and VHS is to videotape, a high-powered consortium led by Intel Corp.(INTC) and Chevron Corp.(CVX) is offering a similar industry standard, this one for corporate IT departments.

Politico:

- Earlier today, the Speaker's office told us some or all of the text would be made available online prior to Pelosi's press conference. If the House votes on Friday, as expected, the late posting means the text will be available for less than 24 hours -- far short of the 48 hours Dem leaders had previously pledged.

DW-World.DE:

- The EU Commission anticipates the ongoing economic crisis will translate to massive losses for all of Europe's industrial sectors, a German newspaper wrote. The crisis is hitting Europe faster than expected. An internal EU analysis of the crisis' effects described massive production and revenue losses in the construction and manufacturing industries, according to the paper. The announcement comes at the EU's business climate index hit its lowest levels since being introduced in 1985.

Vedomosti:

- Russian new car sales fell 33% in January.

China Securities Journal:
- China faces difficulty boosting fixed-asset investment growth this year as smaller gains in profits crimp company spending, citing a central bank official. Corporate profit growth has slowed “enormously,” suggesting that investment has been bolstered by government spending on infrastructure, citing Ruan Jianhong, deputy director of the People’s Bank of China’s survey and statistics department, said.

The National:

- Hotels in Abu Dhabi have discounted room rates by as much as 15 per cent, indicating that the global financial crisis is beginning to affect the core market of business tourism. The move follows steep discounts introduced by hotels in Dubai in December, where rates have come down by as much as 60 per cent to shore up the hard-hit leisure segment. The rate cuts have helped to boost occupancy levels, but analysts say the strategy threatens profits.

Bear Radar

Style Underperformer:
Small-cap Value (-2.90%)

Sector Underperformers:
Banks (-8.22%), REITs (-6.82%) and Homebuilders (-6.64%)

Stocks Falling on Unusual Volume:
USB, ZION, WFC, EQIX, BT, PHG, STRA, TRMK, COCO, SKYW, EDU, LTC, PVA and ECL

Stocks With Unusual Put Option Activity:
1) NRG 2) MAS 3) EXM 4) ABX 5) TEX

Bull Radar

Style Outperformer:
Small-cap Growth (-.41%)

Sector Outperformers:
HMOs (+1.32%), Airlines (+1.27%) and Semis (+.96%)

Stocks Rising on Unusual Volume:
WSH, ASIA, CAL, ALK, KO, NTAP, LPHI, BBY, BWLD, AIPC, CPLA, ALXN, DGIT, LIFE, NCIT, PFCB, VNUS, RIMM, NFLX, VSAT, EPIQ, ENER, CMG, JAH and RNR

Stocks With Unusual Call Option Activity:
1) MAS 2) BBBY 3) LFC 4) NTAP 5) EDU

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Thursday Watch

Late-Night Headlines
Bloomberg:

- Hong Kong property developers are cutting prices to boost sales of unsold apartments, the South China Morning reported today. Asia Standard International Group has cut asking prices at its Jadewater project in the city’s Aberdeen district by 46 percent, the Hong Kong-based newspaper said, citing executive director Phileas Kwan. New World Development Co. said it would lower prices at its Prince Ritz and Harbour Place projects by up to 20 percent, the newspaper said, citing the company. Chinese Estates Holdings Ltd. may also slash prices at its York Place project in the Wanchai district on Hong Kong island by about 30 percent, the Morning Post said, citing people it didn’t identify.

- More than 80 percent of Asian hedge funds won’t be able to charge their investors performance fees after finishing 2008 below their peak net asset values, according to data provider Eurekahedge Pte. About a third of the 1,000 regional hedge funds tracked by Eurekahedge had positive returns last year, compared with 82 percent in 2007, the data provider said, citing figures from Jan. 30 when about 90 percent of funds had disclosed December returns. “When you are down 40, 50 percent, it’s hard to get back,” said Richard Johnston, Hong Kong-based Asia head of hedge fund consulting firm Albourne Partners Ltd. “A lot of managers are not going to see performance fees for a couple of years.”

- The cost of protecting Japanese corporate bonds from default rose to a record as the world’s second-largest economy battles a worsening economic recession. The Markit iTraxx Japan index of credit-default swaps on the debt of 50 investment-grade borrowers rose 25 basis points from Feb. 10 to 455.0 at 9:52 am in Tokyo, BNP Paribas SA prices show.

- U.S. congressional negotiators may drop $7.7 billion that had been planned for renewable-energy grants in the economic stimulus legislation they’ll send to President Barack Obama. Democrats are likely to accept the Senate’s removal of aid for wind and solar energy investments from the final bill to be delivered to Obama, said Kevin Book, a senior analyst for Friedman Billings Ramsey & Co. in Arlington, Virginia. The House legislation included the grants.

- Former presidents of Brazil, Mexico and Colombia said the U.S.-led war on drugs has failed and urged President Barack Obama to consider new policies, including decriminalizing marijuana, and to treat drug use as a public health problem. The recommendations by former Brazilian President Fernando Henrique Cardoso, along with Ernesto Zedillo of Mexico and Cesar Gaviria of Colombia, were made in a report today by the Latin American Commission on Drugs and Democracy. Among the group’s proposals ahead of a special United Nations ministerial meeting in Vienna to evaluate global drug policy is a call to decriminalize the possession of cannabis for personal use.

- House and Senate negotiators all but eliminated the biggest tax cut for businesses in the compromise agreement on an economic stimulus bill, Senator Max Baucus of Montana said. The provision, a top priority of business groups including the National Association of Manufacturers and the U.S. Chamber of Commerce, would let companies convert losses into tax refunds. Baucus said today that the provision, under which companies could have claimed an estimated $67.5 billion in tax refunds this year and next, was sacrificed to help keep the final package under $800 billion.

- European Central Bank Vice President Lucas Papademos said officials will probably cut interest rates to a record low next month and indicated he would support the use of unconventional tools at any time.

- The Bank of Korea cut its benchmark interest rate to a record-low 2 percent to revive an economy headed for the first recession in more than a decade as exports and spending cool. Governor Lee Seong Tae and his board pared the seven-day repurchase rate by a half point in Seoul today, the sixth reduction since early October. The decision was expected by six of nine economists surveyed by Bloomberg.

- Aluminum Corp. of China plans to invest $19.5 billion in Rio Tinto Group, gaining access to copper and iron ore resources in the nation’s largest overseas acquisition, according to two people involved in the transaction. Chinalco, as the state-owned company is known, will buy $7.2 billion of bonds that can be converted into Rio shares and acquire stakes in at least eight projects for $12.3 billion, said the people who declined to be identified before an announcement scheduled for today. Chinalco will own 18 percent of London-based Rio should it convert the debt.

- Chipotle Mexican Grill Inc.(CMG), the burrito chain spun off from McDonald’s Corp. in 2006, reported fourth-quarter profit that fell less than analysts estimated as menu price increases tempered higher food costs. Shares climbed 11 percent to $52.47 at 4:18 p.m. in trading after U.S. markets closed.

Wall Street Journal:

- General Motors Corp.(GM) is offering retirement incentives to 22,000 of its 62,000 United Auto Workers union members as part of a turnaround plan it must present to the U.S. government by Tuesday. The company would be pleased to see half of them take the offer, said a person familiar with GM's thinking.

- Congress and the White House reached accord on a $789.5 billion economic-recovery package that would shower hundreds of billions of dollars in tax relief on individuals and businesses and spark an infrastructure building boom from the nation's ports and waterways to its schools and military bases. The deal all but clinches passage of one of the largest economic rescues since Franklin Roosevelt launched the New Deal. President Barack Obama, speaking at a Northern Virginia construction site, hailed an "endeavor of enormous scope and scale." The cost of the package dwarfs the nation's military budget and exceeds the cost of the entire Iraq war since the invasion of 2003. Ending two decades of mostly Republican-led efforts to diminish federal authority and focus on lifting the economy through tax cuts, the legislation would expand unemployment insurance, tilt federal assistance to the poor, launch major efforts to streamline health care delivery, and give Washington a larger hand in local education spending. Both Mr. Obama and Democratic leaders lowered their work-creation expectation Wednesday night. They had originally said their goal was to create, or save, 4 million jobs. Last night, they cut that to 3.5 million. The final package includes a controversial provision that has spurred criticism from trading partners around the world, requiring funds used under the bill to purchase materials to be U.S.-made. But the measure has been softened from the original versions, and now includes a requirement that the provision be implemented consistent with U.S. international trade obligations, according to individuals familiar with the bill.

BusinessWeek:

- India-China Trade Tensions Rise. China threatens to bring its opposition to India’s toy import ban to the WTO, while India seems poised to restrict other Chinese producuts.

Washington Post:

- Members of an influential Washington think tank today recommended major changes in the nation's immigration policy, including freezing construction of a security fence along the U.S.- Mexican border and suspending "zero-tolerance" prosecution programs against all people caught crossing segments of the border. The Migration Policy Institute, a non-partisan group whose presenters included former U.S. immigration chiefs under both parties, recommended 36 steps the Obama administration can take without congressional approval to alter policies developed during the Bush administration. The policy experts also urged withdrawing a plan to pressure employers to fire workers with suspect Social Security numbers.

Politico:

- House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid played a little high-stakes chicken with each other at the tail end of Wednesday’s shotgun stimulus talks. It’s not clear who won – or who blinked. According to a half dozen Congressional aides and members, Reid went before the cameras Wednesday to announce a stimulus deal before Pelosi had agreed on all the details of school construction financing. “It’s ruffled feathers, big time,” said a House Democrat speaking on condition of anonymity. “The speaker went through the roof.” Added one House Democratic aide: “He tried to roll her and she knew it.”

AppleInsider:

- Apple(AAPL) is believed to be wrapping up a new feature in iTunes 8 that will allow users to stream their iTunes video purchases directly from the company's servers for playback anywhere, anytime without eating up local storage. Dubbed iTunes Replay, the service would allow iTunes shoppers to build out their digital video collection without worrying about the space needed to store the often hefty media files. It's unclear whether Apple plans to charge for the service, which is said to support both iTunes Movie and TV show purchases.

Dow Jones:

- Repsol YPF SA, Spain’s largest oil company, said the Santos Basin BM-S-9 oil block in Brazil may hold recoverable reserves of between 2 billion and 6 billion barrels of oil equivalent, citing Nemesio Fernandez-Cuesta, Repsol’s head of exploration and production.

- China Banking Regulatory Commission official Luo Ping sees few real alternatives to holding US Treasury securities, citing comments he made in NY. US government debt is the “safe haven for investment,” the news agency cited Luo as saying. “Except for US Treasuries, what else can you hold?,” he said.

Reuters:

- Global credit markets are unlikely to revive as long as the U.S. government continues to dangle the vague prospect of a toxic asset purchase plan in front of distressed banks, some lawmakers warned on Wednesday. The chance that taxpayers could be made to overpay for underperforming assets is making bankers, whose balance sheets are saddled with them, reluctant to sell to lower bidders, suggested Texas Republican Rep. Randy Neugebauer. "People are afraid to buy and afraid to sell because they're afraid the government is going to sweeten the deal," he told Reuters in an interview. "The markets are just waiting to see when we're going to be done."

La Tribune:

- UK Chancellor of the Exchequer Alistair Darling said the government doesn’t plan to drop the pound to adopt the euro, citing an interview with the British finance chief.

Munhwa Ilbo:

- North Korea may test its longest-range missile as early as next eek, citing experts. Vehicles carrying equipment for the launch are converging on the Musudan-ri base, citing a South Korean official.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ATVI), target $14.

- Reiterated Buy on (AZO), target $146.

- Reiterated Buy on (GOOG), target $450.

Night Trading
Asian Indices are -2.50% to +.75% on average.
S&P 500 futures -.23%.
NASDAQ 100 futures -.31%.

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Earnings of Note
Company/EPS Estimate
- (PTEN)/.55

- (MAR)/.40

- (MLM)/.83

- (ALXN)/.15

- (LH)/1.09

- (FCL)/.56

- (KO)/.61

- (STRA)/1.70

- (AET)/.94

- (BWA)/-.09

- (VIA/B)/.79

- (CEPH)/1.37

- (PNRA)/.83

- (MFE)/.53

Economic Releases

8:30 am EST

- Advance Retail Sales for January are estimated to fall .8% versus a 2.7% decline in December.

- Retail Sales Less Autos for January are estimated to fall .4% versus a 3.1% decline in December.

- Initial Jobless Claims for last week are estimated to fall to 610K versus 626K the prior week.

- Continuing Claims are estimated to rise to 4800K versus 4788K prior.

10:00 am EST

- Business Inventories for December are estimated to fall .9% versus a .7% decline in November.

Upcoming Splits
- (LPHI) 5-for-4

Other Potential Market Movers
- The (ATW) annual meeting, (ISIL) analyst day, (QGEN) analyst day, Deutsche Bank Growth Conference, BB&T Transports Conference and the Goldman Sachs Consumer Leveraged Finance Conference could also impact trading today.

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