Stocks Finish Higher, Boosted By Airline, Road & Rail, Retail, Homebuilding, Construction, Bank and Alt Energy Shares

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Stocks Slightly Higher into Final Hour on Less Economic Fear, Diminishing Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher the final hour on gains in my Technology longs, Financial longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mostly positive and volume is below average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling 5.26% and is very high at 27.37. The ISE Sentiment Index is low at 86.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running low most of the day, hitting .41 at its intraday trough, and is currently .67. The Euro Financial Sector Credit Default Swap Index is rising 3.38% today to 88.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising .61% to 123.54 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.02% to 20 basis points. The TED spread is now down 446 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down .17% to 36.06 basis points. The Libor-OIS spread is falling 5.53% to 15 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 6 basis points to 1.67%, which is down 99 basis points since July 7th. The 3-month T-Bill is yielding .12%, which is down 1 basis point today. Considering mostly positive economic data today, recent weakness and gains overseas, the market’s subdued response is a bit disappointing. However, Cyclicals are substantially outperforming today. Heatlhcare-related stocks and telecom are substantially underperforming today. Nat gas continues to plunge and oil trades “heavy.” The recent spike higher in gold is likely related to technical factors, but is a stock market negative. Chinese benchmark hot rolled steel sheet fell another .92% and is down 2.82% for the week. The AAII % Bulls rose to 39.0 this week, while the % Bears fell to 30.0, which is a negative given recent market action. Tomorrow's jobs report will likely show a better-than-expected unemployment rate and around estimates non-farm payrolls number. I will closely monitor the market's reaction to this report. Nikkei futures indicate a -9 open in Japan and DAX futures indicate an +13 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, healthcare reform concerns and China bubble worries.

Bear Radar

Style Underperformer:
Large-Cap Value (+.35%)

Sector Underperformers:
Drugs (-1.12%), HMOs (-1.06%) and Telecom (-.56%)

Stocks Falling on Unusual Volume:
OSIR, AVP, AMED, NUVA, NFLX, LHCG, SXCI, PLCE, FDO, ABM, MCO and MHP

Bull Radar

Style Outperformer:
Small-cap Value (+.55%)

Sector Outperformers:
Airlines (+3.41%), Banks (+2.34%) and Road & Rail (+1.75%)

Stocks Rising on Unusual Volume:
AIG, VIP, KB, ING, SLF, MBT, DLM, CBST, CHNG, ZUMZ, COST, CIEN, TSPT, SSRI, OXM, NX, CDE and MTL

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Thursday Watch

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Sell on (WAG), target $27.

- Reiterated Buy on (ALTH), target $15.

CSFB:

- Downgraded (HOV) to Underperform, target $2.

Night Trading
Asian Indices are -.25% to +.50% on average.

Asia Ex-Japan Inv Grade CDS Index 146.0 -.50 basis points.
S&P 500 futures +.02%.
NASDAQ 100 futures +.06%.

Morning Preview

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Earnings of Note
Company/EPS Estimate
- (DLM)/.04

- (CIEN)/-.14

- (JTX)/-.70

- (COO)/.62

- (ESL)/.90

- (ZQK)/.03

- (NAV)/.66

Economic Releases

8:30 am EST:

- Initial Jobless Claims for last week are estimated to fall to 565K versus 570K the prior week.

- Continuing Claims are estimated to fall to 6125K versus 6133K prior.

10:00 am EST:

- The ISM Non-Manufacturing report for August is estimated to rise to 48.0 versus 46.4 in July.

Upcoming Splits
- (ABVT) 2-for-1

Other Potential Market Movers
- The Fed’s Fisher speaking, ICSC Chain Store Sales, weekly EIA natural gas inventory report and the ECB rate decision could also impact trading today.

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