BETWEEN THE HEDGES

Friday, February 26, 2010

Market Week in Review

Posted by Gary .....at 11:40 PM

S&P 500 1,159.90 +.86%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 8:39 PM

Indices

S&P 500 1,104.49 -.42%
DJIA 10,325.26 -.74%
NASDAQ 2,238.26 -.25%
Russell 2000 628.56 -.48%
Wilshire 5000 11,343.17 -.42%
Russell 1000 Growth 493.60 -.60%
Russell 1000 Value 565.42 -.32%
Morgan Stanley Consumer 671.24 -.43%
Morgan Stanley Cyclical 826.44 -.41%
Morgan Stanley Technology 559.68 -1.02%
Transports 4,134.57 +1.82%
Utilities 367.39 -2.57%
MSCI Emerging Markets 38.95 -.86%
Lyxor L/S Equity Long Bias Index 969.53 +.39%
Lyxor L/S Equity Variable Bias Index 849.59 +.03%
Lyxor L/S Equity Short Bias Index 925.82 -.53%

Sentiment/Internals

NYSE Cumulative A/D Line +75,513 +.81%
Bloomberg New Highs-Lows Index +229 +42
Bloomberg Crude Oil % Bulls 18.0 -41.94%
CFTC Oil Net Speculative Position +85,352 +24.72%
CFTC Oil Total Open Interest 1,280,235 -1.64%
Total Put/Call .87 +6.1%
OEX Put/Call 1.62 +97.56%
ISE Sentiment 91.0 -1.09
NYSE Arms 1.01 -1.94%
Volatility(VIX) 19.50 -2.60%
G7 Currency Volatility (VXY) 12.06 -2.22%
Smart Money Flow Index 9,390.64 +.46%
Money Mkt Mutual Fund Assets $3.166 Trillion -.10%
AAII % Bulls 34.90 -2.65%
AAII % Bears 29.53 -16.16%

Futures Spot Prices

CRB Index 274.77 -1.09%
Crude Oil 79.66 -.82%
Reformulated Gasoline 218.79 -.88%
Natural Gas 4.81 -4.93%
Heating Oil 203.53 -2.48%
Gold 1,118.90 unch.
Bloomberg Base Metals 201.64 -1.79%
Copper 328.40 -2.41%
US No. 1 Heavy Melt Scrap Steel 298.0 USD/Ton -1.22%
China Hot Rolled Domestic Steel Sheet 3,896 Yuan/Ton +2.12%
S&P GSCI Agriculture332.38 +.09%

Economy

ECRI Weekly Leading Economic Index 128.40 unch.
Citi US Economic Surprise Index +23.70 -36.97%
Fed Fund Futures imply 64.0% chance of no change, 36.0% chance of 25 basis point cut on 3/16
US Dollar Index 80.36 -.35%
Yield Curve 280.0 -5.0 basis points
10-Year US Treasury Yield 3.61% -16 basis points
Federal Reserve's Balance Sheet $2.269 Trillion +.43%
U.S. Sovereign Debt Credit Default Swap 42.0 unch.
Western Europe Sovereign Debt Credit Default Swap Index 90.67 +2.26%
10-Year TIPS Spread 2.16% -12 basis points
TED Spread 14.0 -2.0 basis points
N. America Investment Grade Credit Default Swap Index 92.21 -.14%
Euro Financial Sector Credit Default Swap Index 90.32 +4.58%
Emerging Markets Credit Default Swap Index 268.47 -1.99%
CMBS Super Senior AAA 10-Year Treasury Spread 334.0 -26.0 basis points
M1 Money Supply $1.716 Trillion +1.05%
Business Loans 649.0 -.22%
4-Week Moving Average of Jobless Claims 473,800 +1.3%
Continuing Claims Unemployment Rate 3.5% unch.
Average 30-Year Mortgage Rate 5.05% +12 basis points
Weekly Mortgage Applications 549.50 -8.49%
ABC Consumer Confidence -50 -1 point
Weekly Retail Sales +1.90% unch.
Nationwide Gas $2.70/gallon +.08/gallon
U.S. Heating Demand Next 7 Days 10.0% above normal
Baltic Dry Index 2,738 +.88%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 55.0 +10.0%
Rail Freight Carloads 200,204 +4.08%
Iraqi 2028 Government Bonds 78.35 +.13%

Best Performing Style

Mid-Cap Growth -.12%

Worst Performing Style

Large-Cap Growth -.60%

Leading Sectors

Education +4.79%
HMOs +2.19%
Airlines +2.13%
Retail +1.92%
Road & Rail +1.72%

Lagging Sectors

Hospitals -3.17%
Construction -3.23%
Alternative Energy -3.23%
Disk Drives -5.41%
Computer Hardware -6.02%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Slightly Higher, Boosted by Airline, Homebuilding, Hospital, Steel and Coal Shares

Posted by Gary .....at 4:11 PM

Evening Review

Stocks Slightly Higher into Final Hour on Diminishing Euro Sovereign Debt Angst, Less Financial Sector Pessimism, Lower Long-Term Rates

Posted by Gary .....at 3:43 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Financial longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is about even, most sectors are rising and volume is slightly below average. Investor angst is very high. Today's overall market action is mildly bullish. The VIX is falling -3.33% and is around average at 19.43. The ISE Sentiment Index is low at 89.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running slightly above average most of the day, hitting 1.33 at it intraday peak, and is currently .87. The Euro Financial Sector Credit Default Swap Index is falling -6.71% to 89.09 basis points. The North American Investment Grade CDS Index is falling -3.35% to 92.21 basis points. The TED Spread is unch. at 14.0 basis points. The 2-Year Swap Spread is rising +.73% to 24.13 basis points. The Libor-OIS Spread is unch. at 9.0 basis points. The 10-Year TIPS Spread is down -1 basis point to 2.15%. The 3-Month T-Bill is yielding .11%, which is unch. today. Construction shares are especially weak today, falling -1.31%. On the positive side, Airline, Homebuilding, Coal, Steel, Hospital and Bank shares are especially strong, rising 1.0%+. (IYR)/(XLF) have traded well throughout the day. Market leading stocks are outperforming. The Western Europe Sovereign CDS Index is dropping -6.52%, which is also a big positive. I suspect the major average would be up more today if it were not for the weather, which is definitely impacting volume. There is also likely some month-end hedge fund profit-taking/new shorting going on after a pretty good month for stocks. Investors are mostly ignoring the recent poor economic data, taking into account record winter weather around the globe. I suspect this will remain the case for several more weeks. However, if datapoints continue to deteriorate into March/April investors will step back. Notwithstanding a likely euro bounce next week on some sort of help for Greece, I still expect the region's debt problems to remain with us for some time and eventually become more pronounced. Nikkei futures indicate an +14 open in Japan and DAX futures indicate an up +8 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on technical buying, less financial sector pessimism, declining euro sovereign debt angst and lower long-term rates.

Today's Headlines

Posted by Gary .....at 3:09 PM

Bloomberg:

Fed's Hoenig Wants to Raise Rates From Zero 'Sooner". The Federal Reserve should start raising the target interest rate “sooner” from near zero if the U.S. economy continues to recover, Kansas City Federal Reserve Bank President Thomas Hoeniq said. “We should be going back to a more normal level sooner rather than later,” Hoenig said today in an interview with C- Span. “I would like to be in a position, should the economy continue to improve and I think it will, modestly, that we are able to move back to more normal rates sooner rather than later.” Hoenig disagreed with the view of Fed Chairman Ben S. Bernanke, who this week told Congress a “nascent” recovery requires rates of zero to 0.25 percent for an “extended period.” The Kansas City Fed chief dissented last month from such language in a statement by the Federal Open Market Committee. This month he said that promising to keep rates low is inappropriate as the crisis fades. Hoenig said today that current interest rates are “extremely low and obviously unsustainable.” The rate on overnight loans among banks has been close to zero since December 2008. Hoenig has voiced concern in speeches this year that inflation could surge within a few years with the economic recovery gaining strength.
Banks Face Tighter Capital Rules Under EU Overhaul. Banks may have to put aside more money to guard against risks arising from credit derivatives and also face limits to the amount of debt they can hold relative to assets under proposals to overhaul capital requirements in the European Union. Tighter rules are needed even though there’s a risk the measures “could slow recovery” in the economy, the European Commission said in a statement today. The agency is seeking views from banking supervisors and companies on the likely impact of its plans, which also include calls for lenders to set aside capital in good times to use as a buffer in hard times.
Obama Friend's Bid for Senate Threatened by Bank's Losses. Fridays are getting tense in the Chicago campaign office of Alexi Giannoulias, the Democrat seeking the U.S. Senate seat once held by President Barack Obama. That’s the day regulators announce which troubled banks they’ll close. Broadway Bank in Chicago, owned by Giannoulias’s family, must attract at least $75 million in capital by late April to meet terms of a consent order with the Federal Deposit Insurance Corp. prompted by losses on commercial real estate loans. Even if successful, the family could lose control before November’s election, dealing a blow to Democrats and an Obama friend. “The last thing that Alexi Giannoulias needs right now is another round of bad news stories and stories raising questions about the family’s business,” said Stu Rothenberg. editor of the non-partisan Rothenberg Political Report. “The one thing you don’t want to spend in a campaign is a lot of time defending yourself.”
NYC Storm Dumps Almost 20 Inches, Grounding Flights. The snow won’t stop anytime soon, and forecasters are already watching the track of a storm that may arrive next week. The weather service expects 4 to 6 inches more by the end of today and perhaps more tomorrow. Newark received 1.25 inches of rain in the new storm, breaking a record set in 1965, followed by 6.7 inches of snow that shattered the mark set in 1934, according to the weather service.
Chicago Purchasing Managers Index Increased to 62.6.
Hedge-Fund Assets Offshore May Be Exempted From Reporting Rule. U.S. investors wouldn’t have to report large holdings in offshore hedge funds and private-equity firms this year under a proposed revision of Treasury Department disclosure rules designed to detect offshore tax evasion and money laundering. The Financial Crimes Enforcement Network, a Treasury agency, proposed regulations yesterday effectively sparing fund investors from a June 30 deadline to report offshore accounts that exceed more than $10,000.
NuVasive(NUVA) Gains on Insurer Coverage for Spine Therapy. Nuvasive Inc., the maker of surgical treatments for the spine, gained the most ever in Nasdaq trading after the company said health insurer Aetna Inc.(AET) approved reimbursement for its surgical spine treatment.

Wall Street Journal:

Prosecutors Target Hedge-Fund Firm. Probe of New York's NIR Group Focuses on Possible Kickbacks in Plot to Inflate Value of Holdings.
Apple(AAPL) Still a Good Call.

CNBC:

Poll: Wild Winter a Sign of Global Warming? With the rough winter we've had, do you believe in global warming more or less than you did before? Share your opinion in the poll here.
Housing Recovery Is Looking A Lot Shakier Than Expected.
AIG(AIG) Posts $8.9 Billion Loss on Loan Payback Charges.

The Business Insider:

The Radar: 10 Brewing Stories You Must Start Paying Attention To.

CNNMoney:

Apple(AAPL): 3 Paths to $325+ Per Share. A Morgan Stanley analyst offers one scenario where AAPL could hit $425 by 2012. In a report to clients issued Friday, Morgan Stanley's Katy Huberty offered one of her patented risk-reward snapshots of Apple (AAPL), this one even more optimistic than the last, thanks to what she sees as two new catalysts:

Rasmussen:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -20. For President Obama, the Approval Index has been lower only once (see trends).
34% Favor More Regulation of Financial System, 47% Opposed.

Politico:

MSNBC's Ed Schultz: Rip out Dick Cheney's Heart. Liberal talk show host Ed Schultz would like to take the heart of former Vice President Dick Cheney —who is recovering from his fifth heart attack — and “rip it out and kick it around and stuff it back in him.” On his radio show Wednesday, Schultz mocked conservatives who have attacked him for going after the health of the former vice president. “You’re damn right, Dick Cheney's heart's a political football,” Schultz said in remarks recorded by the media blog Radio Equilizer. “We ought to rip it out and kick it around and stuff it back in him."
The Aftermath of the Health Care Summit: Confusion, Conflict. Democrats wake up after Thursday's health care summit staring down another deadline to get their bill done, exactly four weeks until Easter break. They’ve blown through almost every deadline before, so there’s no guarantee they won’t this time, too. President Barack Obama didn’t help by leaving the door open to compromise with Republicans — even if it takes weeks. So that means a party looking to emerge from the summit with a clear sense of the path forward instead finds itself in the same old place — fighting the clock to finish health care, with an uncertain timeline, a complex legislative path and no idea whether its leaders can muster the votes. "We hope based upon this discussion that we can move forward, but move forward we will,” said House Majority Leader Steny Hoyer. But the truth is, the Democrats are no more certain of getting health care reform done after the summit than they were before. The seven-hour session did little to change the underlying dynamics of the debate.
Dem's Call for Charlie Rangel's Gavel. After months of holding ranks, some Democrats are finally turning on House Ways and Means Chairman Charles Rangel (D-N.Y.) in the wake of an ethics committee finding that he violated House rules by accepting a Caribbean junket. Early Friday, Rep. Paul Hodes (D-N.H.) told POLITICO he wants Rangel to quit his powerful committee post — and that was quickly followed by similar statements from a pair of deep south Democrats, Mississippi Rep. Gene Taylor and Alabama Rep. Bobby Bright. Speaker Nancy Pelosi continues to defend Rangel, but lawmakers like Hodes are calling for Rangel’s gavel.

Real Clear Politics:

Paul Ryan: Hiding Spending Doesn't Reduce Spending. (video)

Reuters:

SanDisk(SNDK) CEO Sees Bright Future for Flash Memory.

Financial Times:

Hedge Funds Shy Away From Lowering Fees. Just one in 10 hedge fund managers expects to see the fees they charge investors fall in spite of recent underperformance that has seen income sharply reduced, according to a Credit Suisse survey. The industry suffered its heaviest outflows ever in 2008-09 but hedge funds still balk at the idea of cutting the standard “two and 20” fee structure, 2 per cent of assets and 20 per cent of returns, that they charge clients, the poll found. The bank’s survey also found that the average time spent by investors conducting due diligence has risen from 5.8 to 7.5 months. While 41 per cent of funds of funds – the largest single class of hedge fund investor – previously spent three months or less conducting their due diligence, now just 9 per cent do, highlighting the particular pressure they have come under to demonstrate greater rigor in the wake of the Madoff scandal. Hedge funds are also looking to meet the needs of investors keen for so-called managed accounts, which are segregated portfolios tailored to the specific needs of the account holder. The survey found that 47 per cent of respondents already ran one or more managed accounts with a further 39 per cent saying they were investigating how to do so.

Expansion:

Spain's biggest real estate companies are lobbying the government to extend a law deferring bankruptcy proceedings for companies that have seen property-price declines wipe out their capital.

Ta Nea:

European Union inspectors in Greece found additional measures amounting to 3.6 billion euros are needed to cut the budget deficit to 8.7% of output this year. Inspectors this week found that Greece faces the risk of a deeper recession than forecast and higher interest on debt payments. The economy will shrink 2% this year, compared with a government forecast of .3% growth, and interest payments will be 1 billion euros higher and a target of 1.2 billion euros from cracking down on tax evasion is seen as overly ambitious. Greece's government will announce the measures after meeting with EU Monetary Affairs Commissioner Olli Rehn in Athens next week. The extra measures may include an increase in the value-added tax rate, an additional hike of the fuel levy and higher cuts in public-sector bonuses.

Bear Radar

Posted by Gary .....at 2:08 PM

Style Underperformer:
Small-Cap Value (-.17%)

Sector Underperformers:
Construction (-1.35%), Alt Energy (-.71%) and Papers (-.68%)

Stocks Falling on Unusual Volume:
AIG, EIG, TKC, BT, ATHN, DMND, NAVG, JRCC, SNDA, FWLT, BXS, WTW, FCN, GVA, FLR and ORA

Stocks With Unusual Put Option Activity:
1) LEN 2) SWN 3) MBI 4) DECK 5) FLR

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