BETWEEN THE HEDGES

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Biotech longs and Medical longs. I added to my (GOOG) long and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is mildly lower, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 2.74% and is very elevated at 62.80. The ISE Sentiment Index is low at 103.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running high most of the day, hitting 1.59 at its intraday peak, and is currently .90. The Euro Financial Sector Credit Default Swap Index is rising 1.04% today to 113.0 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 down 2.58% to 248.29 basis points. The TED spread is falling 2.95% to 209 basis points. The TED spread is now down 255 basis points in under six weeks. The 2-year swap spread is plunging 12.75% to 97.50 basis points. The Libor-OIS spread is rising 4.48% to 177 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 8 basis points to .31%, which is down 231 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. 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 yield is rising 9 basis points to .10%. Many market-leading stocks are substantially outperforming the major indices again today. Breadth has been pretty good all day, even when the averages were at their lows. Homebuilder, airline, construction, HMO and select commodity stocks are posting 4%+ gains again today. Given the DJIA is still 1,000 points off its recent lows, today’s consolidating action is very healthy. While US stocks are a bit extended very short-term, they are still VERY oversold on an intermediate-term basis. I expect the many momentum chasers and those funds with massive piles of cash to begin to jump in at higher levels as another sharp sell-off fails to materialize and the belief in a meaningful year-end rally gains traction. Nikkei futures indicate an +17 open in Japan and DAX futures indicate a -13 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, diminished forced selling, short-covering, bargain-hunting, technical buying and seasonal strength. Blogging will be light over the next few days due to a scheduling conflict. I hope everyone has a good Thanksgiving holiday. Thanks for reading!

Late-Night Headlines
Bloomberg:
- U.S. stocks posted the biggest two- day rally since 1987 after the government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package.

- The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index was quoted 55 basis points lower at 300 as of 9:59 am in Tokyo, according to prices from CSFB. The iTraxx Australia fell 20 basis points to 300.

- Hewlett-Packard Co.(HPQ), the world’s biggest personal-computer maker, reported a 10 percent increase in PC sales last quarter, beating some estimates, as demand for laptops offset declining printer sales in a slowing economy. PC revenue climbed to $11.2 billion, the Palo Alto, California-based company said today in a statement. Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co. in New York, projected that PC sales would rise to $11 billion.

- Oil shipping costs may extend this year's 76 percent rout as shrinking energy demand and a global recession eclipse disruptions caused by pirates off east Africa capturing their largest-ever freighter. Tanker rates next month are about 7 percent lower than yesterday's level on the Persian Gulf to Japan route, according to derivative contracts called Forward Freight Agreements that trade privately among banks, brokers, hedge funds and shipping companies.

- James Paulsen, chief investment strategist at Wells Capital Management Inc. says worst of crisis may be over. (video)

- Venezuelan President Hugo Chavez suffered his second electoral setback in two years as the urban poor defected from his socialist party to help elect opposition candidates in Caracas and the three biggest states. Chavez’s Venezuelan United Socialist Party, or PSUV, lost races for governor in five states yesterday, according to the National Elections Board, and in the country’s two biggest cities.

- Genentech Inc.(DNA) and Roche Holding AG’s Avastin combined with the most commonly used chemotherapies helped women with breast cancer live longer without their disease worsening, a finding that could bolster use of the medicine.

- Citigroup Inc.(C) has no need to sell assets to shore up capital, CFO Gary Crittenden said. Citigroup’s capital ratios are in the “top tier” among large US banks, Crittenden said. The lender has no need to sell assets “from a capital standpoint,” he said.

- Google Inc.(GOOG), owner of the most popular Internet search engine, is adding fewer employees and focusing on controlling expenses amid the global economic slump, Chief Executive Officer Eric Schmidt said. “We have slowed our hiring, but we’re still hiring,” Schmidt said in an interview. Schmidt said that while the overall ad market may be shrinking, Google benefits from its ability to target specific users. The company’s business hasn’t changed significantly in the past two weeks, he said. “Google is in a good position,” said Schmidt, 53. “We’ve always said we take a long-term view.”

Wall Street Journal:

- Kohlberg Kravis Roberts will soon launch marketing efforts for its next war chest, but the fund’s target won’t be anywhere near the $17.6 billion its predecessor vehicle raised. KKR has indicated to prospective investors that it will aim to raise $8 billion to $10 billion for KKR 2009 Fund LP, according to people familiar with the effort.

- New Jersey’s Hedge-Fund Foray Draws Heat. State Helped to Bail Out Its ‘Alternative’ Investors, but Officials Say Nothing Was Improper. New Jersey's pension fund, already in the spotlight thanks to losing investments this year in large banks, is under fire again, this time over a series of controversial hedge-fund investments that initially swept below the public radar. New Jersey made the investments last month, to funds run by BlackRock Inc., Canyon Capital Advisors LLC and GoldenTree Asset Management LP, as they were "facing the equivalent of margin calls," William Clark, director of the New Jersey Division of Investment, said in an interview Monday.

- President-elect Barack Obama suggested he would package much of his campaign spending proposals as economic stimulus and try to push them quickly through Congress to combat a deepening downturn.

MarketWatch.com:
- Jana Partners LLC is offering investors incentives to stick with the activist hedge-fund firm, rather than imposing a strict limit on the amount of money that can be redeemed. Jana, run by Barry Rosenstein, wrote in a letter to investors last week that year-end investor redemptions may exceed 20% of assets under management.

- There's a light at the end of this tunnel we're now in -- and it's not a train coming at us. No, Virginia, it's falling oil prices. Since midyear, the drop in gasoline prices alone has put over $200 billion into people's pockets. When added to the $150 billion in rebate checks that the government put in the mail during the summer, this has boosted our collective buying power by more than 4% in the last four months alone.

NY Times:
- One Half of ‘Hannity & Colmes’ Is Leaving.

- US Airlines, Travel Firms Cut Prices to Spur Sales.

CNNMoney.com:
- Gasoline prices - already below the $2- a-gallon mark - dropped for the 68th straight day in a national survey Monday. The national average fell 2.1 cents to $1.908 per gallon of regular gasoline, according to the daily survey conducted for AAA, a motorist group. Over the last 68 days gas prices have decreased $1.947, or 50.5%.

Reuters:

- Global securities regulators launched three task forces to study abusive short selling, unregulated financial products and unregulated financial entities such as hedge funds, the U.S. Securities and Exchange Commission said on Monday. Securities regulators are "taking urgent action to coordinate global regulatory measures aimed at abusive short selling, including reporting requirements for short positions and trading activity," SEC Chairman Christopher Cox said in a statement. The SEC said a second working group will examine ways to "introduce greater transparency" and supervision to unregulated markets, such as the over-the-counter markets for derivatives, which have been blamed for worsening the financial crisis. The third task force will examine unregulated entities such as hedge funds and develop recommendations to mitigate risks associated with their trading and secretive nature, the SEC said.

Financial Times:
- The downturn sweeping Indian business has become so severe that even one of the country's industrial stalwarts - the Ambassador car - is feeling the pinch. The country's oldest carmaker, Hindustan Motors, which makes the "Amby", a bowler-hat-shaped saloon modelled on the UK's 1948 Morris Oxford, has sold about 27 per cent fewer of the vehicles in recent months compared to last year.

LiveNews:

- US charity guilty of funding terrorism. A Muslim charity and five of its former leaders have been convicted on all 108 charges in the retrial of the largest terrorism financing case since the September 11, 2001, attacks. US Judge Jorge A Solice announced the verdicts on the eighth day of deliberations in the retrial of the Holy Land Foundation for Relief and Development, once the largest US Muslim charity.

Xinhua News:

- Xi Guohua, a vice-minister at China’s Ministry of Industry and Information Technology, said “the time is ripe” for the government to issue licenses for third-generation mobile-phone services.

- China discovered a coal field with possible reserves of 23 billion metric tons in northwestern China’s Xinjiang province, citing the local government.

The Financial Express:

- The Indian housing sector, which accounts for about 65% of cement consumption, is witnessing a slowdown. Dearer home loans and high real estate prices are leading to a decline in housing affordability. With the key user sector experiencing a slump, an oversupply situation in the cement industry is on the horizon. This would lead to a further decline in cement prices declining, which in turn affect the profitability of cement companies.

Shenzhen Daily:

- Some 340,000 square meters of new homes were sold in Shenzhen at an average of 12,706 yuan (US$1,860) per square meter in October. And while that space volume was similar to September’s sales, the average price was down nearly 30 percent over last October, Shenzhen’s housing authorities said in their latest report released Sunday.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (ETP), target $47.

- Reiterated Buy on (KEY), target $12.

Night Trading
Asian Indices are +1.0% to +3.50% on average.
S&P 500 futures -.25%.
NASDAQ 100 futures -.48%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BWS)/.17

- (DLTR)/.44

- (ZLC)/-.95

- (AEO)/.30

- (TLB)/-.20

- (TECD)/.63

- (CHS)/-.02

- (DHI)/-2.04

- (HRL)/.48

- (EV)/.32

- (BGP)/-.49

- (JCG)/.26

- (GCO)/.44

Economic Releases
8:30 am EST

- Preliminary 3Q GDP is estimated at -.5% versus prior estimates of a -.3% decline.

- Preliminary 3Q Personal Consumption is estimated at -3.2% versus prior estimates of a -3.1% decline.

- Preliminary 3Q GDP Price Index is estimated to rise 4.2% versus prior estimates of a 4.2% gain.

- Preliminary 3Q Core PCE is estimated to rise 2.9% versus prior estimates of a 2.9% gain.

10:00 am EST

- Consumer Confidence for November is estimated at 38.0 versus 38.0 in October.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Richmond Fed Manufacturing Index, S&P/CaseShiller Home Price Index and (JEC) presentation to financial analysts could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

BETWEEN THE HEDGES

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Tuesday, November 25, 2008

Stocks Slightly Lower into Final Hour on Profit-Taking, Tech Sector Weakness

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Monday, November 24, 2008

Tuesday Watch

Stocks Finish Near Session Highs, Boosted by Financial, Commodity, Gaming, Construction, Homebuilding and REIT Shares