Stocks Finish Higher, Boosted by Rail, Insurance, HMO, Bank, Semi and Steel Shares

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Stocks Higher into Final Hour on Less Financial Sector Pessimism, Lower Energy Prices, Diminishing Credit Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Healthcare longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling 7.59% and is very high at 42.23. The ISE Sentiment Index is below average at 106.0 and the total put/call is below average at .73. Finally, the NYSE Arms has been running around average most of the day, hitting 1.21 at its intraday peak, and is currently .88. The Euro Financial Sector Credit Default Swap Index is falling .90% today to 111.0 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 falling 2.49% to 199.0 basis points. The TED spread is falling 3.02% to 105 basis points. The TED spread is now down 361 basis points in over three months. The 2-year swap spread is falling 3.58% to 64.0 basis points. The Libor-OIS spread is rising 1.50% to 96 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to .82%, which is down 188 basis points in over six months and near 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 is yielding .13%, which is up 3 basis points today. The 10-year T-note is trading as if it is forming another bottom around current levels. As well, the CRB Index appears to be rolling over again at its 50-day moving average. The (XLF) is trading much better now that the majority of earnings’ releases are out of the way. Healthcare-related stocks are top performers today. I continue to overweight these shares. Nikkei futures indicate an +60 open in Japan and DAX futures indicate an +26 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, bargain-hunting and declining credit market angst.

Today's Headlines

Bloomberg:

- The worst U.S. housing recession since the Great Depression may end this year as the inventory of homes declines on a drop in new construction, said Karl Case, co-creator of the S&P Case/Shiller home price indexes. U.S. builders broke ground in December on 550,000 houses, the fewest in five decades of government statistics, the Commerce Department said last week.

- House Financial Services Committee Chairman Barney Frank said he would consider expanding the $700 billion financial-rescue fund, and expects the Obama administration will soon address banks’ toxic assets.

- The cost to protect North American corporate bonds from default fell as companies including Texas Instruments(TXN) and Verizon Communications(VZ) posted profit that exceeded or met analysts’ estimates. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the US and Canada, which fall as sentiment improves, dropped 7 basis points to 199 basis points at 8:55 am in NY, according to broker Phoenix Partners Group.

- California mortgage defaults dropped 7.7% in the fourth quarter, MDA DataQuick said. Fourth-quarter defaults were down 20% form the previous three months.

- State Street Global Advisors (SSgA), the investment management arm of

State Street Corporation (NYSE: STT), today announced the launch of the

SPDR^® Barclays Capital Short Term International Treasury Bond ETF

(Symbol: BWZ) and the SPDR Barclays Capital Mortgage Backed Bond ETF

(Symbol: MBG)¹. Designed to provide investors with cost-efficient exposure

to precise segments of the fixed income market, the two new SPDR exchange

traded funds (ETFs) will begin trading on the NYSE Arca on January 27,

2009.

- Copper prices plunged, heading for the largest drop in almost eight weeks, as the slumping global economy slashed metal demand and led to surging warehouse inventories. Copper stockpiles in storage facilities monitored by the London Metal Exchange jumped 2.8 percent today to 451,800 metric tons, the most in five years. Since June 30, supplies have more than tripled, helping to drive prices down by 61 percent.

- Crude oil for March delivery fell $2.31, or 5.1 percent, to $43.42 a barrel at 1:19 p.m. on the New York Mercantile Exchange. It was the biggest decline since Jan. 12. Prices are down 2.6 percent this year and are 52 percent lower than a year ago. The industry-funded American Petroleum Institute is scheduled to release its weekly report on oil inventories at about 4:30 p.m. in Washington today.

- Brazilian loan defaults surged last month to the highest since September 2002 as Latin America’s largest economy slowed and the credit crisis increased borrowing costs, making it more difficult for consumers to repay debt.

- William Dudley, named president of the Federal Reserve Bank of New York today, kept up his stamina during last year’s all-night talks on the financial crisis by napping on the carpet of his office at the bank. For two years Dudley was a top lieutenant to former New York Fed chief Timothy Geithner, who was sworn in yesterday as U.S. Treasury secretary. Now, the central bank is relying on Dudley’s frontline crisis experience, financial expertise and capacity for long hours to guide the Fed’s biggest district bank and coordinate policies toward Wall Street firms including his former employer, Goldman Sachs Group Inc. Goldman Sachs, where Dudley worked for more than two decades and in 1995 became head U.S. economist, has long contributed top policy makers. Henry Paulson and Robert Rubin both headed the bank before becoming Treasury secretaries. While “too many from Goldman have their hand in this thing, on balance I like and trust Dudley,” said Robert Brusca, a former chief of the New York Fed’s international division and now president of Fact & Opinion Economics. Stephen Friedman, a former Goldman Sachs chairman who was also director of the National Economic Council from 2002 to 2004, headed the panel to find a successor to Geithner, 47.

- India’s central bank lowered its growth forecast and signaled further cuts in interest rates from record lows to encourage lending and spur economic expansion.

Wall Street Journal:

- The House version of the economic stimulus package includes more than $1 billion in spending for the Department of Homeland Security. The biggest single chunk of that is $500 million for the Transportation Security Administration to spend on what the bill calls “explosive detection systems and emerging checkpoint technologies.” A Senate source said that chamber’s plan is very similar. So what does that language mean?

- This week, GM(GM) leaders told Saturn dealers that funding has been allocated to build Saturn vehicles through 2012 and in some cases 2013. But they stopped short of saying Saturn would get new products and won’t be killed.

CNBC.com:
- Now On Sale: Once-Great Stocks For Less Than $10.

NY Times:

- Facing intense criticism for his handling of the appointment of a new United States senator, Gov. David A. Paterson tried to distance himself on Monday from the tarnishing of Caroline Kennedy, and abruptly canceled a trip to Switzerland he had planned for this week.

- President Obama is moving quickly to act on the environmental promises that were a centerpiece of his campaign. But tackling global warming will be far more difficult — and more costly — than the new emissions standards for automobiles he ordered with the stroke of a pen on Monday. Already, the Congressional Democrats Mr. Obama will need to carry out his mandate are feuding with one another. By coincidence or design, most of the policy makers on Capitol Hill and in the administration charged with shaping legislation to address global warming come from California or the East Coast, regions that lead the country in environmental regulation and the push for renewable energy sources. That is a problem, says a group of Democratic lawmakers from the Midwest and Plains States, which are heavily dependent on coal and manufacturing. The lawmakers have banded together to fight legislation they think might further damage their economies.

- Education is one area the Internet has not yet transformed, and a new crop of start-ups and venture capitalists are rushing to fill that void, creating Web tools that serve as home tutors for kids who need help outside the classroom. The latest entry is DreamBox Learning, which on Tuesday is unveiling a Web site to teach math to kids in kindergarten through second grade. The lessons are taught through video games. Kids pick a theme, such as an arcade or adventure park, and a character, such as a dinosaur or pirate, and play an online game with a hidden math lesson.

NY Post:

- Hedge-fund firm Tremont Group Holdings, which lost more than half of its assets to alleged scammer Bernard Madoff, is winding down operations and could shutter its doors by summer, sources tell The Post. The Rye, NY, fund, which is owned by life-insurance company MassMutual, has cut its staff by about 40 percent, The Post has learned, and people familiar with the situation said some remaining employees have been told they may be let go in June with severance packages. Tremont spokesman Montieth Illingworth declined to comment on the layoffs, but confirmed that the firm has closed its Rye Investment Management unit, which offered a line of single-manager funds, and which invested a whopping $3.1 billion with Madoff.

LA Times:

- The NFL is willing to consider a return to its Los Angeles roots. Evidently, so are the San Diego Chargers.

OrlandoSentinel:

- Existing-home sales nationwide showed surprising strength in December, as the thaw in sales heated up in Florida. Resales of single-family homes in the Sunshine State surged 27 percent last month compared with December 2007 -- the fourth straight year-over-year increase for monthly existing-home sales, the Florida Association of Realtors said Monday in its year-end report. Resales of condominiums statewide rose 12 percent from a year ago. Metropolitan Orlando's 34 percent increase in December single-family resales was the fifth-best showing statewide in percentage terms and second only to Tampa in number of sales.

TimesOnline:

- Hedge funds were accused today of gambling against the taxpayer when they bet that the share prices of British banks will fall. A powerful cross-party committee of MPs also told the UK's embattled hedge fund managers that they were "snubbing the public" by refusing to sign up to a basic set of standards for best-practice behavior. In a showdown appearance before the Treasury Select Committee, four leading hedge fund managers were forced to defend allegations that they were profiting from the country's economic misery. They also fought off calls for greater scrutiny from regulators. Just a day after it emerged that Paulson & Co, a renowned American hedge fund, had made an estimated £270 million in profits from betting against Royal Bank of Scotland, which is majority state-owned, some of the industry's best-known players were thrown onto the back foot over the controversial practice of short-selling.

Vedomosti:

- Russia may run a budget deficit this year equivalent to 7.6% of GDP, citing a government official.

recast to "

La Libre:

- European Central Bank Governing Council member Guy Quaden said the bank may lower borrowing costs further. “We are probably ready to go lower” with interest rates,

Bear Radar

Style Underperformer:
Large-cap Value (+.85%)

Sector Underperformers:
Airlines (-7.54%), Education (-2.48%) and Telecom (-1.82%)

Stocks Falling on Unusual Volume:
OLN, CAL, WLL, CNQR, MANT, NYB and AVY

Stocks With Unusual Put Option Activity:
1) LAMR 2) NFLX 3) VMW 4) FNM 5) IBN

Bull Radar

Style Outperformer:
Small-cap Growth (+.79%)

Sector Outperformers:
Steel (+3.51%), HMOs (+3.11%) and Semis (+2.58%)

Stocks Rising on Unusual Volume:
HMC, TM, RTP, SI, GE, MWE, LGCY, SHW, CVTX, CRXL, NFLX, NNDS, PRSP, SUNH, ZION, CHKP, FCFS, LIHR, STLD, AFAM, BCA, AFL, ENR, XSD, CR, MCK, BTU, WYE, HSY, CNW, PTV, X and SI

Stocks With Unusual Call Option Activity:
1) NFLX 2) ADI 3) CA 4) TXN 5) STJ

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