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Thursday, January 04, 2007

Good Morning

Investors got quite a welcome to 2007 yesterday…that is until about 2:00 pm when the tide reversed and the broad-market gains were wiped away. An early rally, no doubt sparked by early-morning presidential policy news, a significant drop in oil prices and the resignation of Home Depot’s (HD) CEO Bob Nardelli, was quickly erased by the release of Fed minutes that renewed concern over the economy and corporate profits.

The Dow Jones Industrial Average ended the session up 11.37 points, or 0.09 percent, at 12,474.52. The S&P 500 Index lost 1.67 points, or 0.12 percent, to finish at 1,416.63 and the NASDAQ Composite Index added 7.87 points, or 0.33 percent, to close at 2,423.16.

With a four day break, traders were eager to put money to work with heavy volume on both the NYSE and NASDAQ. The Big Board saw about 2.07 billion shares changing hands with advancing shares outnumbering decliners by a ratio of about 9 to 8. On the NASDAQ, about 2.53 billion shares were traded with the advance-decline ration at about 16 to 15.

U.S. crude oil for February delivery fell $2.73, or 4.5 percent, to settle at $58.32 a barrel while London Brent lost $2.48 to settle at $57.96 a barrel. The CBOE oil index lost 3.3 percent -- its biggest one-day drop since December 2005. The precipitous drop in crude pulled down energy stocks for the biggest one-day loss in over a year. But a slide in oil is fortuitous for some sectors, notably transports, with the Dow Jones Transportation Average ending the session up nearly 2 percent.

Weak private-sector jobs data and Fed policy meeting minutes illustrating concern over a slowing economy led investors to safer investments early in the session. But bond prices reverted late in the day with the Institute for Supply Management's December manufacturing report above the 50 mark at 51.4. Benchmark 10-year notes traded 5/32 higher in price for a yield of 4.66 percent from Tuesday’s yield of 4.68 percent. Two-year notes traded 2/32 higher in price for a yield of 4.77 percent, five-year notes traded 3/32 higher in price for a yield of 4.66 percent and thirty-year notes traded 11/32 higher in price for a yield of 4.77 percent.

With the ISM once again bringing a potential soft-landing to the attention of currency traders, the U.S. dollar made broad advances and hit a two-month high against the Yen ending up 0.5 percent at 119.35. Against the Euro, the dollar traded at $1.3165.

February Gold settled at $629.80 a troy ounce on the NYMEX, while March silver fell 26.5 cents to finish at $12.67 an ounce. The February heating oil contract lost 6.01 cents to $1.5881 a gallon and Natural gas for February delivery settled 13.6 cents lower at $6.163 a million British thermal units.

Thursday’s Links

U.S. regulators are alarmed over hedge fund hotels, according to Alpha Male.

The market is in flux according to Dr. Brett.

Random Observations from Adam at Daily Options Report.

Start saving money today with these tips from Larry.

Professor Mankiw on yesterdays NY Times article on the link between “educational attainment and health outcomes.”

Larry Kudlow on Vice President Cheney’s incredible eulogy for President Ford.

Bill Cara and Jeff Matthews on the new look of the WSJ.

Greg Newton’s ahead of the masses with a review of 2007.

Barry Ritholtz on yesterday’s intra-day reversal.

Kirk has an excellent list of new year’s resolutions for traders.

Abnormal Returns on executive compensation.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since December 8th.

Asset Allocation – 75% long within the actively-managed, alpha producing portion of the overall portable alpha portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” or “Short/Sell” Recommendation

Top Rated Major Market Derivative – NYSE 100 (NYC 11/6/06)

Top Rated Style-Box Derivative – iShares Morningstar Large Cap Value (JKF 11/29/06)

Top Rated Sector Derivative – No “Buy” recommended sectors

Today’s Top “Buy” Recommended Stocks

Veritas DGC Inc. (VTS 7/28/06)

Volt Information Sciences, Inc. (VOL 11/6/06)

NBTY, Inc. (NTY 12/5/06)

Deckers Outdoor Corp. (DECK 9/7/06)

Precision Castparts Corp. (PCP 9/20/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Rock-Tenn Co. (RKT 4/27/06)

Stewart Information Services Corp. (STC 12/15/06)

Brush Engineered Material (BW 10/9/06)

Ceradyne Inc. (CRDN 11/1/06)

Today’s Top “Sell” Recommended Stocks

CONSOL Energy Inc. (CNX 12/15/06)

Whole Foods Market, Inc. (WFMI 11/2/06)

Peabody Energy Corp. (BTU 12/14/06)

Intuitive Surgical Inc. (ISRG 12/19/06)

Massey Energy Co. (MEE 12/14/06)

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