Tuesday's Summary....

U.S. Markets

Dow -45.10 (-0.37%)
Nasdaq +1.68 (+0.07%)
S&P 500 -4.59 (-0.34%)

News That Moved the Market

Financial Rollercoaster Continues. The markets bounced back after strong selling in the first half of the session. Citigroup (C, -4.3%) was under pressure early after the head of Dubai International Capital said the bank needs more funds and Merrill Lynch (MER, +2.5%) lowered its earnings forecast for Citi. Shares of the mega bank hit a nine-year low before Citigroup responded to the news by saying it is comfortable with its capital levels and would not seek new funds. The markets rallied hard after Citi came out with the release and The Financial Times reported bond insurer Ambac (ABK, +7.2%) is close to an agreement to receive a capital infusion . The deal could announce the deal as early as Wednesday. Though there was a lot of other news, this market showed today that the financial headlines truly spark rallies and sell-offs.

Intel Decreases Profitability Forecast. Intel (INTC, +0.05%) lowered its gross profit-margin forecast for Q1, citing lower flash memory prices. The company now sees margins coming in between 53%-55%, down from 55%-57%.

Housing Still Troubled, Bernanke Wants Banks To Do More. Fed Chairman Ben Bernanke caused a sell-off early in the market when he said foreclosures in the troubled U.S. housing market were likely to continue. He suggested banks write down the principal amount on mortgage loans for home owners who are at risk of defaulting. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," he explained.

Quick Tics:

Jackson Hewitt Tax Service Inc. (JTX, -32.6%) reported a 34% drop in fiscal Q3 earnings

Cisco's (CSCO, -0.5%) CEO John Chambers helped the rally by saying the difficulties in the market would likely be "short-lived and shallow".

Commodities sold-off on demand concerns.

Tomorrow Notable Earnings:

Chico's FAS, Inc. (CHS) Before Open
Saks Incorporated (SKS) Before Open

Economic Events:

8:15 AM: ADP Employment Report
8:30 AM: Productivity and Costs
10:00 AM: Factory Orders
10:00 AM: ISM Non-Mfg Survey
10:30 AM: Crude Inventories
2:00 PM: Beige Book

US Stocks Recover....

U.S. stocks recover from their lows as investors grow hopeful that a rescue package could be crafted for No. 2 bond insurer Ambac Financial. And technology stocks got a boost after Cisco Systems CEO John Chambers says he is "even more comfortable" with networking giant's revenue forecasts. Nasdaq turns positive, and the Dow trades down about 76 points.

Technical Alert: Dow nears January lows....

The Dow is currently down 200 points to 12,059.

On January 22 and 23, the Dow closed right at the 12,000 level. A close under 12000 would be very negative for the market.

The S&P is currently at 1310. That is exactly where it closed on January 22 and 23.


This is the Retest everyone has been waiting for....We need to hold up here.

The Bearish Victory.....

by Jeff Miller

The disparity between expectations and data continues. Those with a bearish bent argue that there is already a recession, it will be terrible, it is not priced into the market, earnings estimates must move much lower, and there will be a general calamity on the scale of the 70's stagflation or even the Great Depression. Wow!

When stocks move lower, it seems to prove the point. This is most interesting and worth some thought.

Anyone who claims to provide a market edge, almost by definition, must find occasions when the market is wrong and the analyst has a superior viewpoint. The most bearish economic pundits now get to claim victory -- even if the economy never enters a recession!

It is not necessary to be right on the facts to be right on the market. As the market moves lower, there is a building sentiment that it "must test the January lows." This advice is usually offered in a deep and stern voice. If enough people believe it, it happens. It is seen as proof of the economic forecasts.

We are now a few points away from those lows in the S&P 500 and even closer in the Nasdaq.


Exactly my thoughts....

Upgrades this morning...

Here is a list of stock Upgraded by Analysts this morning...

Leapfrog (LF) by BMO Capital Markets
Quiksilver (ZQK) by Caris & Company
Saks (SKS) by Bear Stearns
Dillard's (DDS) by Credit Suisse
Crosstex Energy (XTEX) by RBC Capital Mkts
Vonage (VG) by Bear Stearns
Limelight Networks (LLNW) by Jefferies & Co
Diebold (DBD) by Robert W. Baird

Downgrades this morning...

Stocks that have been Downgraded this morning...

W&T Offshore WTI) by BMO Capital Markets
Barnes & Noble (BKS) by Credit Suisse
Thornburg Mortg (TMA) by RBC Capital Mkts
Goodrich Petroleum (GDP) by BMO Capital Markets
Barnes & Noble (BKS) by JP Morgan
Novell (NOVL) by Jefferies & Co
EOG Resources (EOG) by Oppenheimer
Diebold (DBD) by Jefferies & Co
ConocoPhillips (COP) by Lehman Brothers
Best Buy (BBY) by Banc of America Sec

Staples Down After Cutting 2008 Guidance

Shares of Staples Inc. (SPLS) fell 3.6% to $21.69 after the office-supplies retailer posted a drop in fiscal fourth-quarter net income and cut it 2008 guidance as it expects a "challenging" economic climate to continue.

The company reported fourth-quarter net income of $333.2 million, or 47 cents a share, compared with $336.5 million, or 46 cents a share a year earlier. The per-share earnings figure is higher because Staples' shares count fell 3.2%.

Revenue rose 0.7% to $5.32 billion. The latest mean per-share earnings estimate of analysts polled by Thomson Financial was 47 cents on revenue of $5.37 billion.

The company now expects a percentage gain in 2008 per-share earnings in the high-single digits on sales up in the mid-single digits. Analysts had projected per-share earnings growth of 11% to $1.42 on a 7% sales increase to $19.41 billion.

Citi Down as Merrill Cuts Estimates...

Shares of Citigroup Inc. (C) fell 2.8% to $22.45 before the opening bell Tuesday after Merrill Lynch cut its 2008 earnings estimates for the banking giant and forecast another very large writedown of Citi's subprime-related exposures.

Citing "continued deterioration in U.S. residential and commercial mortgage markets, corporate dept markets and key investment-banking categories," Merrill reduced first-quarter estimates to a loss of $1.66 a share, from its previous forecast for profit of 55 cents. Full-year 2008 earnings were cut to 24 cents a shares from $2.74 a share.

"We remain concerned about loss provision potential, the direction of long-term strategy, and weak markets for the Capital Markets businesses," Merrill Lynch said in a note to clients.

Intel Lowers Outlook...

Intel Corp. (INTC). The Santa Clara, Calif.-based chip maker said late Monday it is lowering its first-quarter gross margin forecast to 54%, plus or minus a point, from its previous forecast of 56%, plus or minus a couple of points, due to lower-than-expected prices for NAND flash memory chips. The company said all other expectations are consistent with the first-quarter outlook the company provided in January.

Will Verizon Make a Move on Sprint???

With shares of Sprint Nextel (S) so low, the time may be ripe for Verizon (VZ) to pursue it. Even at a 20% premium, VZ would be paying $450/customer, vs. the whopping $1,860 Cingular paid AT&T Wireless in 2004.

China Mobile Ready to Talk to Apple...

China Mobile (CHL) is not in talks with Apple (AAPL) to distribute the iPhone, but says it would like to be. Revenue sharing is assumed to be one of the issues holding up talks, which could see Apple gain access to China Mobile's 350 million subscribers.

Municipal Bonds VERY Attractive....

Munis: Dislocation of a lifetime. Seasoned muni bond investors say current yields -- 16% higher than Treasurys in 30-year debt and 60% higher on two-year notes (!) -- present the opportunity of a lifetime; tax exempt munis usually trade at a 10-20% discount to Treasurys. Prices are being lower by hedge funds who are now forced to sell their holdings to unwind complex bets gone bad.

I heard this yesterday from a friend in the Bond Business...