4:19 PM, Nov 9, 2009 --

• NYSE up 177 (2.5%) to 7,135.33.
• DJIA up 203.5 (2%) to 10,227.
• S&P 500 up 23.77 (2.2%) to 1,093.
• Nasdaq up 41.6 (1.9%) to 2,154.

GLOBAL SENTIMENT

Prices of Treasury coupons are finishing the day with just marginal changes and most of the benchmark securities are virtually unchanged. The 3 year note auction produced a superior result but it is languishing in secondary market trading. There has been very little follow through buying and dealers who missed the auction do not feel impelled to chase bonds with the 10 year tomorrow and the 30 year on Thursday.

I did hear of a reasonable amount of customer activity and active trading. Salesmen reported Asian central bank buying of the three year sector as well as the same group buying in the seven year bucket. Another salesman reported central bank selling of off the run 5 year paper. He assumed that money would park itself in the new 3 year note but averred that he had no direct knowledge of that process.

Sentiment

Stocks opened higher Monday after global equity markets cheered G-20 promises of additional fiscal stimulus. Equity markets moved broadly higher across the Asia/Pacific and in Europe after the Group of 20 central bankers and finance ministers agreed to "continue to provide support for the economy until the recovery is assured."

In the US, with no economic data scheduled until Thursday and no earnings of broad market significance to guide the morning action, the major averages moved higher along with overseas markets.

I believe the 2.5% move higher in Crude oil today was more of a dollar weakness story than an oil strength story. Will it continue?? We expect $76.50 and $81 to contain prices on the December contract in the short run. As we said in our commentary this morning, we prefer to be a buyer from lower levels for clients. We’re advising clients to buy 50 & 75 cent bull call spreads in January natural gas. Though prices printed a new low it appears prices will close higher on the day.

As of this post the Dow is higher by 200 points and the S&P by 22, the largest 1 day swing we’ve seen in several weeks. This carries the Dow to a new '09 high and we should see further appreciation. The S&P should trade up to 1100 this week if not next. We may look to get clients short but not yet.

Along with the Dow hitting new bull market highs today, two other notable securities have done the same. As shown below, Google (GOOG) broke to new highs this morning and is now trading above $560. One of the more popular China ETFs (FXI) also broke above its October highs and is now trading at $45.55. Both of these names are widely followed by traders and should be lighting up screens today.

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Don't look now, but the Dow just hit a new intraday bull market high. As shown below, the start of November looks much like the start of October. Both times the Dow traded down to its 50-day moving average, held support, and then bounced nicely to make a new bull market high a week or so later. While the Dow has hit a new bull market high, the S&P 500 is still a few points away. Will it soon follow?

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Prices of Treasury coupon securities are posting small (very small) mixed changes in overnight trading. Benchmark securities are either unchanged or a tad lower in price (and with the inverse relationship between price and yield constant, yields are a tad higher, unless somehow Goldman Sachs (GS) can change that mathematical relationship).

The overnight news lacked a real catalyst for violent price change. The only noteworthy item is a healthy jump in German Industrial Production which rose 2.9 percent in September versus 1.8 percent in August. That leaves IP in that country declining at a YOY pace of -12.9 percent September versus -16.5 percent in August.

• Northrop unloads TASC. Northrop Grumman (NOC) agreed to sell its TASC consulting unit to a pair of private-equity firms - KKR and General Atlantic - for $1.65B. TASC unit provides engineering and consulting services to the U.S. military and state governments. Northrop said it expects the sale to generate net cash proceeds of $1.1B, which it will use to repurchase shares. The deal is the latest in a recent uptick in LBO acquisitions which have returned after a two-year dry stretch. Still, with four banks - Barclays (BCS), Royal Bank Of Canada (RY), Deutsche Bank (DB) and a lending unit of the CPP - combining to put up senior debt of well under $1B, today's deals are still a far cry from the mega-mergers of the credit boom.
• G-20 keeps drip open. G-20 leaders said it's too early to withdraw global stimulus efforts despite signs that a global economic recovery is underway. "Economic and financial conditions have improved following our coordinated response to the crisis," officials said in a communique (.pdf) following a two-day gathering in St. Andrews. "However, the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern. To restore the global economic and financial system to health, we agree to maintain support for the recovery until it is assured." Stocks, commodities and futures rallied Monday: "Markets don't need to be worried that these governments and central banks are suddenly going to take away all the stimulus measures," one strategist said. "Risk appetite should remain supported into the end of the year."
• Put up or shut up day for Kraft. Kraft (KFT) could raise the cash portion of its bid for Cadbury (CBY) to 400p ahead of today's deadline, and is expected to take the bid directly to Cadbury's shareholders. Kraft has enlisted Royal Bank of Scotland (RBS), Credit Suisse (CS), Barclays (BCS) and BNP Paribas to help provide a £5.5B bridge loan. Kraft's initial bid of 300p and 0.2589 KFT shares per CBY share was valued at 745p/share, but is now worth about 720p with the decline in Kraft's stock. According to U.K. takeover rules, by launching an offer today Kraft would set in motion a 28-day deadline to publish a prospectus on the offer for Cadbury shareholders, and would have 60 days to collect enough shares to clinch a deal.
• Healthcare bill: next stop Senate. The Obama healthcare overhaul passed a House vote by a narrow margin Saturday (220-215), setting up a fractious debate in the Senate - where Democrats don't enjoy the same broad majority - this week. The bill would cost $1.05T over a decade to provide health insurance to another 36M Americans. It requires most Americans to carry insurance, creates a new exchange where they can shop for it, and gives low income earners tax credits to help them pay for it. In an appearance Sunday, Obama said he is "absolutely confident" a healthcare bill will also pass through the Senate.
• Sprint group to pour another $1.5B into Clearwire. Sources say Sprint Nextel (S) and a number of its Clearwire JV (CLWR) partners are preparing to pump another $1.5B or more into the wireless broadband provider. The Sprint group first invested $3.2B in Clearwire 18 months ago, taking a majority stake in a bet on Clearwire's version of 4G wireless broadband, WiMax. Some rivals have favored a comparable technology knows as LTE. $1B of a new infusion would come from Sprint, with Comcast (CMCSA), Intel (INTC), Time Warner Cable (TWC) and Bright House Networks kicking in another $500M. Google, a key JV partner, isn't thought to be involved in this round.
• Comcast, GE agree on CNBU valuation. After weeks of wrangling, GE (GE) and Comcast (CMCSA) reportedly agreed to value NBC Universal at about $30B, and a deal to give Comcast a 51% stake in GE's media and entertainment arm could come as early as this week, though it's still unclear whether 20% NCBU stakeholder Vivendi has signed off on the proposal. Sources say the pair met last week with debt-raters to ascertain the impact of $9B in debt a new NBCU would assume as part of the combination, and hope this week to be told it would be considered investment grade.
• Murdoch paper cleared of spy charges. The U.K. Press Complaints Commission said Monday it has found no proof journalists at Rupert Murdoch's The News of the World regularly hacked the phones of public figures to secure sensational stories. The probe was prompted after reports in The Guardian said the practice at the tabloid was widespread. In response, the Guardian described the PCC's report as complacent, saying the PCC did not have the "ability, the budget or the procedures to conduct its own investigations."
• Axa Asia Pacific shuns $10B bid from parent. Axa Asia Pacific (AXAPY.PK), the Australian unit of France’s biggest insurer (AXA -1.1% premarket), rejected an unsolicited $10B bid from its parent and AMP Ltd. (AMLTF.PK). CEO Rick Allert said Axa Asia Pacific would consider a higher offer, but called today's offer too low. Axa said today it will raise £2B through a rights offer to finance acquisitions.
• Brown backs down on transactions tax. World leaders publicly snubbed U.K. PM Gordon Brown's bold pitch for a global tax on financial transactions which would be used to fund future bailouts. Brown surprised ministers by pitching the initiative during a speech to the G-20 assembly Saturday to the dismay of his peers, who unanimously agreed with U.S. Treasury chief Tim Geithner in saying economic leaders don't think taxpayers should have to pay for future financial sector foibles. Brown backed down Sunday, though he continues to believe tighter bank regulation may not suffice to protect against future risk.
• Reynolds eyes stake in smokeless tomorrow. Cigarette giant Reynolds American (RAI) is in advanced talks to buy closely held Niconovum AB, a Swedish maker of nicotine-replacement therapies such as Zonnic pouch and Zonnic gum. A deal would be the largest move by Reynolds into nicotine products, as sales of cigarettes continue to decline. Reynolds controls about 28% of the U.S. cigarette market, second to Altria (MO) which has about 50%. Sources say the deal could be valued at €30M.

Earnings: Mon. Before Open

• DISH Network (DISH): Q3 EPS of $0.18 misses by $0.26. Revenue of $2.89B (-1.5%) vs. $2.93B. Net customers +241K to 13.85M. (PR)
• Energy Conversion Devices (ENER): FQ1 EPS of -$0.34 misses by $0.03. Revenue of $42.9M (-55.2%) vs. $56.4M. Shares -0.1% premarket. (PR)
• GTx (GTXI): Q3 EPS of -$0.35 in-line. Revenue of $3.6M (+20%) vs. $4M. (PR)
• Hospitality Properites Trust (HPT): Q3 FFO of $0.77 misses by $0.01. Revenue of $264M (-15.4%) vs. $272M. (PR)
• Nationwide Health Properties (NHP): Q3 FFO of $0.56 in-line. Revenue of $97.8M (+3.4%) vs. $94.4M. Sees full-year EPS of $2.22-2.23 vs. $2.28. (PR)
• Quicksilver Resources (KWK): Q3 EPS of $0.25 beats by $0.03. Revenue of $207M (-12.5%) in-line. (PR)
• Rockwell Automation (ROK): FQ4 EPS of $0.37 beats by $0.10. Revenue of $1.07B (-27.6%) in-line. (PR)
• Tesoro (TSO): Q3 EPS of $0.24 beats by $0.23. Revenue of $4.74B in-line. Expects to spend less than its stated capex budget of $600M. Shares +3.7% premarket. (PR)
• Warner Chilcott (WCRX): Q3 EPS of $0041 misses by $0.01. Revenue of $253M (+9%) in-line. (PR)
• Western Refining (WNR): Q3 EPS of -$0.05 beats by $0.01. Revenue of $1.83B (-40.6%) vs. $1.75B. Shares +0.5% premarket. (PR)
• Windstream (WIN): Q3 EPS of $0.24 beats by $0.03. Revenue of $734M (-7.5%) vs. $747M. (PR)

Today's Markets

Overseas markets and commodities surged Monday, and U.S. futures have gained overnight. The dollar is getting pounded in early trading.

Forex Trader Note: Near-term moves in Asian trading have not managed to get the four-hour global market momentum reads out of neutral mode. Most currencies are overbought against the Usd, on low momentum. Forex pairs will now require a boost from oil and S&P trade to hold the recent moves that came on thin order flows overnight.

The near-term technical reads show a market that is selling dollars on light volume. We will look for a reversal on euro, cable, and swissy before things can move too much further. Aussie and cad have not reacted to gold moving through $1100, and oil has not moved to back the short-dollar play. Neutral momentum and an oversold dollar, on a Monday, with not all major pairs aligned, is not a reliable read especially when Dax and S&P futures are not moving too far.

Friday’s comments will be brief due to schedule conflicts. Negative employment news had very little impact upon the major equity indices (i.e. Dow Industrials, S&P 500, and Nasdaq) which finished slightly positive while the Russell 2000 closed down by a small fraction.

Bullish events:

Next Week's Game Plan: Clean Energy Fuels (CLNE) Fuel Systems Solutions (FSYS), Fluor (FLR), Vulcan Materials (VMC), Diana Shipping (DSX), Burlington Northern (BNI), Joy Global (JOYG), Ralcorp (RAH), Applied Materials (AMAT), Macy's (M), Kohl's (KSS), Wal-Mart (WMT), Urban Outfitters (URBN), Nordstrom (JWN), Walt Disney (DIS), Ancestry.com (ACOM)

Bullish Calls:

Caterpillar (CAT): "This is the ideal recovery stock. I can't tell you not to buy it right here."

General Electric (GE), Urban Outfitters (URBN), Skyworks Solutions (SWKS), Travelers (TRV)

Distressed Tessera (TSRA) CEO Hank Nothaft

By David Russell

One big investor is using options and an exchange-traded fund to bet on a rally in Treasury bonds.

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