Economic Woes Weigh on Stocks

U.S. stocks were indicated to open lower Thursday as major index futures fell in premarket trading, following a steep slide in the previous session. on Globex. A report that showed weekly initial jobless Claims rose 15,000 to 478,000 added to arguments the U.S. economy is sliding into a steep recession that is becoming global.

Former Fderal Reserve Chairman Alan Greenspan is seen calling for more financial regulation at a House hearing Thursday on housing and the financial crisis. Meanwhile, the Bush administration is considering a $40 billion program to forestall housing foreclosures, according to a press report.

The dollar index was up at a two-year high as the worsening global economic outlook is prompting investors to liquidate risky assets. Bonds were also higher. Gold futures continued their descent. Oil futures were of before Friday's OPEC meeting.

European stocks were lower Thursday. In Asia, markets suffered more selling, with Tokyo stocks falling 2.46%, Hong Kong down 3.55%, and Shanghai lower by 1.07%.

U.S. stocks fell to their lowest levels in more than five years Wednesday amid worries about a serious economic slowdown not only in the U.S. but worldwide. On Wednesday, the Dow Jones Industrial Average tumbled 514.45 points, or 5.69%, to 8,519.21. The broad S&P 500 shed 58.27 points, or 6.1%, to 896.78. The tech-heavy Nasdaq composite fell 80.93 points, or 4.77%, to end at 1,615.75.

Lawmakers have called key players from the past and present to congressional hearings in an effort to find out what caused the biggest financial crisis since the 1930s and determine how the government plans to get the nation out of the mess. Former Fed Chairman Alan Greenspan, the star witness today before the House Oversight and Government Reform Committee, faces questions about actions the government took or didn't take that might have contributed to the boom in subprime mortgages and the subsequent housing market collapse that has led to the loss of billions of dollars in investments, according to AP.

Greenspan, who was succeeded in 2006 by Ben Bernanke, was likely to find himself defending actions he took that are being blamed for contributing to the current crisis. Critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.

Greenspan recently described the current episode as the type of wrenching financial crisis that comes along only once in a century. He has defended the use of derivatives, so-named because their value is derived from the value of an underlying asset. He said they were useful in helping to spread risks.

Greenspan called for tighter regulation of financial companies, distancing himself from the free-market culture that he helped to create. Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony to the House Committee on Oversight and Government Reform. Bloomberg reported on his testimony. Other rules should address fraud and settlement of trades, he said. Greenspan's office released the text ahead of the hearing scheduled for 10 a.m. EDT in Washington.

Paul Volcker, Greenspan's predecessor, said at a New York conference Wednesday that "We are really going to have to rebuild this system from the ground up." Volcker said the creation of complex financial products "instead of spreading the risk and creating transparency" wound up concentrating risk and "opaqueness." Volcker, 81, said the current crisis is more complex than any other in U.S. history.

House Financial Services Committee Chairman Barney Frank called this week for a freeze on executive bonuses and other stronger regulation of Wall Street, following passage of a $700 billion rescue plan for financial institutions. Frank said in a hearing in February that Greenspan "erred" in "his view that regulation was almost never required." Greenspan "often told us" that there were two options: "I can either deflate the entire economy or I can let the problems continue," Frank said. SEC Chairman Christopher Cox and former Treasury Secretary John Snow are also scheduled to appear at the House committee hearing today.

Meanwhile, Neel Kashkari, the interim head of the government's $700 billion rescue effort, and other government officials are scheduled to testify before the Senate Banking Committee about their plans for implementing the massive program. Lawmakers in particular want government officials to explain why the emphasis in the rescue package has switched from a program that initially was aimed at buying billions of dollars of troubled mortgage-related assets from banks as a way to spur them to resume more normal lending. A week ago, Treasury Secretary Henry Paulson announced that the program now would have as a major component the purchase by the government of $250 billion in stock in hundreds of U.S. banks, including $125 billion that would go to nine of the largest institutions.

Paulson has said that the fast-moving nature of the crisis convinced him that money needed to get out more quickly as a way to encourage banks to start lending again. But questions have been raised about whether the huge infusion of government money will actually spur more lending, especially after several banks have said they planned to employ the new capital to help finance purchases of weaker rivals.

The Bush administration is weighing a roughly $40 billion proposal to help forestall housing foreclosures, one of a series of ideas under consideration to address the root causes of the financial crisis according to a Wall Street Journal report. FDIC Chairman Sheila Bair is expected to suggest at a Senate Banking Committee hearing today the government give banks a financial incentive to turn troubled loans into more-affordable mortgages, the paper said citing a person familiar with her testimony.

In economic news Thursday, U.S. initial jobless claims jumped 15,000 to 478,000 in the week ended Oct. 18, from a revised 463,000 the week before (461,000 previously). The four-week moving average slipped to 480,250 versus 484,750.

U.S. foreclosure activity in September rose 21% from a year earlier but fell by double-digits from the prior month as some state laws slowed the foreclosure process, according to a monthly report by research firm RealtyTrac.

Goldman Sachs (GS) plans to cut about 3,260 jobs, a source familiar with the matter said. That represents about 10% of the total staff of the New York-based bank, the source said. Reuters said the bank has so far suffered the least damage in its peer group in the global financial crisis and it remains the leading adviser to mergers and initial public offerings worldwide. But its transition from an investment bank to a traditional bank holding company means the Federal Reserve will use its new regulatory authority to limit the bank's risk taking and encourage longer-maturity funding. Analysts expect Goldman to shrink businesses in prime brokerage and securitization.

The Swedish Central Bank -- the Riksbank -- lowered its repo rate by 50 bp to 3.75% at today's meeting, a larger cut than the 25 bp consensus forecast. The central bank said the repo rate is likely to be cut by another 50 bp over the next 6 months. The bank has cut rates by 100 bp this month after hiking 25 bp in September. The Riksbank revised down its rate path and now sees the repo rate bottoming around 3.2% by the end of 2009. The Bank revised down its GDP forecast to 1.2% and 0.1% for 2008 and 2009 respectively, from 1.4% and 0.8% in September, while CPI is now expected to average 2.1% next year, compared to a 3.2% forecast earlier.

In other U.S. markets Thursday, Treasury yields continue to roll downhill as the bounce in jobless claims will do little to cure the dark mood hanging over the equity market, says Action Economics. The 10-year yield was down 8 basis points from overnight highs and testing the 3.55% level.

The dollar index was up 0.24 to 85.68.

Energy futures, which were solidly higher overnight, turned mixed as stocks were indicated to open lower. December West Texas Intermediate crude oil futures, which hit a $68.50 high earlier, were up 19 cents to $66.94 per barrel. Volatile trading was expected as OPEC officials arrived in Vienna for Friday's special meeting. The cartel is expected to reduce production to stem a steep decline in prices the past three months, with the consensus forecast calling for a cut of 1 million barrels. But Iran is pushing for a 2 million barrel cut.

December gold futures were off $24.50 to $710.70 per ounce as the dollar index rose against sterling and the euro. Action Economics reports broad based deleveraging by Asian fund names and short term investors. The move was in line with losses in other base metals and commodities as fears over the global growth outlook continued to encourage selling pressure.

Among Thursday's stocks in the news, Amazon.com (AMZN) reported third-quarter EPS of 27 cents, vs. 19 cents one year earlier, on a 31% sales rise. The company sees fourth-quarter operating income between $145-$305 million (-46% to +13% year-over-year) on sales of $6-$7 billion (+6% to +23%). Amazon now expects 2008 operating income of $716-$876 million on sales of $18.46-$19.46 billion.

Amgen (AMGN) reported third-quarter adjusted EPS of $1.23, vs. $1.08 one year earlier, on a 7% total revenue rise. GAAP EPS was $1.09; reflecting write-offs of $590 million of acquired in-process R&D. Amgen raised its 2008 revenue guidance to $14.9-$15.2 billion from $14.6-$14.9 billion, and adjusted EPS to $4.45-$4.55 from $4.25-$4.45.

Potash Corp. (POT) reported third-quarter EPS of $3.93 vs. 75 cents one year earlier, on sharply higher sales. Using a locked in C$/US$ exchange rate of $1.10, Potash expects 2008 EPS to be at the low end of the company's previously provided guidance range, with possible variance of 2% in either direction.

Allstate Corp. (ALL) reported a third-quarter operating loss of 35 cents per share, vs. $1.54 operating EPS one year earlier, on a 19% revenue decline and $1.8 billion in catastrophe losses. Wall Street was looking for 72 cents EPS. The company suspended its $2 billion stock buyback plan.

United Parcel Service (UPS) posted third-quarter EPS of 96 cents, vs. $1.05 one year earlier, as higher operating expenses offset a 7.4% revenue rise. Wall Street was looking for 89 cents EPS in the third quarter. UPS said it anticipates a challenging environment for a number of quarters going forward, and believes the U.S. consumer will be very conservative with spending this year. UPS still expects 2008 EPS will be toward the lower end of the $3.50-$3.70 range provided mid-year.

Altria Group (MO) posted third-quarter adjusted EPS from operations of 46 cents, vs. 40 cents one year earlier, on a 5% revenue rise. The company reaffirmed its 2008 adjusted EPS from continuing operations guidance of $1.63-$1.67.

Dow Chemical (DOW) posted third-quarter EPS of 46 cents, vs. 42 cents one year earlier, on a 13% sales rise. The company posted 60 cents third quarter EPS excluding certain items. Wall Street was looking for 57 cents. Dow says it's well positioned to weather this increasingly difficult economic downturn, as it has a strong balance sheet, and is accelerating its focus on what it can control, namely costs and capital, asset restructuring, and other interventions.

Starwood Hotels & Resorts (HOT) posted third-quarter EPS before special items of 71 cents, vs. 68 cents one year earlier, on flat revenues. The company notes margins at Starwood branded same-store owned hotels worldwide and in North America decreased 208 and 151 basis points, respectively, vs. the year-earlier quarter. The company sees EPS before special items of 36-42 cents for the fourth quarter and $2.07-$2.13 for 2008. It said that given significant uncertainty in the global economy, it is very difficult to provide any definitive guidance looking out four quarters, but Starwood did forecast $1.55 2009 EPS.

Xerox Corp. (XRX) posted third-quarter EPS of 29 cents, vs. 27 cents one year earlier, on a 2% revenue rise. The company said it will take a pre-tax restructuring charge of approximately $400 million, or 31 cents a share, in the fourth quarter to accelerate its cost-reduction activities on a global basis. Excluding the charge, Xerox sees fourth-quarter non-GAAP EPS of 34-36 cents. The company believes operational efficiencies it will gain from restructuring actions in the fourth quarter will position it to deliver double-digit EPS growth in 2009.

Eli Lilly (LLY) posted third-quarter pro forma non-GAAP EPS of $1.04, vs. 91 cents one year earlier, on a 14% sales rise. Lilly posted a 43-cent third-quarter loss per share when including $1.477 billion in charges related to pending Zyprexa investigations. Excluding significant items, the company raised its its 2008 pro forma non-GAAP EPS guidance to $3.97-$4.02 from $3.85-$4.00.

Get Your Automobile Financed With Personal Auto Loan

Today owning a vehicle is not just a status symbol, but it has also emerged as a necessity for an individual. Truck, lorry or any other automobile are some example of the product of automobile industry. Just a thought of buying own vehicle creates excitement in the mind of an individual. But, he must make sure that his excitement doesn't let him to take decision in hurry. Generally, there are number of ways to finance a vehicle. And one of the best and easy modes of financing is personal auto loan.

Generally, the tendency which the market follows is that the person with less than perfect credit score is not able to avail best loan deal. The reason is that the lender finds the loan deal with such people riskier. And in return, such people are offered high rate of interest.

Shopping around in the market is a way to get the best personal auto loan deal. It is recommended that the person should not accept the first offer in hurry. Rather, he must search and compare various personal auto loan deal offers. Make sure, the lender to which you are dealing is authorised and reputable.

In order to make the task of comparing easier, the person is required to ask the lender for free quotes. He must apply to multiple lenders for determining how competitive the rate of interest is. Commonly, it is seen that the person forgets to ask for quotes. But loan quotes provides an idea of cost involved in the loan. It contains information regarding the interest rate, monthly installment, repayment period etc.

After receiving the loan quotes, the next step is to study them thoroughly in order to understand its cost and choose the deal with lowest annual percentage rate.

The person has also option to finance his vehicle through a broker. But, these brokers are not loan providers; rather they act as mediators between the lending source and the borrower. Financing through broker is good option as they have sufficient database regarding various lending institutions. So, they can provide a help in finding the lender and providing the person with best personal auto loan deal.

Personal auto loan are also available through online method. Through online method, the person is only required to fill an application form on the internet, and if the lender finds an application suitable for the loan, he gets back to the borrower within 24 hours. Online application is processed faster as compared to processing time taken in the physical market.

Getting the best personal auto loan deal totally depends on the person's choice of lender. So, there is a need of evaluating each lender on the grounds of his needs and requirements.

Focus Stock: General Mills, a Top Pick for Tough Times

In a difficult economic environment, we expect General Mills (GIS; recent price, $65)—the name behind well-known brands like Cheerios, Betty Crocker, and Green Giant—to benefit from a shift toward cost-conscious consumers eating more at home. This should particularly help the packaged food giant's product categories such as cereal and soup, which offer relatively inexpensive per-serving costs to consumers. We expect that the company's marketing support of its diversified portfolio of brands will help General Mills to withstand competition from lower-priced private-label competitors.

Given concerns about economic weakness ahead, we expect this stock to benefit from investors seeking defensive or lower-risk shares. Also, we look for the company's important U.S. retail segment to benefit from consumers eating more at home. We believe the company has opportunities to bolster longer-term profit margins through a focus on such areas as manufacturing and spending efficiency, global sourcing, and sales mix. We look for the company to generate future free cash flow, with at least a portion being used for dividends and stock repurchases. Also, we see as positive the company's S&P Quality Ranking of A-, which reflects a solid record of historical stability and/or growth of earnings and dividends.

Based on our 12-month target price of $78, General Mills shares have prospective upside of about 20% from recent levels. Factoring in the stock's recent indicated dividend yield of about 2.7%, we have a 5 STARS (strong buy) recommendation on the shares.
COMPANY PROFILE

General Mills is the second-largest U.S. producer of ready-to-eat breakfast cereals, and a leading producer of other well-known packaged consumer foods. The U.S. Retail segment, which accounted for 66% of net sales in fiscal 2008 (May), consists of cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt, and organic foods. The bakeries and food service segment (15%) consists of products marketed to retail and wholesale bakeries and offered to commercial and noncommercial food service sectors throughout the U.S. and Canada, such as restaurants and businesses and school cafeterias. The international segment (19%) includes retail business and U.S. and food service business outside of the U.S. and Canada.

Major cereal brands include Cheerios, Wheaties, Lucky Charms, Total, and Chex cereals. Other consumer packaged food products include baking mixes (e.g., Betty Crocker, Bisquick); dry dinners; Progresso soups, Green Giant canned and frozen vegetables; snacks; Pillsbury refrigerated and frozen dough products, frozen pizza; Yoplait and Colombo yogurt; Haagen-Dazs ice cream; and Cascadian Farm and Muir Glen organic products. Some products may be marketed under licensing arrangements with other parties. General Mills also has a grain merchandising operation that holds inventories carried at fair market value, and uses derivatives to hedge its net inventory position and minimize its market exposures.

During fiscal 2008, Wal-Mart Stores (WMT) (or affiliates) accounted for 19% of General Mills' consolidated net sales.

General Mills' joint ventures include a 50% equity interest in Cereal Partners Worldwide (CPW), a joint venture with Nestlé that manufactures and markets cereal products outside the U.S. and Canada; and 50% equity interests in some Asian-related joint ventures for the manufacture, distribution, and marketing of Haagen-Dazs frozen ice cream products and novelties.

Unconsolidated joint ventures, which are reflected in General Mills' financial statements on an equity accounting basis, contributed an aggregate of after-tax income of $111 million in fiscal 2008, up from $73 million in after-tax income in fiscal 2007. This includes a net benefit of $8.2 million from restructuring, impairment, and other exit-related items in fiscal 2008, vs. a negative impact of $8.2 million in fiscal 2007. In July 2006, the company's CPW joint venture acquired the Uncle Tobys cereal business in Australia for about $385 million. General Mills funded 50% of the purchase price.
CORPORATE STRATEGY

We see longer-term growth opportunities, including new products and international expansion. We expect efforts will be made to expand gross margins in the U.S. retail business, including opportunities for increasing the mix of higher-margin products, trade spending efficiency, discontinuing less attractive products, investment in technology, and global sourcing. In the international business, we expect General Mills to seek profit improvement in emerging markets and a leveraging of its infrastructure.

In September 2008, General Mills sold its Pop Secret microwave popcorn business to Diamond Foods, (DMND) for a price that was expected to be $190 million, subject to adjustment. General Mills said that it expected to receive pretax cash proceeds, net of transaction-related costs, of about $160 million. Also, General Mills said that it expected to have a pretax gain of about $130 million on the sale in the fiscal 2009 second quarter.

Also during the first quarter of fiscal 2009, General Mills acquired Humm Foods, the maker of Larabar fruit and nut energy bars. In the transaction, General Mills issued 0.9 million shares of common stock, valued at $55 million.
FINANCIAL TRENDS

In the first quarter of fiscal 2009, General Mills repurchased 8.2 million shares of common stock for an aggregate purchase price of $519.2 million. In all of fiscal 2008, General Mills repurchased about 23.6 million shares of its common stock for $1.368 billion.

In fiscal 2008, General Mills had costs related to restructuring, impairment and other exit costs totaling $21 million (pretax), and another $18 million of associated costs. In fiscal 2007, the company had $39 million of restructuring, impairment, and other exit costs. Also, in recent years, there have also been other restructuring expenses related to a joint venture in Britain.

In fiscal 2008, General Mills reported earnings per s hare of $3.71, which included a $0.10 a share net benefit related to mark-to-market valuation of certain commodity positions, and a $0.09 per share benefit from reduction of a tax reserve. If these two items are excluded, fiscal 2008 EPS totaled $3.52. Also, fiscal 2008's second quarter included an asset sale gain of about $0.02 a share.
FINANCIAL OUTLOOK

In fiscal 2009, we look for net sales to advance about 11% from the $13.7 billion reported for fiscal 2008, with higher pricing, and bolstered by investments in consumer marketing and product innovation. We also expect sales to receive a boost from a 53rd week in the fiscal year.

We expect margin pressure from ingredient costs, but we think operating margins will receive support from a combination of productivity gains and higher prices.

Also, we think General Mills could benefit, over time, from declines in commodity costs. However, because the company does a significant amount of commodity cost hedging, we do not expect General Mills' manufacturing margins to fully benefit from declines in agricultural commodity prices that have occurred over the past several months.

Excluding some special items, such as impact from mark-to-market valuations related to commodity positions, and an expected gain from the sale of General Mills' Pop Secret microwave popcorn business, we look for fiscal 2009 EPS of $3.90, up from $3.52 for fiscal 2008. In fiscal 2009's first quarter, General Mills had a negative impact of $0.17 a share from mark-to-market valuation of certain commodity positions.

Included in our EPS estimate for fiscal 2009 are expenses related to restructuring, impairment, and other exit costs. In fiscal 2010, we estimate EPS of $4.20.
VALUATION

Our 12-month target price of $78 reflects about an 11% premium over the price-earnings ratio we project, on average, for other food stocks. We believe this valuation is merited by the stock's defensive appeal in a relatively weak economic environment, the company's impressive group of brands, its growth prospects, and its ability to generate cash.

General Mills shares recently had an indicated dividend yield of 2.7%. The quarterly dividend has been raised twice in 2008.
CORPORATE GOVERNANCE

Overall, we have a favorable view of the company's corporate governance practices.

The chief executive officer and chairman positions at General Mills are both held by Kendall Powell, who joined the company in 1979. We would prefer to see the chairman and CEO positions separated, and held by two different people, but we do not anticipate the current management structure being a major problem.

We like that stockholders elect all directors annually. Also, the board has adopted criteria for independence based on those established by the New York Stock Exchange, and all board committees are composed entirely of independent, non-employee directors.
INVESTMENT RISKS

Risks to our recommendation and target price include competitive pressures, disappointing consumer acceptance of new products, higher-than-expected commodity cost inflation, and an inability to achieve sales and earnings growth forecasts.

Also, a strengthening U.S. dollar could have a negative impact on the foreign currency translation of General Mills' foreign sales and profits.

Arbeter: The Key Ingredient for a Stock Rally

We continue to see mounting technical evidence that a major market low is near as there was more unprecedented readings from a sentiment and market internal basis last week. However, the most important piece of the market forecasting puzzle is still lacking, and that is major price gains on strong volume on a more consistent basis. Clearly, there is tremendous fear about stocks, credit markets, and the economy, and there is also strong evidence that things are washed out from an internal viewpoint, but we still need to see institutions stepping up to the plate and swinging.

From a sentiment standpoint, we believe we need to see extreme levels of fear considering the horrendous news flow, and that is just what we have been witnessing. The weekly readings from Investor’s Intelligence were pretty staggering: only 22.4% bulls and a whopping 52.9% bears. This is the lowest percentage of bulls since late 1988, and one of the lowest readings in the history of the data, which goes all the way back to the late 1960’s. It is also the highest percentage of bearish sentiment since December 1994, just before the market took off. The difference between bulls and bears is a staggering 30.5 percentage points favoring the bears, the most one-sided that newsletter writers have been since December 1988, which was also not a bad time to be putting funds back into stocks. Bulls divided by bears has fallen to 42%, also the lowest and most bearish since late 1988.

We can slice and dice the data all we want, but the clear conclusion is that newsletter writers are extremely bearish, and many times, that has been a good, but early sign, that stocks may be near the bottom.

Taking a look at other sentiment polls shows similar levels of fear and anxiety. The Consensus poll measures the attitudes and positions of an extensive mix of both brokerage house analysts and independent advisory services (they have several hundred contributors). The data covers a broad spectrum of approaches to the market, including fundamental, technical and cyclical. Just a week ago, bullish sentiment on the Consensus poll fell to 21%, matching the level last seen in May 2002. The American Association of Individual Investor’s poll showed only 31.5% bulls and a whopping 60.8% bears. This was the greatest percentage of bears since October 1990, right near the bottom of that bear market.

In our view, the lack of upside follow through on a price basis is keeping many sentiment indicators at extreme pessimistic levels. We need sentiment to begin improve, but many times this does not occur until we start seeing some strong price gains in the market. It’s like a big circle, but once it happens, the upside reversal can be quite powerful, because everyone is caught on the wrong side of fence.

One way to forecast whether fear is peaking is to look at chart formations and near-term price action of the volatility indexes. First, slopes of the indexes (VIX, VXO, VXN, and QQV) got very steep going into the bear market low on October 10. Many times, after an index or stock has been in a powerful uptrend, the last rally can be described as asymptotic. Stock prices were going straight down, forcing option premiums through the roof, and sending volatility indexes to the moon. To illustrate, the 10-day price rate-of-change (ROC) on the VIX (ending 10/10) was 101%, the highest since September 2001, and was the second highest in the history of the data. Whether prices are moving up or down, this kind of slope is simply unsustainable.

Secondly, the volatility indexes have become extremely overbought on both a daily and weekly basis. This does not automatically mean that these indexes have to start pulling back immediately, but it does suggest that we have seen a peak in momentum, and that a top may not be far behind (and a market bottom is near). Third, there have been some days recently where the indexes have closed well off their highs, tracing out candlestick formations known as an inverted hammer. These patterns have long upper shadows, and after a big move to the upside, suggest that the trend is faltering. The VXO has traced out an island reversal, gapping higher on October 10, and then closing below the gap. This is also a potential sign of a top. In our view, it would be very bullish for stocks if the volatility indexes started to correct, and would be a sign that fear is finally starting to dissipate.

From an internal standpoint, things are just plain ugly. The percentage of NYSE stocks hitting new 52-week lows soared to 88% on October 10, an all-time high. The same reading on the Nasdaq rose to 49% last Friday, and incredibly, wiped out levels seen during the great technology bear market in 2001 and 2002. The NYSE down volume/up volume ratio hit 44:1 on October 15, one of the worst readings in the last forty years. Stocks have been thrown out with indiscriminate selling, and while this is somewhat rare, we think it creates opportunities as there appears to be a real disconnect between stock prices and their fundamentals.

Oil remains in a major decline but has dropped to an area of long-term support. There is a layer of chart support between $55 and $77. In addition, a long-term trendline sits in the low $70's. This trendline has supported the market since 2001, so it is of major importance. Prices are extremely oversold, with prices 27% below the 65-week exponential average, the greatest since early 2002. The next support from a Fibonacci standpoint is a 61.6% retracement that targets the mid $60's. If the mid-60's level is taken out, we would seriously question whether crude oil is still in a secular bull market.

Shorter term, we think there is the potential for a positive momentum divergence on the daily chart, many times seen near market lows. Steepness of decline recently suggests panic selling. Sentiment has fallen to an extreme bearish level not seen since 2003. Overall, we think a bottom is near but that it could take many months of basing before things can reverse to the upside.

Stocks Trade Lower

U.S. stocks were lower in slow trading Tuesday afternoon amid some profit taking after There was some volatility tied to a mixed bag of earnings reports, including some disappointing tech-sector results. Investor Kirk Kerkorian also liquidated the bulk of his Ford Motor Co. (F) holdings. Energy stocks were lower as oil futures skidded on economic slowdown worries and an expected increase in U.S. petroleum inventories.

Traders were also keeping an eye on credit default swap (CDS) settlements for Lehman Brothers' and WaMu.

S&P MarketScope notes that many advisers say equity prices are unusually attractive and many hedge funds, believing the market is at a bottom, are becoming fully invested in stocks. But other observers remain bearish.

Many market players say the market has discounted a recession, notes S&P MarketScope. But some economists say this recession will be steeper and longer than many anticipated, as the U.S. financial crisis -- and economic slowdown -- have become global.

Bond prices were sharply higher amid the weakness in equities. The U.S. dollar index was surging. Gold futures were lower, while oil futures fell.

At around 3:10 p.m. ET Tuesday, the Dow Jones industrial average was lower by 38.23 points at 9,227.20. The S&P 500 index fell 6.84 points to 978.56. The tech-heavy Nasdaq composite index shed 32.11 points to 1,737.92.

On the New York Stock Exchange, 18 stocks fell in price for every 13 that gained. The ratio on the Nasdaq was 17-10 negative.

Lehman Brothers' credit default swaps worth hundreds of billions of dollars came due Tuesday. According to the Depository Trust & Clearing Corporation, the liquidation process for forward open commitments involving Lehman's CDS settlements has been completed. The FICC announced that "no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades."

"So it looks as though there was no major fallout from the settlement to member firms," wrote Action Economics analysts in a website posting Tuesday. "We'll have to wait to see if there was a broader market impact, however."

The New York Times reported Monday that New York State and federal prosecutors are investigating trading in credit-default swaps, the insurance like securities that have come under close scrutiny for their role in the financial crisis.

Kirk Kerkorian's Tracinda Corp on Monday sold 7.3 million Ford shares at an average $2.43 price, and intends to further reduce its remaining 135.5 million shares (6.09% of the total outstanding).

Fedspeak is due from Minneapolis Fed President Gary Stern on "Policy and the Economy in the Wake of the Shock" but the dinner speech will be well after the market close and won't be a factor this session, says Action Economics.

Treasury Secretary Henry Paulson will discuss "China and the Global Economy" before a U.S.-China Annual Gala in New York City Tuesday evening.

On Tuesday, the Fed announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors. Under the MMIFF, the New York Fed will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The Fed said "short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households."

Reuters reports the interbank cost of borrowing dollars, euros and sterling fell across all maturites on Tuesday, the British Bankers' Association's daily fixing showed. Dollar overnight rates were fixed below the Federal Reserve's 1.5% target for its federal funds rate, and overnight euros were fixed further below the European Central Bank's 3.75% target. The spread of three-month London interbank offered rates over OIS rates for all three currencies narrowed.

U.S. ICSC-UBS chain store sales index fell 1.6% in the week ended October 18, after a 0.7% increase the week before. On a weekly, year-over-year basis, sales slowed to a 0.9% rate versus 1.0% previously. The month-to-date, year-over-year pace was steady at 0.6%. The ongoing turmoil in the financial markets and the jagged moves in stocks has tempered consumption, even as gas prices have fallen sharply, notes Action Economics.

There are no other significant economic reports scheduled for release Tuesday.

In markets outside the U.S. Tuesday, London stocks fell 1.24%, Frankfurt stocks fell 1.05%, but Paris stocks rose 0.78%. Tokyo stocks rose 3.34%, Hong Kong stocks fell 1.84%, and Shanghai stocks fell 0.78%.

Treasuries were higher after a subdued, fairly normal overnight trade. The 10-year note was higher in price at 102-15/32 for a yield of 3.705%, while the 30-year bond was higher at 105-07/32 for a yield of 4.195%.

The U.S. dollar index was up 1.19 to 84.16 amid reports global banks are picking up the U.S. currency for their funding needs. Reuters says Bernanke's conditional endorsement of a second U.S. economic stimulus plan boosted the buck even though the concept would require the Washington issuing more debt.

After dipping to lows of $69.77 earlier in the session, November West Texas Intermediate crude oil futures traded at $70.68 Tuesday afternoon, down $3.57 per barrel on the day.

Among Tuesday's stocks in the news, Texas Instruments (TXN) reported third-quarter earnings per share (EPS) of 43 cents, vs. 54 cents one year earlier, on a 7.4% revenue decline. The company said revenue was weak because consumers and corporations reduced their spending. TI expects fourth quarter revenue to decline substantially based on weak order trends. The company will reduce annual expenses by more than $200 million in its Wireless business, especially in its cellular baseband operation, and is pursuing the sale of the merchant portion of this operation. Deutsche Bank reportedly downgraded the shares to hold from buy.

American Express (AXP) posted better-than-expected third-quarter EPS from continuing operations of 74 cents, vs. 94 cents one year earlier, as slowing growth in Cardmember spending, moderating lending volumes, and significant additions to loan loss reserves offset a 3% revenue rise. Wall Street was looking for EPS of 59 cents. AmEx said it will reduce operating costs and staffing levels, and will record a related charge in the fourth quarter.

DuPont (DD) posted third-quarter EPS of 56 cents, vs. 59 cents (excluding items) one year earlier, as higher costs and expenses offset a 9.3% sales rise. DuPont sees fourth-quarter EPS of 20-25 cents, which reflects continuing hurricane-related business interruption impacts of about 10 cents and expected weakening demand in North American and Western European markets. The company cut its $3.45-$3.55 2008 EPS guidance to $3.25-$3.30.

3M Co. (MMM) posted third-quarter EPS of $1.42, vs. $1.29 one year earlier (both excluding special items), on a 6.2% revenue rise. The company sees $5.40-$5.48 2008 EPS (excluding special items).

Caterpillar (CAT) reported third-quarter EPS of $1.39, vs. $1.40 one year earlier, as slightly higher operating expenses offset a 13% revenue rise. The company continues to expect 2008 sales and revenue to be more than $50 billion and EPS of about $6.00. It expects 2009 sales and revenue to be flat with 2008. Overall, Caterpillar says it expects world economic growth will slow from 3.8% in 2007 to 2.8% in 2008.

Pfizer (PFE) reported third-quarter adjusted EPS of 62 cents, vs. 58 cents one year earlier, on a 2% rise in adjusted revenues. Based on year-to-date performance, and the outlook for the remainder of 2008, Pfizer raised the lower end of its 2008 revenue guidance range to $48 billion-$49 billion from $47 billion-$49 billion.

Freeport-McMoRan Copper & Gold (FCX) reported third-quarter EPS of $1.31, vs. $1.87 one year earlier, on an 8.9% revenue decline amid lower copper prices. The company said it is revising its operating plans to target reductions in costs, defer or eliminate capital projects, defer exploration expenditures and potentially curtail production at high-cost operations given weaken industry and economic conditions.

Fifth Third Bancorp (FITB) post ed a third-quarter loss per share of 14 cents, vs. 61 cents EPS one year earlier, as higher credit costs and market valuation adjustments offset a 41% rise in net interest income.

Stocks: The Lost Earnings Season

For stock investors, this earnings season is turning into the lost quarter.

This month, companies began unveiling their results from the 2008 third quarter, which included July, August, and September. And the next couple of weeks will be especially busy, with 136 members of the large-cap Standard & Poor's 500-stock index reporting earnings during the week of Oct. 20, and another 114 firms the following week.

Investors are watching earnings results closely, desperate for some insight into an economy at a crucial tipping point. "We're really trying to get a handle on to what degree the economy is beginning to falter," says Robert Bacarella, portfolio manager at Monetta Mutual Funds.
Outlook is Hazy

But the problem, many professional investors say, is that the earnings outlook is just too hazy to provide much useful information this quarter. At the very moment when investors are desperate for certainty, companies' financial results from July and August—before the worst of the credit crunch hit—seem irrelevant.

Instead, many investors are listening to executives give their quarterly updates on future business conditions. However, many company management teams seem as confused as investors. Their statements are vague, and they don't sound confident in past predictions.

Credit problems and financial turmoil have been on investors' minds for more than a year, but credit shocks started hitting the economy in full force in the second half of September. Those troubles, which started with the failures of Lehman Brothers (LEH) and the bailout of insurer American International Group (AIG), have certainly shown up in early third quarter results.
Merrill Results Disappointing

According to Thomson Reuters, third quarter earnings for the S&P 500 are expected to fall 9.1% from a year ago. That includes both actual results from the 82 companies that have reported, and analyst estimates for the remaining companies.

Three weeks ago, on Oct. 1, analysts were predicting S&P 500 earnings would fall only 4.8% from a year ago. Financial firms are partly to blame for the falling estimates. For example, Merrill Lynch (MER) on Oct. 16 reported a loss of $5.56 per share, while analysts were expecting a $5.22-per-share loss.

The stock market usually looks ahead, trying to predict future earnings. So firms' profits or losses from the summer— before the financial crisis heated up—will generally be ignored.
Conference Calls Give Clues

However, says David Chalupnik, head of equities at U.S. Bancorp Asset Management (USB), financial earnings are an exception. He's watching bank earnings very closely to make sure, when it comes to credit losses, "they don't blow up." So far, they haven't. "Expectations are very low," Chalupnik says.

More financial earnings arrive soon from financial outfits National City (NCC) and Fifth Third Bancorp (FITB), both on Oct. 21.

For most other sectors, the focus is not on quarterly financial results, but on what executives say in conference calls after the numbers are released. Chief executives and chief financial officers are being quizzed on what they expect for the fourth quarter and especially from 2009. "People are really mostly focused on next year," says John Thornton, portfolio manager at the Stephens Small Cap growth and Mid Cap Growth Funds.
Credit Crunch Sinking In

However, so far execs aren't giving investors what they want. "They're vague," Bacarella says. They're saying, "'It's very hard for us to forecast,'" he adds. "They themselves are not sure."

Companies are only beginning to feel the impact of the credit crunch and a slowing U.S. and global economy. "Management teams are going to be pretty cautious and pretty hazy," Thornton says.

According to Thomson Reuters, industry analysts currently expect 2009 earnings for the S&P 500 to rise almost 20% from 2008 levels. For Chalupnik, this is "wildly optimistic." He expects earnings to fall next year as the U.S. slips into recession. Many other investors seem to agree: The S&P 500 is down more than 20% in the past month.
Energy Outfits Feeling the Pain

Financial firms aren't the only area of concern for equity investors. Earnings at energy and material firms are expected to suffer from the fall in commodity prices. "People are very nervous about energy fundamentals," Thornton says. On the other hand, a firm like DuPont (DD), due to report earnings on Oct. 21, could benefit from lower oil prices because its costs for raw materials will fall but could suffer from a U.S. recession.

Tech firm executives should be worried that a U.S. recession slows spending on technology by corporations. Apple (APPL) is due to report earnings on Oct. 21, while Microsoft (MSFT) reports on Oct. 23.

Expectations for consumer firms "have dropped off a cliff," Chalupnik says. September U.S. retail sales fell 1.2%, twice the decline economists were expecting. Earnings are due from Coach (COH) on Oct. 21, from Amazon.com (AMZN) on Oct. 22, and from RadioShack Corporation (RSH) on Oct. 23.
Eyeing Export Sales

It's not just the U.S. economy and American consumers that are raising concerns. Investors are scrutinizing earnings releases for clues as to the direction of the world economy.

For years, industrial firms like Caterpillar (CAT), which reports Oct. 21, and Ingersoll Rand (IR), due Oct. 24, have profited from brisk product sales abroad. "People are going to be looking for signs of how much international is really slowing," Thornton says.

Everywhere investors turn, they seem to find big uncertainties. "It's going to be rough for the next two quarters," says Peter Cardillo, chief market economist at Avalon Partners. "The economy is under pressure."

How are profits being affected by the credit crunch, falling commodity prices, weak business and consumer spending, and a slowing world economy? Third-quarter results may only provide the faintest of clues. But those clues will still be seized upon by investors desperate for answers.