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Stock futures indicate lower open

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Stock futures are indicating a lower open this morning as S&P futures trade down 3.8 points at 1,144. NASDAQ futures are lower by 13 points at 1,644 and Dow futures are off 28 points at 9,960.

Fair value for the S&P 500 today is $1.14. HL Camp & Company has their computers set for program buying at $2.16 and set for program selling at $-0.28. Fair value for the NASDAQ-100 today is $5.40.

This morning we're seeing some analysts pick up their pace in some defensive action. In essence, some of what we're seeing is confirming some of what we've seen in the bullish percent indicators of late. Many of the bullish percent indicators we've been talking about lately are near "overbought" levels. While many are still in a position where the offensive team can still be on the field, we do suggest the traders and investors continue to use a tight trailing stop and begin pairing back on position size. At the same time, we do suggest the strategy of mixing in a few short/put trades.

Merrill's allocation turn bearish

Merrill Lynch's chief U.S. Strategist Richard Bernstein is recommending investors allocate more of their portfolios in bonds and less in stocks here in the United States. Bernstein lifted his asset allocation in bonds from 20% to 30%, while cutting his equity exposure from 60% to 50% and leaving cash weighted at 20%.

Wall Street strategists typically divide their portfolio's between the three asset classes (cash, bonds and stock) and today's partial shift toward the more conservative asset class of bonds away from stocks is a bearish call. Mr. Bernstein told clients he lowered his equities allocation amid concerns for stock valuations, which he said "now seem extreme." Using a price-to-earnings multiple to growth rate measurement, Bernstein said that the S&P 500 stocks are slightly above 2.4, which means stocks are more expensive than they were during 1987.

Lehman suggests profit taking in eBay

Lehman Brothers analyst Holly Becker expects eBay (NASDAQ:EBAY) to report "strong" 4th-quarter results tomorrow, but urged investors to "take profits in this richly valued name," as she feels all the good news, "and more" is already reflected in the stock price.

Jeff Bailey
Senior Market Technician
Option Investor

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