Market Preview: Bears on the Run

Updated from 7:40 p.m. ET to include additional commentary on Friday's economic data.

NEW YORK ( TheStreet) -- And just like that, stocks are back to setting new multi-year highs.

The Dow Jones Industrial Average booked just its third triple-digit swing of 2012 (all positive by the way) to close Thursday at 12,904, its best finish since May 19, 2008, which is of course before the credit bubble burst and Lehman Brothers filed for bankruptcy.

The S&P 500 is now coming up against the last year's peaks from back in April, while the Nasdaq Composite has gone nuts in 2012 (thanks Apple ( AAPL)), surging 13.6% through Thursday's close to revisit levels unseen since late 2000. Heck, even General Motors ( GM) is getting in the act, reporting its highest quarterly profit ever.

For a while there, the pessimism about Greece seemed to be getting serious but then the headlines turned again and there's new hope that a deal could be in place by Monday.

If that comes to pass and the economic data continues to cooperate (Thursday's initial jobless claims were especially heartening), then it looks like the bulls still have some room to tun. Sam Stovall, chief equity strategist at S&P Capital IQ, expressed confidence earlier this week that the S&P 500 would make a move past the 2011 high of 1363 in the "coming weeks." Now it looks like it may happen sooner than he thought.

"It's been said that fear and greed are emotions that drive market performances," Stovall wrote. "Based on recent equity price action, however, it could be argued that fear is the only motivator: fear of losing money when prices fall and fear of losing out when prices recover. It took five months for the S&P 500 to slump nearly 20% in 2011. It has taken only four months to climb 20%, on improving economic data, calming ECB actions, and selectively stellar EPS reports."

He added: "However, just as it takes several energetic attempts to open a rusty door, we believe the '500' will need to backtrack a few paces before achieving the necessary momentum."

A combination of more positive data and a deal to avoid a messy default for Greece might be enough to avoid the need for any backtracking. Still there are some bearish signs out there as well, as always. For example, TrimTabs points to evaporation of short interest.

"NYSE short interest decreased 6.7% to 12.5 billion shares in the past two weeks from 13.4 billion shares on January 13, the lowest level on record," the research firm noted in its weekly fund flow report on Wednesday. "Historical data shows that short interest is a solid contrarian indicator (decreases are typically bad for equities). Short interest has fallen drastically over the last couple months after hitting a record high of 16.1 billion shares on September 30."

Just another datapoint to ponder. Thursday's strong showing was a big positive for equities though because the major indices hadn't really moved much at all since Feb. 3, a lull that fed the idea that sellers were waiting in the wings. The bears will really be on the run if Greece clears this next hurdle and the data continues to improve.

Apple did its part on Thursday, pushing higher to close at $502.21, up a little less than 1%. It was a good sign after the stock succumbed to a so-called "bearish engulfing" on Wednesday.

As for Friday's scheduled news, K-Swiss ( KSWS) is reporting its fiscal fourth-quarter results before the opening bell, and the average estimate of analysts polled by Thomson Reuters is for a loss of 42 cents a share in the December-ended period on revenue of $41.4 million.

Shares of the Westlake Village, Calif.-based footwear maker have been decimated over the past year, falling more than 60%, as its domestic business has floundered. The company hasn't reported a quarterly profit in more than three years, but the shares have bounced along with the broad market since the calendar turned, rising nearly 26% so far in 2012. At Thursday's regular-session close of $3.75, the stock has surged more than 50% since closing at a 52-week low of $2.47 on Dec. 16.

Sell-side coverage of the stock is sparse with just three analysts holding opinions with ratings split between strong buy, hold and underperform. Sterne Agee is sitting in the middle at hold, and the firm recently upgraded the stock to hold from underperform on Feb. 6, citing valuation but also keeping expectations well in check.

"At current price levels, we don't see many catalysts for further meaningful share price decline," Sterne Agee said. "However, do not foresee a rapid turnaround for the company given the loss in revenue base and shelf space over the past 5 years."

The firm said K-Swiss does seem to be having some success with new models but it still faces an uphill battle to win back shelf space from competitors like Nike ( NKE), Adidas, and Reebok.

"We continue to expect modest backlog growth," Sterne Agee said. "The Clean Classic may provide some momentum for BTS, as retailers are talking about a return to white leather shoes, and Triathlon and running shoes are slowly becoming established. Given the small revenue base, success of one shoe can make a meaningful difference to the numbers. The big question is will any of these efforts translate to material revenue, and increased shelf space?"

At the same time, the balance sheet is still a work in progress.

"KSWS has been burning cash for the last three years, and at this point we do not see any reprieve until late FY12 or early FY13," the firm said. "The company ended 3Q11 with inventory +69.5%, or over 30 weeks of supply, which should continue to pressure GM% gross margins in the upcoming quarters. However, we believe cutting SG&A and managing inventory growth should help the company's financial position."

Sterne Agee is expecting a loss of 36 cents a share in the quarter on revenue of $41.3 million, and it noted that K-Swiss is in the process of negotiating an asset-based line of credit to "ensure liquidity" through the end of this year.

Check out TheStreet's quote page for K-Swiss for year-to-date share performance, analyst ratings, earnings estimates and much more.

Other companies opening their books on Friday include Barnes Group ( B), Brookfield Asset Management ( BAM), Campbell Soup ( CPB), Constellation Energy ( CEG), H.J. Heinz ( HNZ), Lifepoint Hospitals ( LPNT), Lincoln Electric ( LECO), Pilgrims Pride ( PPC), and Yingli Green Energy ( YGE).

The economic calendar features the consumer price index for January at 8:30 a.m. ET, the consensus view is for an increase of 0.3% with the core number ticking up 0.1% ; and leading indicators for January at 10 a.m. ET, economists are expecting a 0.5% boost, according to Briefing.com.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, is in line with the consensus on CPI.

"The headline CPI for January will be boosted by the increase in gasoline prices, which alone will add 0.13% to the index," he wrote late Thursday. "Note that the big kick from gas will come in February, when it will likely add 0.4% to the CPI. Assuming a modest increase in food prices and small gains elsewhere in the core, we think the headline number will rise by 0.3% with the core up 0.1%. That would leave the core inflation rate at 2.2% for the third month in succession."

Shepherdson expects that's about where the rate should sit for the rest of 2012.

"We expect little further increase in core inflation this year, and it could even drift down if clothing prices soften the way we expect and rent increases remain constrained by the slow growth of wages," he said.

Shepherdson is also on board with the consensus when it comes to leading indicators, saying the view for a 0.5% increase is supported by a "rising workweek, higher stock prices, and the positively sloped yield curve."

"If we're right, January will mark the fourth straight monthly gain in the index, and based on what we already know about February, a fifth increase is a good be," he added.

And finally, Thursday's after-hours session featured a strong move to the upside by Applied Materials ( AMAT), which rode a 6-cent earnings per share beat and a strong guidance for the current quarter to a gain of 5%-plus in late trades.

Also Baidu ( BIDU) finally delivered its fourth-quarter report and saw some characteristic volatility in the extended session. The stock closed at $141.83, up 2.5% in the regular session, and was last quoted at $142.86, up 0.7%, on after-hours volume of 2.3 million, according to Nasdaq.com.

The shares have ranged from a high of $148.50 to a low of $136.04 though as investors digested a solid beat in the latest quarter against expectations for a sequential revenue decline from the high-flying Chinese Internet search company.

-- Written by Michael Baron in New York.

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