Monday, October 31, 2005

Stocks Sharply Higher Mid-day on Falling Energy Prices and Stronger Economic Data

S&P 500 1,206.50 +.68%
DJIA 10,448.79 +.45%
NASDAQ 2,117.36 +1.31%
Russell 2000 645.83 +1.65%
DJ Wilshire 5000 12,037.22 +.86%
S&P Barra Growth 577.06 +.62%
S&P Barra Value 625.58 +.77%
Morgan Stanley Consumer 587.91 +.55%
Morgan Stanley Cyclical 717.79 +1.17%
Morgan Stanley Technology 499.10 +1.46%
Transports 3,815.90 +1.98%
Utilities 398.98 +.76%
Put/Call .94 +14.63%
NYSE Arms .79 +55.29%
Volatility(VIX) 14.53 +1.96%
ISE Sentiment 190.00 +52.00%
US Dollar 90.10 +.57%
CRB 315.91 -1.93%

Futures Spot Prices
Crude Oil 59.50 -2.81%
Unleaded Gasoline 153.50 -5.80%
Natural Gas 12.26 -6.09%
Heating Oil 177.00 -3.99%
Gold 466.90 -1.73%
Base Metals 135.03 +1.53%
Copper 180.90 -.60%
10-year US Treasury Yield 4.55% -.22%

Leading Sectors %
Retail +3.42%
Airlines +3.41%
Internet +2.12%

Lagging Sectors
Drugs +.15%
Foods -.15%
Gold & Silver -.37%
BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet longs, Retail longs, Computer longs, Semi longs and Airline longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, almost every sector is rising and volume is slightly above average. Measures of investor anxiety are mostly higher. Today’s overall market action is positive considering the underperformance by energy stocks. Many are trying to espouse the notion that the weakness in the energy complex is a sign of a substantial economic slowdown. I see very little evidence of this. While economic growth is likely slowing from vigorous levels before the hurricanes to average levels during the 4Q, I see few signs of a significant slowdown. A U.S. recession anytime in the near future is highly unlikely. As I have said many times before, energy pricing has been in a fear-induced mania. The fundamentals do not support energy prices anywhere near current levels. Now that we are in the fourth quarter, have survived the greatest hit to the U.S. energy infrastructure in history and inventories are still above five-year averages heading into the winter, traders are re-pricing the entire energy complex. I do not believe this is a sign of significant economic weakness, but a return to saneness in the energy pit. I expect US stocks to trade modestly higher from current levels into the close on short covering and bargain hunting as energy prices remain weaker.

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