Saturday, September 30, 2006

Market Week in Review

S&P 500 1,335.85 +1.60%*

Photobucket - Video and Image Hosting

Click here for the Weekly Wrap by Briefing.com.
BOTTOM LINE: Overall, last week's market performance was bullish. The advance/decline line rose, most sectors rose and volume was above average on the week. Measures of investor anxiety were mostly lower. The AAII % Bulls rose to 51.32% this week from 47.75% the prior week. This reading is above average levels. The AAII % Bears fell to 32.89% this week from 34.23% the prior week. This reading is still above average levels.

The 10-week moving average of the % Bears is currently a high 39.1%. The 10-week moving-average of % Bears was 43.0% at the major bear market lows during 2002. The only other times it was higher than these levels, since record keeping began in 1987, were the significant market bottom during the 1990 recession/Gulf War and in October 1992. The persistent negative sentiment towards US equities is amazing and, considering the DJIA is only 71 points from an all-time high, still provides a wall of worry for stocks to climb. As well, there are many other indicators registering high levels of investor skepticism regarding recent stock market gains.

Short interest on the NYSE and Nasdaq is at all-time highs. The ISE Sentiment Index has bounced around depressed levels for months. The OEX Put/Call ratio has been elevated during this time, as well. Domestic stock mutual funds are still seeing outflows. I have heard a number of pundits recently state that investor complacency is high and used anecdotal evidence to back up their view. I strongly disagree. I doubt investor sentiment has ever been this poor in U.S. history with the DJIA about to break to new record highs. This bodes very well for a continuation of the recent rally.

The average 30-year mortgage rate fell another 9 basis points to 6.31%, which is 49 basis points below July highs. I still believe housing is in the process of slowing to more healthy sustainable levels. Mortgage rates have likely begun an intermediate-term move lower, which should help stabilize housing at relatively high levels over the next few months. The Case-Shiller housing futures are still projecting a 5% decline in the average home price over the next 9 months. Considering the average house has appreciated over 50% during the last few years, this would be considered a “soft landing.” The overall negative effects of housing on the US economy are currently being exaggerated, in my opinion. Housing has been slowing substantially for 14 months and has been mostly offset by many other very positive aspects of the economy. Americans’ median net worth is still very close to or at record high levels, unemployment is low, interest rates are low, stocks are rising and most measures of income growth are almost twice the inflation rate, just to name a few.

The benchmark 10-year T-note yield rose 4 basis points on the week on profit taking and diminishing economic growth concerns. In my opinion, investors’ continuing fears over an economic “hard landing” are misplaced. Consumer spending is very important to the health of the US economy. Spending is poised to remain strong on plunging energy prices, low long-term interest rates, a rising stock market, healthy job market, decelerating inflation and more consumer optimism. The CRB Commodities Index, the main source of inflation fears, has now declined 8.7% over the last 12 months and is down 16.4% from May highs, approaching bear market territory. The average commodity hedge fund is down 13.8% for the year. I believe inflation fears have peaked for this cycle as global economic growth moderates to around average levels, unit labor costs remain subdued and the mania for commodities continues to reverse course.

The EIA reported this week that gasoline supplies rose substantially more than expectations even as refinery utilization fell. U.S. gasoline supplies are now at the highest level since 1991 for this time of the year. Unleaded Gasoline futures bounced for the week, but are still 46.6% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, some Gulf of Mexico oil production remains shut-in and fears over future production disruptions persist. Gasoline demand rose .6% this week and is estimated to rise .8% this year versus a 20-year average of 1.7% demand growth. Moreover, distillate stocks are 18% above the five-year average for this time of the year as we head into the winter heating season. According to TradeSports.com, the percent chance of a US and/or Israeli strike on Iran this year has fallen to 9% from 36% late last year. The still elevated level of gas prices related to crude oil production disruption speculation is further dampening fuel demand, which will send gas prices back to more reasonable levels.

US oil inventories have only been higher during one other period over the last 7 years. Since December 2003, global oil demand is only up .7%, while global supplies have increased 4.8%, according to the Energy Intelligence Group. Moreover, worldwide inventories are poised to begin increasing at an accelerated rate over the next year. I continue to believe oil is priced at extremely elevated levels on fear and record speculation by investment funds, not fundamentals. The Amaranth Advisors hedge fund blow-up is a prime example of the extent to which many investment funds have been speculating on ever higher energy prices through futures contracts, thus driving the price of the underlying commodity to absurd levels. Amaranth, a multi-strategy hedge fund, lost about $6.5 billion of its $9.5 billion under management in less than two months speculating on higher natural gas prices. I suspect a number of other funds will experience similar fates over the coming months, which will further pressure energy prices as these funds unwind their leveraged positions to meet investor redemptions.

Oil has clearly broken its uptrend, notwithstanding that this is the seasonally strong period for the commodity. A major top in oil is likely already in place. However, a Gulf hurricane or OPEC production cut could lead to a temporary bounce higher in price over the next couple of weeks, accelerating demand destruction, resulting in a complete technical breakdown in crude. Demand destruction is already pervasive globally. Moreover, many Americans already feel as though they are helping fund terrorism or hurting the environment everytime they fill up their gas tanks. I do not believe we will ever again see the demand for gas-guzzling vehicles that we saw in recent years, even if gas prices continue to plunge. An OPEC production cut with oil above $60 per barrel and weakening global growth would only further deepen resentment towards the cartel and result in even greater long-term demand destruction. Finally, as the fear premium in oil dissipates back to more reasonable levels, global growth slows and supplies continue to rise, crude oil should continue heading meaningfully lower over the intermediate-term, notwithstanding OPEC production cuts.

Natural gas inventories rose less than expectations this week, however prices for the commodity fell again. Supplies are now 12.2% above the 5-year average, a record high level for this time of year, even as some daily Gulf of Mexico production remains shut-in. Natural gas prices have collapsed 64.4% since December 2005 highs. It is very likely US natural gas storage will become full sometime this month, creating the distinct possibility of a “no-bid” situation for the physical commodity. Colorado State recently reduced its forecast from three to two major hurricanes for this season versus seven last year. The peak of hurricane season was September 10. Natural gas made new cycle lows again this week despite the fact that the commodity is in its seasonally strong period.

Gold rose slightly on the week on short-covering and a bounce in oil. The US dollar rose on diminishing worries over slowing economic growth. I continue to believe there is very little chance of another Fed rate hike anytime soon. An eventual cut is more likely at this point as inflation continues to decelerate.

Energy stocks outperformed for the week on quarter-end short-covering. Airline stocks underperformed on the bounce in oil and profit-taking. S&P 500 profit growth for the second quarter came in a strong 16.3% versus a long-term historical average of 7%, according to Thomson Financial. This is the 16th straight quarter of double-digit profit growth, the best streak since recording keeping began in 1936. Moreover, another double-digit gain is likely in the third quarter. Earnings pre-announcements are running below average levels so far. Despite a 79.3% total return for the S&P 500 since the October 2002 bottom, its forward p/e has contracted relentlessly and now stands at a very reasonable 15.3. The 20-year average p/e for the S&P 500 is 24.4. The S&P 500 is now up 8.5% and the Russell 2000 Index is up 8.7% year-to-date. The DJIA is only 71 points away from its all-time high reached on January 14, 2000. I expect the Dow to breach this level convincingly during the fourth quarter.

Current stock prices are still providing longer-term investors very attractive opportunities in many equities that have been punished indiscriminately during the latest correction. In my entire investment career, I have never seen the best “growth” companies in the world priced as cheaply as they are now relative to the broad market. By contrast, “value” stocks are quite expensive in many cases. A recent CSFB report confirmed this view. The report concluded that on a price-to-cash flow basis growth stocks are now cheaper than value stocks for the first time since at least 1977. Almost the entire decline in the S&P 500’s p/e, since the bubble burst in 2000, is attributable to growth stock multiple contraction. The p/e on value stocks is back near high levels. I still expect the most overvalued economically sensitive and emerging market stocks to continue underperforming over the intermediate-term as the manias for those shares subside and global growth slows to more average rates. I continue to believe a chain reaction of events has begun that will result in a substantial increase in demand for US stocks.

In my opinion, the market is still factoring in way too much bad news at current levels. One of the characteristics of the current “negativity bubble” is that most potential positives are undermined, downplayed or completely ignored, while almost every potential negative is exaggerated and promptly priced in to stock prices. Furthermore, this “irrational pessimism” by investors is resulting in a dramatic decrease in the supply of stock as companies buy back shares, IPOs are pulled and secondary stock offerings are canceled. Commodity and emerging market funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. As well, how many times earlier in the year did we hear investment managers talk about the mid-term election cycle decline they expected and that they were already positioned for it? Historically, the average bottom for mid-term election cycle lows is Sept. 30. There is massive bull firepower available at a time when the supply of stock is contracting.

Over the coming months, an end to the Fed rate hikes, lower commodity prices, seasonal strength, the November election, decelerating inflation readings, lower long-term rates, increased consumer/investor confidence, rising demand for US stocks and the realization that economic growth is only slowing to around average levels should provide the catalysts for another substantial push higher in the major averages through year-end as p/e multiples begin to expand. I still expect the S&P 500 to return a total of at least 15% for the year. The ECRI Weekly Leading Index fell this week and is forecasting healthy, but decelerating US economic activity.


*5-day % Change

Friday, September 29, 2006

Dow Jones Industrial Average Has Best Third Quarter in 11 Years

The Dow Jones Industrial Average finished the third quarter with a gain of 5.4%, including dividends. This was the best third quarter performance for the Dow since 1995. As well, the benchmark S&P 500 had its best third quarter in 9 years, finishing with a gain of 5.7%, including dividends. The Dow is now only 71 points away from its January 14, 2000 all-time record high of 11,750. Sector standouts during the third quarter were software (+14.6%), telecom (+12.2%) and REITs (+10.2%). Sector losers included coal (-17.6%), oil service (-10.6%) and steel (-11.1%). I still expect the S&P 500 to gain at least 15% for the year. It is currently up 8.5% year-to-date.

Weekly Scoreboard*

Indices
S&P 500 1,335.85 +1.60%
DJIA 11,679.07 +1.49%
NASDAQ 2,258.43 +1.78%
Russell 2000 725.59 +.97%
Wilshire 5000 13,322.49 +1.56%
S&P Barra Growth 619.96 +1.53%
S&P Barra Value 713.81 +1.67%
Morgan Stanley Consumer 653.50 +.85%
Morgan Stanley Cyclical 819.63 +2.21%
Morgan Stanley Technology 531.22 +2.29%
Transports 4,453.46 +2.91%
Utilities 428.40 +1.34%
MSCI Emerging Markets 96.77 +2.12%
S&P 500 Cum A/D Line 7,592.0 +6.0%
Bloomberg Crude Oil % Bulls 40.0 +43.32%
CFTC Oil Large Speculative Longs 166,460 +3.0%
Put/Call .83 -7.78%
NYSE Arms .86 -18.87%
Volatility(VIX) 11.98 -4.84%
ISE Sentiment 80.0 -38.46%
AAII % Bulls 51.32 +7.48%
AAII % Bears 32.89 -3.91%
US Dollar 86.03 +1.02%
CRB 305.58 +1.57%
ECRI Weekly Leading Index 135.10 -.30%

Futures Spot Prices
Crude Oil 62.91 +4.31%
Unleaded Gasoline 155.39 +2.92%
Natural Gas 5.62 -4.42%
Heating Oil 175.35 +3.94%
Gold 603.60 +1.36%
Base Metals 233.35 +.53%
Copper 346.00 +.43%
10-year US Treasury Yield 4.63% +.87%
Average 30-year Mortgage Rate 6.31% -1.41%

Leading Sectors
Oil Service +5.31%
Energy +4.32%
Computer Services +2.63%
Biotech +2.48%
Computer Hardware +2.15%

Lagging Sectors
Hospitals -.43%
Broadcasting -.50%
Telecom -.72%
Tobacco -1.33%
Airlines -1.83%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Lower into Final Hour on Quarter-end Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is below average. Most professional and individual investors have not embraced the recent rally despite the fact that the S&P 500 is poised to post its best third quarter in 11 years. In fact, short interest on the NYSE and Nasdaq is at all-time highs. Most bearish sentiment readings are still very high considering the DJIA is less than 50 points from an all-time high. The ISE Sentiment Index has bounced around depressed levels for months. The OEX Put/Call ratio has been elevated during this time, as well. Domestic stock mutual funds are still seeing outflows. Commodity and emerging market funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. How many times earlier in the year did we hear investment managers talk about the mid-term election cycle decline they expected and that they were already positioned for it? Historically, the average bottom for mid-term election cycle lows is tomorrow. There is still massive bull firepower available to push the major averages even higher through year-end. I sense we are still in the early stages of a stunning rally. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- OPEC, seeking to stem a two-month plunge in oil prices, said Venezuela and Nigeria will cut crude production by a combined 170,000 barrels a day.
- Pirate Capital founder Thomas Hudson, seeking to calm investors after half of his staff left, told clients of the hedge-fund company that he plans to deliver returns of more than 20%.
- A more rapid slowdown in economic growth and further signs of waning inflation would be needed to prompt the Fed to cut interest rates, St. Louis Fed Bank President William Poole said. Poole also said the “worst inflation news may be behind us.”
- The Fed will probably lower its benchmark interest rate in the first quarter of 2007 as inflation pressures diminish, according to economists at Citigroup(C).

Wall Street Journal:
- President Bush plans to focus on easing bottlenecks slowing the distribution of ethanol during his remaining time in office.
- The SEC relaxed a rule that controls the number of agreements mutual funds must enter and the time they have to file shareholder information.
- The FASB is starting a series of changes in policies that could have a big impact on companies, investors and workers with defined-benefit pension plans.

NY Times:
- New York’s overall crime rate has fallen 5% so far this year compared with the same period in 2005.

Washington Post:
- Muslim leaders in the US said they will try to get more of the country’s 2.2 million voting-age Muslims to vote this year.
- Iran may be moving more slowing to enrich uranium than previously believed because of technical difficulties with the process.

Boston Globe:
- Harvard University and four other colleges have agreed to donate $10 million in cash and services to 10 of Boston’s poorly performing public shools.

CNBC:
- Amaranth Group’s talks with Citigroup to gain working capital ended last night, which may force the hedge fund to begin liquidating all its positions.

Variety:
- Apple Computer(AAPL) and Wal-Mart(WMT) are in talks to form an alliance that would allow the retailer to profit from iTunes downloads and give Apple(AAPL) access to more film titles from the major Hollywood studios.

Oriental Morning Post:
- Wal-Mart Stores(WMT) may pay $200 million to buy 27 stores from Trust-Mart, a Taiwan-based mainland China supermarket chain operator.

El Universal:
- A Florida lawmaker is calling for sanctions against Citgo Petroleum, the US subsidiary of Venezuela’s state oil company, after Venezuelan President Hugo Chavez called President Bush “the devil” at the United Nations meeting last week in New York. State Representative Hasner asked Florida’s Transportation Dept. to force Citgo-affiliated gasoline stations from the Florida Turnpike because of Chavez’s remarks. Chavez should be given a clear message that “Florida won’t support institutions that seek the destabilization of the US,” Hasner said. 7-Eleven, the largest US operator of convenience stores, said it will start selling gasoline under its own brand after a 20-year relationship with Citgo Petroleum.

Personal Incomes Rise, Spending Decelerates, Confidence Increases and Chicago Manufacturing Surges

- Personal Income for August rose .3% versus estimates of a .3% gain and a .5% increase in July.
- Personal Spending for August rose .1% versus estimates of a .2% increase and a .8% gain in July.
- The PCE Core for August rose .2% versus estimates of a .2% increase and a .1% gain in July.
- Final Univ. of Mich. Consumer Confidence for Sept. rose to 85.4 versus estimates of 85.0 and a reading of 84.4 in August.
- The Chicago Purchasing Manager Index for Sept. rose to 62.1 versus estimates of 55.7 and a reading of 57.1 in August.
BOTTOM LINE: Consumer spending in the US rose .1% last month, Bloomberg reported. This comes on the heels of a .8% surge in July. Disposable income rose .4% and is now 8.8% higher from year-ago levels, almost three times the rate of inflation. The core pce, the Fed’s favorite inflation gauge, rose .2%. I expect consumer spending to accelerate over the next few months as stocks rise more, interest rates remain low, sentiment improves, energy prices fall further and the job market remains healthy. I expect the core pce to decelerate over the intermediate-term.

Falling gasoline prices pushed confidence among American consumers to the highest level in five months in September, Bloomberg reported. The expectations component of the index, which economists link to future consumer spending, surged to 78.2 from 68 the prior month. Consumers expect inflation to moderate to 3.1% over the next 12 months versus expectations of a 3.8% gain in the prior survey. The average price of a gallon of regular gasoline fell to $2.34 on Sept. 27 from $2.79 at the end of August, according to the American Auto Assoc. 33% of Americans said they are spending more on other goods after the fall in gas prices, a recent Bloomberg survey showed. A 7.7% gain in Americans’ wages during the second quarter is also boosting sentiment. I still expect consumer sentiment to reach new cycle highs over the intermediate-term as stocks rise, inflation decelerates, energy prices continue to decline, interest rates remain low, housing stabilizes at relatively high levels, the job market remains healthy and irrational pessimism lifts further.

Manufacturing in the Chicago area unexpectedly accelerated this month to the highest since July 2005 as new orders picked up, Bloomberg said. Strong profits, rising confidence, falling energy prices and inventory rebuilding are spurring companies to boost production. The new orders component of the index jumped to an 11-month high of 67.3 from 59.6 the prior month. The prices paid component of the index fell to 69.8, the lowest in 13 months from 75.2 the prior month. The Chicago Fed said its district makes 40% of US motor vehicles. I am surprised by the strength in Chicago manufacturing considering auto production cutbacks. Plunging energy prices are so far offsetting this. I will closely monitor the ISM Manufacturing report next week.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday, September 28, 2006

Friday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY on signs slowing demand growth may extend above-average fuel stockpiles in the US.
- Research In Motion Ltd.(RIMM), maker of the BlackBerry device, said second-quarter profit rose 27% as more consumers sought phones with e-mail service and Internet access. The shares surged 20% in after-hours trading.
- The US Senate joined the House in authorizing President Bush to begin military war-crimes trials of suspected terrorists detained at the US Navy Base at Guantanamo Bay, Cuba.
- Japan’s industrial production rebounded as accelerating export growth prompted manufacturers to increase output.
- Copper in Shanghai declined on signs of slowing demand in the US, the world’s second-largest user of the metal.

Wall Street Journal:
- Goldman Sachs(GS) was the top-earning investment bank in Asia, excluding Japan, in the first nine months of the year, according to figures provided by Dealogic Plc.

Financial Times:
- Time Warner Inc.(TWX), the world’s largest media company, is putting its cable network at the center of a strategy to capture a large part of the digital distribution of movies and television shows.

Chronicle of Philanthropy:
- Hispanic charities in the US saw their contributions more than double as they attracted the attention of some of the country’s largest charitable foundations.

Late Buy/Sell Recommendations
Citigroup:
- Lowered its estimates for the euro and yen against the dollar heading into next year, on the expectation the US currency will stage a rally in 2007.

Night Trading
Asian Indices are -.25% to +.505% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.25%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (COCO)/.13
- (GPN)/.43

Upcoming Splits
- (ATE) 1-for-2
- (PCU) 2-for-1
- (GEO) 3-for-2

Economic Releases
8:30 am EST
- Personal Income for August is estimated to rise .3% versus a .5% gain in July.
- Personal Spending for August is estimated to rise .2% versus a .8% gain in July.
- PCE Core for August is estimated to rise .2% versus a .1% gain in July.

9:45 am EST
- Final Univ. of Mich. Consumer Confidence for September is estimated to rise to 85.0 versus a reading of 84.4 in August.

10:00 am EST
- The Chicago Purchasing Manager for September is estimated to fall to 55.7 versus a reading of 57.1 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Dow Jones Industrial Average Finishes 4 Points from All-time Closing High

Indices
S&P 500 1,339.15 +.19%
DJIA 11,718.45 +.25%
NASDAQ 2,270.02 +.29%
Russell 2000 732.56 +.00%
Wilshire 5000 13,360.81 +.16%
S&P Barra Growth 621.96 +.17%
S&P Barra Value 715.05 +.21%
Morgan Stanley Consumer 656.04 +.13%
Morgan Stanley Cyclical 825.39 +.50%
Morgan Stanley Technology 534.84 +.76%
Transports 4,466.54 -.31%
Utilities 432.90 -.44%
Put/Call .85 +1.19%
NYSE Arms 1.03 -7.07%
Volatility(VIX) 11.72 +1.21%
ISE Sentiment 101.0 -12.17%
US Dollar 85.76 +.08%
CRB 305.13 +.27%

Futures Spot Prices
Crude Oil 62.51 -.71%
Unleaded Gasoline 150.00 -2.59%
Natural Gas 5.37 -5.19%
Heating Oil 170.90 -.30%
Gold 607.50 -.56%
Base Metals 233.87 +.28%
Copper 342.65 -.04%
10-year US Treasury Yield 4.61% +.34%

Leading Sectors
Semis +.95%
Computer Services +.83%
Internet +.67%

Lagging Sectors
Gold & Silver -.61%
Airlines -1.35%
Oil Tankers -1.66%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- OPEC members are cutting production on a “voluntary basis,” Platts reported, citing acting secretary-general, Mohammed Barkindo. Barkindo said he met with Saudi Arabian Oil Minister Ali al-Naimi earlier this week and that the country is already reducing output. Kuwait won’t cut production based on current prices. Oil is trading down .50 despite this news.
- Natural gas dropped another 5% on record-high inventories and mild weather.
- Former American International Group(AIG) Chairman Maurice “Hank” Greenberg and the Starr Foundation will give Yale University $50 million to support China-related education program.
- Vega Select Opportunities hedge fund, known for making large bets on the bond market, dropped 8.3% in the first three weeks of September as prices for US Treasuries climbed.
- Lumber prices in Chicago fell to the lowest in more than three years on speculation Canadian suppliers are boosting shipments to the US to earn more before implementation of a softwood-lumber trading accord.
- Starbucks(SBUX) will begin selling warm breakfast sandwiches at NY-area stores next week after testing them in Seattle and Chicago.

CNBC:
- Most of Pirate Capital LLC’s analyst quit this morning following a dispute with Thomas Hudson, the founder of the $1.8 billion hedge fund.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was modestly bullish. The Dow Jones Industrial Average finished 4 points from an all-time closing high. However, the ISE Sentiment Index dropped another 12% to a very low 101.0. What is even more interesting is the persistent bearishness displayed by this group of options traders during the entire rally since July. The 50-day moving average of the ISE Sentiment Index is now the furthest below its 200-day moving-average since its inception in 2004. This bodes well for a continuation of recent broad market strength and a convincing breakout to new highs on the DJIA.

Stocks Slightly Higher into Final Hour on Short-covering and Reversal Lower in Oil

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Retail longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. There are reports that OPEC is cutting production 5% with oil at $64 per barrel. If this report is true, it is incredibly short-sighted. Global demand for oil has been flat since December 2003 during a time of booming economic growth. Demand destruction is already pervasive. Most Americans feel as though they are funding terrorism by filling up their tanks. I do not believe we will ever again see the demand for gas-guzzling vehicles that we saw in recent years, even if gas prices continue to plunge. An OPEC cut with oil at $64 per barrel amid weakening global growth would only further deepen resentment and result in even greater long-term demand destruction. Oil is now .21 cents lower on the day despite the report. I will look to add to my energy-related shorts on any substantial increase in oil prices from current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and .

Today's Headlines

Bloomberg:
- Natural gas is falling another 5% on record inventories and mild weather.
- Billionaire Kirk Kerkorian, stepping up pressure on General Motors(GM) CEO Wagoner to consider an alliance, said his Tracinda Corp. may buy 12 million more shares.
- Billionaire investor Carl Icahn, seeking to oust half the board and take control of ImClone Systems, said he wants a new chief executive with biotech experience who can lead a more aggressive push to sell the cancer treatment Erbitux.
- Intel Corp.(INTC) shares are heading for their biggest weekly gain in three years after the company introduced new semiconductors designed to win back market shares from Advanced Micro Devices(AMD).
- Talks in Berlin between Iranian and European Union officials aimed at breaking the deadlock over Iran’s atomic program produced some progress.

Wall Street Journal:
- Steel inventories are growing in the US, partly due to a slowdown in auto manufacturing, and the trend is spawning worries of an oversupply and lower prices. Service centers, which purchase steel for resale to manufacturers, say that supplies in August were 3.1 months’ worth, up from 2.7 months from the same time a year ago. Steel imports so far this year are 40% higher and poised to beat the 98 record.
- Major League Soccer will allow advertising on the front of players’ jerseys next year.

NY Times:
- Rural US states are lagging more populous states in high-speed Internet service as companies focus on larger cities to more easily recoup their investments.
- Several prominent scientists have founded a group to work toward electing politicians “who respect evidence and understand the importance of using scientific advice in making public policy.” Members of Scientists and Engineers for America said that while the organization would be non-partisan, the Bush administration’s policies on climate change and stem cell research motivated them to act. Organizers include John Gibbons and Neal Lane, both science advisers during the Clinton administration.

USA Today:
- US officials are concerned about ensuring that the votes of about 3.7 million Americans living abroad and more than 400,000 military personal stationed overseas will be counted.

Scotsman:
- The maker of video game “Grand Theft Auto: Vice City”, Take-Two Interactive(TTWO) is being sued for $600 million by the family of three people killed by a teenage related in 2004. The action alleges the killer, who was 14, played the game “obsessively” for several months before he shot his father, stepmother and stepsister at a New Mexico ranch.

Globe and Mail:
- Statoil ASA, Norway’s largest oil and gas producer, is seeking to buy an oil sands development in Alberta for more than $900 million to add to production.

2Q Growth and Inflation Moderate, Job Market Healthy

BOTTOM LINE: US economic growth slowed to 2.6% in the second quarter, Bloomberg reported. Residential construction fell the most since 1995 during the second quarter, offsetting a 20.3% surge in commercial construction. Consumer spending rose at a 2.6% annual rate in the second quarter and is expected to accelerate to 3% next quarter. The PCE core, the Fed’s favorite inflation gauge, rose 2.7% versus a prior estimate of a 2.8% rise. Corporate profits soared 17.4% during the second-quarter from a year earlier. A gallon of regular gasoline at the pump cost $2.38 this week down from $2.85 during the second quarter. A recent Bloomberg/LA Times survey showed that 33% of Americans said lower gas prices were allowing them to spending more on other goods. As a result, the Intl. Council of Shopping Centers this week raised its September forecast for same-store-sales to 4% from a prior forecast of 3.5%. I expect 3Q GDP growth to dip to around 2.0-2.5% before rebounding back above 3% during the fourth quarter.

Fewer Americans filed for unemployment benefits last week, signaling the labor market remains healthy, Bloomberg reported. The four-week moving-average of claims fell to 315,500. The unemployment rate for those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. The unemployment rate last month fell to a historically low 4.7%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- STMicroelectronics NV(STM), Europe’s largest maker of computer chips, may be targeted for a takeover, according to traders betting on the creditworthiness of companies in the credit-default swap market.
- Congress moved closer to passing legislation creating military tribunals to try terrorist suspects before it recesses at week’s end for the Nov. 7 election.
- Toyota Motor, Honda Motor and Nissan Motor, Japan’s three largest carmakers, will highlight diesel models at the Paris Motor Show today as they aim to grab a greater share of a segment that accounts for half of all car sales in Europe.
- Chevron(CVX), the second-largest US oil company, said third-quarter oil and natural gas output rose 6% as some wells damaged by hurricanes in the Gulf of Mexico last year resumed production.
- The US House of Representatives passed legislation requiring regulators to investigate the $1.2 trillion hedge-fund industry and made recommendations as to whether it needs more oversight.
- The yuan rose to the highest since July last year after US Treasury Secretary Henry Paulson said trade-sanction threats aren’t the right way to deal with China.

China Daily:
- China is promoting the use of ethanol-enriched gasoline for motor vehicles in nine provinces, citing an official with the National Development Reform Commission.

Late Buy/Sell Recommendations
Smith Barney:
- Reiterated Buy on (WEN), target $75.
- Reiterated Buy on (AZO), target $124.

CSFB:
- Reiterated Buy on (EMR).

Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated unch.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (AM)/-.16
- (FDO)/.23
- (TXI)/1.07

Upcoming Splits
- (ATE) 1-for-2
- (GEO) 3-for2

Economic Releases
8:30 am EST
- Final 2Q GDP is estimated to rise 2.9% versus prior estimates of a 2.9% gain.
- Final 2Q GDP Price Index is estimated to rise 3.3% versus prior estimates of a 3.3% gain.
- Final 2Q Personal Consumption is estimated to rise 2.6% versus prior estimates of a 2.6% increase.
- Final 2Q Core PCE is estimated to rise 2.8% versus prior estimates of a 2.8% gain.
- Initial Jobless Claims for last week are estimated to fall to 315K versus 318K the prior week.
- Continuing Claims are estimated to rise to 2473K versus 2461K prior.

BOTTOM LINE: Asian indices are slightly higher, boosted by automaker, commodity and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Wednesday, September 27, 2006

Dow Jones Industrial Average Finishes 61 Points from All-time High

Indices
S&P 500 1,336.59 +.02%
DJIA 11,689.24 +.17%
NASDAQ 2,263.39 +.09%
Russell 2000 732.54 +.40%
Wilshire 5000 13,339.18 +.10%
S&P Barra Growth 620.89 +.13%
S&P Barra Value 713.55 -.09%
Morgan Stanley Consumer 655.21 +.27%
Morgan Stanley Cyclical 821.31 -.16%
Morgan Stanley Technology 530.80 -.18%
Transports 4,480.38 +.62%
Utilities 434.82 +1.17%
Put/Call .84 -6.67%
NYSE Arms 1.11 +57.47%
Volatility(VIX) 11.58 +.43%
ISE Sentiment 115.0 -1.71%
US Dollar 85.67 +.05%
CRB 304.32 +1.20%

Futures Spot Prices
Crude Oil 62.99 +3.25%
Unleaded Gasoline 153.55 +2.93%
Natural Gas 5.66 -2.50%
Heating Oil 171.50 +3.45%
Gold 607.80 +.75%
Base Metals 233.22 +1.40%
Copper 347.85 -.24%
10-year US Treasury Yield 4.59% +.25%

Leading Sectors
Oil Service +1.90%
Disk Drives +1.63%
Biotech +1.47%

Lagging Sectors
Homebuilders -1.23%
Airlines -1.76%
Telecom -2.25%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
CSFB:
- Rated (GILD) Outperform.
- Rated (AMGN) Underperform.

Afternoon/Evening Headlines
Bloomberg:
- Pennsylvania approved the first slot-machine licensees in the state, allowing five horse-racing facilities to add the devices.
- Texas Pacific Group, the leveraged buyout firm run by David Bonderman and James Coulter, raised about $15 billion, the second-biggest fund ever for takeovers.
- Hewlett-Packard(HPQ) Chairman and CEO Mark Hurd has the unanimous support of the board as he attempts to contain the scandal over a probe into the source of board leaks, director Robert Ryan said.
- A gunman, possibly armed with a bomb, took hostages at a high school outside Denver today and shots were reported fired, authorities said.
- President Bush will be confronting a growing rift between two crucial allies in the war against terrorism when he brings the presidents of Afghanistan and Pakistan to the White House for a dinner meeting tonight.
- Verizon Communications(VZ) said it plans to spend $22.9 billion expanding its fiber-optic Internet and television network through 2010, placing a price tag on the project for the first time.
- The US needs to add 40% more doctors who practice general medicine by 2020 to help care for an aging population, a medical group says.
- Crude oil rose 3.2% as speculators covered bets that the commodity would fall.
- Chesapeake Energy(CHK), the second-biggest independent natural-gas producer in the US, said it will idle about 6% of its output because of excess supply and a plunge in prices for the commodity.
- Natural-gas futures in NY plunged to their lowest in almost four years as mild weather cut demand and brimming inventories pared the need for fresh purchases.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Medical longs, Biotech longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished higher, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was modestly bullish. U.S. gasoline supplies are now at the highest level since 1991 for this time of the year. Implied gasoline demand rose 0.6% for the week vs. a 20-year average of 1.7% demand growth. Moreover, distillate stocks are 18% above the five-year average for this time of the year as we head into the winter. Oil traded up on short-covering today. This bounce could last a few days as oil was getting very oversold technically. The 10-year was only slightly lower today despite the better housing data and recent gains. While the DJIA failed to close at a new high, I like the set-up for new highs by next week. A number of growth stock leaders are finally exhibiting significant upside momentum.

Stocks Mixed into Final Hour on Bounce Higher in Oil

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Retail longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly higher, sector performance is mixed and volume is above average. Bloomberg just reported that commodity hedge funds fell for the fourth straight month in August and are now down 13.8% year-to-date, according to the Center of International Securities and Derivatives Markets. These declines came despite worries over war, inflation, U.S. dollar weakness and booming global growth. I suspect a large portion of the mountain of cash that has been deployed into these funds recently is very hot money. I expect another down-leg in most commodities will commence during the fourth quarter as funds raise cash to meet year-end redemptions. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering.

Today's Headlines

Bloomberg:
- The Dow Jones Industrial Average is 25 points from an all-time record high as an unexpected increase in new-home sales bolstered confidence that consumer spending will support economic growth.
- Natural Gas futures in New York are plunging about 9% to their lowest in almost four years as mild weather cut demand and record inventories pared the need for fresh purchases.
- US gasoline supplies are now at the highest level for this time of the year in 15 years.
- Federated Department Stores(FD) said billionaire investor Carl Icahn plans to buy $113.4 million to $500 million of additional stock, sending the retailer’s shares to a record.
- The NY Merc told Amaranth Advisors LLC that the hedge fund’s natural gas bets were too big a month before the trades led to a $6 billion loss.
- NY’s 18,000 restaurants would have to stop cooking with artificial trans fats, blamed for increasing the risk of heart disease, under regulations proposed by the city’s Health Department.
- McDonald’s(MCD) raised its annual dividend 50%, the biggest gain in three years, as sales climbed.

Wall Street Journal:
- General Motors(GM), Ford Motor(F) and DaimlerChrysler AG(DCX) are reducing some sticker prices for the 2007 model year, in an attempt to lure consumers with “value pricing.”
- General Motors(GM) will ask for a multi-billion dollar payment to form an alliance with Nissan Motor and Renault SA.
- Florida’s younger families are being pushed out of the state by rising housing prices and insurance, an influx of retirees and concern over another big hurricane.
- The US oil industry and Silicon Valley venture capital firms are involved in an increasingly vicious fight over a proposed tax to fund conservation and alternative-energy measures.
- Pirate Capital LLC, a hedge fund that pressures companies for changes that might boost their stock price, is experiencing problems this year with below-industry performance and a SEC investigation into possible securities-law violations.
- Citigroup(C), Merrill Lynch(MER), and Goldman Sachs(GS) are among six Wall Street firms planning a new electronic trading service for big stock trades, a venture that will compete with NYSE Group’s(NYX) NYSE and Nasdaq Stock Market(NDAQ).

NY Times:
- US clinics and medical centers are developing a consistent set of forensic methods to detect elder abuse.
- Qwest Communications(Q), the fourth-largest US phone company, has enough cash to buy a rival, perhaps a wireless carrier or a corporate provider of telecommunications services.

USA Today:
- At least seven men have died from electrocution in the US since July after a surge in thefts of copper wiring used for electricity, citing police and utility officials in five states.

Washington Post:
- More state and local law enforcement are beginning to check the immigration status of people they come into contract with as part of a nationwide effort to better police those living in the US illegally.

Reuters:
- The NYSE expects to refer 140 cases of potential insider trading to the SEC, 26% more than last year, citing Robert Marchman, the executive vice president of NYSE Regulation, a unit of the bourse.

Washington Square News:
- NYU, the largest private university in the US, raised a record $397.5 million in fiscal 2006, including $68 million for financial aid.

AP:
- 7-Eleven, Inc., the largest US operator of convenience stores, is dropping Citgo Petroleum as its gasoline supplier throughout the country. Citgo, a subsidiary of Venezuela’s state-owned oil company, became a “public-relations issue” for 7-Eleven because of recent comments by Venezuelan President Hugo Chavez that President Bush was an alcoholic devil. “Regardless of politics, we sympathize with many Americans’ concern over derogatory comments about our country and its leadership.” 7-Eleven will instead purchase fuel from several US distributors, including Sinclair Oil and Frontier Oil.

Financial Times:
- The US hedge-fund industry may regret that a SEC rule requiring registration and “modest” disclosure was thrown out by a court this year, because more rigorous rules may replace it.

Durable Goods Orders Fall, New Home Sales Rise Pushing Down Housing Inventories

- Durable Goods Orders for August fell .5% versus estimates of a .5% gain and a 2.7% decline in July.
- Durables Ex Transports for August fell 2.0% versus estimates of a .5% gain and unch. in July.
- New Home Sales for August came in at 1040K versus estimates of 1050K and 1009K in July.
BOTTOM LINE: Orders placed with US factories for durable goods unexpectedly dropped in August, Bloomberg reported. Orders for non-defense capital goods excluding aircraft, a gauge of future business spending, fell .3% versus a .9% gain in July. Auto bookings rose 4.4% in August versus a 6.9% decline in July. Manufacturing is temporarily weakening, mainly due to auto production cutbacks, but should rebound over the intermediate-term.

New home sales in the US unexpectedly rose in August, signaling a possible stabilizing of the housing market. Plunging mortgage rates and bargain-hunting in many areas are helping. The median price of a new home is $237,000. New home sales are considered a leading indicator of the housing market. The number of unsold new homes fell to a 6.6-month supply at the current sales pace versus a 7-month supply in July. Sales rose 21.7% in the Northeast, 12.2% in the Midwest and 11.1% in the South. Purchases fell 17.7% in the West. Net home equity extraction fell to an annualized $141 billion in the second quarter versus $196 billion a year earlier, yet consumer spending remained healthy. I continue to believe housing will stabilize at relatively robust levels over the next few months after modest price declines.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday, September 26, 2006

Wednesday Watch

Late-Night Headlines
Bloomberg:
- US stocks extended this week’s rally, lifting the Dow Jones Industrial Average to its second-highest close in history, after a rebound in consumer confidence suggested household spending will keep the economy healthy.
- ABC won the first week of the new television season as a decision to switch “Grey’s Anatomy” to Thursday night from Sunday paid off.
- Brazil’s steel industry will double by 2011 as Mittal Steel(MT) and its rivals build new mills near iron-ore mines to lower their costs.

Detroit News:
- Carlos Ghosn, CEO of Renault SA and Nissan Motor, will tell GM than an alliance between their companies could save $10 billion a year.

Financial Times:
- Amaranth Advisors LLC, the hedge-fund company that lost $6 billion betting on rising natural gas prices, has told investors that it will either liquidate its remaining assets or sell itself to a larger institution.

Apple Daily:
- Acer Inc. expects its fourth-quarter sales to grow between 10%-20% from the third quarter as new orders for its personal computers flooded in, citing Acer Chairman J.T. Wang.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (JBL), target $38.
- Reiterated Overweight on (BAC), target $55.

Jeffries:
- Cisco Systems(CSCO) shares may rise to $30 as the company beats competitors for orders to upgrade telephone networks, said analyst Bill Choi, who started coverage of the stock with a “buy” rating.

Night Trading
Asian Indices are +.75% to +1.50% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.03%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (ATU)/.78
- (MKC)/.36
- (RECN)/.24

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for August are estimated to rise .5% versus a 2.4% decline in July.
- Durables Ex Transportation for August are estimated to rise .5% versus a .5% gain in July.

10:00 am EST
- New Home Sales for August are estimated to fall to 1040K versus 1072K in July.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 1,700,000 barrels. Gasoline supplies are estimated to rise by 700,000 barrels. Distillate inventories are expected to rise by 2,600,000 barrels. Finally, Refinery Utilization is estimated to fall .73%.

BOTTOM LINE: Asian indices are higher, boosted by automaker, commodity and technology shares in the region. I expect US equities to open modestly higher and to fade into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

***Alert***

Due to a scheduling conflict I am unable to post the Tuesday Close. I will post the Wednesday Watch later this evening.

Stocks Higher into Final Hour on More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs and Biotech 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 higher, sector performance is mixed and volume is above average. The Johnson Redbook same-store sales index rose 4.0% year over year last week vs. a 3.9% rise the prior week. The long-term average is a gain of around 2.9%. This is still more evidence that the anticipated collapse in consumer spending won't materialize anytime soon, even as most investors continue to worry about such a decline. A healthy labor market, falling energy prices, lower long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will continue to more than offset slowing housing over the intermediate term. The Morgan Stanley Retail Index (MVRX) has surged 16.0% in the last two months. I expect continued outperformance by the sector during the fourth quarter. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism and bargain hunting.

Today's Headlines

Bloomberg:
- Oil is falling another .20 after OPEC’s president said many factors point to oversupply and a soft market for crude next year.
- Ex-Enron Corp. CFO Fastow, who created the illicit partnerships at the heart of the fraud that destroyed the company, was sentenced to six year in prison.
- Former WorldCom CEO Ebbers, convicted of masterminding one of the biggest frauds in US history, is due to report to a federal prison today to begin serving a 25-year term.

Wall Street Journal:
- Oprah Winfrey, the US talk show queen, and XM Satellite Radio Holdings(XMSR) started a 24-hour radio channel hosted by her and other celebrities from her television show.

NY Times:
- US Republicans are pushing for laws mandating stricter enforcement of identification for potential votes to prevent fraud, while Democrats largely oppose such measures.
- The US leads the world in nanotechnology research.
- A group of American Civil Liberties Union supporters is calling for a change in the organization’s leadership for failing to stick with the principles it demands of others.

AP:
- Former Iraqi leader Saddam Hussein returned to his genocide trial after being rejected from court yesterday.

Financial Times:
- The European Union and the US are near a deal on sharing airplane passenger information that would avoid disruption of flights that might have come had agreement not been reached.

Vatan:
- General Ilker Basbug, the head of Turkey’s armed forces, warned of what he called the rising threat of Islamic extremism in the Muslim nation.

Reuters:
- Iraq intends to buy 300,000 metric tons of wheat this month, with 90% supplied by US exporters and the remainder from Australia.

AFP:
- Gilberto and Miquel Rodriguez Orejuela, the former leaders of Colombia’s Cali cocaine cartel, were each sentenced to 30 years in prison for cocaine trafficking.

Interfax:
- Russia will deliver nuclear fuel to Iran’s Bushehr nuclear plant in March 2007, citing the head of Russia’s nuclear technology exporter Atomstroyexport.

Haaretz:
- President Bush plans to visit the Middle East or hold a summit with regional leaders by the end of the year to promote Israeli-Palestinian peace talks and allay concern over Iran’s growing influence.

Consumer Confidence Rises as Gas Prices Plunge, Stocks Rise to 5-year Highs and Rates Fall

- Consumer Confidence for September rose to 104.5 versus estimates of 103.0 and a reading of 100.2 in August.
BOTTOM LINE: Confidence among US consumers rebounded more than forecast in September as Americans paid less at the gas pump and interest rates fell, Bloomberg reported. The expectations component of the index rose to 89 versus a reading of 84.4 the prior month. Optimism about consumers’ present situation surged to 127.7 this month from 123.9 the prior month. The share of consumers that perceived jobs as plentiful rose to 25.9% versus 24.5% the prior month. I expect confidence readings to rise further over the intermediate-term as stocks rise further, energy prices continue to decline, the job market remains healthy, interest rates remain low, inflation decelerates, housing stabilizes and irrational pessimism lifts.

Monday, September 25, 2006

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Western Union will join the S&P 500 Index, replacing Andrew Corp.(ANDW) on Sept. 29, S&P said.
- BP Plc(BP) and Total SA are among 34 overseas oil companies bidding to drill in India, lured by more favorable tax terms and legal certainty.
- PMC-Sierra(PMCS), a maker of chips for telecommunications equipment, cut its third-quarter revenue forecast, citing a drop in customer demand.
- Lowe’s Cos.(LOW) lowered its profit and sales forecasts for the third time in four months amid a cooling housing market.
- A former NY hedge fund manager was charged with illegally short-selling Compudyne Corp. shares hours before the company announced a private share offering.

Shanghai Securities News:
- China’s alumina prices fell 53% from March to about $379 because of surging production capacity. China’s alumina output surged 51% in the first eight months of this year to 8.33 million tons from a year earlier.

Financial Express:
- Starbucks(SBUX) will partner with the RPG Group in India.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (HNT), target $58.
- Reiterated Buy on (ATVI), target $18.
- Reiterated Buy on (CAH), target $82.

Goldman Sachs:
- Added (FORM) to Conviction Buy List, target $50.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated unch.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (DBRN)/.31
- (FUL)/.33
- (JBL)/.34
- (LEN)/1.28
- (PAYX)/.34
- (RHAT)/.10
- (SRR)/.24
- (WOR)/.53

Upcoming Splits
- (FTBK) 3-for-2

Economic Releases
10:00 am EST
- Consumer Confidence for September is estimated to rise to 103.0 versus a reading of 99.6 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

S&P 500 Hits 5-Year High

Indices
S&P 1,326.37 +.88%
DJIA 11,575.81 +.59%
NASDAQ 2,249.07 +1.36%
Russell 2000 727.09 +1.18%
Wilshire 5000 13,231.17 +.86%
S&P Barra Growth 615.61 +.82%
S&P Barra Value 708.70 +.94%
Morgan Stanley Consumer 649.27 +.20%
Morgan Stanley Cyclical 808.39 +.81%
Morgan Stanley Technology 529.21 +1.91%
Transports 4,343.52 +.37%
Utilities 428 .65 +1.40%
Put/Call .83 -7.78%
NYSE Arms .91 -13.70%
Volatility(VIX) 12.12 -3.73%
ISE Sentiment 148.00 +13.85%
US Dollar 85.34 +.20%
CRB 300.71 -.05%

Futures Spot Prices
Crude Oil 61.40 +1.40%
Unleaded Gasoline 150.55 +2.33%
Natural Gas 4.49 -2.85%
Heating Oil 165.60 +.53%
Gold 594.80 -.17%
Base Metals 225.02 -3.06%
Copper 344.40 -.10%
10-year US Treasury Yield 4.54% -.90%

Leading Sectors
Semis +2.51%
Homebuilders +2.37%
Retail +2.17%

Lagging Sectors
Gold & Silver -.90%
Tobacco -1.62%
Steel -1.63%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Oppenheimer:
- Rated (FMC) Buy, target $75.

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied, sending the S&P 500 to a five-year high, after Fed Bank of Dallas President Fisher said the economy remains strong.
- Starbucks(SBUX) was sued by an independent café owner for alleged anti-competitive activities.
- President Bush and four business leaders led by Cisco Systems(CSCO) CEO Chambers pledged to provide $400 million in public and private money to help rebuild war-torn Lebanon as a demonstration of US commitment to democracy there.

AP:
- Iran’s foreign minister today said talks between top Iranian and European negotiators about his country’s nuclear program are “on track” and that a way out of the stand-off with the UN is possible.

Nikkei English News:
- Japan, the US and European nations are among 41 countries that agreed to draft a treaty for standardizing the patent approval process based on the first-to-file principle.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs, Retail longs, Medical longs and Steel shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector gained and volume was about average. Measures of investor anxiety were lower into the close. Overall, today's market performance was bullish. Russian stocks fell 3.48% today, the world's worst performer. The RTSI is up 1,256% since October 1998. The index is testing its 200-day moving-average. Commodity-related companies account for the vast majority of the components of this index. I continue to believe that the recent mania for emerging market stocks was a function of the mania for commodities, and that emerging market stocks will underperform U.S. stocks over the intermediate term. I remain short iShares MSCI Emerging Markets Index (EEM).

Stocks Sharply Higher into Final Hour, Led by Tech, on Rotation Out of Commodities

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs, Retail longs and Computer longs. I exited my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. The latest report from the NYSE shows that short interest on the exchange as a percentage of total shares outstanding (NYSIPRTS Index on Bloomberg) rose to 2.6% in mid September from 2.5% the prior month. This is another all-time record. This is up from an all-time low of 1.0% during September 1999. This bodes well for my prediction of significantly higher US stock prices through year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining interest rates and bargain hunting.

Today's Headlines

Bloomberg:
- Crude oil fell below $60/bbl. to a six-month low after BP Plc(BP) started work to restore production at Alaska’s Prudhoe Bay, the largest US oil field, and Iran said it favors talks on the country’s nuclear program.
- BP Plc(BP) began work to resume production on a portion of the eastern side of the Prudhoe Bay oilfield in Alaska, which has been shut since early August because of leaks and corroded pipelines.
- Altria Group’s(MO) Philip Morris USA and other cigarette makers must face a class-action lawsuit on behalf of “light” cigarette smokers nationwide, a judge ruled.
- Goldman Sachs(GS) and Morgan Stanley(MS), the Wall Street giants that sell more of everything from stocks and bonds to risk-analysis software to the burgeoning hedge fund industry, may be the biggest winners after Amaranth Advisors LLC said it lost $6 billion on natural gas speculation.
- Fed Bank of Dallas President Fisher said the central bank will take “appropriate action” to reduce inflation should the slowing economy fail to do so.
- US Treasuries are rising again, pushing the 10-year T-note to a seven month high, as a continuing fall in commodity prices lessons inflation concerns.

Wall Street Journal:
- MasterCard Inc.(MC) and Visa USA are starting to fine merchants who don’t follow rules that seek to guard transactions from fraud artists.
- Four US airlines are battling for the right to fly a new daily route to China that has the potential to be highly profitable.
- Wal-Mart Stores(WMT) is confronting a cultural clash in cities such as Boston where critics see the retailer as the epitome of pedestrian suburban values.
- The US Treasury Dept. and IRS are to introduce regulations to stop transactions intended to avoid US taxes when involving foreign companies.
- US health saving accounts plans that require employees to pay as much as $5,250 a year in medical costs out of their own pockets before insurance applies have forced many employers to become medical experts.
- Venezuela’s President Chavez has created his own version of Dante’s inferno with its nine concentric circles of evil, Alvaro Vargas Llosa wrote. Poverty in Venezuela has risen from 43% in 1999 when Chavez took over to 53% in the most recent survey, citing Venezuela’s Instituto Nacional de Estadistica.
- Luxury fashion houses such as Dolce & Gabbana, Versace and Marc Jacobs are using secondary, lower-priced labels to help boost sales.

NY Times:
- In Iraq, the so-called generator man, who owns and operates the neighborhood power plant, has become probably the most vilified figure in Iraqi society after Saddam Hussein.

NY Daily News:
- The rate of crimes in the New York City subway system is the lowest in 37 years, averages seven felonies a day, citing Police Commissioner Raymond Kelly.

Washington Post:
- Iraq will need a US military presence for a “long time” to prevent “foreign interference” in its affairs, citing Iraqi President Jalal Talabani.

AP:
- The US Department of Homeland Security will announce a nearly fourfold boost in annual funding to safeguard New York and New Jersey’s port perimeters.

Washington Times:
- A Hollywood producer is suing former President Bill Clinton, saying he cheated him out of a multi-million-dollar Internet venture.

Advertising Age:
- Advertising rates for Howard Stern’s radio program on Sirius Satellite Radio(SIRI) have fallen by at least two-thirds from when he was on free radio.

El Universal:
- Venezuelan poverty leaves about 70% of the population without a bank account, citing a poll by Caracas-based research firm Datanalisis.

Existing Home Sales Exceed Estimates

- Existing Home Sales for August fell to 6.3M versus estimates of 6.2M and 6.33M in July.
BOTTOM LINE: Sales of previously owned home in the US exceeded estimates in August, Bloomberg reported. The median sales price fell 1.7% to $225,000 from a year earlier. The supply of months for sale rose to 7.5 months versus 7.3 months in July. Purchases fell 2.3% in the West and .8% in the South. Sales rose .7% in the Midwest and 1.9% in the Northeast. I continue to believe housing will begin stabilizing over the next few months after only modest price declines which would be considered a soft-landing. The overall negative effects of housing on the US economy are being mostly offset by other very positive factors.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Sunday, September 24, 2006

Monday Watch

Weekend Headlines
Bloomberg:
- The average US gasoline pump price fell 24 cents in the past two weeks to $2.42/gallon, the biggest decline in almost a year, as supplies stayed ahead of demand, Trilby Lundberg said, citing her survey of about 7,000 filling stations nationwide.
- Crude oil is falling to a 6-month low in NY as Iran’s President said his country is open to discussion on its nuclear program.
- The yen may fall to a 20-year low as individual investors in Japan join speculators on the Chicago Mercantile Exchange in selling the currency.
- Gilead Sciences(GILD) licensed eight Indian producers of generic drugs to make cheaper versions of the Viread AIDS medication, the company’s best-selling pill, for 95 countries where most people can’t afford treatment.
- European Central Bank President Jean-Claude Trichet said labor productivity is the biggest problem facing the economy of the dozen euro nations.
- US Treasury 10-year notes had their biggest weekly advance since April 2005 as traders raised bets the Fed will begin lowering interest rates.
- Honda Motor(HMC) will introduce a diesel car that meets California’s emission standards and a fuel cell-powered sports car within three years as it vies with Toyota Motor(TM) for buyers of fuel-efficient autos.
- Noble Group Ltd., which accounts for 10% of ethanol exports from Brazil, may start investing in production plants in the South American nation to benefit from forecasts of rising global demand.
- Mutual fund investors, captivated by oil’s 88% rise in two years, increased their energy holdings in 2006 just in time to lose $4.5 billion. That’s the damage US oil and gas funds recorded as crude plunged 23% from July highs, according to data compiled by Bloomberg. A total of $23.5 billion poured into energy mutual funds in the 12 months ended July 31, according to Financial Research Corp. in Boston. As well, about $67.4 billion is invested in 525 energy and commodity hedge funds, more than double the $30 billion at the start of the year, according to Energy Hedge Fund Center. There were 180 such funds in October 2004.

Wall Street Journal:
- The richest US taxpayers earned 19% of total income in 2004 versus 20.8% in 2000, citing IRS data on tax returns.

Barron’s:
- Morgan Keegan topped the list for best returns in the past year and past six months, while Charles Schwab(SCHW) had the best returns over the past three-and five-year periods, according to Barron’s semi-annual ranking of brokerages’ top share recommendations.

Forbes:
- Really, really cheap oil is coming.

NY Times:
- Ford Motor’s(F) chief sales analyst, George Pipas, expects the market for sport-utility vehicles to continue declining despite the recent drop in gas prices.
- New rules adopted in May 2005 reduced the waiting time for patients awaiting lung transplants in the US by granting organs to those who need them most.
- Congress may close the so-called Enron Corp. loophole, which allows unregulated over-the-counter trading of energy commodities, because of Amaranth Group’s loss of $6 billion on natural gas trades. The Oil and Gas Traders Oversight Act of 2006, which would require regulation of energy commodity trading, has unanimous consent to come up before the Senate.

Washington Post:
- A half-dozen bills before Congress would protect as much as 1 million acres of wilderness areas while allocating a portion to real estate developers and local communities as trade-offs.

Crain’s Chicago Business:
- UAL Corp.’s United Airlines(UAUA), the world’s second largest airline, hired Goldman Sachs(GS) to explore strategic options, including possible mergers with other carriers.

AP:
- Boyd Gaming Corp.(BYD) gave up its bid to develop a slot-machine casino in Limerick, Pennsylvania, because the township board of supervisors didn’t support the plan.

NY Post:
- Tribune Co.(TRB), owner of Newsday and the LA Times, chose Merrill Lynch to conduct any auction of the company or assets.

Star-Ledger:
- NY Waterway and Billybey Ferry Co. will reduce ferry fares from Jersey City, New Jersey, to Wall Street when they take over the route Oct. 2.

Seattle Post-Intelligencer:
- Microsoft Corp.(MSFT) has donated more than $2.5 billion to charities since 1983, including cash, software, employee contributions and company matching funds.

Financial Times:
- Hedge funds that have invested billions of dollars in reinsurance companies and catastrophe bonds are expected to receive high returns as a mild hurricane season looks more likely.

Economic Daily News:
- Taiwan Semiconductor Manufacturing(TSM) said the island’s customized chipmakers will improve sales within the next six months after their clients use up inventories, citing company Vice Chairman Tseng Fan-chen.

The Standard:
- China doesn’t need further tightening measures to cool the economy, citing Qiu Xiaohua, head of the government’s National Bureau of Statistics. The measures “are effective, we will continue with them and keep a close eye on their outcome,” Qui said.

Der Spiegel:
- DaimlerChrysler(DCX) is close to agreeing with Chery Automobile on a contract to buy cheap, small cars from the Chinese company that it will sell in the US.

The Business:
- Saudi Arabia plans to step up production to 13.5 million barrels of oil a day by 2011 to counter supply disruptions, citing new projections given to bankers in London. Previously, Saudi Arabia was aiming to stabilize its production at about 12 million barrels a day. Saudi Arabia is planning to invest $30 billion in “downstream” projects in coming years and officials are meeting bankers this week to discuss funding.
- BT Group Plc has joined forces with T-Mobile International AG as part of its effort to grow revenue by 50% a year from its combined fixed and mobile-phone service to businesses in the US.

Globe and Mail:
- Pakistan must rein in religious schools, called maddrassas, if neighboring Afghanistan is ever to know peace, Afghan President Hamid Karzai said. Such schools preach hatred for Afghanistan and the rest of the world, Karzai said.

Gulf News:
- Middle East oil producing states will spend $395 billion on energy infrastructure between 2007 and 2011, citing the Arab Petroleum Investment Corp., a Saudi Arabia-based agency that provides funding for oil and gas related projects in the Arab world.

Weekend Recommendations
Barron's:
- Made positive comments on (NJ) and (DE).

Citigroup:
- Reiterated Buy on (RHAT), target $33.

Morgan Stanley:
- Reiterated Overweight on (PCLN), target $40.

Night Trading
Asian indices are unch. to +.25% on average.
S&P 500 indicated +.08%
NASDAQ 100 indicated +.11%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (JLG)/.41
- (WAG)/.41

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Existing Home Sales for August are estimated to fall to 6.2M versus 6.33M in July.

BOTTOM LINE: Asian Indices are mostly higher, boosted by technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.