Wednesday Watch

Late-Night Headlines
Bloomberg:
- US stocks had their biggest monthly gain of the year with the S&P 500 rising 3.2% in October, a typically weak month for equities, on strong corporate profits, falling interest rates and declining energy prices.
- President Bush accused Massachusetts Democratic Senator John Kerry of insulting US troops in Iraq and called on him to apologize. While campaigning in California yesterday for gubernatorial candidate Phil Angelides, Kerry said: “Education, if you make the most of it, you study hard, you do your homework and you make an effort to be smart, you can do well. And if you don’t, you get stuck in Iraq.” House Republican Majority Leader John Boehner of Ohio and Republican Senator John McCain of Arizona were among those who also criticized Kerry’s comments on the troops. Senator Kerry refused to apologize, saying it was “a botched joke.”
- The US needs to re-examine the Sarbanes-Oxley Act that tightened regulation of US companies, Democratic Senator Charles Schumer and NYC Republican Mayor Michael Bloomberg said in a joint editorial in the Wall Street Journal to be published tomorrow.
- Altria Group’s(MO) Philip Morris and other US cigarette makers won a delay of a court-imposed ban on the marketing of “light” cigarettes the industry claimed would cost it hundreds of millions of dollars.
- Jack Welch, former CEO of GE(GE) said he’s interested in buying the Boston Globe from the New York Times(NYT).
- China’s new sense of urgency about thwarting North Korea’s nuclear ambitions was decisive in pressuring Kim Jong Il’s government to return to multinational talks, experts and US officials said.
- R.R. Donnelley & Sons(RRD), North America’s largest printer, agreed to acquire Banta Corp. for about $1.3 billion in cash to gain sales to publishing, catalog and direct-marketing customers.
- Hedge funds are turning to a new outpost in the drive to boost sagging returns: Mongolia. Rapid economic growth, driven by copper and gold mining, is attracting investors willing to tolerate corruption and unpredictable regulation. Fund managers are taking on greater risk in small emerging markets once considered exotic as returns lag behind those of stock indices.
- The NYSE(NYX) plans to close one of its trading floor’s five rooms over the next 18 months as more shares change hands electronically.
- Romanian stocks may already be done rising in anticipation of the country’s entry into the European Union, and Bulgarian shares may be next.

Efe:
- Venezuelan trade with Cuba is expected to almost double this year to about $2.3 billion, citing an interview with Venezuela’s Integration and Foreign Trade Minister.

South China Morning Post:
- Aluminum Corp. of China(ACH) plans to cut the spot price of alumina by 15.3% effective today.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CBG), raised target to $37.
- Upgraded (CHTR) to Buy, target $3.25.
- Reiterated Buy on (MOS), raised target to $23.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.07%.

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
- (ASF)/.39
- (AGN)/.94
- (DOX)/.49
- (BEC)/.66
- (CI)/2.17
- (CNO)/.41
- (COCO)/.03
- (DVN)/1.52
- (D)/1.56
- (EDS)/.20
- (FIC)/.57
- (GRMN)/.50
- (GES)/.72
- (INSP)/-.08
- (IN)/.03
- (LVS)/.29
- (LAZ)/.46
- (MMC)/.35
- (MA)/1.07
- (MXIM)/.33
- (MYL)/.32
- (NEM)/.43
- (NBL)/1.25
- (PMTC)/.36
- (PTEN)/1.08
- (PRU)/1.48
- (REY)/.41
- (COL)/.76
- (RUTH)/.13
- (SPW)/.84
- (SUN)/2.19
- (TK)/.98
- (VCLK)/.14
- (TWX)/.20
- (TWP)/.36
- (WYN)/.54
- (ZBRA)/.33
- (WCG)/.95

Upcoming Splits
- (ACAP) 3-for-2

Economic Releases
8:15 am EST
- The ADP Employment Change for October is estimated at 108K versus 78K in September.

10:00 am EST
- Construction Spending for September is estimated to remain unchanged versus a .3% rise in August.
- The ISM Manufacturing Index for October is estimated to rise to 53.0 versus a reading of 52.9 in September.
- The ISM Prices Paid Index for October is estimated to fall to 58.0 versus a reading of 61.0 in September.
- Pending Home Sales for September are estimated to fall .9% versus a 4.3% gain in August.

10:30 am EST:
- Bloomberg consensus estimates call for a weekly crude oil build of 2,600,000 barrels versus a 3,205,000 barrel drawdown the prior week. Gasoline supplies are expected to fall 925,000 barrels versus a 2,759,000 decline the prior week. Distillate inventories are estimated to fall by 1,175,000 barrels versus a 1,418,000 decline the prior week. Finally, Refinery Utilization is expected to rise .73% versus a .10% decline the prior week.

Afternoon:
- Total Vehicle Sales for October are estimated to fall to 16.2M versus 16.6M in September.
- Domestic Vehicle Sales for October are estimated to fall to 12.6M versus 12.9M in September.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Session Highs on Short-Covering and Lower Interest Rates

Evening Review
Detailed Market Summary
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Market Wrap CNBC Video(bottom right)
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In Play

BOTTOM LINE: The Portfolio finished about even today as gains in my Semi longs and Computer longs offset losses in my Telecom longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was neutral today as the advance/decline line finished slightly lower, most sectors rose and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was modestly bullish. The bears again failed to gain downside traction in the face of potential downside catalysts. The 10-year yield finished at session lows, falling almost 7 basis points to 4.6%. Oil is .37 higher, recouping this morning's losses, but still trades very poorly considering numerous bullish catalysts. Today's action was very good for the bulls. It allows the market to work off its overbought state and bears to reload without resulting in any technical damage. The market continues to trade exceptionally well ahead of significant uncertainty regarding the election outcome next week. The S&P 500 has risen about 17% over the last year due mainly to historically strong earnings growth. The forward P/E on the S&P 500 has barely risen. It now stands at a very reasonable 15.7. A few months ago many believed earnings growth this quarter would plunge. Instead, with much of the S&P 500 reporting, earnings are coming in 17.2% higher. This marks the 17th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. I still believe P/E multiple expansion will continue, and likely accelerate, over the intermediate term, pushing stocks substantially higher from current levels.

Stocks Slightly Lower into Final Hour on Political Concerns and Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Telecom longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is modestly lower, most sectors are declining and volume is slightly above average. The Johnson Redbook same-store sales index rose 3.4% year-over-year this week vs. a 3.4% rise the prior week. The long-term average is a gain of about 2.9%. There is still no evidence, in my opinion, that a meaningful slowdown in consumer spending is underway, even as this remains a focal point for the many bears. Housing sales and net home equity extractions have been falling substantially for over a year. The Case-Shiller housing futures are still projecting about a 5% decline in the average home price over the next seven months. Considering that the median house has appreciated over 50% during the last few years, with record high U.S. home ownership, this would be considered a "soft landing." Home values are more important than stock prices to the average American. However, the median home has barely declined in value after a record run-up, as the S&P 500 has soared 17% over the last year. I continue to believe the overall negative effects of housing on the U.S. economy are currently being exaggerated by the bears. I still expect holiday shopping sales to exceed estimates. I continue to believe a healthy labor market, falling energy prices, relatively low long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will keep boosting consumer spending over the intermediate term as housing stabilizes at relatively high levels. The Morgan Stanley Retail Index (MVRX) has soared 22.2% in about 14 weeks vs. a 11.5% gain in the S&P 500 over the same timeframe. I still expect continued out-performance by the sector through year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on falling long-term rates and short-covering.

Today's Headlines

Bloomberg:
- Heating oil futures fell to a 15-month low on above-average inventories and temperatures that are forecast to rise in the US Northeast.
- Crude oil is dropping a second day on forecast that warmer weather in the US will curb fuel demand in the biggest energy consumer and bolster above-average stockpiles.
-CB Richard Ellis Group, the world’s largest commercial real estate broker, agreed to buy rival Trammell Crow for $1.8 billion in cash to more than double its property management business.
- Air America Radio, the bankrupt liberal talk and news radio network, is negotiating with possible buyers of most of its assets, a company lawyer said.

Wall Street Journal:
- Burger King Holdings(BKC) plans to test cooking without trans fats in some restaurants in 90 days.
- DuPont, Syngenta and Monsanto are using selective breeding to make crops better at reproducing and tolerating cold, drought, and insects.
- Goldman Sachs(GS), Lehman Brothers Holdings and other investment banks are building up their capability to finance private-equity buyouts, taking business away from commercial banks.

NY Times:
- Archeus Capital, a hedge fund whose assets have fallen to $700 million from $3 billion a year, ago is closing shop. Gary K. Kilberg and Peter G. Hirsch, two former Salomon Brothers bond traders who started the fund, told investors in a letter yesterday the reason for the fund’s closure was that its administrator hadn’t accurately maintained records.
- China cut off oil exports to North Korea last month amid criticism of North Korea’s nuclear program, citing Chinese trade stats.

NY Post:
- Neiman Marcus Group(NMG/A) has acquired the 44% stake in Kate Spade owned by founders Kate and Andy Spade and two partners.

Reuters:
- Boeing Co.(BA) said it has gotten orders for 100 planes from mainland China so far in 2006.

Atlanta Journal Constitution:
- A Goldman Sachs(GS) team gained four competitors vying for the right to build and operate Georgia’s first private for-profit toll lanes.

Washington Post:
- Some Democrats fear they will be left divided by a rivalry between Representatives Steny Hoyer and John Murtha over who should be House majority leader if Democrats win the House in the mid-term elections.

Xinhua News Agency:
- The six-party talks on North Korea’s weapons program will resume “soon,” citing the Chinese Foreign Ministry.

Wages and Benefits Rise, Confidence Falls Slightly, Chicago PMI Declines, Prices Paid Plunges

- The 3Q Employment Cost Index rose 1.0% versus a .9% gain in 2Q.
- Consumer Confidence for October fell to 105.4 versus estimates of 108.0 and an upwardly revised 105.9 in September.
- The Chicago Purchasing Manager report for October fell to 53.5 versus estimates of 58.0 and a reading of 62.1 in September.

BOTTOM LINE: Wages and benefits paid to American workers last quarter by the most since 2004 as the unemployment rate matched a five-year low, Bloomberg said. Benefit costs rose 3.3% year-over-year in 3Q versus a 3.4% yearly gain in 2Q. A recent Manpower survey showed that almost a third of the businesses surveyed said they would have hired even more people this year if they could find the talent. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

An index of confidence among US consumers fell slightly after a strong rebound the prior month, Bloomberg reported. Optimism about consumers’ present situation declined to a still high 124.7 from 128.3 the prior month. The expectations component of the index, which measures consumer attitudes about the next six months, rose to 92.6 from 91 the prior month. The percentage of people expecting more jobs to be available in the coming months rose to 15.2% versus 14.7% the prior month. The average price of gasoline fell to $2.20/gallon on Oct. 24, the lowest since December and down .53/gallon from Sept. 4 prices, according to the American Automobile Assoc. Rising incomes, stock prices and job growth are also helping boost sentiment. The S&P 500 has surged 17% over the last year. I continue to believe consumer confidence will make new cycle highs over the intermediate-term as stocks rise further, inflation decelerates, interest rates remain low, the job market remains healthy, housing stabilizes at relatively high levels, gas prices fall further and irrational pessimism lifts.

Business activity in the Chicago region slowed to year-ago levels, Bloomberg reported. The New Orders component of the index fell to 59.2 from a high 67.4 the prior month. The Inventory Index rose to 67.21 from 63.5 the prior month. The Employment Component of the index jumped to 57 from 50.8 in September, the highest since April 2005. As well, the Prices Paid component of the index fell to 62.5, the lowest since June 2005 and down 30% from cycle highs, from 69.8 the prior month. I expect manufacturing to begin to rebound next quarter as auto production cutbacks subside.

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 Watch

Late-Night Headlines
Bloomberg:
- Celgene(CELG), the maker of Revlimid and Thalomid blood cancer drugs, will replace AmSouth Bancorp in the S&P 500.
- Rupert Murdoch’s NY Post scored a victory in the NY tabloid wars as circulation surpassed rival Mort Zuckerman’s NY Daily News for the first time.
- SEC Chairman Cox said a company’s level of cooperation in stock-option backdating investigations will be a factor in whether the agency files lawsuits in such cases.
- Japan’s unemployment rate unexpectedly rose, while the number of jobs available held near a 14-year high.
- Daisaku Ueno, named best foreign-exchange analyst in the 10th annual analyst rankings by Japan’s “Weekly Economist” magazine, says the yen will weaken to 120 a dollar due to the interest-rate gap between Japan and the US.
- Microsoft(MSFT) filed more than 50 lawsuits against individuals and companies worldwide, claiming they sold counterfeit copies of its programs using online auction sites including EBay(EBAY).
- Creative Technology reported a wider loss than analysts expected after its music players were outsold 23 to 1 by Apple Computer’s(AAPL) iPods in the US.
- Iron ore prices may decline next year as supplies improve, Luo Bingsheng, vice chairman of the China Iron and Steel Assoc., said before the start of annual talks between miners and China’s steel mills.
- Japan’s household spending fell the most in almost five years and wage growth stalled in September, undermining the Bank of Japan’s case for raising the lowest interest-rates among major economies.
- Japan, the world’s largest consumer of oil after the US and China, said crude oil imports fell 2% in September, marking the fifth straight month of decline.

Financial Times:
- The Commodity Futures Trading Commission, which overseas US futures markets, will tomorrow say it has no plans to extend its supervision to Intercontinental Exchange’s London-based ICE Futures unit. Critics of the current policy said ICE Futures has an advantage over the NY Merc by trading a crude oil contract that uses Nymex prices but isn’t burdened by US regulations.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.04%.

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
- (AGR)/.23
- (ADM)/.55
- (ADP)/.43
- (BIDU)/.26
- (BIIB)/.49
- (BJS)/.75
- (CKP)/.32
- (CMG)/.27
- (CNA)/.98
- (CMI)/3.67
- (DWA)/-.01
- (EK)/.19
- (ETR)/1.82
- (EOP)/.15
- (IT)/.07
- (HLT)/.28
- (IACI)/.33
- (KKD)/-.03
- (LTR)/.85
- (MRO)/3.63
- (MSO)/-.18
- (MCK)/.58
- (PG)/.78
- (RDC)/.88
- (RCL)/1.59
- (SAFC)/1.52
- (SGR)/.18
- (JOE)/.11
- (UARM)/.25
- (VLO)/2.30
- (VNO)/.73

Upcoming Splits
- (ACAP) 3-for-2

Economic Releases
8:30 am EST
- The 3Q Employment Cost Index is estimated to rise .9% versus a .9% gain in 2Q.

10:00 am EST
- Consumer Confidence for October is estimated to rise to 108.0 versus a reading of 104.5 in September.
- The Chicago Purchasing Manager for October is estimated to fall to 58.0 versus a reading of 62.1 in September.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly High on Falling Energy Prices and Strong Earnings

Indices
S&P 500 1,377.93 +.04%
DJIA 12,086.50 -.03%
NASDAQ 2,363.77 +.56%
Russell 2000 770.36 +.59%
Wilshire 5000 13,795.83 +.08%
S&P Barra Growth 639.06 +.07%
S&P Barra Value 736.78 +.02%
Morgan Stanley Consumer 671.00 +.34%
Morgan Stanley Cyclical 859.63 +.06%
Morgan Stanley Technology 550.01 +.94%
Transports 4,788.29 +.84%
Utilities 447.04 -.10%
Put/Call .81 -21.36%
NYSE Arms 1.24 -17.78%
Volatility(VIX) 11.20 +3.70%
ISE Sentiment 152.00 -5.59%
US Dollar 85.56 unch
CRB 306.22 -1.97%

Futures Spot Prices
Crude Oil 58.42 -3.84%
Unleaded Gasoline 145.10 -6.98%
Natural Gas 7.43 -5.01%
Heating Oil 160.50 -5.28%
Gold 606.20 -.20%
Base Metals 244.27 -1.66%
Copper 335.00 -.25%
10-year US Treasury Yield 4.67% -.09%

Leading Sectors
Disk Drives +3.41%
Airlines +2.27%
Software +1.22%

Lagging Sectors
Energy -1.56%
HMOs -1.73%
Coal -1.80%

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
Bank of America:
- Rated (BID) Buy, target $45.

Afternoon/Evening Headlines
Bloomberg:
- Merck(MRK) will buy Sirna Therapeutics for $1.1 billion to gain access to drugs based on the mechanism that regulates the flow of genetic information.
- The American Red Cross, provider of emergency blood supplies and disaster aid, proposed an overhaul that will cut the number of seats on its board and put day-to-day operations clearly in the hands of management.
- KFC Corp., the home of Colonel Sanders’ Kentucky fried chicken, will start using oil without harmful trans fatty acids in the US after a lawsuit claimed its food raises the risk of heart disease.
- US daily newspapers are losing readers at an accelerating rate, led by big-city publications such as the Miami Herald, NY Times, Boston Globe and LA Times.
- Crude oil fell the most in more than a year in NY on forecasts that warm US weather will reduce demand for heating fuels, bolstering inventories.

Fortune:
- Yahoo!(YHOO) is considering buying Time Warner’s(TWX) AOL unit.

Reuters:
- Federal Reserve Bank of Dallas President Richard Fisher said he’s “very comfortable” with the central bank’s interest-rate stance after policy makers voted for a third month to leave borrowing costs unchanged.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Biotech longs, Retail longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was mildly positive today as the advance/decline line finished modestly higher, most sectors rose and volume was about average. Measures of investor anxiety were mixed into the close. Today's overall market action was modestly bullish. Most of today's weakness was contained to the energy, healthcare and telecom sectors. Tech stocks outperformed substantially with the MS Tech Index rising almost 1%. Oil traded down $2.36 and looks poised to test its recent low of $56.55. I continue to believe oil will test $50 before year-end. Copper is also weakening as inventories reach 7-month highs. Long-term interest rates were stable today and look to remain low as the U.S. treasury cuts bond sales 50%. The NYSE Arms continues to trade at above-average levels despite recent gains, which is another positive.

Stocks Mostly Higher into Final Hour on Another Fall in Energy Prices and Strong Earnings

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Retail longs, Biotech longs and Commodity shorts. I covered some of my (IWM) and (QQQQ) hedges, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is modestly higher, most sectors are rising and volume is about average. Back on July 20, three days after the S&P 500 made its final low before tearing higher, I highlighted how large the negativity bubble had become. In my opinion, overall investor sentiment is currently nowhere near levels associated with meaningful market tops. The negativity bubble has lost some air, but shows few signs of popping. I continue to believe the bears' remain stunningly complacent given the recent rally and DJIA record highs. I expect US stocks to trade mixed into the close from current levels as political uncertainty and profit-taking offsets lower energy prices and strong earnings.

Today's Headlines

Bloomberg:
- Crude oil is falling the most in more than three weeks, to below $59/bbl., as warm US weather reduced demand for heating fuels, bolstering inventories.
- Federal Reserve Bank of Richmond President Lacker, coming off his third dissent from a decision to leave interest rates unchanged, said the US economy is “resilient enough” to withstand further credit tightening.
- Schneider Electric SA, the world’s biggest supplier of circuit breakers, agreed to buy American Power Conversion(APCC) for $6.1 billion to become the largest maker of equipment that protects computers and factories from power outages.
- Declines in the cost of shipping dry-bulk commodities such as coal and iron ore, down 6.4% recently, may accelerate as Chinese demand for iron ore slips.
- Copper prices plunged the most in three weeks in London, leading a slump in industrial metals, as rising inventories renewed speculation that mine output may exceed demand this year. Inventories of copper tracked by exchanges in London, NY and Shanghai rose to 190,024 metric tons today, the highest in 7 months. Supplies from mines and scarp yards will top demand by 146,000 tons next year, the first surplus since 2002, Mitsui Bussan Commodities Ltd said Oct. 6.

Wall Street Journal:
- The SEC is looking into whether UBS AG was involved in illegitimate manipulation of Treasury securities prices in February.
- World Bank President Paul Wolfowitz is extending his efforts to reshape Iraq by strengthening the international lending agency’s presence in the Middle Easter nation.
- NY trading firm Cantor Fitzgerald LP is to offer shares of its inter-dealer brokerage business to the public.

NY Times:
- Lehman Brothers(LEH) and IBM(IBM) are starting a $180 million private equity fund to buy minority stakes in Chinese companies.
- Sheik Mohammed bin Rashid al-Maktoum, the ruler of Dubai whose company was spurned from attempting to run operations at six US ports in March, has become a fabled name in US horse racing.
- NYC is considering a plan to require some of the city’s 20,000 restaurants to disclose calories on menus and menu boards.

AFP:
- Lawyers for ousted Iraqi dictator Saddam Hussein returned to court in Baghdad and presented a list of demands for ending their boycott of his genocide trial.

Personal Income Surges, Personal Spending and Inflation Decelerate

- Personal Income for September rose .5% versus estimates of a .3% gain and an upwardly revised .4% increase in August.
- Personal Spending for September rose .1% versus estimates of a .2% increase and an upwardly revised .2% gain in August.
- PCE Core for September rose .2% versus estimates of a .2% increase and an upwardly revised .3% increase in August.

BOTTOM LINE: Personal spending in the US rose last month and Americans’ incomes increased by the most in three months, suggesting the economy ended the third quarter on a strong note, Bloomberg reported. Job growth and falling fuel prices are helping soften the effects of a slowing housing market. Disposable income, the money left over after taxes, rose 5.9% from year ago levels. Taking into account price changes, spending rose .4% in September. Inflation-adjusted spending on durable goods, such as furniture and autos, rose 2.1% versus a 1.5% decline the prior month. The average price of regular unleaded gas fell to $2.53 in Sept. from $2.95/gallon in August. Workers’ average hourly earnings, adjusted for inflation, rose the most since 1998 in September. Rising wages, decelerating inflation, a rising stock market and low interest rates are spurring the recent jump in consumer sentiment. I expect personal spending and income growth to remain healthy over the intermediate-term, while measures of inflation continue to decelerate.

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

Monday Watch

Weekend Headlines
Bloomberg:
- The US Treasury may slash its proposed debt sales this quarter by almost 50% because of soaring tax revenue. A decrease might provide a further lift to government bonds, which rallied for the second week in a row last week. A 27% surge in corporate tax receipts to the US government helped shrink the budget deficit to under 2% of GDP.
- Iraq will invite China National Petroleum Corp. and other overseas companies to invest in oil fields to double daily production to 6 million barrels within five years, the country’s oil minister Hussain al-Shahristani said.
- Tribune(TRB) received competing initial takeover offers from buyout firms Bain Capital LLC and Thomas H. Lee Partners LP.
- Jeff Weaver scattered four hits over eight innings and David Eckstein drove in two runs as the St. Louis Cardinals beat the Detroit Tigers 4-2 to win their first World Series title in 24 years.
- Wal-Mart Stores(WMT) said October sales at US stores open at least a year rose about .5%, the smallest gain since August 2004 when it reported a similar increase.
- US Treasuries rose for a second straight week after the Fed left interest rates unchanged and reports showed economic growth and inflation are moderating.
- President Bush urged Americans to vote Republican next month or face higher taxes and a sluggish economy under a Democratic-held Congress. Tax cuts on incomes, for married couples and on dividends have fueled wage growth and the creation of 6.6 million jobs in the US since 2003, Bush said in his weekly radio address. The Republican-backed tax breaks will expire unless Congress extends them.
- Australian Prime Minister John Howard said today Australia will keep its troops in Iraq to assist US and British forces in restoring security in the country. “You can’t go until you are satisfied that the Iraqis can look after the situation,” Howard said. “If it is all right for Australia to go, it’s all right for Britain and America to go, and if we all go Iraq will certainly descend into greater bloodshed and chaos.”
- The US unemployment rate held at a five-year low in October and employers added more than twice as many jobs as a month earlier, according to a survey of economists. Job growth will help recharge the economy, economists said. A separate report tomorrow is forecast to show consumer spending quickened as the third quarter drew to a close.
- Merrill Lynch, Dresdner Kleinwort Group and Deutsche Bank AG economists have been wrong all year in calling for the US dollar to tumble against the Japanese yen.
- Newcrest Mining Ltd., Australia’s largest gold mining company, produced 13% more bullion in the first-quarter because of higher output from its Telfer mine.

Investment Dealers’ Digest:
- McDonalds(MCD), Apple Computer(AAPL) and Boeing(BA) may to be typical buyout targets at market caps of $50 billion, $63 billion and $65 billion, respectively, but they’re no longer too large to escape a firm’s crosshairs.

Miami Herald:
- US officials are investigating if Venezuelan President Hugo Chavez, who constantly makes defamatory comments about President Bush, controls Smartmatic Corp., whose affiliate runs voting machines in 17 US states. The probe questions Smartmatic’s 2005 purchase of California-based Sequoia Voting Systems and their relationship with Bizta, which is 28% owned by the Venezuelan government. Sequoia owns the voting machines in question.

NY Times:
- Upstate New York’s attempt to build a high-tech center to increase manufacturing won’t work unless the state encourages innovation, citing AnnaLee Saxenian of the Univ. of California, Berkeley.
- Mattel’s(MAT) sales overseas of toys represents 45% of revenue compared with 31% five years ago, citing the CEO.
- Kouta Matsuda, founder of Koots Green Tea, opened his first US store in Washington state to challenge the hometown coffee-shop advantage of Starbucks(SBUX).
- Russia led the world last year in selling $7 billion in weapons to developing countries, followed by France at $6.2 billion. Russia’s sales included $700 million worth of surface-to-air missiles to Iran.

Newsweek:
- Osama bin Laden may release a taped video message to try and influence the US mid-term elections, citing two counterterrorism officials and private security expert Evan Kohlmann.

dailyii:
- For the first time, the average compensation for hedge fund managers with more than a decade of experience has topped $1.5 million a year, according to the just-released 2007 Hedge Fund Compensation Report, which is published by Glocap, Institutional Investor News and Lipper HedgeWorld.

Washington Post:
- Google(GOOG) is expanding its web reach to Madison Avenue.

Financial Times:
- Fund managers wrote to SEC Chairman Cox urging the regulator to make it easier for shareholders to elect or fire company directors.
- Concern is growing in Japan that the yen could appreciate markedly should investors lose their appetite for so-called carry trades, where they borrow in the currency to invest in countries with higher interest rates.
- The European Union “must aim to substantially increase, over time, the amount of zero or low-carbon energy” it uses, citing European Commission President Jose Manuel Barroso.
- A global regulator may be needed to help resolve policy disputes between financial regulators should issues arise in the wake of consolidation among exchanges, citing an interview with Democratic US Representative Barney Frank.
- Oracle’s(ORCL) decision to distribute a copied version of the Linux operating system offered by Red Hat(RHAT) will “have a damaging and divisive effect” on the market, citing an interview with IBM Chief Technology Officer Kristof.

Sunday Times:
- Jules Kroll may buy back his Kroll Inc. investigating company from Marsh & McLennan Cos.(MMC) for $1.9 billion.

Sun-Herald:
- Australia’s top Muslim cleric, Cheik Taj Din al-Hilali, said he may resign if the nation’s Muslim leaders prove that a sermon he gave last month was offensive and aimed at degrading women. Al-Hilali last month in a sermon drew an analogy between women who fail to wear the Islamic headscarf and discarded meat that falls prey to animals. Prime Minister John Howard has told the Muslim community it risked lasting damage if it didn’t deal with the sheik. In response to reporters’ questions on whether he would resign, al-Hilali said, “after we clean the world of the White House first.”

Press Trust:
- Steel Authority of India Ltd. expects alloy prices to fall in 2007 as China reduces imports and increases exports, citing company Chairman S.K. Roongta.
- Hewlett-Packard(HPQ) has dropped plans to build a special economic zone for information technology companies near Bangalore, citing officials.

Sunday Telegraph:
- Morgan Stanley(MS) may announce $700 million of investments in hedge funds this week. NY-based Morgan Stanley has bought FrontPoint Partners for $400 million and 20% of Avenue Capital Group for $300 million.

Guardian:
- Shiites, Sunnis, Kurds and Christians shared living quarters for a month in the latest reality television show to reach Iraqi screens.

Le Figaro:
- Two buses and 25 cars were burned in suburbs north of Paris on the first anniversary of rioting in suburban ghettos.

Cinco Dias:
- Union Fenosa SA, Spain’s third-largest power company, and Enel SpA plan to accelerate investment in their renewable energy joint venture.

El Universal:
- Peruvian authorities are probing allegations that the presidential campaign of Ollanta Humala received money from Venezuelan President Hugo Chavez, which would be a violation of election laws.

China Daily:
- Proposed legislation in China would ban citizens under 18 from entering Internet cafes as part of the government’s efforts to “combat juvenile Internet addiction,” citing Yang Jingyu, chairman of the National People’s Congress’s law committee.

Weekend Recommendations
Barron's:
- Made positive comments on (TLAB), (MFE), (SYMC), (KLAC), (ASML), (CYMI), (STX) and (DELL).

Morgan Stanley:
- Reiterated Overweight on (ATE), Top Pick.

Night Trading
Asian indices are -1.0% to unch. on average.
S&P 500 indicated -.14%
NASDAQ 100 indicated -.19%.

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
- (ADPT)/-.01
- (ASH)/.54
- (BEAV)/.24
- (NILE)/.10
- (CCU)/.37
- (DBD)/.42
- (HUM)/.97
- (MET)/1.17
- (RACK)/.20
- (SKYW)/.63
- (PCU)/1.91
- (SBL)/.12
- (SYY)/.36
- (VZ)/.66
- (VMC)/1.52
- (WMS)/.21

Upcoming Splits
- None of note

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

BOTTOM LINE: Asian Indices are lower, weighed down by technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are several economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Personal Income, Personal Spending, PCE Core

Tues. - 3Q Employment Cost Index, Consumer Confidence, Chicago Purchasing Manager

Wed. - MBA Mortgage Applications, ADP Employment Change, Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales, Total Vehicle Sales

Thur. - 3Q Preliminary Non-farm Productivity, 3Q Preliminary Unit Labor Costs, Initial Jobless Claims, Factory Orders

Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, ISM Non-Manufacturing

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - BE Aerospace(BEAV), Blue Nile(NILE), Clear Channel(CCU), Diebold(DBD), Humana(HUM), Post Properties(PPS), Rackable Systems(RACK), Skywest(SKYW), Southern Copper(PCU), Symbol Tech(SBL), Verizon(VZ)

Tues. - Archer-Daniels-Midland(ADM), ADP(ADP), Baidu.com(BIDU), Biogen(BIIB), BJ Services(BJS), Checkpoint Systems(CKP), Chipotle Mexican Grill(CMG), CNA Financial(CNA), Cummins(CMI), DreamWorks(DWA), Eastman Kodak(EK), Gartner Inc.(IT), Hilton(HLT), IAC/InterActive(IACI), Krispy Kreme(KKD), Loews(LTR), Martha Stewart(MSO), McKesson(MCK), Perot Systems(PER), P&G(PG), Qwest(Q), Royal Caribbean(RCL), St Joe(JOE), Under Armour(UARM), Valero(VLO), Vornado(VNO)

Wed. - Allergan(AGN), Cigna(CI), Electronic Data(EDS), Garmin(GRMN), Infospace(INSP), Las Vegas Sandsa(LVS), Mastercard(MA), Maxim Integrated(MXIM), Newmont Mining(NEM), Papa John’s(PZZA), Ruth’s Chris(RUTH), Time Warner(TWX)

Thur. - AmerisourceBergen(ABC), Caremark(CMX), Cephalon(CEPH), Computer Science(CSC), CVS Corp.(CVS), Electronic Arts(ERTS), JDS Uniphase(JDSU), MGM Mirage(MGM), Qualcomm(QCOM), Sina Corp.(SINA), Transocean(RIG), Univision(UVN), Western Digital(WDC), Whole Foods(WFMI)

Fri. - Clorox(CLX), Duke Energy(DUK), Medco Health(MHS), OM Group(OMG), THQ Inc.(THQI), Wynn Resorts(WYNN)

Other events that have market-moving potential this week include:

Mon. - CE Unterberg Towbin Emerging Health Care Conference, Fed’s Lacker speaking, Fed’s Moskow speaking

Tue. - CE Unterberg Towbin Emerging Health Care Conference

Wed. - Goldman Sachs Global Capital Goods Conference, Merrill Lynch Global Energy Conference, Susquehanna Emerging Trends Conference, Fed’s Bernanke speaking

Thur. - Goldman Sachs Global Capital Goods Conference, Oppenheimer Digital Media Conference, Merrill Lynch Global Energy Conference, Monthly Retail Same-store-sales, Fed’s Fisher speaking, Fed’s Bies speaking

Fri. - Fed’s Kohn speaking

BOTTOM LINE: I expect US stocks to finish the week modestly lower as political uncertainty and profit-taking more than offsets mostly positive economic data, strong corporate profits and lower energy prices. My trading indicators are still giving bullish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,377.34 +.64%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was bullish as the Dow Jones Industrial Average made another new all-time high. The advance/decline line rose, most sectors gained and volume was above average on the week. Measures of investor anxiety were mostly higher. The AAII percentage of bulls fell to 52.17% this week from 54.20% the prior week. This reading is still above average levels. The AAII percentage of bears rose to 30.43% this week from 29.77% the prior week. This reading is still slightly above average levels. The 10-week moving average of the percentage of bears is currently 34.3%, an above-average level. The 10-week moving-average of the percentage of bears was 43.0% at the major bear market lows during 2002. I continue to believe steadfastly high bearish sentiment is mind-boggling considering the recent rally and the fact that the DJIA is making new all-time highs. Bears still remain stunningly complacent, in my opinion.

As well, there are many other indicators registering high levels of investor skepticism regarding recent stock market gains. The NYSE Arms reading has been at above-average levels quite frequently of late. The 50-day moving-average of the ISE Sentiment Index is still near all-time lows. Nasdaq and NYSE short interest made record highs again this month. Moreover, public short interest continues to soar to records. U.S. stock mutual funds have seen outflows for months, according to AMG Data Services. Finally, investment blogger sentiment is still bearish. There is still a very high wall of worry for stocks to climb substantially from current levels.

I continue to believe this is a direct result of the strong belief by the herd that the U.S. is in a long-term trading range or secular bear environment. I strongly disagree with this assessment. There is overwhelming evidence that investor sentiment regarding U.S. stocks has never been this poor in history with the DJIA registering all-time highs. Due to an extraordinarily divisive political climate and explosion of absolute return strategies, there has likely never been a time in US history when more market participants perceived they directly benefited from a stagnant or declining US economy and stock market.

The bears' abuse of George Soros' Theory of Reflexivity(the theory basically states that the future outcome of an event can be altered by changing current perceptions regarding such an event) during the last few years has left most investors substantially underexposed to US equities, specifically growth stocks, and many traders heavily leaning the wrong way. I still expect the herd to finally embrace the current bull market next year which should result in another meaningful move higher in the major averages as the S&P 500 breaks out to an all-time high to join the DJIA and Russell 2000.

The average 30-year mortgage rate rose 4 basis points to 6.40%, which is 40 basis points below July highs. I still believe housing is in the process of stabilizing at relatively high levels. Former Fed Chairman Alan Greenspan reiterated his belief this week that the “worst may well be over” for the housing slowdown. Mortgage applications have turned higher recently with the decline in mortgage rates. As well, Housing inventories have been falling. The Case-Shiller housing futures are still projecting a 5% decline in the average home price over the next 7 months. Considering the median house has appreciated over 50% during the last few years with record high US home ownership, this would be considered a “soft landing.” The overall negative effects of housing on the US economy are currently being exaggerated by the bears, in my opinion. Housing and home equity extractions have been slowing substantially for well over a year and have 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, energy prices have plunged, consumer spending remains healthy, unemployment is low by historic standards, interest rates are low, stocks are rising and most measures of income growth are more than twice the inflation rate, just to name a few. Consumer spending is still above long-term average levels and looks poised to strengthen into the holiday shopping season.

The Consumer Price Index for September rose 2.1% year-over-year, the smallest increase since early 2004 and down from 4.7% in September of 2005. This is substantially below the long-term average of around 3%. Moreover, the CPI has only been lower during 4 other periods since the mid-1960s. It was lower during 1986, late 1998-early 1999, late 2001-late 2002 and late 2003-early 2004. Many other measures of inflation have recently shown substantial deceleration.

The benchmark 10-year T-note yield fell 12 basis points on the week as several inflation measures showed meaningful deceleration and economic slowdown fears persist. 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. Weekly retail sales rose an above-average 3.4% for the week. 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 optimism. The CRB Commodities Index, the main source of inflation fears, has now declined 3.4% over the last 12 months and is down 14.5% from May highs. The average commodity hedge fund is down 13.8% for the year. I continue to 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 fell more than expectations as refinery utilization dropped again. U.S. gasoline supplies are still at extraordinarily high levels for this time of the year. Unleaded Gasoline futures rose for the week, but are still 46.55% 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 is estimated to rise .8% this year versus a 20-year average of 1.7% demand growth. Moreover, distillate stocks are 16% above the five-year average for this time of the year as we enter the winter heating season. The still elevated level of gas prices related to crude oil production disruption speculation by investment funds will further dampen global fuel demand, which will send gas prices still lower over the intermediate-term.

US oil inventories are near 7-year highs. Since December 2003, global oil demand is only up 1.5%, while global supplies have increased 5.9%, 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 mostly 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 long positions to meet investor redemptions.

Oil has clearly broken its uptrend and is now in its seasonally weak period. A major top in oil is likely already in place as global crude oil storage capacity utilization is running around 95%. Recent OPEC production cuts will likely result in a complete technical breakdown in crude over the coming weeks. Demand destruction is already pervasive globally. Moreover, many Americans feel as though they are helping fund terrorism or hurting the environment every time 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 at still very high levels and weakening global growth only further deepens resentment towards the cartel and will 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. I suspect oil will eventually trade at levels that most investors deemed unimaginable just a few months ago during the next meaningful global economic downturn.

Natural gas inventories rose less than expectations this week, however prices for the commodity fell as another bout of record speculation subsided. Supplies are now 10.0% above the 5-year average and at record high levels for this time of year, even as some daily Gulf of Mexico production remains shut-in. Natural gas prices have collapsed 50.44% since December 2005 highs. Natural gas futures will enter their seasonally weak period over the next few weeks. I suspect natural gas made another meaningful top this week.

Gold rose on the week on US dollar weakness. The US dollar fell on declining inflation worries, growth concerns and mixed comments from the Fed. I continue to believe there is very little chance of another Fed rate hike anytime soon. An eventual cut is more likely next year as inflation continues to decelerate.

Steel stocks outperformed for the week on takeover speculation and earnings optimism. Drug stocks underperformed on earnings disappointments and political worries. With more than half of the S&P 500 reporting, profit growth for the third quarter is coming in a booming 17.6% versus a long-term historical average of 7%, according to Thomson Financial. This would mark the 17th 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 fourth quarter. Just a few months ago many investors expected profit growth to fall to the low single digits this quarter. Despite an 85.1% total return(which is equivalent to a 16.3% average annual 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 15.8. The 20-year average p/e for the S&P 500 is 24.4. The S&P 500 is now up 12.0% and the Russell 2000 Index is up 14.8% year-to-date.

Current stock prices are still providing longer-term investors very attractive opportunities, in my opinion. 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. The entire decline in the S&P 500’s p/e, since the bubble burst in 2000, is attributable to growth stock multiple contraction. 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, notwithstanding recent gains. 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, trumpeted and promptly priced in to stock prices. Furthermore, this “irrational pessimism” by investors has resulted in a dramatic decrease in the supply of stock as companies bought back shares, IPOs were pulled and secondary stock offerings canceled. Commodity funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. Some of this capital will likely find its way back to US stocks. I continue to believe there is massive bull firepower available on the sidelines for US equities at a time when the supply of stock has contracted.

An end to the Fed rate hikes, lower commodity prices, seasonal strength, the November election, decelerating inflation readings, a strong holiday shopping season, lower long-term rates, increased consumer/investor confidence, short-covering, investment manager performance anxiety, 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 expand further. I still expect the S&P 500 to return a total of at least 15% for the year. The ECRI Weekly Leading Index was unchanged this week and is still forecasting healthy US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,377.34 +.64%
DJIA 12,090.26 +.73%
NASDAQ 2,350.62 +.35%
Russell 2000 765.84 4+.49%
Wilshire 5000 13,907.16 +1.58%
S&P Barra Growth 638.63 +.51%
S&P Barra Value 736.65 +.76%
Morgan Stanley Consumer 668.75 +.78%
Morgan Stanley Cyclical 859.13 +1.30%
Morgan Stanley Technology 544.87 +.02%
Transports 4,748.54 +.90%
Utilities 447.48 unch.
MSCI Emerging Markets 102.00 +.20%
S&P 500 Cum A/D Line 8,523 +2.0%
Bloomberg Crude Oil % Bulls 57.0 +99.5%
CFTC Oil Large Speculative Longs 159,629 +4.0%
Put/Call 1.03 +56.06%
NYSE Arms 1.51 +46.60%
Volatility(VIX) 10.80 +1.60%
ISE Sentiment 161.0 +10.3%
AAII % Bulls 52.17 -3.75%
AAII % Bears 30.43 +2.22%
US Dollar 85.56 -.82%
CRB 312.37 +2.17%
ECRI Weekly Leading Index 136.40 unch.

Futures Spot Prices
Crude Oil 60.75 +2.32%
Unleaded Gasoline 155.99 +6.15%
Natural Gas 7.82 -4.20%
Heating Oil 169.44 +.69%
Gold 602.30 +3.29%
Base Metals 248.39 +.56%
Copper 340.70 -1.27%
10-year US Treasury Yield 4.67% -2.5%
Average 30-year Mortgage Rate 6.40% +.63%

Leading Sectors
Steel +3.49%
Gold & Silver +3.28%
HMOs +3.16%
Oil Service +3.02%
Disk Drives +2.04%

Lagging Sectors
Defense -.56%
Gaming -.86%
Hospitals -1.04%
Software -1.65
Drugs -2.10%

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

*5-Day % Change

Stocks Lower into Final Hour on Profit-taking and Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Retail longs. I added to my (ISRG) long, took some more profits in my (TLT) long, added (EEM), (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is above-average. The major averages and breadth are at session lows on worries over comments from Goldman Sachs that PC motherboard shipments in Asia have fallen off a cliff in October. I suspect this is related to Vista. We appear to be in another period of worries that economic growth is slowing too much. I also believe uncertainty over the election is beginning to weigh on equities. I suspect the major averages will trade mixed-to-lower until after the election on Nov. 7. I expect US stocks to trade mixed into the close from current levels as short-covering and lower long-term rates offsets worries over slowing growth.

Today's Headlines

Bloomberg:
- Merrill Lynch(MER), Goldman Sachs(GS) and Bear Stearns(BSC), three of the five biggest US securities firms, had their long-term credit ratings raised by S&P, which cited improvements in liquidity and risk management.
- US regulators need to examine the $1.3 trillion hedge-fund industry to make sure investors are protected and systemic risks they might pose are known, Treasury Secretary Henry Paulson said.
- General Motors(GM), losing sales to Toyota Motor(TM), will use some of the $9 billion in savings from cost cuts this year to make vehicles that match the Japanese automaker in technology and fuel efficiency.
- US Treasuries are rising after a US government report showed inflation subsided last quarter, fueling speculation the Fed’s next move will be to lower interest rates.
- Investors in hedge funds overseen by George Soros, Louis Bacon and Paul Jones would have made more money this year by buying shares of a stock-index mutual fund. Managers of so-called macro hedge funds have lagged behind market benchmarks such as the S&P 500 after being caught off guard by reversals in stock, bond and commodity prices. Macro funds have risen on average 1.8% this year through Oct. 24 versus a 12% return for the S&P 500, according to Hedge Fund Research.
- Naval forces from the US-led coalition have been sent to protect Saudi Arabia’s Ras Tanura oil terminal after the threat of a terrorist attack from the sea.
- Crude oil was little changed despite threats to facilities in the Middle East amid speculation that ample inventories could meet any supply disruption.

Wall Street Journal:
- US construction spending will fall 1% next year. The anticipated decline will mostly be due to a 5% decline in the building of single-family homes and a 3% fall in the construction of shopping malls and retail outlets.
- Ticketmaster, owned by (IACI), has obtained an exclusive contract to supply tickets to the Beijing Summer Olympics.

NY Times:
- China and North Korea, which exchange oil, coal and electricity and goods, have continued to trade with one another under UN sanctions imposed in response to North Korea’s nuclear test.
- US corporate executives say their companies’ auditors are charging too much money while refusing to provide enough service. The auditors have been able to do so because of changes brought about by the Sarbanes-Oxley Act.
- Democrats are united in criticizing President Bush over the situation in Iraq but divided over how to improve it.

Commercial Mortgage Alert:
- The group proposing to buy Harrah’s Entertainment(HET) received commitments from banks willing to provide $7 billion of mortgage debt to help finance the takeover.

Interfax:
- Alcoa(AL) will spend about $160 million to increase production at its plant in Samara, Russia.

Globe and Mail:
- Canada won’t give amnesty for illegal workers employed in the underground economy.

Growth Slows, Inflation Subsides, Consumption Strong, Confidence Rising

- Advance 3Q GDP rose 1.6% versus estimates of a 2.0% increase and a 2.6% gain in 2Q.
- Advance 3Q GDP Price Index rose 1.8% versus estimates of a 2.8% increase and a 3.3% gain in 2Q.
- Advance 3Q Personal Consumption rose 3.1% versus estimates of a 3.1% increase and a 2.6% gain in 2Q.
- Advance 3Q Core PCE rose 2.3% versus estimates of a 2.5% increase and a 2.7% gain in 2Q.
- Final Univ. of Mich. Consumer Confidence for October rose to 93.6 versus estimates of 92.7 and a prior reading of 92.3

BOTTOM LINE: The US economy grew less than economists forecast last quarter, Bloomberg reported. A 17.4% decline in residential housing construction was the main reason for the slower growth. Also hampering growth, companies added less to inventories during the quarter. There were several signs the slowdown may prove temporary. Consumer spending, which accounts for about 70% of the economy, increased 3.1% versus a 2.6% gain in the second quarter as rising incomes and lower energy prices helped offset the effects of the housing slowdown. The price of gas this month has averaged $2.25/gallon versus $3.00/gallon during July. Business spending on new equipment and software surged 6.4% during the quarter versus a 4.4% increase in the second quarter. The Core PCE Index, the Fed’s favorite inflation gauge, rose 2.3% during the quarter versus a 2.7% gain the prior quarter. The GDP Price Index rose 1.8% versus a 3.3% gain in the prior quarter. I expect US GDP Growth to bounce back to around 3% this quarter, while inflation continues to moderate.

Consumer Confidence in the US rose to the highest in 15 months in October as plunging gas prices, a strong job market and rising stock prices left more money in Americans’ pockets, Bloomberg reported. The current conditions component of the index, which reflects consumers attitude about their current financial situation and whether it’s a good time to buy big-ticket items, soared to 107.3 from 96.6 the prior month. Workers’ average hourly earnings rose 4% over the last 12 months, the largest gain in five years and unemployment is at a historically low 4.6%. I continue to believe consumer confidence will reach new cycle highs over the coming months as the job market remains healthy, housing stabilizes, interest rates remain low, inflation decelerates further, stocks continue to rise, irrational pessimism lifts and the mid-term election ends.

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

Friday Watch

Late-Night Headlines
Bloomberg:
- Japan’s consumer price gains unexpectedly slowed in September, prompting speculation the central bank will refrain from raising interest rates until next year.
- The yen weakened to a record against the euro after a government report showed an unexpected slowing in the pace of consumer price gains, raising concern the nation hasn’t fully emerged from its seven-year battle with deflation.
- China Oilfield Services Ltd., a unit of the nation’s third-largest oil producer, drilled 13% more wells in the first nine months of this year as China intensifies its search for oil and gas.
- Islamist fighters in Somalia have sieged control of a trading town and are massing to the east of Baidoa, the seat of the interim government.
- Australia’s senior Muslim cleric’s assertion that women who dress immodestly invite sexual assault could do “lasting damage” to the country’s Islamic community, Prime Minister John Howard said. Egyptian-born Sheik Taj Din al-Hilali last month delivered a sermon in which he likened women who don’t wear the Islamic headscarf to “uncovered meat” that falls prey to alley cats.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SFI), target $50.

Business Week:
- Solexa(SLXA), which makes DNA sequencing products, may rise as much as 50% on sales of its genome analysis system, citing Leerink Swann’s John Sullivan.
- Lazard Ltd.(LAZ), the investment bank that helped invent mergers and acquisitions as a specialty, has expanded in new areas in the face of competition, citing an interview with Chairman and CEO Wasserstein.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.04%.

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
- (ALEX)/.52
- (AT)/.64
- (BHI)/1.08
- (BC)/.46
- (CAH)/.76
- (CVX)/2.03
- (CEG)/1.28
- (EXC)/1.05
- (FO)/1.33
- (IR)/.86
- (ITT)/.76
- (NOV).96
- (TE)/.34

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Advance 3Q GDP is estimated to rise 2.0% versus a 2.6% rise in 2Q.
- Advance 3Q GDP Price Index is estimated to rise 2.8% versus a 3.3% rise in 2Q.
- Advance 3Q Personal Consumption is estimated to rise 3.1% versus a 2.6% gain in 2Q.
- Advance 3Q Core PCE is estimates to rise 2.5% versus a 2.7% gain in 2Q.

9:45 am EST
- The Final Univ. of Mich. Consumer Confidence reading for October is estimated to rise to 92.7 versus a prior estimate of 92.3.

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

Stocks Surge on Heavy Volume as Energy Prices Fall, Profits Remain Strong and Long-term Rates Fall

Indices
S&P 500 1,389.08 +.50%
DJIA 12,163.66 +.24%
NASDAQ 2,379.10 +.96%
Russell 2000 776.02 +1.16%
Wilshire 5000 13,907.14 +1.02%
S&P Barra Growth 644.28 +.48%
S&P Barra Value 742.70 +.51%
Morgan Stanley Consumer 672.42 +.35%
Morgan Stanley Cyclical 866.75 +.62%
Morgan Stanley Technology 554.82 +.66%
Transports 4,788.72 +.14%
Utilities 450.44 -.41%
Put/Call .78 -7.14%
NYSE Arms 1.14 +7.80%
Volatility(VIX) 10.56 -.94%
ISE Sentiment 166.0 +9.93%
US Dollar 85.89 -.57%
CRB 311.78 -.32%

Futures Spot Prices
Crude Oil 60.29 -1.81%
Unleaded Gasoline 156.70 -1.59%
Natural Gas 7.47 -2.85%
Heating Oil 169.85 -2.33%
Gold 599.90 +.02%
Base Metals 243.97 +.07%
Copper 339.50 -.15%
10-year US Treasury Yield 4.72% -.97%

Leading Sectors
Airlines +2.44%
HMOs +2.17%
Retail +1.90%

Lagging Sectors
Oil Tankers -.52%
Steel -.68%
Drugs -.93%

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
Bank of America:
- Rate (PEIX) Sell, target $12.50

Afternoon/Evening Headlines
Bloomberg:
- US stocks extended a weeklong rally, pushing the S&P 500 toward its best month since 2003 and sending the DJIA to another all-time high.
- Gasoline futures fell more than 2%, the biggest drop in three weeks, on speculation current inventories did not justify yesterday’s 3.6% rise.
- Crude oil fell over $1/bbl. on speculation that US inventories are adequate to meet demand in coming weeks.
- Microsoft(MSFT) said first quarter profit rose 11%, helped by higher revenue from server software.
- Shares of Home Inns & Hotels Management(HMIN), China’s second-largest budget hotel chain, surged 63% in their fist day of trading on the Nasdaq Stock Market today.

Nikkei English News:
- The NYSE proposed a financial and operational partnership with the Tokyo Stock Exchange.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Medical longs, Retail longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, most sectors rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Today's overall market action was very bullish. I especially liked the slow grind higher throughout the day rather than a sharp compressed move. As well, the NYSE Arms was at above-average levels again throughout the day. Tomorrow's GDP report and inflation reading will likely result in another move lower in long rates. Natural gas gave up all of this morning's gains and is now down about 2.7%. The recent surge in prices was related more to another bout of record speculation by investment funds than fundamental improvements. Natural gas storage is at all-time high levels heading into the commodity's seasonally weak period which begins over the next couple of weeks. I suspect natural gas has made another meaningful top.

Nasdaq Surging on Heavy Volume as Corporate Profits Exceed Estimates, Energy Prices Fall and Long-term Rates Decline

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semiconductor longs, Biotech longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are gaining and volume is heavy. Intuitive Surgical (ISRG) is rising 3.2% today ahead of its earnings report after the close, however the stock is still well off highs. I suspect the company will once again beat estimates and give conservative guidance. In the past, the always-conservative guidance has, at times, spooked investors. However, bullish sentiment is more subdued heading into this evening's report. The short interest ratio has increased from a low of 1.47 in February to 3.46 recently. The Open Interest Put/Call for ISRG is currently .93 vs. a low of .57 in March. Implied volatility has risen from 38% in September to 68% currently. HSBC recently initiated the stock with an overweight rating and put a $136 price target on the shares. I suspect that if the company is able to exceed estimates, which I expect, that investors will finally ignore the conservative guidance as the sentiment towards pure growth stocks continues to improve. I remain long the stock and still expect it to exceed its all-time high of $139.50 this quarter. I expect US stocks to trade modestly higher into the close from current levels on short-covering, strong profit reports, lower long-term rates, lower energy prices and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- Natural gas is falling in NY, ending the recent rally, amid record inventories in underground storage.
- Crude oil is falling more than $1/bbl. on speculation that US stockpiles, near 7-year highs, are adequate to meet demand in coming weeks.
- The Dow Jones Industrial Average is making another all-time high on strong earnings reports and a better-than-expected new home sales report.
- Goldman Sachs(GS) promoted 262 executives to managing director a day after adding 115 partners, the firm’s top rank.
- Federal Reserve officials may leave interest rates alone until the middle of next year, confident of “moderate” economic growth and abating inflation.
- ExxonMobil(XOM) said third quarter profit rose 5.7% because crude prices climbed to an all-time high and production increased for a third straight quarter.
- China and Russia said they would oppose a draft resolution imposing UN sanctions on Iran over its nuclear program, as the Security Council’s five permanent members prepared for their first meeting on the text.

Wall Street Journal:
- Private-equity and hedge funds are considering taking stakes in the bankruptcy-plagued US auto-parts industry.
- Blackstone Group LP, which announced recently that it had raised the biggest-ever private-equity fund, with $15.6 billion, wants to increase that amount to $20 billion.
- Clear Channel Communications(CCU) may get bids from a group of investors led by Thomas H. Lee Partners that includes Texas Pacific Group and Bain Capital LLC.
- Wild Oats(OATS) has been a lackluster performer, with annual sales growth of 3-5% at established outlets, against 7-9% for the industry as a whole. That, however, could change under new leadership, and the company’s stock has risen twice in the past week, first on the news that CEO Odak’s contract wouldn’t be renewed, and again when it was announced that he’d resigned.
- Cold Stone Creamery, Marble Slab Creamery and MaggieMoo’s Intl. are trying to develop a niche within the ice cream market by offering high-end versions of a common product.

NY Times:
- Democratic bloggers are targeting about 50 Republican candidates in an effort to make particular articles or Web sites appear at the top of a Google search list. After embedding a candidate’s name with a hyperlink to a negative article about the person, blogger Chris Bowers, who devised the plan, has been distributing the links to others with left-wing blogs.

Boston Globe:
- McDonald’s(MCD) restaurants in New England are getting a makeover that features leather chairs, plasma televisions and wireless Internet access.