Monday Watch

Weekend Headlines
Bloomberg:
- US stocks rose this week to complete the steepest September advance since 1998 as the Fed’s interest-rate cut helped energy and raw-material companies lead the market’s recovery from a summer rout.
- China Investment Corp., the nation’s $200 billion sovereign wealth fund, starts operations today as the government seeks to boost returns on the world’s biggest foreign-exchange reserves.
- US high-yield bonds posted the best returns in four years this month after the Fed’s interest rate cut enticed investors back to the riskiest debt.
- US Treasuries capped their biggest quarterly rally in five years as the inflation gauge preferred by Fed policy makers showed consumer prices rose at the slowest pace in more than three years during August.
- The euro’s record-setting rally may not extend through the end of October, according to analysts who rely on market patterns for their predictions.
- Garry Kasparov, the ex-world chess champion turned politician, will run in Russia’s March 2008 presidential election as the candidate for The Other Russia, a coalition opposed to President Vladimir Putin.
- Sentiment among Japan’s largest manufacturers unexpectedly held near a two-year high last quarter as exports expanded even as US economic growth cools.

NY Times:
- China Toys a Boon to Lead-Testing Companies.
- At first blush, the iPhone from Apple(AAPL), the new microprocessor family from Intel(INTC) and the ubiquitous Google(GOOG) search engine have nothing in common. Yet all of these products depend on obscure process innovations that, while highly complex and lacking glamour, are an essential part of establishing a winning edge in commercial electronics.

CNBC.com:
- Cramer is still confident that the Dow Jones will reach his year-end target of 14,548. Eight stocks in particular, he said, should get the index there.

MarketWatch.com:
- EMC: more than just the VMware parent. Diversification has been a boon to storage-technology giant.
- Boeing Co.(BA) took the lead over Airbus in commercial airplane orders in the third quarter, according to an early tally, as both aircraft makers kept drumming up business from fast-growing Asian markets and got some late-period purchase from venerable European carriers.

Barron’s:
- London’s $2.27 billion RAB Special Situations was the top-performing hedge fund during the past three years, with a 47.7% cumulative return.
- The Dow Jones has climbed in the fourth quarter for nine consecutive years, and in 24 of the past 27 years. The S&P 500 has produced fourth-quarter rallies in 13 of the past 15 years and racked up an average 6.3% haul, according to researchers at Bespoke Investment Group.

BusinessWeek.com:
- A group of Midwest utilities is building a plant that will store excess wind power underground.

TheStreet.com:
- Coming Week: Bond Binge.

CNNMoney.com:
- 5 Ways to Slash Your Energy Bill.
- 4 Must Have Gadgets.
- 5 Blinged-out Tech Toys.

Newsweek:
- The search for renewable-energy sources is making clean-tech jobs hot.

Crain’s Chicago Business:
- Exelon Corp.(EXE) CEO John Rowe said the utility operator is interested in mergers and acquisitions.
- McDonald’s Corp.(MCD) forecasts its expanded offering of drinks will boost sales by more than $1 billion annually.

Crain’s NY Business:
- Morgan Stanley(MS) Co-President Zoe Cruz and Avon Products(AVP) Chairman and CEO Andrea Jung are among the 25 most powerful women in NY businesses.

USA Today:
- Returns from large-capitalization growth funds far outpaced those of other diversified equity funds in the July-September period as investors sought the safety and growth potential of big companies following the return of volatility and the stock market’s pullback from its mid-July highs.
- Advertisers who wanted to know more about radio listeners are finally getting an electronic audience measurement system that’s not only delivering more accurate results but also shaking up the broadcasting business.

Washington Post:
- In their debate Wednesday night in Hanover, NH, none of the three top Democratic presidential candidates would promise to have the US military out of Iraq by January 2013 – more than five years from now.

AP:
- Former Republican House Speaker Newt Gringrich won’t run for president in 2008 because exploring a bid would clash with his role as the head of a tax-exempt group.
- Iraq is seeking to replace a UN Security Council mandate for the US-led force in their country with a long-term security agreement, citing Foreign Ministry officials. Iraq wants to establish a bilateral agreement similar to ones the US has with Saudi Arabia, Kuwait, the UAE, Bahrain, Qatar and Egypt.

Financial Times:
- FT.com, the internet arm of the Financial Times, will on Monday announce an innovative charging system and a major expansion of the site, fueling debate about newspapers’ online business models.
- The UAW union could become General Motors’ biggest shareholder under a deal to transfer the carmaker’s healthcare obligations to a huge union-managed trust.

Times:
- Goldman makes $370 million after saving its black box hedge fund.

Sunday Telegraph:
- The UK Treasury has given the go-ahead to JC Flowers & Co. and Cerberus Capital to proceed with their bids for Northern Rock Plc.

Commercial Times:
- Taiwan Semiconductor Manufacturing’s chip shipments in the fourth quarter will rise between 7% and 10% from the third quarter. Taiwan Semi received orders to make more chips fro clients such as Qualcomm Inc.(QCOM), Nvidia Corp.(NVDA), and Broadcom(BRCM).

Tehran Emrooz:
- Iran plans to build hotels for women only in each of the 30 provinces of the Islamic Republic, citing deputy head of Iran’s cultural heritage and tourism organization, Mohammad Sharif Malekzadeh. Women are now required to explain the reason for their hotel trips to a specialized unit of the of the local police station and get official permission prior to booking a room.

Weekend Recommendations
Barron's:
- Made positive comments on (BWA), (AMR) and (NDSN).

Citigroup:
- West Texas Intermediate crude rebounded from a mid-week breach below $80 to finish the week at $81.77. However, support from financial speculators and refining margins has declined, leaving our model delta about $6. Against a backdrop of deteriorating storm concerns, downside risk to oil prices looks like a reality. Open interest fell 1%, almost entirely on higher non-commercial short positions. This follows the 6% decline that accompanied the 9/20 contract expiration and contrasts with the post expiration rebound seen typically in recent months. Our technical team remains cautious, targeting support around $74/bbl.

Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 futures +.06%.
NASDAQ 100 futures -.07%

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (WAG)/.47
- (PALM)/.08

Upcoming Splits
- (BCSI) 2-for-1
- (JCI) 3-for-1
- (TAP) 2-for-1

Economic Releases
10:00 am EST
- ISM Manufacturing for September is estimated to fall to 52.5 versus 52.9 in August.
- ISM Prices Paid for September is estimated to fall to 62.3 versus 63.0 in August.

Other Potential Market Movers
- The Jeffries Technology Conference could also impact trading today.

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

Weekly Outlook

Click here for a weekly preview by MarketWatch.com.

Click here for Stocks in Focus for Monday by MarketWatch.com.

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

Economic reports for the week include:

Mon. – ISM Manufacturing, ISM Prices Paid

Tues. – Pending Home Sales, Total Vehicle Sales, weekly retail sales

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory report, Challenger Job Cuts, ADP Employment Change, ISM Non-Manufacturing

Thur. – Initial Jobless Claims, Factory Orders

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Consumer Credit

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

Mon. – Walgreen(WAG), Palm Inc.(PALM)

Tues. – Pepsi Bottling(PBG), Micron Tech(MU)

Wed. – Wolverine Worldwide(WWW), Immucor Inc.(BLUD), Arrow Intl.(ARRO), Gerber Scientific(GRB), IDT Corp.(IDT)

Thur. – Constellation Brands(STZ), Marriott Intl.(MAR), Acuity Brands(AYI), Family Dollar(FDO), Research In Motion(RIMM), Solectron(SLR)

Fri. – None of note

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

Mon. – Jeffries Technology Conference

Tue. – Citigroup Ethanol Conference, CIBC Industrials Conference, (IRM) analyst meeting, (KSS) investor day, (CIEN) analyst day, Deutsche Bank Leveraged Finance Conference, Jeffries Technology Conference

Wed. – Deutsche Bank Leveraged Finance Conference, William Blair Small-cap Growth Conference, CIBC Industrials Conference, BOE Policy Meeting, (CBRL) analyst meeting, (NSM) analyst meeting, (RENT) analyst presentation

Thur. – Fed’s Mishkin speaking, Fed’s Fisher speaking, ThinkEquity Healthcare Forum, (FLO) analyst meeting, Deutsche Bank Leveraged Finance Conference, BOE Policy Meeting, ECB Policy Meeting, (PRX) analyst meeting, (AEP) analyst meeting, (NSTK) analyst meeting

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on less economic pessimism, diminishing credit market fears, lower energy prices, investment manager performance anxiety, a stronger US dollar and short-covering. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

S&P 500 1,526.75 +.07%*

Click here for the Weekly Wrap by Briefing.com.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,526.75 +.07%
DJIA 13,895.63 +.55%
NASDAQ 2,701.50 +1.13%
Russell 2000 805.45 -.94%
Wilshire 5000 15,317.90 +.11%
Russell 1000 Growth 618.52 +.71%
Russell 1000 Value 851.0 -.34%
Morgan Stanley Consumer 747.03 +.81%
Morgan Stanley Cyclical 1,061.49 +.55%
Morgan Stanley Technology 667.98 +1.63%
Transports 4,836.32 +.19%
Utilities 501.54 -1.32%
MSCI Emerging Markets 149.47 +3.37%

Sentiment/Internals
NYSE Cumulative A/D Line 69,560 +2.01%
Bloomberg New Highs-Lows Index +250 +70.0%
Bloomberg Crude Oil % Bulls 16.0 -27.3%
CFTC Oil Large Speculative Longs 243,458 +2.2%
Total Put/Call 1.09 +26.7%
NYSE Arms 1.24 +49.4%
Volatility(VIX) 18.0 -5.26%
ISE Sentiment 110.0 -32.1%
AAII % Bulls 49.4 +25.8%
AAII % Bears 34.2 +8.0%

Futures Spot Prices
Crude Oil 81.62 -.01%
Reformulated Gasoline 204.25 -2.1%
Natural Gas 6.88 -1.38%
Heating Oil 222.55 -2.06%
Gold 749.70 +1.49%
Base Metals 250.74 +1.31%
Copper 363.05 +1.29%

Economy
10-year US Treasury Yield 4.58% -4 basis points
4-Wk MA of Jobless Claims 311,500 -3.1%
Average 30-year Mortgage Rate 6.42% +8 basis points
Weekly Mortgage Applications 654.20 -2.82%
Weekly Retail Sales +2.2%
Nationwide Gas $2.80/gallon unch.
US Cooling Demand Next 7 Days 15.0% above normal
ECRI Weekly Leading Economic Index 141.10 +.28%
US Dollar Index 77.75 -1.12%
CRB Index 333.67 +.16%

Best Performing Style
Mid-cap Growth +.72%

Worst Performing Style
Small-cap Value -1.75%

Leading Sectors
Steel +4.62%
Wireless +2.70%
Networking +2.56%
Defense +2.39%
Computer Hardware +2.23%

Lagging Sectors
Banks -2.29%
Oil Tankers -2.47%
Airlines -3.52%
Homebuilders -4.84%
Foods -5.5%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Slightly Lower into Final Hour on End-of-Quarter Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Networking longs, Retail longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly negative today as the advance/decline line is mildly lower, sector performance is mostly negative and volume is below average. High Yield Corporate Bond Funds saw $405 million in inflows this week, the greatest amount since June 1, 2005, which is a big positive. Once again, domestic mutual funds, which have been completely shunned during this bull market, saw outflows while non-domestic mutual funds saw inflows. Keeping the public afraid of U.S. stocks remains one of the bears' most successful weapons. I still believe the eventual participation by the general public in U.S. stock gains will help contribute to the "mother of all short-covering rallies." The proliferation of hedge funds and significant increase in turnover by many other funds since the bubble burst in 2000 usually leads to mild profit-taking at quarter's end, in my opinion. Bespoke Investment Group recently said that, since the fourth quarter of 2002, the S&P 500 has averaged a -0.01% decline over the final two days of the quarter and a -0.28% decline on the final day of the quarter. The Fed's Lockhart made several comments this morning. He painted an economic picture of mildly below-trend growth and moderate inflation, which is what I have been saying for some time. He said he expects third-quarter growth to come in at 2.5% and fourth-quarter growth to be lower. I have been saying that growth would average around 2%-2.5% during the second half of the year, notwithstanding fed funds rate cuts. He also said the Fed's Sept. 18 rate cut action was a "tactical move" to reduce the risks facing the economy from the rout in financial markets that gathered momentum in August. Fed funds futures now imply an 84% chance of a 25-basis-point fed funds rate cut at the October meeting. The AAII percentage of bulls rose to 49.4% this week from 39.2% the prior week. This reading is now modestly above average levels. The AAII percentage of bears rose to 34.2% this week from 31.7% the prior week. This reading is now above average levels. Moreover, the 10-week moving average of the percentage of bears is currently at 39.4%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear-market low during 2002. The 50-week moving average of the percentage of bears is currently 36.8%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March 2003-May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently very close to eclipsing the peak in bearish sentiment during the 2000-2003 market meltdown, which I still find astonishing, notwithstanding the recent correction. The S&P 500 is 108.6% higher from October 2002 lows and is only 1.3% lower from its recent record set in July. While the percentage of bulls has rebounded recently, I would have to see several readings in the high 50s-low 60s before becoming concerned. US stock mutual funds have seen outflows for most of the past 5 years, there has been an explosion in low correlation/negative correlation US stocks strategies, there have been huge spikes in gauges of investor anxiety over the last couple of years on relatively mild market pullbacks, a fairly large chunk of the public generally hates US stocks and says they won’t ever invest in them again, the mainstream press obsesses with what is wrong or what could go wrong and long-term investors are denigrated, while day-trading is championed as a crash is always seen as just around the corner. I continue to believe overall investor sentiment regarding US stocks has never been worse in history with the S&P 500 right near a record high, which bodes very well for further outsized gains. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain hunting, less economic pessimism, lower energy prices and investment manager performance anxiety.

Incomes Rise, Spending Jumps, Inflation Decelerates, Manufacturing Healthy, Construction Spending Rebounds, Confidence Still Low

- Personal Income for August rose .3% versus estimates of a .4% gain and a .5% increase in July.

- Personal Spending for August rose .6% versus estimates of a .4% gain and a .4% increase in July.

- The PCE Core for August rose .1% versus estimates of a .1% gain and a .1% increase in July.

- The Chicago Purchasing Manager Index for September rose to 54.2 versus estimates of 53.0 and 53.8 in August.

- Construction Spending for August rose .2% versus estimates of a .3% decline and a downwardly revised .5% decline in July.

- Final Univ. of Mich. Consumer Confidence for September fell to 83.4 versus estimates of 84.0 and a reading of 83.8 in August.

BOTTOM LINE: Consumer spending in the US rose more than forecast in August, despite the credit market turmoil, and real consumer spending rose the most in more than 2 years, Bloomberg reported. Moreover, the core PCE, the Fed’s favorite inflation gauge, rose 1.8% year-over-year, the smallest gain since February 2004. This inflation gauge is also well below the long-term average of 2.5%. Inflation-adjusted spending on durable goods, autos, furniture, and other long-lasting items, surged 2.8%. Receipts at automobile dealerships and parts stores rose the most since July 2006. Considering the gloom and doom perpetuated 24-7 in almost every media outlet during the month of August, the consumer spending number was very impressive. As well, the 10-year yield is falling another 3 basis points today as investors continue to ratchet down long-term inflation expectations. I still think inflation worries have peaked for this cycle and the long-term trend of disinflation remains firmly in tact, despite the rise in commodities and decline in the dollar which are being driven mostly by investment fund speculation. I expect consumer spending to remain relatively healthy over the intermediate-term as sentiment improves, housing fears subside, inflation continues to decelerate, interest rates remain low, the job market stays healthy, the unemployment rate remains historically low and stocks continue their major bull run.

US business activity accelerated more than expected this month as production and employment expanded and a measure of prices companies paid fell to the lowest since January, Bloomberg reported. The new orders component of the index fell to 56.2 from 58.4 in August. The inventories component fell to 38.2 from 44.6 the prior month. The order backlogs component jumped to 50.5 from 38.8 in August. The prices paid component plunged to 59.0 from 71.8 the prior month. Moreover, the NAPM-Milwaukee Index soared to 70, the highest on record going back to 1998. As well, the New Orders component of this index jumped to 81, also the highest on record. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories.

The final reading on consumer confidence for September came in slightly below estimates, Bloomberg reported. I expect consumer sentiment to rebound sharply during the fourth quarter as stocks make new record highs, energy prices fall and housing fears subside to an extent. I still expect both main gauges of sentiment to rebound back near cycle highs over the intermediate-term.

Links of Interest

Market Snapshot Commentary
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Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
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In Play
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Friday Watch

Late-Night Headlines
Bloomberg:
- Sharp Corp., Japan’s biggest maker of liquid-crystal display televisions, climbed to the higher in more than a month on the Tokyo Stock Exchange after UBS AG raised its rating to “buy,” citing demand for large panels.
- Investors added $466 million to high-yield corporate bond funds, the biggest inflow in more than two years, JPMorgan Chase(JPM) said, citing figures from AMG Data Services. Net inflows in the week ended September 26 compared with net outflows of $32 million a week earlier and withdrawals of $154 million in the week ended September 12, according to a JPMorgan report yesterday.
- Blackstone Group LP(BX) and other private-equity firms will accumulate more pension-fund money than real-estate and hedge funds within three years, a Citigroup survey showed.
- Japan’s industrial output surged at the fastest pace in almost four years and household spending rebounded, signaling the economy may weather a US slowdown.

MarketWatch.com:
- Lenders are back in business after winning concessions.

NY Times:
- Bush Moves to Ease Flight Delays.

CNNMoney.com:
- Real estate investors are betting on bargains in depressed markets they think are ready to bounce back.

CNBC.com:
- Fed’s Mishkin Says Inflation Is Low Thanks to Policy.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (VZ), target $49.
- Reiterated Buy on (DVA), target $75.
- Reiterated Buy on (ZION), target $89.

BMO Capital:
- Rated (GILD) Outperform, target $51.
- Rated (VRTX) Outperform, target $44.
- Rated (PHRM) Outperform, target $57.
- Rated (MOGN) Outperform, target $33.
- Rated (MEDX) Underperform, target $11.

Business Week:
- Time Warner Telecom(TWTC), a provider of voice and Internet services for businesses, shows potential for “fast growth,” citing Joan Lappin, president of Gramercy Capital Management. She bought the stock at $5 and expects it to reach $35 in 18 months.
- Plum Creek Timber(PCL), a real estate investment trust that owns US timberland, could reach $60 a share after land purchases in Montana and Wisconsin, citing Benjamin Segal, president of Winchester Capital Management.
- Universal Electronics(UEIC), the maker of remote controls for TVs and other appliances, is likely to expand in Asia after signing a contract with PCCW Ltd. Investment firm B. Riley’s Michael Coady said the company, which is a client, may see its stock increase 31% within a year.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 futures -.11%.
NASDAQ 100 futures -.21%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
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Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (AZZ)/.48

Upcoming Splits
- (CLDA) 3-for-2
- (MNRO) 3-for-2
- (PH) 3-for-2
- (SLP) 2-for-1
- (BCSI) 2-for-1
- (JCI) 3-for-1
- (TAP) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for August is estimated to rise .4% versus a .5% gain in July.
- Personal Spending for August is estimated to rise .4% versus a .4% increase in July.
- The PCE Core for August is estimated to rise .1% versus a .1% gain in July.

9:45 am EST
-The Chicago Purchasing Manager Index for September is estimated to fall to 53.0 versus 53.8 in August.

10:00 am EST
- Construction Spending for August is estimated to fall .3% versus a .4% decline in July.
- Final Univ. of Mich. Consumer Confidence for September is estimated at 84.0 versus a prior estimate of 83.8.

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Yellen speaking, Fed’s Poole speaking, Fed’s Mishkin speaking, NAPM-Milwaukee, (PRX) analyst meeting and JPMorgan Federal IT Services Forum could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology stocks 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 Finish Higher, Led by Technology and Commodity Shares

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In Play

Stocks Slightly Higher into Final Hour, Building on Recent Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Computer longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is positive and volume is below average. The market continues to mostly ignore negative news and reward positive news, which should worry the many "crash-callers." Nasdaq reported recently that short interest on the exchange from mid-August through mid-September fell 7.4%, from 8.99 billion shares to 8.32 billion shares. However, as on the NYSE, over the last seven months, Nasdaq short interest has rocketed 18.2%, the largest seven-month percentage gain since at least 1991, according to Bloomberg. Here are the 25 Nasdaq stocks with the largest percentage increase in their short interest relative to their float from mid-August through mid-September:

1. Global Crossing (GLBC, +34.9%)
2. Lululemon Athletica (LULU, +18.9%)
3. Triad Guaranty (TGIC, +17.5%)
4. Superconductor Technologies (SCON, +12.4%)
5. Infinity Property and Casualty (IPCC, +11.5%)
6. Take-Two Interactive Software (TTWO, +9.1%)
7. Fuel-Tech (FTEK, +9.0%)
8. Bankrate (RATE, +9.0%)
9. Crocs (CROX, +8.6%)
10. Horsehead Holding (ZINC, +8.4%)
11. NutriSystem (NTRI, +8.3%)
12. Conns (CONN, +7.5%)
13. Tuesday Morning (TUES, +5.7%)
14. Corcept Therapeutics (CORT, +5.7%)
15. RF Micro Devices (RFMD, +5.5%)
16. Vineyard National Bancorp (VNBC, +5.4%)
17. Hoku Scientific (HOKU, +5.4%)
18. Theravance (THRX, +5.3%)
19. Synchronoss Technologies (SNCR, +5.0%)
20. Vermillion (VRML, +5.0%)
21. Silverstar Holdings (SSTR, +4.9%)
22. Atmel (ATML, +4.8%)
23. California Coastal Communities (CALC, +4.7%)
24. Salix Pharmaceuticals (SLXP, +4.5%)
25. True Religion Apparel (TRLG, +4.4%)

The S&P 500 also reported short interest data. Only two industries reported an increase in short interest, materials (+6.8%) and consumer discretionary (+0.3%) Here are the 25 S&P 500 stocks with the largest percentage increase in short interest relative to their float from mid-August through mid-September:

1. Jones Apparel (JNY, +18.5%)
2. Rohm & Haas (ROH, +11.6%)
3. W.W. Grainger (GWW, +7.4%)
4. Parker-Hannifin (PH, +3.9%)
5. Archstone-Smith Trust (ASN, +3.8%)
6. Marsh & McLennan (MMC, +3.8%)
7. Dillard's (DDS, +3.6%)
8. UST Incorporated (UST, +3.4%)
9 Bear Stearns (BSC, +3.4%)
10. MBIA (MBI, +3.4%)
11. DR Horton (DHI, +3.1%)
12. Verisign (VRSN, +2.8%)
13. Network Appliance (NTAP, +2.7%)
14. Ryder System (R, +2.4%)
15. Clorox (CLX, +2.2%)
16. Black & Decker (BDK, +2.1%)
17. Ambac Financial Group (ABK, +2.0%)
18. Big Lots (BIG, +1.9%)
19. RadioShack (RSH, +1.9%)
20. Sears Holdings (SHLD, +1.8%)
21. Family Dollar Stores (FDO, +1.6%)
22. Centurytel (CTL, +1.5%)
23. Masco (MAS, +1.3%)
24. Harrah's Entertainment (HET, +1.3%)
25. Circuit City (CC, +1.3%)

I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- The decline in the US commercial paper market slowed last week, after the Fed cut rates.
- General Electric(GE) CEO Immelt said the global economy will weather a US housing recession and a tightening of the credit markets, and will record growth in 2008 and 2009.
- Crude oil is rising for a second day in NY after supplies at the delivery point for the US benchmark grade fell and speculators raised bets on a dollar decline.
- Democratic presidential candidates, already criticized by Republicans for moving too far toward a government-run health system, are being urged by advocacy groups and lawmakers to go the rest of the way. With backing from labor unions, 83 Democrats in the US House are sponsoring a measure to create a national health plan, abolish private insurers, make all hospitals nonprofit and redeploy 500,000 insurance workers, supporters said today.

Wall Street Journal:
- The Bush administration will announce a series of administrative moves to reduce air-traffic congestion and flight cancellations, particularly in the heavily clogged Northeast.
- Two new groups of bidders have emerged as Wendy’s Intl.(WEN) prepares to move into the second round of its sale process.

The Street.com:
- AT&T(T) is offering $55 a share to purchase satellite-tv provider EchoStar Communications(DISH). EchoStar is holding out for $65 per share, according to TheStreet.com.

Reuters:
- Intel Corp.(INTC) Chairman said the microchip maker is regaining market share against AMD(AMD) and its performance is looking “pretty good.”

2Q GDP Healthy, Inflation Below-Average, Initial Jobless Claims Fall, New Home Sale Decline

- Final 2Q GDP rose 3.8% versus estimates of a 3.8% gain and a prior estimate of a 4.0% increase.

- Final 2Q Personal Consumption rose 1.4% versus estimates of a 1.4% increase and a prior estimate of a 1.4% gain.

- Final 2Q GDP Price Index rose 2.6% versus estimates of a 2.7% gain and a prior estimate of a 2.7% gain.

- Final 2Q PCE Core rose 1.4% versus estimates of a 1.3% gain and prior estimates of a 1.3% increase.

- Initial Jobless Claims fell to 298K versus estimates of 316K and 313K the prior week.

- Continuing Claims rose to 2551K versus estimates of 2550K and 2540K prior.

- New Home Sales for August fell to 795K versus estimates of 825K and 867K in July.

BOTTOM LINE: The US economy grew in the second quarter at the fastest pace in more than a year, Bloomberg reported. The Fed’s preferred inflation gauge, the core pce, rose at a 1.4% annual rate in the second quarter and was up 2% year-over-year. Americans’ wages are rising at just about twice this rate. The smaller trade deficit during 2Q added 1.3 percentage points to growth, the most since 1996. Residential home construction fell at a 12% annual pace last quarter and subtracted .6 percentage points from growth. However, non-residential construction jumped 26% last quarter, the most since 1981. I continue to believe US economic growth will come in modestly below trend this quarter and next, rising around 2-2.5%. Lower inflation, booming exports, inventory rebuilding and a resilient consumer should continue to more than offset the drag from housing.

The number of US workers filing first-time claims for unemployment benefits unexpectedly fell to a four-month low, Bloomberg said. The four-week moving-average of claims dropped 3.1% to 311,500 from 321,250. “Labor market conditions overall are not deteriorating and remain pretty steady,” said Julia Coronado, senior US economist at Barclays Capital. The unemployment rate among those eligible to collect jobless benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating significant unit labor cost increases.

Sales of new homes in the US dropped more than forecast in August as the credit turmoil peaked, Bloomberg reported. The inventory of unsold homes rose to 8.2 months’ worth at the current sales pace. Sales fell 21% in the West and 15% in the South. However, sales soared 42% in the Northeast and jumped 21% in the Midwest. I still think home sales are in the process of stabilizing at lower, but relatively high by historic standards, levels. I expect home sales to bounce back a bit over the next couple of months. Home construction will remain weak over the intermediate-term as homebuilders pare down inventories.

Links of Interest

Market Snapshot Commentary
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Top 20 Biz Stories
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Thursday Watch

Late-Night Headlines
Bloomberg:
- The Doris Duke Charitable Foundation pledged $100 million in grants to help health-care providers in African countries. The NY-based foundation plans to award three to six multiyear grants of $8 million to $20 million starting in early 2009.
- China’s economic growth may slow in the fourth quarter, economists from the State Information Center said, citing a moderation in power generation, steel output and government revenue.
- South Korean consumers became the most optimistic in five years in the third quarter, indicating shoppers may step up spending and spur economic growth.
- China and Russia blocked US and European efforts in the UN Security Council to condemn Myanmar’s military-run government for its crackdown on protesters.

MarketWatch.com:
- Robert Powell: Meet one guru who is “wildly optimistic” about boomer retirement.
- Housing inventory peak?(video)
- Monsanto(MON) expects to triple its international acreage.
- Dell(DELL) sells idea of green technology. Computer guru touts conservation, innovation.
- Ahead of the (yield) curve. Post-Fed curve much steeper, a good sign for the economy.
- A smirking Ahmadinejad suckers the US media.

NY Times:
- Bear Stearns(BSC), its shares and reputation beaten down after the collapse of two hedge funds, has held talks with several investors, including Warren E. Buffett, concerning a possible sale of as much as 20% of the firm, people briefed on the discussions said yesterday.

USA Today.com:
- Medicare’s new policy strains small firms.
- More Chinese-made jewelry and toys recalled.

Financial Times:
- Microsoft(MSFT) said on Wednesday that its Halo 3 video game had lived up to its expectations of being “the biggest entertainment launch in history”, with $170 million in sales recorded in the US alone on the first day of sales.

Reuters:
- The SEC is conducting more than 30 investigations into potential hedge fund manager misconduct in the northeast US alone, with more in other parts of the country, officials said on Wednesday.
- US home goods retailer Bed Bath & Beyond(BBBY) posted a slightly higher quarterly profit on Wednesday on increased sales and a one-time tax benefit and said its board of directors approved a $1 billion share buyback program.
- Paychex Inc.(PAYX), a payroll services company, said on Wednesday that quarterly earnings rose 12%, as it added customers, its check volume grew and it raised prices.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BBY), target $55.
- We lowered our September same-store-sales estimates for (FDO), (JCP), (KSS), (M) and (TGT) based on unfavorable weather conditions as well as higher gas prices, which likely dampened and weighed on retail spending at the Broadlines retailers in September. Week 1 of this month ranked at the warmest Labor Day week in at least 15 years and Week 3 ranked as the 3^rd warmest in 15 years, while September 2006 was the coolest in several years and the wettest in over a decade, making for difficult compares.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures +.13%.
NASDAQ 100 futures +.20%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (CHTT)/.74
- (KBH)/-.74
- (MKC)/.43
- (MTN)/-.89
- (ACN)/.48
- (BE)/.05
- (PLL)/.55
- (TXI)/.89
- (CBK)/.11
- (JBL)/.28
- (CTAS)/.53
- (FINL)/.13
- (FMCN)/.35
- (GPN)/.51

Upcoming Splits
- (FCSX) 3-for-2
- (LPHI) 5-for-4
- (NOV) 2-for-1

Economic Releases
8:30 am EST
- Final 2Q GDP is estimated to rise 3.8% versus prior estimates of a 4.0% gain.
- Final 2Q Personal Consumption is estimated to rise 1.4% versus a prior estimate of a 1.4% increase.
- Final 2Q GDP Price Index is estimated to rise 2.7% versus a 2.7% prior estimate.
- Final 2Q PCE Core is estimated to rise 1.3% versus a prior estimate of a 1.3% gain.
- Initial Jobless Claims for last week are estimated to rise to 316K versus 311K the prior week.
- Continuing Claims are estimated to rise to 2550K versus 2544K prior.

10:00 am EST
- New Home Sales for August are estimated to fall to 825K versus 870K in July.

Other Potential Market Movers
- The Fed’s Rosengren speaking, Fed’s Evans speaking, Fed’s Mishkin speaking, weekly EIA natural gas inventory report, Help Wanted Index, (INTU) investor day, (FCS) analyst meeting, CSFB Chemical Conference and UBS Global Life Sciences Conference could also impact trading today.

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

Stocks Finish Higher, Propeled by Gains in the Financial Sector

Indices
S&P 500 1,525.42 +.54%
DJIA 13,878.15 +.72%
NASDAQ 2,699.03 +.58%
Russell 2000 809.12 +.76%
Wilshire 5000 15,269.52 +.56%
Russell 1000 Growth 616.77 +.52%
Russell 1000 Value 850.47 +.60%
Morgan Stanley Consumer 744.88 +.90%
Morgan Stanley Cyclical 1,055.17 +1.02%
Morgan Stanley Technology 664.29 +.12%
Transports 4,834.12 +.57%
Utilities 512.04 +.67%
MSCI Emerging Markets 147.30 +.87%

Sentiment/Internals
Total Put/Call .85 -26.09%
NYSE Arms .81 -15.56%
Volatility(VIX) 17.63 -5.22%
ISE Sentiment 134.0 -11.84%

Futures Spot Prices
Crude Oil 80.50 +1.22%
Reformulated Gasoline 202.46 -.65%
Natural Gas 6.42 +.99%
Heating Oil 218.25 +.06%
Gold 735.70 -.42%
Base Metals 251.59 +1.79%
Copper 361.90 -.28%

Economy
10-year US Treasury Yield 4.62% unch.
US Dollar 78.52 +.27%
CRB Index 331.92 +.07%

Leading Sectors
I-Banks +2.13%
Biotech +1.36%
Restaurants +1.30%

Lagging Sectors
Oil Tankers -1.19%
Gold -1.61%
Homebuilders -2.42%

Evening Review
Market Performance Summary
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Market Wrap CNBC Video(bottom right)
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GuruFocus.com
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied the most in a week after GM(GM) agreed on a contract with the UAW and investors speculation billionaire Warren Buffett will buy a stake in Bear Stearns(BSC).
- US Treasury Secretary Henry Paulson called on Congress to pass legislation that would permanently bar taxes on Internet access services.

NY Times:
- Buffett, Others Said to Consider Bear Stearns Stake.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs and Medical longs. 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, most sectors rose and volume was around average. Measures of investor anxiety were around average into the close. Today's overall market action was bullish. Semis, homebuilders and oil service didn't participate, however, airlines, restaurants, retail, biotech, investment banks, wireless, steel and alternative energy all posted 1%+ gains. Under Armour (UA) fell over 6% today on a downgrade from UBS. Their rationale basically revolved around unusually warm weather this month. I will use any further meaningful weakness in the shares to add to my long position. Cyclicals outperformed today, rising 1.02%, even as many pointed to the durable goods report as evidence of economic weakness. I expect durable goods orders to bounce back next month. Growth stock leaders underperformed today, which isn't surprising given recent outsized gains. Investors Intelligence showed an increase in bullishness today, however, as I have posted many times before, I don't believe this sentiment indicator has a very good track record as a contrary indicator. I look at dozens of gauges of investor sentiment. I usually highlight the AAII numbers because they are a much better contrary indicator, in my opinion. I still argue that overall investor sentiment toward U.S. stocks has never been this bad in history with the S&P 500 just off a record high, which bodes very well for an extension of the huge gains we have seen since the bottom in 2002.We could get some early morning weakness tomorrow on more weak housing data and profit-taking, however I still believe pullbacks will remain muted and short-term in nature.

Stocks Surging into Final Hour as Tech Sector Index Approaches 7-year High and Financials Jump

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is positive and volume is about average. The I-bankers are jumping 3% on news that Warren Buffett may take a stake in Bear Stearns(BSC). Google (GOOG) and Apple (AAPL) opened weaker, but I wouldn't read too much into that considering their recent explosion higher and relatively low correlation with the S&P 500. Google is now 23% higher and Apple 79% higher year-to-date. These two remain my largest long positions, just ahead of Intuitive Surgical (ISRG), which is 140% higher for the year. I remain very long-term bullish on all three. AppleInsider is reporting today that Apple (AAPL) may release a new PDA device by the middle of next year. Apple is selling off slightly today after its recent strong run. I think it still isn't too late for longer-term investors to build positions in Apple on pullbacks. As with Google (GOOG), I think the stock can grow at a relatively high rate for much longer than many investors expect. I think the stock also will see multiple expansion as it continues to beat estimates, growth-stock outperformance continues and interest rates remain low. The Morgan Stanley Tech Index is making a 52-week high today. It is now at the highest level since February 2001. It is up 17.8% for the year and 25.3% higher over the last 12 months. This is a huge story that is mostly ignored in favor of 24/7 coverage of the "housing depression." I think that the fundamentals and technicals are in place for tech's outperformance to continue over the intermediate term. The NYSE Arms has been above average most of the day, despite gains in the major averages, which is a positive. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, strength in the financial sector and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- Saudi Arabian central bank Governor Hamad Saudi al-Sayari said the bank would keep the peg to the US dollar and intervene in markets to maintain the currency system and control the amount of money in the financial system.
- US auto-parts makers including American Axle and Lear rose in NY trading on optimism that General Motors(GM) tentative labor accord would stabilize the industry.
- The risk of owning the bonds of US automakers fell to the lowest in more than two months as General Motors(GM)’s ability to win historic cost concessions from its largest union of workers raised optimism that Ford(F) and Chrysler can do the same.
- Bear Stearns(BSC) shares rose the most in almost two weeks on speculation an Asian company plans to buy a stake in the fifth-largest US investment bank.

Wall Street Journal:
- Technology stocks are posting big gains, after a long period when they were scoffed at by the market, and some money managers say the recent rally is just the beginning.

Reuters:
- Iran sees no need for OPEC to raise production again even after oil prices rose to a record, citing Iranian Acting Oil Minister Gholamhossein Nozari.

O Estado de S. Paulo:
- Petroleo Brasileiro SA(PBR), Brazil’s state controlled oil company, confirmed the discovery of two high-quality oil deposits below a layer of salt off the coast of Espirito Santo state.

Durable Goods Orders Fall After Large Increase the Prior Month

- Durable Goods Orders for August fell 4.9% versus estimates of a 4.0% decline and an upwardly revised 6.1% gain the prior month.

- Durables Ex Transports for August fell 1.8% versus estimates of a 1.0% decline and a downwardly revised 3.4% gain in July.

BOTTOM LINE: Orders for US-made durable goods fell in August after July’s large increase that was the most in almost a year, Bloomberg reported. Demand for autos dropped 6.2% versus an 11% surge in July. In July, auto dealers may have been trying to boost supplies ahead of a possible strike at General Motors(GM). Non-defense capital goods orders ex aircraft, a gauge of future business investment, fell .7% versus a .9% gain in July. However, shipments of those items rose .8% after no change in July. Unfilled orders for capital equipment rose 1.2%, which suggests manufacturers had enough demand to keep manufacturing lines busy over the coming months. Inventories of durable goods fell .1%, the first decline since February 2006. I expect volatile durable goods orders to bounce back next month. I still think manufacturing will help add to overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes