Thursday Watch

Late-Night Headlines
Bloomberg:
- China unexpectedly increased fuel prices by as much as 10% in an “’urgent step” to help the nation’s oil refiners cover surging costs. To “guarantee domestic refined oil supply and promote energy conservation,” gasoline, diesel and jet fuel prices will rise $67 a metric ton starting today, the National Development and Reform Commission said.
- The dollar snapped seven days of losses against the euro on speculation the currency’s 1.6% decline over the past month was too fast as the Federal Reserve signaled it may be done with cutting interest rates.
- The US has destroyed as much as 80% of the al-Qaeda in Iraq group’s propaganda network since the deployment of additional American troops in the country, a spokesman for coalition forces said.
- Australia’s retail sales increased more than expected in September as higher wages and job gains boosted spending on furniture, electronics and food.
- A team of US nuclear inspectors travels to North Korea today to witness the communist nation start dismantling its nuclear program, Assistant Secretary of State Christopher Hill said.

Wall Street Journal:
- A report on the competitiveness of economies around the world released yesterday puts the US out front and highlights the growing potential of energy-producing countries awash in oil and natural gas revenue.

TheStreet.com:
- Barton Biggs, of hedge fund Traxis Partners, said last night on CNBC’s “Fast Money” that the Fed did what it should have done and the market is being set up for a big surge higher. He also mentioned that he is hearing from the prime brokers that hedge funds are at their lowest levels of being net long in 4 years. He expects a stampede into year end in big cap multinationals, tech, Asia and emerging markets.

BusinessWeek.com:
- Why Delta Should Buy Northwest. With a new CEO and a clean balance sheet, Delta is pondering expansion. Here’s why Northwest is the logical choice.

Financial Times:
- Google(GOOG) plans network to rival Facebook.
- Goldman(GS) shares at new highs.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (IACI) to Buy, target $37.
- We believe conservative expectations are appropriately factored into current retail stock prices & retailers could deliver upside to our +1% comp est. driving the stocks higher given 1) pent-up demand from weak Fall sales, 2) cooler weather, 3) easier comparisons, 4) negative investor sentiment, and 5) the end of tax loss selling(Oct.31). Our top picks for Holiday sales are 1) GPS and 2) TJX, as we believe both retailers are best positioned to deliver upside to current 4Q sales and EPS expectations given conservative inventory management and cost reductions.

CSFB:
- Reiterated Outperform on (MA), raised estimates and boosted target to $160.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.02%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (BBI)/-.18
- (CLI)/.26
- (PTEN)/.55
- (RDN)/.38
- (D)/1.68
- (ATK)/.39
- (CVS)/.44
- (RDC)/1.14
- (NMX)/.64
- (BDX)/.97
- (PDE)/.80
- (MHS)/.69
- (ED)/1.06
- (ABC)/.64
- (TBL)/.49
- (AMSC)/.13
- (ASF)/.43
- (KBR)/.31
- (S)/.22
- (EK)/.28
- (VCLK)/.16
- (GGC)/.15
- (OII)/.85
- (EDS)/.41
- (FLS)/.92
- (CLF)/1.51
- (PSYS)/.38
- (ERTS)/.20
- (LVS)/.29
- (CA)/.26
- (VRSN)/.27
- (XOM)/1.74
- (IGT)/.38
- (OMX)/.63
- (TSO)/.84
- (SINA)/.27

Upcoming Splits
- (ATU) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for September is estimated to rise .4% versus a .3% gain in August.
- Personal Spending for September is estimated to rise .4% versus a .6% gain in August.
- The PCE Core for September is estimated to rise .2% versus a .1% gain in August.
- Initial Jobless Claims for this week are estimated to fall to 330K versus 331K the prior week.
- Continuing Claims are estimated to rise to 2534K versus 2530K prior.

10:00 am EST
- ISM Manufacturing for October is estimated to fall to 51.5 versus 52.0 in September.
- ISM Prices Paid for October is estimated to rise to 63.0 versus a reading of 59.0 in September.

Afternoon:
- Total Vehicle Sales for October is estimated to fall to 16.0M versus 16.2M in September.

Other Potential Market Movers
- The Challenger Job Cuts report, weekly EIA natural gas inventory report and Oppenheimer Restaurant Conference could also impact trading today.

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

Stocks Finish Sharply Higher on Less Economic Pessimism, Fed Rate Cut

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Stocks Surging into Final Hour on Less Economic Pessimism, Fed Rate Cut

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Software longs and Medical 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, almost every sector is rising and volume is heavy. Mastercard (MA) reported excellent results and boosted its stock buyback program. I have heard many bears say that the company's positive results of late are just a function of how strapped the U.S. consumer is. However, Mastercard attributed these strong results to strong international and emerging market demand. The stock, with short interest near record levels, is soaring 22% on the report. As I have said a number of times, I don't usually highlight the Investors Intelligence survey because I don't think it is a good contrary indicator. I choose to highlight the AAII survey, which recently showed exceptional bearishness, given how close the S&P 500 is to a record. Many others have been pointing to the Investors Intelligence survey, however, as recent evidence that investors were too complacent. That survey came out today and shows a seven-week low in investor optimism. I haven't heard anyone even mention this. The Fed cut the fed funds rate and discount rate 25 basis points, as expected. The Fed also explicitly stated that the balance of risks are now equal with respect to inflation and growth. I think, overall, the policy statement was slightly more hawkish than many investors expected. I view those statements as a positive, however. The odds of another 25-basis-point cut at the December meeting are now 51.8%, down from 60.7% before the meeting. I still think the market is in a win-win situation as the Fed has massive firepower available if needed. If growth remains extraordinarily resilient, many companies will continue to post stellar earnings results -- even with the drag from housing on a few sectors. Google (GOOG) is already back near session highs and I agree with those who think that the company should split its stock. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less economic pessimism, investment manager performance anxiety and short-covering.

US Growth Surges, GDP Price Index Plunges, Consumer Spending Jumps, Chicago PMI Falls, Construction Rises

- Advance 3Q GDP rose 3.9% versus estimates of a 3.1% gain and a 3.8% increase in 2Q.

- Advance 3Q Personal Consumption rose 3.0% versus estimates of a 3.2% gain and a 1.4% increase in 2Q.

- Advance 3Q GDP Price Index rose .8% versus estimates of a 2.0% gain and a 2.6% increase in 2Q.

- Advance 3Q Core PCE rose 1.8% versus estimates of a 1.5% gain and a 1.4% increase in 2Q.

- 3Q Employment Cost Index rose .8% versus estimates of a .9% gain and a .9% increase in 2Q.

- Chicago Purchasing Manager for October fell to 49.7 versus estimates of 53.0 and a reading of 54.2 in September.

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

BOTTOM LINE: Economic growth in the US unexpectedly accelerated in the third quarter, despite the housing and credit market turmoil, as increases in exports, consumer spending and business investment more than made up for a drop in home construction, Bloomberg reported. GDP grew at an annual rate of 3.9%, the most since the first quarter of 2006 and well above the long-term average of 3.1%. The catalysts for this strong showing were a sharp bounceback in consumer spending and decelerating inflation. Employment costs, which make up two-thirds of inflation, rose at a slower pace than during 2Q. The Core PCE, the Fed’s favorite inflation gauge, rose 1.8% which is within the Fed’s stated comfort zone of 1-2%. Moreover, the rate of growth in the GDP Price Index is plunging. The GDP Price Index rose .8% during 3Q versus 4.2% during 1Q, despite some significant rises in commodity prices. This is the lowest rate of growth in prices since the second quarter of 1998. I continue to believe the secular trend of disinflation remains firmly in tact and that Asia will experience another bout of deflation during the next substantial global growth slowdown. According to Intrade.com, the odds that U.S. growth turns negative this quarter are only 12.5%. Moreover, economists are estimating growth of 1.8% this quarter. I expect growth to come in between 2% to 2.5%, boosted by inventory rebuilding and strong exports. I also still think U.S. growth of around 2% to 2.5% is likely over the intermediate term as a booming global economy continues to more than offset the substantial drag from housing.

Chicago-area business activity in October fell below estimates, as manufacturers restrained production, Bloomberg reported. It was the seventh time since the economic expansion began in November 2001 that the index fell below 50. The New Orders component of the index fell to 53.9 from 56.2 the prior month. The Prices Paid component rose to 74.7 versus 59 the prior month. The Employment component fell to 49.5 versus 52 the prior month. I expect this gauge to bounce back next month as companies rebuild depleted inventories and companies gain confidence in the sustainability of the current expansion.

Spending on US construction projects unexpectedly rose last month as gains in the building of factories, hotels and schools offset a drop in home construction, Bloomberg reported. Non-residential construction rose 17% year-over-year during the month. I continue to believe construction activity will remain muted 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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Upgrades/Downgrades
In Play
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Dow Jones Hedge Fund Indexes

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil fell for a second day, extending its decline from Monday’s record, after Goldman Sachs(GS), the bank that said in July oil may reach $95 a barrel, told clients it’s “time to take profits.”
- Mapfre SA, Spain’s biggest insurer, said it will acquire Commerce Group(CGI) for $2.2 billion in cash, adding the largest automobile insurer in Massachusetts.
- United Parcel Service(UPS) Adds $2 Billion More for Share Buybacks.

Wall Street Journal:
- Google(GOOG), Verizon Wireless(VZ) Discussing Phone Service.
- News Corp.’s(NWS/A) Fox television network has almost sold out the inventory of advertising space for the upcoming Super Bowl. The increased demand from the media buyers is outpacing past Super Bowls as advertisers seek ways to diminish the effect of digital video recorders.
- Democratic Rivals Target Clinton in Debate.

New York Times:
- GoogleGOOG) and Friends to Gang Up on Facebook.

MarketWatch.com:
- New California regulations may push hedge funds out of state.
- Apple Inc.(AAPL) saw booming sales of the latest version of its operating system over the weekend, which may help boost momentum for the company’s line of Mac computers during the holiday season.

CNNMoney.com:
- Oil: No longer a heavyweight. Higher efficiency, a more diverse energy mix and a more prosperous nation have softened rising oil’s economic punch.

IBD:
- Poll: PC Sales Merry This Christmas.

USA Today.com:
- 3^rd-quarter earnings may not be as bad as they seem.
- Fee fi fo fum: Google(GOOG) smells the blood of Microsoft.

Reuters:
- Dell(DELL) to resume buybacks, files restated results.
- Japan manufacturers PMI falls, pricing power weak.

TimesOnline:
- BP Plc(BP) is in talks with the Abu Dhabi government to find a “green energy” process to generate electricity.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (PBI), target $51.

CSFB:
- Reiterated Outperform on (MCK), target $69.

Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 futures +.01%.
NASDAQ 100 futures -.01%.

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/EPS Estimate
- (CRS)/2.11
- (CLX)/.68
- (CGX)/.92
- (CEG)/1.54
- (FCL)/.05
- (GRMN)/.81
- (HES)/1.37
- (IACI)/.35
- (IDA)/.65
- (IFF)/.70
- (IMA)/.24
- (IRM)/.18
- (JNY)/.34
- (LAZ)/.67
- (MA)/1.42
- (NCR)/.26
- (NEM)/.25
- (NBL)/1.23
- (OCR)/.55
- (PMTC)/.26
- (PPL)/.62
- (SPW)/1.19
- (RIG)/1.99
- (WY)/.49
- (WYN)/.73
- (BYD)/.41
- (KFT)/.41
- (COL)/.88
- (CAI)/.58
- (AAP)/.58
- (AOC)/.59
- (AVB)/.60
- (CNO)/.28
- (FMC)/.64
- (GSF)/1.90
- (JDSU)/.06
- (MET)/1.39
- (PRU)/1.74
- (TK)/.32
- (DOX)/.54
- (BCO)/.64
- (CROX)/.62
- (FBN)/.00
- (GRB)/.11
- (HLT)/.33
- (LNY)/.31
- (MSTR)/1.18
- (TUES)/.03

Upcoming Splits
- (MNRK) 6-for-5

Economic Releases
8:30 am EST
- Advance 3Q GDP is estimated to rise 3.1% versus a 3.8% gain in 2Q.
- Advance 3Q Personal Consumption is estimated to rise 3.2% versus a 1.4% gain in 2Q.
- Advance 3Q GDP Price Index is estimated to rise 2.0% versus a 2.6% gain in 2Q.
- Advance 3Q Core PCE is estimated to rise 1.5% versus a 1.4% increase in 2Q
- The 3Q Employment Cost Index is estimated to rise .9% versus a .9% gain in 2Q.

9:45 am EST
- The Chicago Purchasing Manager report for October is estimated at 53.0 versus 54.2 in September.

10:00 am EST
- Construction Spending for September is estimated to fall .5% versus a .2% gain in August.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 400,000 barrels versus a -5,288,000 barrel drawdown the prior week. Gasoline supplies are expected to fall by -200,000 barrels versus a -1,931,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,000,000 barrels versus a -1,847,000 barrel decline the prior week. Refinery Utilization is expected to rise by .50% versus a -.21% decline the prior week.

2:15 pm EST
- The Fed is expected to lower the benchmark fed funds rate by 25 basis points to 4.5%.

Other Potential Market Movers
- The ADP Employment Change report, weekly MBA Mortgage Applications report, NAPM-Milwaukee and (GR) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 Lower on Rising Apprehension Ahead of Tomorrow's Fed Announcement

Indices
S&P 500 1,531.02 -.65%
DJIA 13,792.47 -.56%
NASDAQ 2,816.71 -.03%
Russell 2000 816.15 -.68%
Wilshire 5000 15,403.50 -.65%
Russell 1000 Growth 630.91 -.42%
Russell 1000 Value 840.44 -.90%
Morgan Stanley Consumer 745.25 -.19%
Morgan Stanley Cyclical 1,052.74 -.81%
Morgan Stanley Technology 673.32 +.01%
Transports 4,842.16 -.05%
Utilities 526.46 +.01%
MSCI Emerging Markets 163.92 -.82%

Sentiment/Internals
Total Put/Call 1.05 +23.53%
NYSE Arms 1.30 +72.4%
Volatility(VIX) 21.07 +6.04%
ISE Sentiment 153.0 -19.90%

Futures Spot Prices
Crude Oil $89.80 -3.98%
Reformulated Gasoline 224.65 -3.48%
Natural Gas 8.01 +.44%
Heating Oil 242.09 -1.77%
Gold 785.30 -.92%
Base Metals 243.96 -2.41%
Copper 347.50 -1.31%

Economy
10-year US Treasury Yield 4.38% unch.
US Dollar 76.74 -.12%
CRB Index 344.19 -1.50%

Leading Sectors
Airlines +2.72%
Software +1.38%
REITs +.93%

Lagging Sectors
Steel -2.92%
Energy -3.05%
Oil Service -3.90%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- The benchmark gauge of stock market volatility rose for a second day and traders increased bets that tomorrow’s interest rate decision by the Fed will spur greater stock-price swings in the next three weeks.
- Crude oil fell more than $3 from a record in NY after Goldman Sachs(GS) told clients it’s “time to take profits.”
- DreamWorks Animation(DWA), the studio run by Jeffrey Katzenberg, said third-quarter profit rose 400% on sales of “Shrek the Third,” this year’s second-highest grossing US film.
- President Bush said he would reject any attempt by Congress to force him to accept legislation with increased domestic spending by combining it will funding for military operations and veterans health care.

Washington Post:
- Attacks by Iraqi Insurgents Dropped Sharply in September.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Medical longs, Software longs, Retail longs, Computer longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished lower, sector performance was mixed and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was just mildly bearish. Most of today's meaningful losses were found in commodity-related stocks as oil fell $3.78 per barrel despite dollar weakness and expectations for another Fed cut tomorrow. Utility, Internet, software, computer hardware, semi, drug, hospital, HMO, homebuilder, REIT, restaurant and airline shares all gained for the day. Once again, today I have many stocks on my monitor pages posting significant gains despite losses in the averages. I continue to find many excellent “growth” stocks of all market caps at reasonable valuations that are doing very well this year.

Stocks Mixed into Final Hour as Weakness in Commodities is Offset by Strength in Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Internet longs, Computer longs, Retail longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is slightly lower, sector performance is mixed and volume is around average. A WSJ article suggested the Fed may remain on hold tomorrow. While no change in rates is possible, it is highly unlikely. Fed fund futures now imply a 94% chance for a 25 basis point cut and only a 6% chance of no change. I seriously doubt the Fed would blindside the market with no change in rates given the current macro backdrop and their recent comments. I still expect a 25 basis point cut tomorrow. The US dollar-based 3-month LIBOR rate is falling another 5 basis points today to 4.91%. This has now plunged 81 basis points from its September high and is at the lowest level since March 2006. As I suggested yesterday, Google (GOOG) appears to be embarking on another meaningful push higher. As well, another surge in Apple (AAPL) shares looks likely. A number of other market-leading stocks are posting gains today despite losses in the major averages. Under Armour (UA) beat estimates and boosted guidance despite very warm weather of late. I added shares during the most recent pullback and plan to continue doing so going forward. Goldman Sachs (GS) is recommending investors take profits in crude oil futures due to rising exports, a slowing U.S. economy and an adequate level of heating oil inventories. Goldman also said today that rising oil supplies will come from the Greater Plutonio oil field in Angola and the Genghis Khan field in the U.S. Gulf of Mexico, which will ramp up production over the next several weeks. Goldman said it was closing its long positions in oil, according to Bloomberg. I view this as significant. The much-loved commodity stocks are under pressure today on falling prices, but a number of other sectors are rising. Today's Consumer Confidence index fell more than expected, to 95.60, which is modestly below the 20-year average of 101.9. The Present Situation component of the index came in at 118.8 vs. the 20-year average of 113.2. This also corresponds with the most recent Rasmussen consumer survey, which indicates that 79% of Americans currently rate the economy as fair to excellent, while 29% rate it poor. Consumers still feel pretty good about their situation now, which doesn't indicate a meaningful decline in consumer spending is imminent. The Expectations component of today's confidence report fell, however, to a depressed 80.10 vs. the 20-year average of 94.4. The gap between consumer perceptions regarding their current situation and the future is near the largest in history. This isn't surprising given the current U.S. “negativity bubble.” The overwhelming majority of media outlets always paint a dire picture of the future, and it does affect consumer perceptions. In my opinion, many that want a U.S. bear market and recession, for both political and financial gain, are currently abusing George Soros' Theory of Reflexivity by attempting to scare businesses and consumers so much that they actually do retrench. Given that housing worries are the most extreme in the South Atlantic and Pacific regions of the country, it is very interesting that confidence remains high in the Pacific and healthy in the South Atlantic. In fact, confidence actually surged 11.6% in the Pacific region this month. Very depressed confidence in the Northeast Central and New England regions, where most media outlets and hedges funds are located, continues to negatively skew the entire confidence gauge.

Here is a breakdown of today's consumer confidence reading by region:

• Northeast Central 61.8
• New England 64.6
• Mid Atlantic 85.10
• Northwest Central 96.10
• South Atlantic 102.7
• Southeast Central 108.0
• Pacific 119.7
• Southwest Central 127.0
• Mountain 141.80

I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, falling energy prices and short-covering ahead of tomorrow’s Fed announcement.

Today's Headlines

Bloomberg:
- Goldman Sachs(GS), the bank that said in July oil may reach $95 a barrel, told clients its was “time to take profits” after crude rose to a record $93.80 in NY yesterday. Oil is falling $3.34/bbl. to $90.19/bbl.
- Bank of America(BAC), the second-biggest US bank, says rising demand for high-risk, high-yield debt is helping US credit markets recover.
- The global sugar glut may take as long as two years to erode because of record crops in India and Brazil, the International Sugar Organization said.
- Researchers at IBM(IBM), the world’s biggest computer-services company, have devised a process to recycle discarded computer-chip wafers into solar panels.
- American Superconductor(AMSC), a leading energy technologies company, announced today that it has formed a new division known as “AMSC China” to serve the growing wind energy, power grid and industrial markets in China.
- The US House of Representatives approved a bill to bar states from levying taxes on Internet access through 2014, clearing the way for President Bush to sign the measure into law before an existing ban expires.
- Mergers and acquisitions overtook last year’s record in the first ten months as publicly listed companies picked up the slack left by private-equity firms unable to fund transactions because of rising borrowing costs.
- Greenspan Says China’s Stock-Market Bubble Is Likely to Burst.
- Under Armour(UA), the maker of moisture-releasing athletic wear, rose more than 5% for the third time in a week after lifting annual sales and earnings forecasts.

Wall Street Journal:
- Shhh, NYSE Aims to Bring Back Blocks.
- Murtha Inc. How Lawmaker Rebuilt Hometown on Earmarks. Johnstown Gets Billions With Power Broker’s Aid; FBI Questions a Contract.

USAToday.com:
- States battle rise in copper thefts. ‘Epidemic’ affects electricity, irrigation.

Washington Post:
- Preteens Trading Fairy Wands for Fishnets. Halloween Trend Toward Racy Get-Ups Vexes Parents.

China Daily:
- China is set to triple its natural gas output by 2020 as its top producers step up exploration, citing an analyst.
- China’s rate of birth defects has surged 40% since 2001, which means a deformed baby is born every 30 seconds.

Consumer Confidence Declines

- Consumer Confidence for October fell to 95.6 versus estimates of 99.0 and a reading of 99.5 in September.

BOTTOM LINE: Consumer confidence fell more than expected in October, Bloomberg reported. However, the present conditions component of the index, which measures Americans’ perception of their current financial situation, remained high at 118.8 versus the 20-year average of 113.2. I still expect consumer confidence to move back towards cycle highs over the intermediate-term as housing fears subside, interest rates remain low, inflation decelerates further, gas prices decline, unemployment remains historically low, wages continue to significantly outpace inflation and stocks rise further.

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

Tuesday Watch

Late-Night Headlines
Bloomberg:
- The euro snapped five days of gains versus the dollar on speculation credit market losses at European financial companies will weaken the case for the central bank to raise interest rates.
- Japan’s unemployment rate unexpectedly rose for a second month and the Labor Ministry downgraded its assessment of the jobs market as hiring slowed.

Wall Street Journal:
- In a risky change of strategy, Democrats are pursuing a plan that would dare President Bush to veto a massive bill that combines spending for veterans care, education and the Pentagon.
- Google Inc.(GOOG) is about to unveil a plan to change the way the mobile-phone industry works.

New York Times:
- GM(GM) to Build Hybrid Research Center in China.

BusinessWeek.com:
- Time to Buy Financial Stocks?
- Electronic Arts(ERTS) 2.0. The games giant has spent $860 million on recent deals, heralding a shit in strategy and potentially building a new innovation engine for itself.
- Apple, Google vs. Big Wireless. The tech giants’ mobile software efforts could give developers the long-awaited upper hand over cellular carriers – and even Symbian and Microsoft.

USA Today.com:
- Tribune, Gannett team to expand city-focused websites.

TimesOnline:
- Google’s(GOOG) advertising revenue overtook that of ITV Plc’s ITV1, the UK’s top commercial television channel, for the first time, citing its analysis of Google’s third-quarter results.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NKE), target $67.

CSFB:
- Reiterated Outperform on (VZ), target raised to $52.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -.21%.
NASDAQ 100 futures -.12%.

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/EPS Estimate
- (ADP)/.43
- (BEAV)/.41
- (BEC)/.75
- (CRDN)/1.36
- (CPO)/.67
- (FPL)/1.22
- (IT)/.11
- (IVC)/.32
- (JAH)/.69
- (LIZ)/.70
- (ONNN)/.22
- (PMI)/-1.05
- (STE)/1.26
- (TKLC)/.12
- (TEN)/.39
- (X)/2.66
- (VSH)/.26
- (RRD)/.74
- (BJS)/.61
- (CL)/.85
- (MAS)/.45
- (PG)/.90
- (Q)/.16
- (SIRI)/-.08
- (TRW)/.25
- (UA)/.34
- (WEC)/.67
- (AVP)/.36
- (COCO)/.04
- (SAF)/1.53
- (GT)/.51
- (AXL)/.23
- (MGM)/.49
- (CMG)/.52
- (ANDW)/.18
- (DWA)/.43
- (EQR)/.04
- (FIC)/.41
- (LNC)/1.37
- (MCK)/.72
- (OMTR)/.05
- (SIRF)/.22
- (WYNN)/.60
- (AG)/.30
- (BWLD)/.26
- (CMC)/.92
- (ENR)/1.05
- (TIE)/.38
- (VNO)/.66

Upcoming Splits
- (MNRK) 6-for-5

Economic Releases
10:00 am EST
- Consumer Confidence for October is estimated to fall to 99.0 versus a reading of 99.8 in September.

Other Potential Market Movers
- The weekly retail sales reports, S&P/CaseShiller Home Price Index, (AKAM) analyst meeting, (ENZN) investor day, (VAR) investor meeting, (ECPG) investor day, (YUM) investor day and Johnson Rice Consumer Conference could also impact trading today.

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

Stocks Finish Higher on Short-Covering, Bargain-Hunting Ahead of Fed

Indices
S&P 500 1,540.98 +.37%
DJIA 13,870.26 +.46%
NASDAQ 2,817.44 +.47%
Russell 2000 821.72 +.04%
Wilshire 5000 15,503.68 +.37%
Russell 1000 Growth 633.57 +.57%
Russell 1000 Value 848.05 +.34%
Morgan Stanley Consumer 746.66 +.48%
Morgan Stanley Cyclical 1,061.30 +.66%
Morgan Stanley Technology 673.22 +.56%
Transports 4,844.51 -.46%
Utilities 526.41 +.73%
MSCI Emerging Markets 165.36 +2.19%

Sentiment/Internals
Total Put/Call .85 +4.94%
NYSE Arms .76 +31.80%
Volatility(VIX) 19.87 +1.58%
ISE Sentiment 191.0 +20.13%

Futures Spot Prices
Crude Oil $93.58 +1.86%
Reformulated Gasoline 232.75 +2.35%
Natural Gas 7.27 +.71%
Heating Oil 246.65 +1.40%
Gold 793.50 +.76%
Base Metals 249.99 +.44%
Copper 352.50 -.35%

Economy
10-year US Treasury Yield 4.38% -2 basis points
US Dollar 76.83 -.25%
CRB Index 349.43 +1.03%

Leading Sectors
Networking +2.14%
Construction +1.56%
Semis +1.39%

Lagging Sectors
Banks -.48%
REITs -.96%
HMOs -1.38%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- NY-based Somerset Partners LLC paid $509 million for 450 Park Ave., the most ever paid for a US office tower on a per-square-foot basis.
- The yen weakened the most in three weeks against the dollar as global stocks rose, encouraging investors to take on riskier bets financed with loans in Japan.
- Bill Gross, manager of the world’s biggest bond fund, expects the Fed to lower benchmark interest rates to 3.5%.

Financial News:
- Allianz SE’s Pacific Investment Management, known as Pimco, has bought more than $5 billion in mortgage-backed securities for its clients, citing Pimco fund manager Bill Gross in an interview. Gross “would buy up to an additional $2 billion” in mortgage-backed securities in the coming weeks.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Medical longs and Software longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly positive today as the advance/decline line finished about even, 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 given the rise in oil and last week’s gains. Cyclicals and growth stocks outperformed throughout the day. Even as many pundits seem bent on talking us into recession, the odds of fourth-quarter U.S. growth turning negative are only 13%, according to Intrade.com. As well, as I posted earlier, third-quarter U.S. growth is estimated at 3.1%. This would be around trend and should boost overall economic sentiment a bit. The consumer confidence index, released tomorrow, will likely come in below estimates and could help pressure stocks modestly in the morning. However, near-term losses will likely remain mild ahead of Wednesday's Fed announcement. Strength could surface later in the day. Google (GOOG) quietly made another record high earlier in the day. I suspect the stock is beginning another meaningful push higher after a brief pause. I still don't think it is too late to buy the stock at current levels, and it remains my largest long position. Despite mild gains in the major averages and neutral breadth, there were many stocks on my monitor pages with 2% to 5% gains. This remains an excellent market for stockpicking. Overall, insider activity remains near levels normally associated with meaningful market bottoms, even as imminent recession predictions continue unabated. Here are some of the noteworthy insider buys over the last week.

• Thornbug Mortgage (TMA): 1,000,000 shares at $9.50
• First Horizon (FHN): 147,500 shares at $24.26
• General Electric (GE): 83,000 shares at $40.08
• DuPont Fabros Technology (DFT): 152,300 shares at $21.00
• SanDisk (SNDK): 50,000 shares at $40.76
• Smithfield Foods (SFD): 53,930 shares at $28.49
• MGIC Investment (MTG): 73,000 shares at $19.23
• Western Alliance Bancorp (WAL): 51,000 shares at $21.08
• Whirlpool (WHR): 10,000 shares at $84.33

Stocks Higher into Final Hour on Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs, Internet longs and Medical longs. I covered my (IWM)/(QQQQ) hedges and added to a few of my lagging longs, including (BRCM) today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly positive today as the advance/decline line is neutral, most sectors are rising and volume is around average. The U.S.-based three-month Libor rate is falling another 2 basis points and has plunged 77 basis points from its September highs. It is also the lowest since March 2006. The Semiconductor Industry Association said global chip sales rose 5.9% in September as demand for PCs and cell phones increased. It also said NAND flash revenue rose 58.5% in September from year ago levels. Analyst downgrades are again today running around 2-1 over upgrades. Optimism in the Wall Street research community continues to fade as it has for the last seven years. According to Zacks, the median year-over-year growth rate for S&P 500 third-quarter reported earnings has climbed to 10.6% over the last few days. Like last week, I expect most earnings reports over the next couple of weeks to be more of a positive market catalyst. Fed fund futures now imply a 98% chance for a 25-basis-point fed funds rate cut on Wednesday. This is up from 86% last Friday and 92% one week ago. The odds for no change in rates are 2%, up from 0% last Friday and down from 14% one week ago. I expect the Fed to cut its benchmark interest rate by 25 basis points. S&P 500 futures traders are still positioned near historically net short levels, and there are still many indicators registering extraordinary bearishness given the S&P 500 is just 1.9% off its record high set less than three weeks ago. There remains massive bull firepower on the sidelines. The Philadelphia Stock Exchange Semiconductor Sector Index (SOX) is very oversold technically. I also see the recent decline as excessive given my view of improving fundamentals for the group over the intermediate term. A bounce in the semis could spur further gains in the broad tech sector and help left the entire market. Advance third-quarter GDP, which is released on Wednesday, is expected to come in at 3.1%. Considering how many pundits and analysts said we were plunging into recession in August, a number around 3% should give a psychological boost to investors. I still expect U.S. GDP growth to come in modestly below trend, around 2.0% to 2.5%, over the intermediate term as the significant drag from U.S. housing is mostly offset by booming global growth. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Lehman Brothers(LEH) set up a $3 billion fund to invest in leveraged loans that banks are selling at a discount.
- Democratic senators Hillary Rodham Clinton and Barack Obama are in a statistical tie in Iowa among the party’s likely caucus-goers, a University of Iowa poll found.
- Crude oil climbed above $93/bbl. in NY for the first time after Mexico shut a fifth of its production and the dollar declined against he euro.

Wall Street Journal:
- A divide is emerging on the presidential trail over battling terrorists: how exactly to label the fight.
- CEO Search File: Merrill.
- US public pension funds are starting to pay their managers better as they take on complicated investments such as hedge funds and leveraged-buyout funds.

NY Times:
- SAP Ex-Executive Plans Electric-Car Battery Stations.

Economic Releases

- None of note

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

Chart of Interest

Monday Watch

Weekend Headlines
Bloomberg:
- US stocks advanced for the sixth time in seven weeks after earnings from Microsoft Corp.(MSFT) and Apple Inc.(AAPL) bolstered speculation that the economy is growing enough to sustain profits.
- Billionaire investor Carl Icahn sued BEA Systems(BEAS), the software maker that spurned a $6.7 billion offer from Oracle Corp.(ORCL), demanding that the company hold an annual meeting and allow shareholders to vote on a sale.
- Apple Inc.(AAPL) said it will restrict iPhone sales to two phones a customer and require credit or debit card payment on those phones to discourage unauthorized resellers and maintain enough stock for the holidays.
- The real mavens in the US bond market may be your next-door neighbors, and they say now’s the time to buy Treasuries. Twenty percent of Americans who say it’s a bad time to buy a house cite high interest rates as a reason, according to a monthly survey of consumers by the Univ. of Mich. in Ann Arbor. That threshold has been exceeded five other times since 1988, each followed b y a rally in Treasuries.
- Bank shares are so cheap and their dividends so high that some of the world’s biggest investors now say the combination is unbeatable.
- Merrill CEO Stan O’Neal Decides to Leave, WSJ Reports.
- Nissan Motor, Japan’s third-largest automaker, rose the most in six years on the Tokyo Stock Exchange after it reported higher fiscal second-quarter operating profit and analysts raised their ratings.

Wall Street Journal:
- NYSE Files to End Trading ‘Collars.’

NY Times:
- Democrats in Congress Plan to Shorten Their Workweek.
- Some Bulls See Hope in Buybacks.
- In a major shift, NY Democratic Governor Eliot Spitzer is backing off his plan to allow illegal immigrants to obtain the same kind of driver’s licenses as other New Yorkers, after weeks of furor over the proposal. Instead, the governor said on Saturday, illegal immigrants in the state would be able to obtain a license that would permit them to drive but would not be accepted as identification to board plans or cross borders.
- Lehman Brothers(LEH) increased its hedges on mortgages and started to reduce its commitment to leveraged loans in the second quarter, citing an interview with CEO Richard Fuld.
- After Succeeding, Young Tycoons Try, Try Again.
- Workers at Chrysler Approve Contract.

TheStreet.com:
- Tech Funds Still Unloved.

Zacks.com:
- So far, 37% of the S&P 500 firms have reported (185 companies). The results have been better than most have feared, and over the past few days the results have been getting better. The median year-over-year growth rate has climbed sharply. We are now back in double digits, which if maintained would make this the 21st straight quarter of double-digit growth.

MarketWatch.com:
- Tech drives third-quarter earnings season. Sector sees average earnings growth of 15% while overall market slips.
- Market’s volatility making timers skittish; that’s bullish.
- On a need-to-know-everything basis. Work gets personal when you enter the online world of social networking.
- Parsons to end reign at Time Warner(TWX).
- Old favorites holding ground in TV season.
- Plastics that are green in more ways than one. Bioengineers develop grasses that yield environmentally friendly polymers.
- Bullish bargain hunting from the inside. Insiders picked up buying in wake of past week’s market drop.

IBD:
- Dismal Financial Profits Mash Real Strength in Techs, Medicals.
- The Q3 Glass is Half Full for US Drug Firms.

Washington Post:
- General David Petraeus, the top US military commander in Iraq, said the Sunni Muslim terrorist group al-Qaeda in Iraq no longer operates in large numbers in any parts of Baghdad and is diminished in strength.

Bespoke Investment Group:
- One thing that has changed about the sell-side though, is that just like the media, analysts as a whole are not a very optimistic group. Over the last seven years they have been steadily becoming more bearish in their calls.

Silicon Alley Insider:
- Apple’s AT&T Bounty: $432 Per iPhone? Apple’s iPhones could be far more profitable than we thought. Based on an analysis of iPhone revenue that Apple reported last week, Piper Jaffray analyst Gene Munster estimates that carrier partner AT&T pays Apple $18 per month for each of its iPhone subscribers. Over the course of a two-year contract, that’s $432 – more than three times as much as the $120-per-sub payment we previously estimated.

Dept. of Justice:
- Fact Sheet: Commodities Fraud and Manipulation.

Business Week:
- US House Democratic lawmakers on Thursday called for giving the Commodity Futures Trading Commission more oversight of energy-trading markets, and promised to hold hearings to scrutinize the agency’s operations. The Democrats, including Rep. Bart Stupak of Michigan, made their case on the same day that oil company BP PLC(BP) agreed to pay $373 million to settle charges that it manipulated the price of propane.
- Stealth Rally for Computer Hardware Stocks.

San Francisco Chronicle:
- Nintendo Co. raised the worldwide sales forecast for its Wii game player twice as “overwhelming” demand means the product lasts “roughly a day on the shelf,” said Reginald Fils-Aime, president of Nintendo of America.

USA Today:
- Mortgage rates fall to lowest level in six weeks.

CNNMoney.com:
- Hackers Install Leopard on Intel PCs.

Forbes.com:
- Best Ways to Avoid Cancer.

Reuters:
- IPOs year to date; a risky bet pays off.
- Yahoo!(YHOO) stock surges ahead of Alibaba IPO pricing.
- Oracle(ORCL) withdraws bid for BEA(BEAS) as deadline expires.

I, Cringely:
- Google's(GOOG) goal here is to help us, of course, but along the way the company will have marginalized most higher-end computing vendors, especially Microsoft(MSFT). They will have also made us totally dependent on Google services in such a way that we'll never, ever, be able to extricate ourselves. We'll be slaves, but happy slaves, and Google will come to dominate all computing for the next generation.

Financial Times:
- Mergers may yet be on the cards.

Economist.com:
- Replacing worn-out eye lenses has never been simpler or better.

TimesOnline:
- Up, up and away – the hydrogen car is here. The hydrogen fuel cell is the holy grail of greener motoring and Honda has got there first.

Le Figaro:
- NYSE Euronext(NYX), operator of the world’s largest securities exchange, is interested in a stake in the Tokyo stock exchange operator, CEO Thain said.

Weekend Recommendations
Barron's:
- Made positive comments on (FMC), (MRK), (GOOG) and (WY).

Citigroup:
- Reiterated Buy on (URBN), raised estimates, target $30.
- Reiterated Buy on (CVH), target $69.
- Reiterated Buy on (OI), raised target to $52.

Night Trading
Asian indices are +.75% to +1.25% on average.
S&P 500 futures +.26%.
NASDAQ 100 futures +.43%

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
- (NNDS)/.63
- (ACV)/.35
- (CNA)/.68
- (HTZ)/.57
- (LTR)/.95
- (LPX)/-.15
- (NWA)/.78
- (RSH)/.26
- (SCHN)/1.35
- (VZ)/.62
- (HUM)/1.49
- (K)/.73
- (ATHR)/.26
- (CBG)/.57
- (EOG)/.80
- (OSG)/.69
- (PPS)/.05
- (SOHU)/.23
- (VMC)/1.59
- (BOL)/.63
- (PBI)/.73

Upcoming Splits
- (MNRK) 6-for-5

Economic Data
- None of note

Other Potential Market Movers
- The Johnson Rice Consumer Conference and (ETH) Investor Conference could also impact trading today.

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