Stocks Sharply Higher as Energy Prices Fall Again

Indices
S&P 500 1,230.27 +1.01%
DJIA 10,558.83 +1.06%
NASDAQ 2,161.74 +.97%
Russell 2000 670.98 +1.15%
DJ Wilshire 5000 12,291.99 +.97%
S&P Barra Growth 589.11 +1.17%
S&P Barra Value 636.67 +.82%
Morgan Stanley Consumer 589.11 +1.10%
Morgan Stanley Cyclical 741.81 +.56%
Morgan Stanley Technology 499.84 +1.08%
Transports 3,683.09 +.83%
Utilities 418.57 +1.05%
Put/Call .94 -16.81%
NYSE Arms .78 -33.86%
Volatility(VIX) 13.23 -2.51%
ISE Sentiment 104.00 -45.26%
US Dollar 86.55 +.32%
CRB 330.55 -.23%

Futures Spot Prices
Crude Oil 66.20 -2.03%
Unleaded Gasoline 213.40 -2.28%
Natural Gas 11.80 +.93%
Heating Oil 208.75 -.17%
Gold 448.60 +.18%
Base Metals 130.71 -.91%
Copper 166.10 -.75%
10-year US Treasury Yield 4.07% +1.18%

Leading Sectors %
Restaurants +1.92%
Retail +1.89%
Internet +1.80%

Lagging Sectors
Oil Tankers -.33%
Steel -.37%
Gold & Silver -.43%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Energy-related shorts, Retail longs and Computer longs. I added to some existing longs this morning and covered some of my shorts, thus leaving the Portfolio 50% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive given the worries over the effects from Katrina. During the week ended Sept. 2, the energy industry saw the greatest net insider selling in the S&P 500. Insiders sold $55,855,662 worth of stock and bought no stock. Oil is down $1.62 today to $65.95, near session lows. I expect US stocks to trade mixed from current levels into the close as worries over economic growth offset lower energy prices.

Today's Headlines

Bloomberg:
- Iran offered to deliver to the US as much as 20 million barrels of crude oil to help offset a disruption to supplies from the Gulf of Mexico caused by Hurricane Katrina.
- Entergy has restored power to about 633,000 of its 1.1 million customers who lost electricity when Katrina struck the central US Gulf Coast last week.
- PetroQuest Energy CEO Charles Goodson told CNBC that 95% of its oil and gas production has been restored a week after Hurricane Katrina slammed ashore.
- The Fed can afford to “wait and see” the economic impact of Katrina before raising interest rates again, the OECD said.
- US troops today handed military control of the Shiite city of Najaf to Iraqi forces, in what is the first step in the transfer of security responsibilities across the country, the military said.
- President Bush is likely to name a woman or minority to the US Supreme Court.
- US Treasuries are falling after the ISM services index unexpectedly rose and oil prices fell, bolstering the prospects for the economy.
- Crude oil and gas are falling on expectations the release of emergency fuel reserves after Katrina will ease shortages and record prices will curb demand.
- The US dollar is rising the most in almost three weeks against the euro and gained against the yen after an industry report showed growth in US service industries unexpectedly accelerated in August.

Wall Street Journal:
- Shares of small and medium-sized US companies are still climbing, whereas the major stock indices have been going nowhere in particular for some time.
- Gulf coast companies are offering employees affected by last week’s hurricane money, food or shelter even as they try to get them back to work.
- Officials in President Bush’s cabinet meet today to plot a strategy for helping victims of Katrina regain jobs and shelter.
- WWL-AM, a conservative talk-radio station, was the only New Orleans-area broadcaster able to report what was happening when Hurricane Katrina hit the southern states last week, and presenters became advisers helping to plot escape routes and alerting authorities.
- US Muslim organizations said at a convention this weekend that they have begun several programs aimed at preventing people from using their religion to justify violence.
- The recovery from Katrina could create so much demand for temporary housing for relief workers and displaced residents that it could offset losses in the hotel industry from buildings damaged in the storm.

Bond Buyer:
- John Kennedy, treasurer for the state of Louisiana, said speculation that the state, the city of New Orleans or other local municipal issuers might need to seek bankruptcy protection after Katrina is “nonsense.”

Market News International:
- China won’t revalue its currency again until at least the second half of 2006 because of disagreement within the government.

ISM Non-Manufacturing New Orders Highest in Two Years

- ISM Non-Manufacturing for August rose to 65.0 versus estimates of 60.0 and a reading of 60.5 in July.

BOTTOM LINE: Growth at US service companies unexpectedly accelerated in August, suggesting the economy was strong even as energy prices rose before Hurricane Katrina struck, Bloomberg said. The new orders component of the index rose to 65.8, the highest in two years. Export orders soared from 53.5 in July to 63.5. The prices paid component of the index fell to 67.1 from 70.3 in July. Finally, the employment gauge rose to 59.6 from 56.2 in July. This was a very positive report. However, the effects of Katrina will hurt future Non-ISM readings for several months.

Links of Interest

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

Monday Watch

Weekend Headlines
Bloomberg:
- Traders are the most bearish toward the dollar since March on speculation the Fed may pause after 10 consecutive quarter-point interest-rate increases, a Bloomberg News survey shows.
- President Bush will nominate federal appeal court Judge John G. Roberts to replace William H. Rehnquist as chief justice of the US Supreme Court.
- The US dollar is rising against the euro for the first day in five in Asia on speculation its biggest two-week decline since December was excessive.
- Crude oil is falling for a second day in NY after producers including BP Plc resumed output in the US Gulf of Mexico and refineries in coastal states restarted after Hurricane Katrina.
- Chiron, a US vaccine maker recovering from a manufacturing shutdown, rejected Novartis AG’s $4.5 billion cash offer as “inadequate” as Chiron’s flu treatment moves closer to returning to the US market.

Barron’s:
- Sell-side strategists surveyed by Barron’s say the US stock market can rise 5 percent to 10 percent in the last four months of the year.

New York Times:
- Security of personal information and a perceived loss of control are two of the biggest reasons people don’t bank online, according to a Synergistics Research market poll.
- Manhattan’s gap between the rich and poor, on the basis of earnings, is greater than in any other county in the country.
- Harley-Davidson is among companies that have kept manufacturing jobs in the US by improving products and increasing efficiency.
- Hedge funds may be headed for another collapse because they are buying assets that are hard to sell quickly and borrowing more to increase returns, citing Andrew Lo, a fund manager.
- Iran yesterday rejected a European request to stop its nuclear program or face possible sanctions.
- Sales may be cut by the effects of Hurricane Katrina at online travel companies including Travelocity.com, Expedia and Orbitz, as well as at some specialty retailers.

USA Today:
- BellSouth Corp. may lose as much as $1 billion in sales as a result of damage from Hurricane Katrina, citing Jeff Bray, an analyst at Babson Capital Management LLC.

AFP:
- Former Iraqi Dictator Saddam Hussein will go on trial for murder from Oct. 19, four days after the referendum on the nation’s new constitution is scheduled to occur.

Observer:
- UK and US insurers will face more than $40 billion in claims for damage caused by Hurricane Katrina, citing a leaked document from forecasters within the Lloyds of London insurance market.

Oriental Morning Post:
- Prices of China’s commercial properties will fall in the second half because of oversupply, citing a report by the Ministry of Commerce.

Nihon Keizai:
- Japanese refiners including Nippon Oil Corp. and Idemitsu Kosan are preparing to draw down stockpiles of oil products and may export supplies to the US.

Weekend Recommendations
Barron's:
- Had positive comments on AVID, NUE, TXI, CAT, QNTA and ASTE.

Goldman Sachs:
- Reiterated Outperform on MDT, WAG and EBAY.
- Reiterated Underperform on STX.

Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 indicated +.37%.
NASDAQ 100 indicated +.38%.

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

Earnings of Note
Company/Estimate
SHFL/.21

Upcoming Splits
TIE 2-for-1

Economic Releases
10:00 am EST
- ISM Non-Manufacturing for August is estimated to fall to 60.0 from 60.5 in July.

BOTTOM LINE: Asian Indices are higher, spurred by gains in exporters in the region as energy prices fall. I expect US stocks to open modestly higher on gains in Asia and lower energy prices. The Portfolio is Market Neutral heading into the week.

***Alert***

Due to a scheduling conflict I will be unable to blog this holiday weekend. I will post the Tuesday Watch late Monday night.