Stocks Slightly Higher Mid-day as Falling Energy Prices Offset Rising Rates

Indices
S&P 500 1,232.33 -.08%
DJIA 10,600.15 +.10%
NASDAQ 2,166.47 -.02%
Russell 2000 674.24 -.04%
DJ Wilshire 5000 12,321.41 -.04%
S&P Barra Growth 590.26 -.06%
S&P Barra Value 637.91 -.08%
Morgan Stanley Consumer 589.97 -.07%
Morgan Stanley Cyclical 746.05 +.41%
Morgan Stanley Technology 503.02 +.51%
Transports 3,677.65 -.31%
Utilities 417.73 -.47%
Put/Call .76 -15.56%
NYSE Arms .74 +26.26%
Volatility(VIX) 12.71 -1.70%
ISE Sentiment 186.00 +64.60%
US Dollar 86.92 +.40%
CRB 323.61 -1.75%

Futures Spot Prices
Crude Oil 64.15 -2.74%
Unleaded Gasoline 198.50 -3.65%
Natural Gas 11.15 -4.44%
Heating Oil 194.95 -5.15%
Gold 448.50 -.02%
Base Metals 129.57 -.87%
Copper 164.95 -.69%
10-year US Treasury Yield 4.16% +1.64%

Leading Sectors %
Gaming +2.96%
Restaurants +2.27%
Steel +2.24%

Lagging Sectors
Oil Tankers -.57%
Telecom -.66%
REITs -.92%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Energy-related shorts, Semiconductor longs, Networking longs and Restaurant longs. I added some new longs this morning and added to a few existing longs, thus leaving the Portfolio 100% net long. One of my new longs is GNSS and I am using a $25.50 stop-loss on this position. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is slightly negative given another decline in energy prices and higher long-term rates. I expect US stocks to trade modestly higher from current levels into the close on declining energy prices.

Today's Headlines

Bloomberg:
- BearingPoint said regulators started a formal probe into its accounting and delayed plans to complete its financial statements.
- Delta Air Lines said it is realigning service at some of its US hubs, adding international flights and selling 11 Boeing 767-200 aircraft to ABX Air Inc.
- Hurricane Katrina may slow US economic growth by .5 to 1 percentage points, the CBO told lawmakers.
- US lawmakers from both parties are urging the Fed to forgo raising interest rates at its Sept. 20 meeting to help consumers and businesses recover from the destruction of Katrina.
- Egyptians began voting today in the nation’s first presidential election, which incumbent Hosni Mubarak, who has ruled the country for a quarter of a century, is set to win against nine less known challengers.
- BMW AG will join GM and DaimlerChrysler AG to develop fuel-saving gasoline-electric power systems and catch up with hybrid leader Toyota Motor.
- Apple Computer CEO Jobs introduced a Motorola phone that runs Apple’s iTunes music software.
- Ford is recalling 3.8 million 1994-2002 vehicles because a cruise-control switch can overheat and cause fires.
- US Treasuries remained lower after Michael Moskow, president of the Fed’s Chicago branch, said the risk of faster inflation needs to be addressed with “appropriate” increases in interest rates.
- Crude oil is falling for a third session, touching a two-week low, as the EIA slashed demand estimates for the commodity.

Wall Street Journal:
- One of Boeing’s airplane-parts suppliers said it will lay off more than 200 workers because of the Boeing-machinists strike, and another said that it will cut workers to a three-day week.
- Bank of America, JP Morgan Chase, and Wells Fargo are among US lending institutions that are giving customers in areas affected by Hurricane Katrina some breaks on paying loans.
- Credit Suisse First Boston issued an open letter to the board of Novell, a US software maker, urging management changes, asset sales and share buybacks.
- US government expenditure on caring for the victims of Hurricane Katrina and on reconstruction may reach between $150 billion and $200 billion, citing early congressional estimates.
- Steel used in building cars and industrial machinery may cost as much as 20% more because flooding caused by Hurricane Katrina in New Orleans has cut supplies and stalled the distribution of raw materials.
- The reconstruction of New Orleans will occur in phases once the water has been pumped out of the flooded city after Katrina’s passage, URS Corp. CEO Koffel told CNBC.

NY Times:
- Iraq’s national baseball league has grown to 26 teams from 18 provinces since it started in 2003.

AP:
- United Airlines parent UAL Corp. plans to file its reorganization plan today as part of a series of hearings ahead of a Dec. 1 deadline as it seeks to emerge from bankruptcy.

Iran Daily:
- The assets held by Iranians living in the US rose by a third last year to $800 billion as capital flight increased.

Productivity Decelerates, Unit Labor Costs Rise More-Than-Expected

- Final 2Q Non-farm Productivity rose 1.8% versus estimates of a 2.1% gain and prior estimates of a 2.2% increase.
- Final 2Q Unit Labor Costs rose 2.5% versus estimates of a 1.4% gain and prior estimates of a 1.3% increase.

BOTTOM LINE: US worker productivity grew at a slower-than-expected pace from April through June and labor costs accelerated, which may prompt the Fed to keep raising interest rates, Bloomberg reported. The 2.5% increase in unit labor costs is still below the long-term average of a 3.4% quarterly increase. However, hurricane rebuilding could push up labor costs temporarily to unacceptable levels.

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

Wednesday Watch

Late-Night Headlines
Bloomberg:
- The Louisiana Superdome, which housed thousands of people who were stranded by Hurricane Katrina, is likely to be torn down, citing an unnamed Louisiana state official.
- California lawmakers sent a bill legalizing gay marriage to Governor Arnold Schwarzenegger, the first state legislature in the US to pass such a law.
- Asia-Pacific finance ministers plan to call for an end to fuel subsidies and price controls, seeking to rein in oil demand as record crude costs threaten to curb growth in economies ranging from the US to Thailand.
- Crude oil is falling for a third day in NY on concern Hurricane Katrina will slow economic growth in the US.

Financial Times:
- Gap Inc. can’t say when its two most popular Web sites – Gap.com and Oldnavy.com – will return to full operation.

Late Buy/Sell Recommendations
Goldman Sachs:
- None of note

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated -.03%.

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

Earnings of Note
Company/EPS Estimate
ABS/.34
CMVT/.13
COO/.85
HOV/1.78
NAV/.83
PRGO/.16
TTWO/-.38

Upcoming Splits
DW 2-for-1

Economic Releases
8:30 am EST
- Final 2Q Non-farm Productivity is estimated to rise 2.1% versus a prior estimate of a 2.2% increase.
- Final 2Q Unit Labor Costs are estimated to increase 1.4% versus a prior estimate of a 1.3% gain.

2:00 pm EST
- Fed’s Beige Book

BOTTOM LINE: Asian indices are higher as falling energy prices and increased expectations that the US Fed will “pause” boosted exporters in the region for a third day. I expect US equities to open modestly higher on gains in Asia. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Highs as Energy Prices Continue to Fall

Indices
S&P 500 1,233.39 +1.26%
DJIA 10,589.24 +1.36%
NASDAQ 2,166.86 +1.20%
Russell 2000 674.48 +1.68%
DJ Wilshire 5000 12,325.89 +1.25%
S&P Barra Growth 590.63 +1.43%
S&P Barra Value 638.42 +1.10%
Morgan Stanley Consumer 590.37 +1.32%
Morgan Stanley Cyclical 743.04 +.73%
Morgan Stanley Technology 500.52 +1.23%
Transports 3,689.01 +1.0%
Utilities 419.75 +1.33%
Put/Call .90 -20.35%
NYSE Arms .58 -51.19%
Volatility(VIX) 12.93 -4.72%
ISE Sentiment 113.00 -40.53%
US Dollar 86.72 +.53%
CRB 329.36 -.60%

Futures Spot Prices
Crude Oil 65.51 -3.05%
Unleaded Gasoline 202.00 -7.50%
Natural Gas 11.61 -.69%
Heating Oil 205.43 -1.76%
Gold 447.70 -.02%
Base Metals 130.71 -.91%
Copper 166.00 -.81%
10-year US Treasury Yield 4.09 +1.66%

Leading Sectors
Retail +2.44%
REITs +2.32%
Restaurants +1.96%

Lagging Sectors
Commodity +.41%
Oil Tankers -.31%
Gold & Silver -.52%

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

Afternoon Recommendations
Goldman Sachs:
- None of note.

Afternoon/Evening Headlines
Bloomberg:
- Former Fed Bank of Dallas President Robert McTeer told CNBC he sees “no need” for the FOMC to raise interest rates at its Sept. 20 meeting in the aftermath of Hurricane Katrina.
- Iraqi President Jalal Talabani said the nation’s former dictator Saddam Hussein confessed to ordering the murder of thousands of Kurds in the 1980s.
- Northwest Airlines sued its mechanics union over striking members’ efforts to block buses carrying replacement workers.
- Crude oil and gasoline fell for a third session in NY on expectations the release of emergency fuel reserves will ease shortages after Katrina cut US oil production and shut refineries.
- President Bush will ask Congress for at least $40 billion more in emergency spending to help pay for the recovery from Katrina.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semiconductor, Computer and Medical Information System longs. I exited my remaining IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector was higher and volume was below average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was very positive given the concerns over economic growth and the Fed. It is a big positive that stocks rose so strongly today with sectors other than energy providing leadership.