Tuesday Watch

Late-Night Headlines
Bloomberg:
- North Koreas said it won’t end its nuclear weapons program unit it gets a light-water reactor for nuclear weapons program until it gets a light-water reactor for producing power, a day after pledging to give up its arms.
- Tropical storm Rita is expected to turn into a hurricane as it moves over southern Florida toady on a path that would reach Texas and Louisiana late this week.

Wall Street Journal:
- Wilbur L. Ross, who says he has $4.5 billion to fund a new venture, may buy beleaguered auto-parts makers such as some unprofitable units of Visteon Corp. that the company is about to jettison.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EL and EBAY.
- Reiterated Underperform on HRB.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.09%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
CC/-.03
CKR/.19
GS/2.38

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Housing Starts for August are estimated to fall to 2025K from 2042K in July.
- Building Permits for August are estimated to fall to 2130K from 2171K in July.

2:15 pm EST
- The FOMC is expected to raise the benchmark rate to 3.75% from 3.5%.

BOTTOM LINE: Asian indices are higher on gains in commodity-related shares in the region. I expect US equities to open modestly lower and to rally later in the afternoon. The Fed will probably boost the Fed Funds rate 25 basis points to 3.75%. I expect the policy statement will contain language that overtly states they will “pause” temporarily to allow for further evaluation of data in the aftermath of Katrina. The Portfolio is market neutral heading into the day.

Stocks Finish Lower as Tropical Storm Rita Approaches Gulf

Indices
S&P 500 1,231.02 -.56%
DJIA 10,557.63 -.79%
NASDAQ 2,145.26 -.70%
Russell 2000 667.02 -.74%
DJ Wilshire 5000 12,289.08 -.53%
S&P Barra Growth 587.12 -.50%
S&P Barra Value 639.70 -.61%
Morgan Stanley Consumer 582.65 -.95%
Morgan Stanley Cyclical 728.19 -1.10%
Morgan Stanley Technology 501.85 -.51%
Transports 3,589.75 -1.21%
Utilities 429.97 +.26%
Put/Call .92 +13.58%
NYSE Arms 1.04 +38.37%
Volatility(VIX) 12.14 +8.20%
ISE Sentiment 194.00 +79.63%
US Dollar 88.51 +.51%
CRB 327.41 +3.81%

Futures Spot Prices
Crude Oil 67.02 -.55%
Unleaded Gasoline 204.50 +.11%
Natural Gas 12.70 +.30%
Heating Oil 203.80 -.02%
Gold 467.50 -.62%
Base Metals 124.20 -.89%
Copper 165.25 -.12%
10-year US Treasury Yield 4.24% -.64%

Leading Sectors
Oil Service +3.20%
Energy +2.61%
Oil Tankers +1.81%

Lagging Sectors
Restaurants -1.67%
Retail -1.71%
Airlines -3.39%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
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Economic Calendar
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GuruFocus.com
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After-hours Movers
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on TYC, NKE and WAG.

Afternoon/Evening Headlines
Bloomberg:
- Neiman Marcus Group’s credit ratings will be cut to junk when the company’s buyout by Texas Pacific Group and Warburg Pincus LLC is completed, S&P said.
- Homebuilders in the US were less optimistic for the third straight month in September as the costs of energy and lumber rose in the aftermath of Katrina, a survey showed.
- Toyota Motor plans a US ad campaign to promote its hybrid power system as the company brings out more of the fuel-efficient vehicles.
- The euro touched a seven-week low against the dollar after Germany’s election ended in a stalemate, raising concern the government will fail to enact policy changes to bolster faltering economic growth.
- Crude oil traded near $67/bbl. after jumping 7% today on forecasts Tropical Storm Rita will strengthen into a hurricane before crossing the Gulf of Mexico and striking Texas near the refining center of Houston.

Nikkei English News:
- Honda Motor will double the number of North American auto parts manufacturers it works with to 40, and work with them on all of its models.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Energy-related shorts and Retail longs. I did not trade in the afternoon, thus leaving the Portfolio market neutral. The tone of the market was negative today as the advance/decline line finished substantially lower, most sectors declined and volume was below average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was slightly negative. Currently, TradeSports.com is showing a 51% chance that Tropical Storm Rita makes first landfall as a Category 1 or higher in Texas. There is a 34% chance for Louisiana. I would expect to see more of a negative reaction from investors if it becomes apparent that Rita will definitely hit Texas or Louisiana.

Stocks Sharply Lower Mid-day on Spiking Energy Prices and Fears Over Tropical Storm Rita

Indices
S&P 500 1,228.85 -.73%
DJIA 10,536.14 -.99%
NASDAQ 2,140.55 -.92%
Russell 2000 666.71 -.78%
DJ Wilshire 5000 12,271.00 -.68%
S&P Barra Growth 585.71 -.74%
S&P Barra Value 638.89 -.74%
Morgan Stanley Consumer 581.85 -1.08%
Morgan Stanley Cyclical 726.72 -1.30%
Morgan Stanley Technology 499.59 -.97%
Transports 3,587.45 -1.33%
Utilities 428.97 +.03%
Put/Call .81 unch.
NYSE Arms 1.01 +34.59%
Volatility(VIX) 12.40 +10.62%
ISE Sentiment 194.00 +79.63%
US Dollar 88.47 +.47%
CRB 327.18 +3.74%

Futures Spot Prices
Crude Oil 67.30 +6.83%
Unleaded Gasoline 202.70 +13.55%
Natural Gas 12.62 +13.24%
Heating Oil 203.60 +10.91%
Gold 469.20 +1.27%
Base Metals 124.20 -.89%
Copper 165.50 +3.89%
10-year US Treasury Yield 4.23% -.82%

Leading Sectors %
Oil Service +3.22%
Energy +2.82%
Coal +1.40%

Lagging Sectors
Wireless -1.71%
Retail -1.75%
Airlines -3.30%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Energy-related shorts and Retail longs. I exited a few shorts this morning as they hit stop-losses and added substantially to my TLT long and IWM/QQQQ shorts, thus leaving the Portfolio market neutral. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is slightly negative given the spike in energy prices. Today's action is tough to gauge, but complacency seems rather high given the potential risks to the economy from another hurricane. Rising expectations of a Fed "pause" are likely the reason. I expect US stocks to trade mixed-to-lower from current levels into the close on increasing worries over high energy prices and Tropical Storm Rita.

Today's Headlines

- North Korea agreed to give up its nuclear arsenal and rejoin a global treaty to halt the spread of weapons of mass destruction in return for US guarantees of security and energy assistance.
- Grape growers in California’s Napa Valley said they are expecting their biggest harvest in four years.
- Norsk Hydro ASA, Norway’s second-largest oil company, agreed to buy Spinnaker Exploration of the US for $2.45 billion to gain fields in the Gulf of Mexico.
- Iran agreed to allow stepped-up inspections by UN atomic experts, as US and European delegates began negotiations to avoid the escalation of a dispute over the Islamic Republic’s nuclear ambitions.
- L. Dennis Kozlowski was sentenced to 8 1/3 to 25 years in prison for looting Tyco International Ltd.
- Crude oil and gasoline are rising, as natural gas surged to an all-time high, on forecasts that Tropical Storm Rita will strengthen into a major hurricane and make landfall in Texas or Louisiana.

Wall Street Journal:
- Hispanic illegal immigrants in the Gulf region struck by Hurricane Katrina who are unable to benefit from federal and state assistance are migrating across the US.
- Teaching business has become big business in China with US private-equity firms such as Carlyle Group moving into the market.
- Exchange-traded funds that are actively managed, while retaining some of the main advantages of an ETF, are being prepared.
- IBM plans to continue its strategy of staying out of the applications business while partnering with applications vendors to sell its own products.

NY Times:
- The US and its allies are seeking a resolution from the UN nuclear monitoring agency that would declare Iran’s nuclear program non-compliant to rules.
- A coalition of 500 doctors, and hospitals, insurers and employers in NY’s Hudson Valley region are creating a Web-based central electronic patient-records database that is affordable for small doctors’ offices.

NY Post:
- Donald Trump, chairman of Trump Entertainment Resorts, has reached a deal with Warner Music Group to launch Trump Mobile, a product featuring audio and video ringtones and Trump wallpaper for cell phone screens.

Economic Releases

None of note

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
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