Stocks Modestly Higher Mid-day as Energy Prices Fall

Indices
S&P 500 1,213.19 +.27%
DJIA 10,419.82 +.40%
NASDAQ 2,110.21 +.17%
Russell 2000 650.89 +.15%
DJ Wilshire 5000 12,093.72 +.18%
S&P Barra Growth 580.69 +.33%
S&P Barra Value 628.19 +.10%
Morgan Stanley Consumer 575.36 +.34%
Morgan Stanley Cyclical 717.17 +.60%
Morgan Stanley Technology 493.81 +.03%
Transports 3,601.12 +.11%
Utilities 417.55 -1.01%
Put/Call 1.45 +29.46%
NYSE Arms .77 -47.45%
Volatility(VIX) 13.63 -1.16%
ISE Sentiment 177.00 +31.1%
US Dollar 88.57 +.49%
CRB 327.39 +.11%

Futures Spot Prices
Crude Oil 66.50 -.45%
Unleaded Gasoline 211.50 +3.01%
Natural Gas 12.77 +1.35%
Heating Oil 202.80 -.43%
Gold 468.90 -.91%
Base Metals 130.27 +.31%
Copper 170.90 +.15%
10-year US Treasury Yield 4.16% +.09%

Leading Sectors %
Restaurants +2.90%
Retail +2.19%
Airlines +2.05%

Lagging Sectors
Gold & Silver -1.37%
Coal -1.52%
Oil Service -1.67%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Retail longs and Oil Tanker shorts. I covered some of my QQQQ and IWM shorts this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is positive given the risks posed by Hurricane Rita. The AAII % Bulls fell to 39.47% this week from 51.43% the prior week; this reading is now below average levels. Likewise, the % Bears rose to 32.46% from 28.57% the prior week; this is above average levels. This is a positive for equities over the intermediate term and I would expect another decline next week. However, on a short-term basis, I am still not seeing the levels of anxiety I would like to see for a tradable bottom. I expect US stocks to trade mixed into the close from current levels as lower energy prices offset worries over Hurricane Rita.

Today's Headlines

Bloomberg:
- Oracle will continue making purchases as part of plans to double revenue in the next few years, CEO Ellison said.
- Former hedge fund manager Michael Steinhardt says his “intuition” tells him that US stocks will rise.
- Hurricane Rita weakened to a Category 4 storm with winds of 150 mph as it crossed the Gulf of Mexico, headed toward Texas, where more than a million people from Corpus Christi to Galveston fled as emergency officials, still dealing with Katrina’s devastation, readied supplies and rescue teams.
- Martha Stewart’s new Apprentice television show on NBC fell short of predictions last night, attracting half the viewers that turned in to ABC’s “Lost” in the same time slot.

Wall Street Journal:
- Defense contractor DRS Technologies will acquire Engineered Support Systems for $2 billion.
- Alltel is considering a spin-off or partial sale of its local telephone unit that may be valued at more than $10 billion.
- US investment banks are moving more of the risk of defaults on home mortgages to foreign investors, suggesting that Europe and Asia will feel pain if the US housing market struggles.
- US movie studios and department stores are cutting back on newspaper advertising, darkening prospects fro the industry this year.
- The US Federal Trade Commission is looking into complaints of high gas prices and whether companies illegally manipulated prices after Hurricane Katrina slammed ashore last month.

NY Times:
- The Vatican won’t allow homosexuals to become Roman Catholic priests, under new rules to be published soon, citing an unnamed church official.
- NATO’s 26 member countries have overcome their differences with the US over the Iraq war and are all providing training and equipment to the nation.

Jane’s Intelligence Review:
- North Korea faces a “significant” threat of a nuclear accident that could spread radioactive material from Japan to China because of inadequate resources and safety procedures.

AFP:
- A joint Iraqi-US military offensive aimed at purging insurgents from the northern town of Tal Afar has been successfully completed.

Les Echos:
- Dell has no need to make acquisitions as the industry consolidates, Kevin Rollins said.

Tehran Times:
- China is negotiating a “multibillion dollar” contract with Iran for a shipbuilding complex in the south.

Katrina Pushes Claims Higher, Leading Indicators Fall

- Initial Jobless Claims for last week rose to 432K versus estimates of 450K and an upwardly revised 424K the prior week.
- Continuing Claims rose to 2666K versus estimates of 2690K and 2578K prior.
- Leading Indicators for August fell .2% versus estimates of a .3% fall and a .1% decline in July.

BOTTOM LINE: Workers dislocated by Hurricane Katrina pushed first-time claims for unemployment benefits to the highest in more than two years, Bloomberg reported. About 103,000 claims last week were from people affected by the hurricane. In total, Katrina has been responsible for 214,000 jobless claims so far. The four-week moving-average of claims rose to 376,250 from 347,250 the prior week. The insured employment rate, which tracks the US unemployment rate, rose to 2.1% from 2.0%. I expect jobless claims to make another push higher next week as more Katrina/Rita victims file.

The index of leading US economic indicators fell in August for a second straight month as rising gasoline prices sapped consumer confidence even before Hurricane Katrina struck. Five of the ten components of the index were actually positive. The declines in consumer confidence and building permits were mainly responsible for the overall decline. I expect these two components to boost the index during the fourth quarter.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- LG.Philips LCD Co., the world’s largest maker of liquid-crystal displays, Samsung Electronics and their peers may face a greater-than-expected supply glut in the second half, market researcher ISuppli said.
- A JetBlue Airways plane carrying 146 people made a safe emergency landing at Los Angeles International Airport after pilots discovered the front landing gear was stuck and aborted the flight to NY.
- Here is the forecast track for Hurricane Rita from Tropical Storm Risk.com.
- Here is a color infrared loop of Rita.
- Exxon Mobil, St. Paul Travelers, Alcoa and other companies are shutting Houston operations or preparing to evacuate as Hurricane Rita moves in striking distance of the US’s fourth-largest city.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on DIS and BSX.

Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
AGE/.65
DRI/.52
FINL/.38
GIS/.56
KBH/2.40
ORCL/.14
PALM/.38
SLR/.04
COMS/-.11

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 450K from 398K the prior week.
- Continuing Claims are estimated to rise to 2659K versus 2590K prior.

10:00 am EST
- Leading Indicators for August is estimated to decline .3% versus a .1% increase in July.

BOTTOM LINE: Asian indices are lower as exporting shares in the region come under pressure on increasing worries over global growth and Hurricane Rita. I expect US equities to open modestly lower and to remain under pressure most of the day barring a shift to the south in the forecasted path of Rita or a downgrade to category 3 status. The Portfolio is market neutral(%long-%short=0) heading into the day.

Stocks Finish at Session Lows as Hurricane Rita Upgraded to Category 5

Indices
S&P 500 1,210.20 -.91%
DJIA 10,378.03 -.99%
NASDAQ 2,106.64 -1.16%
Russell 2000 649.94 -1.62%
DJ Wilshire 5000 12,070.37 -1.01%
S&P Barra Growth 578.56 -.77%
S&P Barra Value 627.45 -1.05%
Morgan Stanley Consumer 573.39 -.93%
Morgan Stanley Cyclical 712.88 -.78%
Morgan Stanley Technology 493.70 -1.11%
Transports 3,597.05 +.44%
Utilities 421.78 -1.28%
Put/Call 1.12 +6.67%
NYSE Arms 1.46 -16.02%
Volatility(VIX) 13.79 +9.10%
ISE Sentiment 135.00 -30%
US Dollar 88.00 -.68%
CRB 327.04 +.58%

Futures Spot Prices
Crude Oil 67.50 +1.03
Unleaded Gasoline 210.30 +2.43%
Natural Gas 12.88 2.27%
Heating Oil 207.60 +1.83%
Gold 475.80 +.55%
Base Metals 129.87 +2.17%
Copper 170.90 +.15%
10-year US Treasury Yield 4.16 -.19%

Leading Sectors
Gold & Silver +3.38%
Steel +1.56%
Energy +1.36%

Lagging Sectors
Defense -2.41%
Restaurants -2.76%
Airlines -3.75%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on LUV and QCOM.
- Reiterated Underperform on SIRI.

Afternoon/Evening Headlines
Bloomberg:
- The US House approved a $6.1 billion tax cut for survivors of Hurricane Katrina that includes incentives for those who shelter evacuees.
- McDonald’s will sell a minority stake in its Chipotle Mexican Grill in an IPO during the first quarter of 2006.
- The US dollar dropped against the euro for a second day in Asia on concern Hurricane Rita will exacerbate the damage caused by Hurricane Katrina, further damping consumer spending and slowing US economic growth.
- Hurricane Rita strengthened into a Category 5 storm as it moved across the Gulf of Mexico toward Texas and Louisiana, surpassing the power Katrina had when it swept ashore last month and became the most expensive natural disaster in US history.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs and ETF shorts. I exited an existing long and added to my TLT long 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, almost every sector declined and volume was slightly above average. Measures of investor anxiety were higher into the close. Overall, today’s market action was slightly negative. I expect a tradable bottom to develop over the next two days from lower levels. Initial jobless claims will spike again tomorrow as more Katrina victims are able to file.