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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The No. 2 al-Qaeda leader in Iraq, Abu Azzam, an adie to Abu Musab al Zarqawi, was fatally shot Sunday night, a Pentagon official said.
- Microsoft and Intel have thrown their support behind Toshiba’s HD DVD format, marking a setback for Sony’s Blu-ray standard.
- The US dollar is gaining versus the yen and euro after a Federal Reserve official fueled speculation the US central bank won’t pause in raising interest rates.

Wall Street Journal:
- Republican leaders in Congress are introducing bills aimed at expanding US capacity for refining crude oil and domestic natural-gas production.

Asian Wall Street Journal:
- Starbucks Corp. is releasing a new chilled coffee in plastic cups in Japan’s convenience stores.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SYMC and EBAY.
- Rated BOW Underperform.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
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PAYX/.28

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Economic Releases
10:00 am EST
- New Home Sales for August are estimated to fall to 1350K versus 1410K in July.
- Consumer Confidence for September is estimated to fall to 95.0 versus a reading of 105.6 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by Energy-related companies in the region. I expect US equities to open modestly lower on weaker economic reports and hawkish Fed comments. However, stocks may rally later in the afternoon on short-covering ahead of quarter’s end. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Higher Even as Energy Prices Rebound

Indices
S&P 500 1,215.63 +.03%
DJIA 10,443.63 +.23%
NASDAQ 2,121.46 +.22%
Russell 2000 660.20 +.72%
DJ Wilshire 5000 12,142.40 +.15%
S&P Barra Growth 580.71 -.07%
S&P Barra Value 630.73 +.12%
Morgan Stanley Consumer 576.62 -.10%
Morgan Stanley Cyclical 721.78 -.11%
Morgan Stanley Technology 497.16 +.18%
Transports 3,615.81 -.20%
Utilities 422.92 +.90%
Put/Call 1.23 +30.85%
NYSE Arms .99 +20.91%
Volatility(VIX) 13.04 +.62%
ISE Sentiment 164.00 -23.0%
US Dollar 89.11 -.20%
CRB 326.93 +1.18%

Futures Spot Prices
Crude Oil 65.95 +.20%
Unleaded Gasoline 214.00 +.51%
Natural Gas 12.59 +1.20%
Heating Oil 207.00 +.55%
Gold 470.10 +.13%
Base Metals 131.18 +.90%
Copper 173.70 +.03%
10-year US Treasury Yield 4.29% +1.06%

Leading Sectors
Oil Service +2.45%
Gold & Silver +2.07%
Energy +1.84%

Lagging Sectors
Papers -.44%
Banks -.51%
Gaming -.55%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DIS.

Afternoon/Evening Headlines
Bloomberg:
- Difficulties securing regulatory approval to expand refinery capacity are a greater barrier to increasing the US supply of gasoline and other fuels than the availability of crude oil, Exxon Mobil CEO Raymond said.
- Left-wing anti-war protester Cindy Sheehan was arrested today trying to enter the gate at the northwest end of the White House.
- Chevron reported “severe” damage to an oil and natural gas platform, and drilling companies said eight rigs were missing, scattered or damaged as a result of Hurricane Rita.

NY Times:
- Sun Microsystems will introduce a new version of its StarOffice business software tomorrow, with features designed to make it more compatible with Microsoft’s Office software.
- JC Penney back-to-school circulars have drawn criticism from alcohol industry watchdogs for featuring beer-and liquor-branded T-shirts.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs and Oil Tanker shorts. I covered a few shorts in the afternoon and added NTES long, thus leaving the Portfolio 75% net long. I am using a stop-loss of $82 on this new long. The tone of the market was positive today as the advance/decline line finished higher, most sectors gained and volume was below average. Measures of investor anxiety were higher into the close. Overall, today’s market action was slightly positive. During the week ended Sept. 23, the information technology industry saw the greatest net insider selling in the S&P 500. Insiders sold $45,328,379 worth of stock and bought $134,257. Overall, insider selling in the S&P dropped considerably last week.

Stocks Mixed Mid-day as Rising Energy Prices Offset Relief Over Hurricane Rita

Indices
S&P 500 1,213.06 -.18%
DJIA 10,418.15 -.01%
NASDAQ 2,114.85 -.09%
Russell 2000 657.27 +.28%
DJ Wilshire 5000 12,113.18 -.08%
S&P Barra Growth 579.21 -.33%
S&P Barra Value 629.53 -.07%
Morgan Stanley Consumer 575.27 -.34%
Morgan Stanley Cyclical 719.67 -.40%
Morgan Stanley Technology 495.04 -.30%
Transports 3,606.18 -.48%
Utilities 423.05 +.94%
Put/Call 1.15 +22.34%
NYSE Arms 1.07 +30.99%
Volatility(VIX) 13.36 +3.09%
ISE Sentiment 162.00 -23.94%
US Dollar 89.17 -.13%
CRB 326.91 +1.18%

Futures Spot Prices
Crude Oil 65.70 +2.27%
Unleaded Gasoline 211.25 +1.29%
Natural Gas 12.29 -.28%
Heating Oil 204.00 +4.67%
Gold 470.10 +.62%
Base Metals 131.18 +.90%
Copper 173.75 +2.30%
10-year US Treasury Yield 4.29% +1.06%

Leading Sectors %
Gold & Silver +2.23%
Oil Service +1.88%
Energy +1.51%

Lagging Sectors
Telecom -.60%
Papers -.75%
Gaming -1.46%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Oil Tanker shorts are offsetting losses in my Energy shorts. I added back QQQQ and IWM shorts this morning, thus leaving the Portfolio 50% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are higher and volume is below average. Measures of investor anxiety are higher. Today’s overall market action is neutral given the rise in energy prices/long-term rates and better-than-expected economic data. The Baker Hughes U.S. Oil & Gas Rig Count rose to 1,451 active rigs last week, the highest level since December 1985. This is up 194% since April 1999. This is bearish for crude. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering.

Today's Headlines

Bloomberg:
- Apollo Management raised $10 billion for the world’s second-largest takeover fund.
- The US economy is likely to remain strong after two hurricanes pummeled the Gulf Coast, two Federal Reserve officials said today.
- Palm Inc. plans to sell a Treo smartphone powered by Microsoft’s operating system, handing a win for Microsoft as it tries to make inroads into the mobile-phone market.
- Gasoline futures declined and crude oil was little changed after Hurricane Rita struck only a glancing blow to Houston’s oil hub, home to 12% of the nation’s refineries.
- US Treasuries are falling for a third day as two Fed officials said the economy remains strong after two hurricanes struck the Gulf Coast, bolstering views the central bank will keep raising interest rates.

Wall Street Journal:
- US companies such as Electronic Arts and Time Warner’s film studios are taking steps to fight piracy in China by aiming to profit alongside the illegal sellers.
- A US search for programs to scale back to offset costs from hurricanes Katrina and Rita could lead to trims in spending on farm subsidies and the Medicaid and Medicare health programs.
- The US National Highway Traffic Safety Administration is reviewing fuel efficiency requirements for larger vehicles after technological developments improved the safety of smaller cars.
- Andrew von Eschenbach, acting commissioner of the FDA, plans to review the drug-approval process to see if procedures can be streamlined.
- AMD plans to introduce today a speed boost for high end chips for servers and computer workstations.
- Janus Capital Group proposed that it switch to performance-based management fees that will let it collect more when its funds do well, and less when they don’t.
- Merrill Lynch, JPMorgan Chase and CSFB are among brokerage firms that have resumed or are planning buyout deals, attracted by the potential for big profits.
- The Bush administration plans to propose developing satellite systems that would be shared by federal agencies to cut costs and standardize domestic satellite operations.

Le Figaro:
- Total SA, Europe’s largest oil refiner, is prepared to spend around $10 billion to extract oil from Canadian oil sands.

Existing Home Sales Exceed Estimates

- Existing Home Sales for August rose to 7.29M versus estimates of 7.12M and 7.15M in July.

BOTTOM LINE: US sales of previously owned homes unexpectedly surged to the second-highest level on record and prices reached an all-time high in August, spurred by job growth and interest rates within a percentage point of historic lows, Bloomberg reported. The median price rose 15.8% to a record $220,000. Sale rose 5.6% in the West, 1.9% in the Midwest and 1.7% in the Northeast. Sales fell .4% in the South. The supply of homes available for sale, another gauge of housing demand, increased to 4.7 months’ worth in August versus 4.6 months’ worth in July. This was a very positive report. I continue to believe the nationwide housing market is slowing to more sustainable healthy levels.