Stocks Finish at Session Lows as Energy Prices Bounce and Worries Over GM Rise

Indices
S&P 500 1,187.33 -.72%
DJIA 10,238.76 -.52%
NASDAQ 2,078.92 -.55%
Russell 2000 637.97 -.99%
DJ Wilshire 5000 11,853.65 -.74%
S&P Barra Growth 569.41 -.53%
S&P Barra Value 613.77 -.90%
Morgan Stanley Consumer 576.85 -.28%
Morgan Stanley Cyclical 691.24 -2.06%
Morgan Stanley Technology 490.90 -.85%
Transports 3,665.85 -.35%
Utilities 406.03 -1.88%
Put/Call 1.01 +8.60%
NYSE Arms 1.59 +81.33%
Volatility(VIX) 15.55 +6.58%
ISE Sentiment 130.00 -18.75%
US Dollar 89.46 +.33%
CRB 325.96 +.23%

Futures Spot Prices
Crude Oil 62.32 +.78%
Unleaded Gasoline 181.31 -.88%
Natural Gas 13.14 +1.27%
Heating Oil 198.20 +.52%
Gold 478.10 +.02%
Base Metals 133.49 -.09%
Copper 180.60 unch.
10-year US Treasury Yield 4.35% -.36%

Leading Sectors
Disk Drives +.37%
HMOs +.15%
Restaurants +.13%

Lagging Sectors
Homebuilders -2.60%
Alternative Energy -3.07%
Semis -3.24%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DNA.

Afternoon/Evening Headlines
Bloomberg:
- The euro fell the most in a week on concern a German government led by Christian Democratic leader Angela Merkel will struggle to push through tax cuts and labor law changes to revive Europe’s largest economy.
- NY Mayor Bloomberg said police would be “slowly winding down” the intensity of subway patrols, after the target date cited in a federal waning about a possible terrorist attack passed without incident.
- Average levels of a type of cholesterol linked to heart disease fell 10% in US mean from 2001 to 2004, according to Quest Diagnostic, the nation’s biggest operator of medical-testing labs.
- EBay’s PayPal will buy VeriSign’s payment gateway business for about $370 million.
- The San Francisco area has a 25% change of being struck by a magnitude 7 or greater earthquake in the next 20 years, according to a study based on a new forecasting method that will be published tomorrow in the journal Proceedings of the National Academy of Sciences.
- Genentech said third-quarter earnings rose 56% as new uses for its Avastin and Herceptin cancer treatments helped spur sales.

Financial Times:
- Global economic growth may slow to 1.7% a year over the next 30 years unless people stay in work until they are older to offset falling birth rates, citing the OECD.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Energy-related shorts offset losses in my Semiconductor longs. I added back to my IWM and QQQQ shorts, thus leaving the Portfolio 25% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors declined and volume was light. Measures of investor anxiety were higher into the close. Overall, today’s market action was negative. November lumber futures have fallen 12% from highs seen after Hurricane Katrina. It appears the downtrend in lumber pricing has resumed even with massive hurricane rebuilding on the horizon.

Stocks Slightly Higher Mid-day as Energy Stocks Resume Decline

S&P 500 1,194.04 -.16%
DJIA 10,308.00 +.16%
NASDAQ 2,091.03 +.03%
Russell 2000 642.25 -.32%
DJ Wilshire 5000 11,922.44 -.16%
S&P Barra Growth 572.70 +.05%
S&P Barra Value 617.54 -.29%
Morgan Stanley Consumer 579.78 +.22%
Morgan Stanley Cyclical 696.00 -1.39%
Morgan Stanley Technology 494.86 -.05%
Transports 3,686.65 +.21%
Utilities 409.72 -.99%
Put/Call .96 +3.23%
NYSE Arms 1.28 +46.06%
Volatility(VIX) 15.08 +3.36%
ISE Sentiment 126.00 -21.25%
US Dollar 89.52 +.39%
CRB 324.80 -.13%

Futures Spot Prices
Crude Oil 61.00 -1.36%
Unleaded Gasoline 179.10 -2.09%
Natural Gas 12.81 -3.15%
Heating Oil 193.75 -1.15%
Gold 477.90 +.04%
Base Metals 133.49 -.09%
Copper 180.60 -.14%
10-year US Treasury Yield 4.35% -.36%

Leading Sectors %
Disk Drives +.93%
HMOs +.48%
Biotech +.41%

Lagging Sectors
Oil Service -1.75%
Energy -2.01%
Homebuilders -2.19%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Energy-related shorts and Internet longs. I added to my IWM and QQQQ shorts this morning and then covered them, thus leaving the Portfolio 50% net long. The tone of the market is modestly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are higher. Today’s overall market action is negative given the decline in energy prices and recent market losses. Shipments of Brent crude, the benchmark for two-thirds of the world's oil, are set to rise 21% in November from October, according to the tanker-loading program. U.S. supplies of distillates heading into the winter are already 2.7% higher than the five-year average for this time of year. This is especially bearish for crude considering global demand is now falling. Look for the International Energy Agency to cut its 2005 world oil demand growth forecast for the fourth consecutive month tomorrow on falling consumption in the U.S. and China. Natural gas storage is also 40 bcf above the five-year average for this time of the year, even with the massive shut-ins in the Gulf. I expect US stocks to trade modestly higher from current levels into the close on short-covering.

Today's Headlines

Bloomberg:
- Time Warner’s AOL is investing about $50 million on a new national advertising campaign to highlight the content and features of the company’s free Internet site.
- Seizures of Ecstasy pills on New York streets have plummeted in the past four years as has the price of the drug. Authorities say the US Drug Enforcement Administration’s NY unit is seizing hundreds of thousands of Ecstasy pills each year, meaning shipments are being caught before they reach the street.
- Crude oil is falling for the sixth day in seven and gasoline dropped on signs that near-record prices have substantially cut fuel consumption.
- Lincoln National agreed to buy Jefferson-Pilot for about $7.5 billion as low interest rates squeeze profits.
- Federal Reserve Chairman Alan Greenspan said foreign purchases of US debt are probably having a “modest” effect on Treasury yields, and the low rates may result mainly from the increase in the global savings rate.

Wall Street Journal:
- Clear Channel Communications and other media companies are rushing into podcasting in a bid to grab young listeners.
- BellSouth may announce today that it has signed an agreement with Sprint Nextel that will let BellSouth extend its network to serve businesses nationwide.
- Motorola plans to start pilot testing this week of a communications system that would allow local police to share information about possible terrorist threats.
- Russia’s government plans to cut the value-added tax to 13% from 18% to spur economic growth and achieve President Vladimir Putin’s goal of doubling the economy this decade.

NY Post:
- Yahoo! plans to begin testing a free service today where users can find, organize and rate audio programs to be played on portable music players.
- Verizon Communications is boosting print and broadcast advertisements of its Broadband Access wireless Internet service to compete with rivals offering Wi-Fi technology.

NY Times:
- US Online shopping sites are likely to benefit as customers shop online in a bid to cut gasoline costs.
- US television networks including GE’s NBC have lowered their expectations this season for ratings on reality shows such as NBC’s “The Apprentice.”

AP:
- The White House has authorized $50 million of aid for Pakistan after the country was hit by an earthquake two days ago.

Guardian:
- A Chinese democracy activist was beaten, possibly to death, by a mob near a village in southern China that has become a flashpoint for a growing wave of rural unrest in the nation.

Frankfurter Allgemeine Zeitung:
- Yahoo! expects rising spending by companies on internet advertising will hurt revenue of television companies.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Fluor Corp., the biggest US construction and engineering company, won a $1 billion contract to expand natural gas processing facilities in the United Arab Emirates.
- An alleged terrorist plot reported to national officials was planned for on or around Sunday and might have involved a team of terrorists attacking New York’s subways with explosives hidden in briefcases or strollers, citing a Homeland Security memo.
- Wal-Mart Stores said October sales in the US are rising within its forecast range, led by the nation’s western region.
- Delphi filed for bankruptcy protection for its US operations after failing to win concessions from unions and financial aid from former parent GM.
- US natural gas prices may fall as mild weather reduces demand, a Bloomberg survey showed.

Financial Times:
- Nokia Oyj, the world’s biggest mobile phone maker, expects “good” demand next year, defying analysts’ predictions for slower growth, citing an interview with CEO Ollila.
- German Chancellor Gerhard Schroeder will “leave the national political stage” to make way for opposition leader Angela Merkel in a deal likely to be announced on Monday, Oct. 10.

Washington Post:
- The Arabic-language news channel al-Jazeera, which has been accused of aiding terrorists, hired veteran BBC journalist David Frost as it gets ready to start a network that will broadcast in English.
- Sleeping less than seven hours a night may raise the risk of obesity, according to a report that adds to research linking a lack of rest to higher rates of cancer and diabetes.

NY Times:
- Mortgage brokers in the US, a profession that barely existed 25 years ago, will make $33 billion this year.
- The resilience of the US economy is explained by its ability to constantly recalibrate itself and adjust its supply side to demand, thus fostering economic stability.
- CVS Corp. CEO Ryan said that the drugstore chain will benefit when patents on some popular medicines, including Zoloft and Zithromax, expire this year and next.
- Home photo-printing is failing to catch on with consumers because the process is more expensive than ordering prints from retailers, including Wal-Mart Stores and Snapfish.com.
- The strain of bird flue that is currently in Asia won’t likely become a pandemic affecting humans this year, citing scientists.
- Divining the right mix of government and private activity is key to disaster response, drawing examples from the response of the US government to a hurricane that hit Galveston, Texas, in 1900, and to a 1906 earthquake and fire that leveled San Francisco.
- A ruling in a class-action lawsuit in June by a US District Court judge in Corpus Christi, Texas, has sent a shock wave through the world of plaintiffs’ lawyers.
- Flight Safety Technologies is testing a laser system to detect turbulence behind plane engines that may help air-traffic controllers prevent crashes and raise runway capacity 20%.

LA Times:
- California Governor Schwarzenegger signed a bill requiring tobacco companies to sell only “fire safe” cigarettes in the state beginning in 2007.
- The number of Cubans trying to reach the US by boat across the Florida Straits is the highest in more than a decade.

Detroit News:
- GM is raising health-care costs for tens of thousands of white-collar employees and retirees, a move that may save millions.

San Francisco Chronicle:
- Convention bookings in San Francisco reached a record during the fiscal year ended June 30, with 925 groups scheduling meetings for an estimated economic benefit of $1.4 billion.

Mail on Sunday:
- Ericsson AB will buy Marconi, a UK telecommunications equipment maker in an agreed transaction that may value Marconi at as much as $2.3 billion.

Il Sole/24 Ore:
- The European Central Bank is not planning to raise interest rates as it continues to monitor the effects of rising oil prices on the European economic recovery.

Oil & Gas Journal:
- Even with the effects of the hurricanes natural gas storage now stands 40 bcf above the 5-year average.

Weekend Recommendations
Barron's:
- Had positive comments on WMT, MXO and SYT.

Goldman Sachs:
- Reiterated Outperform on SYK and CFC.

Night Trading
Asian indices are -.25% to +1.0% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.26%.

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BOTTOM LINE: Asian Indices are mostly higher, spurred by gains in exporters in the region after last week’s better-than-expected US employment report. I expect US stocks to open modestly higher on gains in Asia and a bounce after last week’s losses. The Portfolio is 50% net long heading into the week.