Monday Watch

Weekend Headlines
Bloomberg:
- US Secretary of State Condoleezza Rice said as many as two-thirds of Iraqis turned out to vote on a new constitution and probably approved the document that is intended to be the basis for a new democratic government.
- President Bush said Iraq’s national referendum on a draft constitution shows the country is making progress toward peace and will stand as an example of democracy.
- Russia continues to oppose referral of Iran’s nuclear program to the UN Security Council, Russian Foreign Minister Sergei Lavrov said in Moscow after meeting US Secretary of State Condoleezza Rice.
- Wal-Mart Stores said October sales are rising within its forecast range, led by increased sales of food.
- Cipla Ltd., India’s second-biggest drugmaker, plans to become the first company to sell a generic version of Tamiflu, the antiviral treatment for bird flu, by the end of the year.
- The US dollar may advance for a sixth week against the yen, the longest rally in 17 months, and gain versus the euro as US economic growth outpaces Europe and Japan.
- St. Jude Medical agreed to buy Advanced Neuromodulation Systems for $1.3 billion, to expand into the field of treating chronic pain and nervous disorders with electric pulses.
- Crude oil is rising for the first day in three on concern a tropical depression in the Caribbean may strengthen and further disrupt production in the Gulf of Mexico.

Wall Street Journal:
- US fitness companies are recruiting veterans of the wars in Iraq and Afghanistan to run workouts patterned on the “boot camps” the military puts new members through.

NY Times:
- Walt Disney units ABC and ESPN are expected to acquire television rights for the second half of Nascar’s season that have been shared by GE’s NBC Universal and Time Warner’s TNT cable network.
- Sales of Pfizer’s cholesterol fighting medicine Lipitor, and Zocor, a less costly version of the drug made by Merck, may tumble in June after Zocor’s patent runs out and health-care services switch to cheaper generic forms of treatment.
- The US, Germany and the UK all share declines in manufacturing jobs since 1993.
- Chinese-language classes in the US have tripled in a decade, fueled by China’s growing economy and military.
- Shares of Wal-Mart Stores may start to attract “value-oriented” investors, citing the president of Al Frank Asset Management.
- Anheuser-Busch is promoting tournaments in 47 college-town markets of a drinking game it released this summer called “Bud Pong.”
- Southwest Airlines may be hurt as hedging contracts that protected it from higher oil prices expire in January and as low-fare competitors become more aggressive.
- Public universities in the US are losing taxpayer support, with private donations and higher tuition helping to make up the difference.

Detroit News:
- GM will today begin offering $500 gas cards to buyers of mid- or full-size 2006 sports utility vehicles to lure new customers.

Middle East Economic Digest:
- The state-owned Saudi Aramco will invite companies to bid by December for contracts worth $11 billion to build facilities for its 1.2 million barrel a day Khurais oilfield project.

Financial Times:
- Man Group Plc is among companies that have held talks with Goldman Sachs Group Plc to possibly buy parts of Refco Inc.

Independent on Sunday:
- Banks and securities firms are reducing their loans to hedge funds on concern that some lending has been reckless.

Sunday Times:
- Kohlberg Kravis Roberts and Providence Equity Partners have joined a team of buyout firms that want to acquire NTL Inc. when it completes its takeover of Telewest Global.
- The US government is considering allowing foreign companies to control US airlines for the first time as part of a new round of “Open Skies” trade talks with the European Union.

Weekend Recommendations
Barron's:
- Had negative comments on GM.

Goldman Sachs:
- Reiterated Outperform on BSX.
- Reiterated Underperform on FGP.

Night Trading
Asian indices are -.75% to +.25% on average.
S&P 500 indicated -.19%.
NASDAQ 100 indicated -.10%.

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/Estimate
SCH/.15
C/.99
CBH/.45
ETN/1.33
GM/-.87
HAS/.51
IBM/1.13
MAT/.61
NVLS/.21
OMM/.44
RMBS/.02
WB/1.07

Upcoming Splits
- CVH 3-for-2
- RYN 3-for-2

Economic Releases
8:30 am EST
- Empire Manufacturing for October is estimated to rise to 19.0 versus a reading of 17.0 in September.

BOTTOM LINE: Asian Indices are mixed as gains in Australia are offsetting losses in Taiwan. I expect US stocks to open weaker and to rally modestly later in the day. The Portfolio is 75% net long heading into the week.

Weekly Outlook

There are some important economic reports and many significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Empire Manufacturing
Tues. - Producer Price Index, Net Foreign Security Purchases and NAHB Housing Index
Wed. - Housing Starts, Fed’s Beige Book
Thur. - Initial Jobless Claims, Leading Indicators and Philly Fed.
Fri. - None of note

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Citigroup(C), General Motors(GM), IBM(IBM), Mattel(MAT), Novellus Systems(NVLS),Wachovia(WB)
Tues. - Fifth Third Banc(FITB), Freeport-McMoRan(FCX), Genzyme Corp.(GENZ), Intel Corp.(INTC), Johnson & Johnson(JNJ), Kraft Foods(KFT), Merrill Lynch(MER), Motorola(MOT), Ryland Group(RYL), Seagate Technology(STX), State Street(STT), Wells Fargo(WFC) and Yahoo! Inc.(YHOO)
Wed. - Abott Labs(ABT), Altria Group(MO), Amgen(AMGN), Bank of America(BAC), Eastman Kodak(EK), eBay Inc.(EBAY), Electronic Arts(ERTS), EMC Corp.(EMC), General Dynamics(GD), Juniper Networks(JNPR), MBNA Corp.(KRB), Office Depot(ODP), United Technologies(UTX)
Thur. - Allstate(ALL), Broadcom(BRCM), Coca-Cola(KO), Eli Lilly(LLY), Ford Motor(F), Google Inc.(GOOG), Ingersoll-Rand(IR), McDonald’s(MCD), Pfizer Inc.(PFE), SBC Communications(SBC), Scientific-Atlanta(SFA), Southwest Airlines(LUV), United Parcel Service(UPS), Whirlpool Corp.(WHR), Xilinx(XLNX)
Fri. - Amazon.com(AMZN), Caterpillar(CAT), Guidant Corp.(GDT), Maytag Corp.(MYG), Royal Caribbean(RCL), Schlumberger(SLB), Wyeth(WYE)

Other events that have market-moving potential this week include:

Mon. - Fed’s Greenspan speaks, Fed’s Santomero speaks
Tue. - Fed’s Ferguson speaks, Semi Book-to-Bill
Wed. - BIO InvestorForum, Fed’s Geithner speaks, Fed’s Kohn speaks, Fed’s Kohn speaks, Fed’s Pinalto speaks
Thur. - Fed’s Lacker speaks, Fed’s Poole speaks, BIO InvestorForum
Fri. - Fed’s Poole speaks

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a bounce after recent losses. I continue to believe stocks will trade mixed-to-higher until closer to month’s end. Subsequently, I expect a strong year-end rally to begin, led by the technology, retail, biotech, I-Banking, restaurant, gaming and airline sectors as earnings exceed lowered expectations and the energy price downtrend accelerates. My trading indicators are still giving bearish signals and the Portfolio is 75% net long heading into the week.

***Alert***

The Economic Week in Review is canceled for the next few weeks due to a scheduling conflict.

Market Week in Review

S&P 500 1,186.57 -.78%



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was negative considering the rise in long-term rates, mixed economic data and mostly lower energy prices. The advance/decline line fell, almost every sector declined and volume was above average on the week. Measures of investor anxiety were mostly higher. Moreover, the AAII % Bulls fell sharply for the week and is now below average levels, which is a big positive. One more short period of weakness for equities is possible, however stocks have likely seen their lows for the year. I continue to believe the major averages will finish the year strongly. The average 30-year mortgage rate rose to 6.03%, but is still only 82 basis points above all-time lows set in June 2003 and slightly lower than 2005 highs of 6.04% set in April. The benchmark 10-year T-note yield rose 11 basis points on the week as investors worried high energy prices would eventually lead to higher inflation. I continue to believe it is very reckless for the Fed to speak incessantly about inflation considering it is only near average levels by historic standards and a large component of inflation is expectations. There is little evidence that companies are able to pass along higher raw materials prices to consumers at this point. The US dollar rose on the week, spurred by expectations of higher interest rates. The strength in the dollar led to profit-taking in gold. Unleaded Gas futures have now plunged almost 45% since September highs even as refinery utilization remains well below normal. Moreover, natural gas saw another inventory build this week even as a substantial amount of daily Gulf of Mexico production remains shut-in. Natural Gas supplies are now about 2% above the five-year average for this time of the year heading into the winter. I continue to believe global energy demand destruction, which began a number of months ago, has accelerated meaningfully over the last few weeks and will send energy prices substantially lower over the intermediate-term.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,186.57 -.78%
DJIA 10,287.34 -.05%
NASDAQ 2,064.83 -1.22%
Russell 2000 633.15 -1.73%
DJ Wilshire 5000 11,823.35 -.99%
S&P Equity Long/Short Index 1,060.16 -1.19%
S&P Barra Growth 571.57 -.15%
S&P Barra Value 610.78 -1.38%
Morgan Stanley Consumer 579.30 +.14%
Morgan Stanley Cyclical 690.69 -2.14%
Morgan Stanley Technology 489.63 -1.10%
Transports 3,638.61 -1.09%
Utilities 394.06 -4.77%
S&P 500 Cum A/D Line 6,198.00 -8.84%
Bloomberg Crude Oil % Bulls 47.0 +75.37%
Put/Call 1.05 +12.90%
NYSE Arms .67 -41.23%
Volatility(VIX) 14.87 -.60%
ISE Sentiment 159.0 -.63%
AAII % Bulls 38.96 -22.08%
US Dollar 89.46 +.44%
CRB 327.64 +.75%

Futures Spot Prices
Crude Oil 62.63 +1.34%
Unleaded Gasoline 174.86 -4.19%
Natural Gas 13.22 -.08%
Heating Oil 195.00 -.76%
Gold 471.90 -1.25%
Base Metals 131.68 -1.44%
Copper 176.30 -2.35%
10-year US Treasury Yield 4.48% +2.52%
Average 30-year Mortgage Rate 6.03% +.84%

Leading Sectors
Airlines +1.13%
Restaurants +.50%
Software +.45%

Lagging Sectors
Utilities -4.77%
Gold & Silver -5.24%
Alternative Energy -6.57%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

***Alert***

Due to market volatility, I am unable to post the Mid-day Scoreboard. I will post the Weekly Scoreboard this evening. I am 75% net long and expect stocks to maintain gains into the close. Have a great weekend.