Wednesday Watch

Late-Night Headlines
Bloomberg:
- Australia’s consumer prices increased less than economists expected in the third quarter as the price of TVs, DVDs, stereos and medicines declined.
- Japan’s exports rose 8.8% to a record in September on higher demand from the US and China.
- Crude oil is falling for a sixth day in seven before a report today that may show US stockpiles increased for a third week on higher imports and weaker demand.

Financial Times:
- Sealed indictments in the CIA leak probe are expected to be filed tomorrow and released later this week.

AFP:
- Laser printers made by Xerox Corp. and other companies produce a secret code that can help the US Secret Service track down currency counterfeiters.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW and CVS.
- Reiterated Underperform on EW and CR.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 indicated +.22%.
NASDAQ 100 indicated +.19%.

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
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Macro Calls
Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/EPS Estimate
ADP/.35
AHC/3.30
APCC/.28
BUD/.80
BIDU/.06
BOL/.90
BIIB/.42
BA/.80
CAH/.72
COP/2.56
GLW/.21
CSX/.72
DO/.40
DBD/.27
EL/.32
ESRX/.61
KMG/2.64
LLL/1.09
MGM/.41
MNST/.24
NEM/.25
OMX/.29
PFCB/.31
PHM/1.39
RCL/1.47
S/.38
ZMH/.67

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Platt's estimates weekly crude inventories rose 2.7 million barrels, gasoline inventories rose 2.3 million barrels, distillate inventories declined 1.1 million barrels and refinery utilization increased 4.0%.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology companies in the region. I expect US equities to open mixed and to rise modestly later in the day. The Portfolio is 100% net long heading into the day.

Stocks Rebound into Close, Finishing Slightly Lower

Indices
S&P 500 1,196.54 -.24%
DJIA 10,377.87 -.07%
NASDAQ 2,109.45 -.30%
Russell 2000 642.73 -.60%
DJ Wilshire 5000 11,945.29 -.25%
S&P Barra Growth 574.71 -.32%
S&P Barra Value 617.62 -.15%
Morgan Stanley Consumer 583.50 -.36%
Morgan Stanley Cyclical 701.35 -.15%
Morgan Stanley Technology 500.92 -.89%
Transports 3,736.74 +.32%
Utilities 397.41 +.02%
Put/Call .88 +25.71%
NYSE Arms .98 +95.11%
Volatility(VIX) 14.53 -1.42%
ISE Sentiment 197.00 -18.60%
US Dollar 89.29 -.91%
CRB 329.19 +2.44%

Futures Spot Prices
Crude Oil 62.24 -.29%
Unleaded Gasoline 165.00 -.23%
Natural Gas 14.35 +.08%
Heating Oil 188.14 -.45%
Gold 474.50 -.04%
Base Metals 133.69 +1.30%
Copper 182.95 +.27%
10-year US Treasury Yield 4.53% +1.99%

Leading Sectors
Oil Service +2.95%
Energy +2.26%
Gold & Silver +1.55%

Lagging Sectors
Gaming -1.95%
Airlines -2.23%
HMOs -4.27%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on COH and SEPR.
- Reiterated Underperform on CHTR.

Afternoon/Evening Headlines
Bloomberg:
- NBC Universal CEO Wright said the NBC television network is “desperate” and rebuilding the schedule will take more than one season.
- Google is testing a service that may let users sell products online, posing a threat to EBay.
- US Treasury notes fell on expectations the Federal Reserve will keep raising interest rates to slow the economy.
- The US Senate will debate an overhaul of US immigration laws early next year, including whether to establish a guest-worker program, Senate Majority Leader Bill Frist.
- Chipotle Mexican Grill, majority-owned by McDonald’s, filed to sell as much as $100 million in stock in an IPO so McDonald’s can focus on its hamburger business.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Retail longs and Energy-related shorts. I exited my IWM and QQQQ shorts and added to a few existing longs in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished lower, most sectors declined and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's performance wasn't too bad considering yesterday's gains and the bounce in long-term rates and energy prices. I expect stocks to make another push higher before week's end.

Stocks Lower Mid-day on a Bounce in Energy Prices and Long-term Rates

Indices
S&P 500 1,190.88 -.71%
DJIA 10,332.73 -.50%
NASDAQ 2,097.08 -.88%
Russell 2000 637.56 -1.40%
DJ Wilshire 5000 11,886.40 -.74%
S&P Barra Growth 571.86 -.82%
S&P Barra Value 614.94 -.59%
Morgan Stanley Consumer 581.33 -.73%
Morgan Stanley Cyclical 698.61 -.54%
Morgan Stanley Technology 498.77 -1.31%
Transports 3,719.29 -.15%
Utilities 394.11 -.83%
Put/Call .92 +31.43%
NYSE Arms 1.19 +135.76%
Volatility(VIX) 15.18 +3.05%
ISE Sentiment 206.00 -14.88%
US Dollar 89.25 -.95%
CRB 328.02 +2.07%

Futures Spot Prices
Crude Oil 62.20 +3.20%
Unleaded Gasoline 164.50 +3.85%
Natural Gas 13.98 +7.51%
Heating Oil 188.75 +5.02%
Gold 474.70 +1.65%
Base Metals 133.69 +1.30%
Copper 182.45 +2.24%
10-year US Treasury Yield 4.49% +1.22%

Leading Sectors %
Gold & Silver +2.40%
Oil Service +1.80%
Energy +1.15%

Lagging Sectors
Tobacco -2.64%
Gaming -3.06%
HMOs -5.26%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Retail longs, Semiconductor longs and Energy-related shorts. I added IWM and QQQQ shorts and increased my OS and SCHN shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is slightly below average. Measures of investor anxiety are higher. Today’s overall market action is slightly negative considering the rise in long-term rates and energy prices. The Johnson Redbook same-store sales index rose 3.5% year-over-year last week vs. a 3.5% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 25th week in a row the index has risen 3% or more. This is more evidence that investors should pay more attention to what consumers do than what they say. I continue to expect retail sales to beat lowered expectations this holiday season. I expect US stocks to trade mixed from current levels into the close as bargain-hunting offsets worries over a bounce in energy prices.

Today's Headlines

Bloomberg:
- Merrill Lynch, Man Group Plc and Leon Black’s Apollo Management LLC transformed a discreet auction for failed Refco into a worldwide free-for-all.
- The European Commission plans to cut its 2006 growth estimate for the euro region and warn the 12-nation economy may perform even worse.
- The Dolan family withdrew its offer to take Cablevision Systems private and instead suggested the board declare a special dividend of $3 billion.
- Iraqis approved a new constitution that will establish a permanent government, the next step in the country’s transition to democracy after two decades of rule by Saddam Hussein’s dictatorship.
- McDonald’s will place nutrition information on most of its packaging to attract health-conscious consumers.
- Crude oil, gasoline, heating oil and natural gas are rising on speculation that US fuel consumption will increase with the end of the Atlantic hurricane season and the beginning of winter.
- The euro gained the most in more than two weeks against the dollar after business confidence in Germany rose to a five-year high.

Wall Street Journal:
- A group led by Comcast, Cox Communications and Time Warner is near an agreement with Sprint Nextel that would allow the cable operators to sell wireless phone service.
- Property development in the Florida Panhandle after eight hurricanes struck the state in the last 14 months has spurred a boom in real estate transactions.
- The US Congress is close to agreement on $101 billion in agricultural spending.
- The European Union, Brazil, China, India and other countries have called for an international agency to regulate the Internet and replace US control of the electronic information system.
- US automakers including General Motors have gone back to offering incentives to consumers to purchase their vehicles as sales remained weak.
- Some clinical trials suggest low-dose chemotherapy over extended periods may halt the spread of breast and ovarian cancers.

NY Times:
- Wal-Mart Stores plans to announce today a program to reduce energy consumption in its stores, double the fuel efficiency of its trucks and minimize packaging, citing CEO Scott.

Interfax:
- Russia will continue to assist Iran with its nuclear energy program after the completion of a plant at Bushehr in the Middle East nation.

London-based Times:
- Ben Bernanke, named by President Bush to succeed Alan Greenspan as chairman of the US Federal Reserve, forecast that the American economy will continue to grow without fiscal inflation even as energy prices rise.

Existing Home Sales Still Strong, Sentiment Remains Weak

- Existing Home Sales for September were 7.28M versus estimates of 7.2M and 7.28M in August.
- Consumer Confidence for October fell to 85.0 versus estimates of 88.0 and a reading of 87.5 in September.

BOTTOM LINE: US previously owned home sales were unchanged in September from a month earlier, matching the second-highest level on record and suggesting the recent rise in mortgage rates and waning consumer confidence has yet to slow demand, Bloomberg said. The median price of existing homes rose 13.4% year-over-year to $212,000. Sales rose 3.7% in the South and .8% in the Northeast. They fell 4.1% in the West and 3% in the Midwest. The supply of existing homes for sale held steady at 4.7 months’ worth. The Realtors group forecasts existing home sales to reach an all-time record this year of 7.1 million. The housing market continues to show signs of slowing, not plunging, which is a big positive for the overall US economy.
Consumer confidence unexpectedly fell to a two-year-low in October as high energy prices, bird flu fears, scandals and two devastating hurricanes left Americans feeling unsettled, Bloomberg reported. The gauge of optimism about consumers’ present situation fell to 108.2 from 110.4. The share of consumers that said jobs were hard to get rose to 25.3% this month from 25% last month. However, the percentage of consumers planning to buy a car rose to 6.1% from 5.8%. I continue to believe consumer sentiment will rebound into year-end as gas prices, which are already down 45% from peak levels in Sept., continue to fall and natural gas prices begin falling meaningfully next month.

Links of Interest

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