Thursday Watch

Late-Night Headlines
Bloomberg:
- Roche Holding AG is halting sales of the influenza drug Tamiflu in the US to ensure the medicine is available during the flu season.
- The US House passed legislation that would create a stricter federal regulator for Fannie Mae and Freddie Mac in response to more than $15 billion of accounting errors at the government-chartered mortgage finance companies.
- The US Senate Budget Committee approved a package of $39 billion in spending cuts, as part of a Republican-lead effort to reduce the budget deficit.
- Crude oil is little changed in NY after falling 2.9% yesterday when a report showed US oil stockpiles rose twice as much as expected last week.
- The US dollar is rising to the highest in more than two years against the yen amid speculation the US economy will remain strong and the Fed will keep raising rates.
- Jermaine Dye drove in the winning run with an eight-inning single as the Chicago White Sox beat the Houston Astros 1-0 to win their first World Series title in 88 years.

Financial Times:
- Time Warner’s board may meet today to discuss a possible partnership with its AOL division and Google or Microsoft.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on AMLN, PSSI, EPD, ACLS, CAH, BXP, SYMC, AHC, EPE, SII and DO.
- Reiterated Underperform on ESRX, JNY, RAI and CR.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.35%.
NASDAQ 100 indicated -.32%.

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Earnings of Note
Company/EPS Estimate
AET/1.17
APA/2.31
AVID/.46
ABX/.13
BEBE/.16
BDK/1.67
CMI/2.60
DOW/.75
XOM/1.38
IMCL/.29
KLAC/.39
MSO/-.30
MXIM/.39
MSFT/.30
PD/4.01
TDW/.59
VZ/.64
WDC/.29
WMI/.33
WEN/.57
XMSR/-.66

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for September are estimated to decline 1.5% versus a 3.4% gain in August.
- Durables Ex Transportation for September are estimated to rise .8% versus a 4.2% increase in August.
- Initial Jobless Claims for last week are estimated to fall to 340K versus 355K the prior week.

10:00 am EST
- New Home Sales for September are estimated to rise to 1250K versus 1237K in August.

BOTTOM LINE: Asian indices are mostly lower, dragged down by losses in Taiwan and Korea. I expect US equities to open modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows as Long-term Rates Rise

Indices
S&P 500 1,191.38 -.43%
DJIA 10,344.98 -.32%
NASDAQ 2,100.05 -.45%
Russell 2000 638.41 -.67%
DJ Wilshire 5000 11,889.46 -.47%
S&P Barra Growth 571.52 -.56%
S&P Barra Value 615.69 -.31%
Morgan Stanley Consumer 582.39 -.19%
Morgan Stanley Cyclical 705.00 +.52%
Morgan Stanley Technology 494.77 -1.23%
Transports 3,735.29 -.04%
Utilities 392.11 -1.33%
Put/Call .91 +3.41%
NYSE Arms .91 -7.45%
Volatility(VIX) 14.59 +.41%
ISE Sentiment 136.00 -27.66%
US Dollar 89.54 +.34%
CRB 324.23 -1.51%

Futures Spot Prices
Crude Oil 60.92 +.43%
Unleaded Gasoline 159.00 +.35%
Natural Gas 14.03 -.11%
Heating Oil 186.00 +.21%
Gold 472.60 -.08%
Base Metals 133.08 -.46%
Copper 181.45 -.19%
10-year US Treasury Yield 4.59% +1.25%

Leading Sectors
Airlines +.93%
Oil Tankers +.92%
Computer Services +.91%

Lagging Sectors
Gold & Silver -2.57%
HMOs -2.71%
Gaming -3.29%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on MNST, ADP, AMLN and PAYX.

Afternoon/Evening Headlines
Bloomberg:
- Research in Motion lost a US Supreme Court bid to block proceedings that might result in a nationwide shutdown of its BlackBerry e-mail service.
- EnCana, Canada’s largest natural-gas producer, said third-quarter profit slid 32% because of hedging contracts that locked in fuel sales before prices surged to a record.
- US Treasuries fell, pushing the 10-year note’s yield to the highest since its peak this year in March.

span style="font-weight:bold;">BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Medical longs and Airline longs. I added IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors declined and volume was slightly above average. Measures of investor anxiety were mixed into the close. Oil closed floor trading at session lows, down $1.78. I expect the contango in the crude futures market to dissipate over the next few weeks, further pressuring demand for the commodity.

Stocks Mixed Mid-day as Energy Prices Fall and Long-term Rates Rise

Indices
S&P 500 1,197.46 +.11%
DJIA 10,398.21 +.20%
NASDAQ 2,107.83 -.08%
Russell 2000 641.32 -.22%
DJ Wilshire 5000 11,948.69 +.02%
S&P Barra Growth 574.57 -.02%
S&P Barra Value 619.10 +.26%
Morgan Stanley Consumer 585.33 +.35%
Morgan Stanley Cyclical 708.62 +1.05%
Morgan Stanley Technology 497.54 -.67%
Transports 3,751.08 +.38%
Utilities 396.01 -.35%
Put/Call .91 +3.41%
NYSE Arms .77 -21.83%
Volatility(VIX) 14.24 -2.0%
ISE Sentiment 146.00 -22.34%
US Dollar 89.52 +.31%
CRB 325.47 -1.10%

Futures Spot Prices
Crude Oil 61.65 -1.35%
Unleaded Gasoline 161.25 -2.65%
Natural Gas 14.14 -1.35%
Heating Oil 188.00 -.52%
Gold 473.00 -.36%
Base Metals 133.08 -.46%
Copper 181.80 -.36%
10-year US Treasury Yield 4.57% +1.03%

Leading Sectors %
I-Banks +1.29%
Oil Tankers +1.12%
Papers +.98%

Lagging Sectors
Networking -1.78%
HMOs -2.28%
Gaming -2.69%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet longs, Medical longs and Computer longs. I added PLAY long this morning and took profits in an existing long, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is slightly above average. Measures of investor anxiety are mixed. Today’s overall market action is neutral considering the rise in long-term rates and fall in energy prices. Trim Tabs is now estimating international funds will take in $87.5 billion this year, the most since they began keeping track in 1985. I continue to believe the mania for international stocks will end badly in the coming months. It will likely coincide with the accelerated downward move in commodity prices that I envision. I expect US stocks to trade modestly higher from current levels into the close on falling energy prices.

Today's Headlines

Bloomberg:
- US demand for international stocks this year may be the highest in more than 20 years, based on mutual-fund flows. The growth has led to concern that gains in markets worldwide have peaked.
- Shares of Doral Financial, Puerto Rico’s largest mortgage lender, plunged after the company disclosed late yesterday that the SEC is conducting a formal probe into an earnings restatement.
- CBS News President Andrew Heyward will step down after almost 10 years and will be replaced by CBS Sports chief Sean McManus.

Wall Street Journal:
- Lockheed Martin is part of a group of companies that may make a takeover offer for Computer Sciences.
- EarthLink and SK Telecom, South Korea’s leading wireless provider, plan to start a cell-phone and data service in the US.
- Ford Motor is trying to improve its internal knowledge of gasoline-electric engine technology so it can ensure its ability to produce hybrid engines to compete against Toyota Motor, maker of Prius hybrid cars.
- The Gulf Coast hurricane season, which has left hundreds of thousands of US citizens homeless, means a bonanza for makers of motorized mobile homes.

NY Times:
- There has been a “significant” increase in the number of first-time buyers of commercial real estate in the US as people seek higher return on investment.
- Billionaire investor Wilbur Ross plans to take advantage of cheaper prices to acquire ailing auto-parts businesses and combine them into a stronger company.

Washington Post:
- The US State Department issued final rules for putting electronic identification chips into all US passports.

Boston Globe:
- The median price of a single-family home in Massachusetts fell 4% to $360,000 in September, the first monthly decline since February.

AP:
- Democratic Senator Jon Corzine’s New Jersey gubernatorial campaign ad that features a paralyzed man criticizing Republican Doug Forrester for his views on stem-cell research has drawn negative comments.

Al-Ahram:
- Egypt has started pumping oil from one of three offshore fields in the Gulf of Suez that have reserves of up to 70 million barrels, citing Petroleum Minister Sameh Fahmy.

INA:
- Iranian President Mahmoud Ahmadinejad called Israel’s withdrawal from Gaza a “trick” and said the Islamic world would “wipe Israel away.”

Economic Releases

- The EIA just reported that crude oil inventories rose 4.41 million barrels vs. estimates of a 2.0 million barrel rise. Gasoline inventories rose 159,000 barrels vs. estimates of a 1.5 million barrel rise. Distillate supplies fell 1.62 million barrels vs. estimates of a 1.3 million barrel fall.

BOTTOM LINE: The EIA data was moderately bearish for oil, however the commodity is rising slightly on continued speculation that demand is accelerating from Sept. The overall trend in demand is lower and will remain so over the intermediate-term.

Links of Interest

Market Snapshot
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Market Internals
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IBD New America
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