Stocks Lower Mid-day on Dell Warning and Fed Jitters

Indices
S&P 500 1,202.77 -.35%
DJIA 10,416.86 -.21%
NASDAQ 2,112.53 -.37%
Russell 2000 643.39 -.50%
DJ Wilshire 5000 12,010.05 -.28%
S&P Barra Growth 574.51 -.50%
S&P Barra Value 624.45 -.16%
Morgan Stanley Consumer 584.76 -.41%
Morgan Stanley Cyclical 716.82 -.15%
Morgan Stanley Technology 498.89 -.10%
Transports 3,836.76 +.56%
Utilities 393.83 -1.81%
Put/Call .92 +4.55%
NYSE Arms 1.22 +32.49%
Volatility(VIX) 14.90 -2.74%
ISE Sentiment 179.00 -7.73%
US Dollar 90.07 unch.
CRB 315.79 -.16%

Futures Spot Prices
Crude Oil 59.45 -.52%
Unleaded Gasoline 160.00 +.62%
Natural Gas 11.93 -2.25%
Heating Oil 180.50 -1.09%
Gold 460.90 -1.29%
Base Metals 133.78 -.93%
Copper 181.60 +.28%
10-year US Treasury Yield 4.56% +.22%

Leading Sectors %
Steel +1.51%
Computer Services +1.48%
Broadcasting +.71%

Lagging Sectors
REITs -1.55%
Computer Hardware -1.86%
Utilities -1.99%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Medical Information System longs, Semi longs and Airline longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is slightly above average. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral considering the better economic data and Dell earnings’ warning. The Johnson Redbook same-store sales index rose 3.8% 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 26th week in a row the index has risen 3% or more. While consumer sentiment remains depressed, spending remains healthy. There is very little evidence of any widespread consumer slowdown. I expect US stocks to trade modestly higher from current levels into the close on short covering and bargain hunting after the Fed hike.

Today's Headlines

Bloomberg:
- China has seen no signs of deflation and consumer prices are falling because of decreasing production costs and rising output, Zheng Jingping, a spokesman for the National Bureau of Statistics wrote.
- Democrats’ only hope of blocking the US Supreme Court nomination of Samuel Alito Jr. may be a filibuster, and key Republican senators say it would probably have little change of success.
- Crude oil is falling to a three-month low in NY as warm weather in the US further reduced fuel consumption that was cut after hurricanes pushed prices to records.
- President Bush announced a $7.1 billion plan to prepare the US for a possible avian influenza pandemic, including at least $2.2 billion for research.


Wall Street Journal:
- A private-equity company led by Jerry Kent will buy a group of cable systems from Cox Communications for as much as $3 billion.
- Google will resume scanning copyrighted library books into its search engine after a self-imposed interval, even as some publishers and authors try to block it from doing so without their approval.
- Visa International, American Express and other credit-card companies are trying to come up with ways to make it easier for people to charge small payments on their cards.
- An administration tax panel will present proposals today to change how US households and businesses are taxed.
- Lockheed Martin and three private-equity companies are discussing a purchase price for Computer Sciences of as much as $65 a share.
- Fabric7 Systems, a Silicon Valley start-up company, plans to use microprocessor chips from Advanced Micro Devices to build server computers to compete with IBM, Hewlett-Packard and Sun Microsystems.

NY Times:
- Johnson & Johnson’s proposed acquisition of Guidant will probably be approved by the FTC as early as today, citing executives.
- Sprint Nextel is expected to announce an agreement to offer wireless telephone service to customers of Comcast, Time Warner Cable and Cox Communications.

Financial Times:
- The US Treasury is expected to outline its thinking on the creation of a lending facility to alleviate shortages of Treasury notes in the repurchase market.

Interfax:
- Azerbaijan plans to raise oil production 42% to 572,000/day next year, compared with expected output this year.

Construction and Manufacturing Still Strong, Prices Paid Elevated

- Construction Spending for September rose .5% versus estimates of a .5% increase and an upwardly revised .6% gain in August.
- ISM Manufacturing for October rose to 59.1 versus estimates of 57.2 and a reading of 59.4 in September.
- ISM Prices Paid for October rose to 84.0 versus estimates of 75.0 and a reading of 78.0 in September.

BOTTOM LINE: US construction spending rose for a third straight month in September, led by the biggest rise in homebuilding since February, Bloomberg reported. Construction will remain strong over the intermediate-term as hurricane rebuilding begins in earnest.

US manufacturing expanded in October at the second-fastest pace this year and an index of factory costs unexpectedly rose, Bloomberg reported. Corporate equipment upgrades, as well as declining inventories and hurricane rebuilding should continue to boost manufacturing. This reading was significantly higher than the 10-year average of 52.4. The order backlogs component of the index rose to 55.5 from 55.0 in September. The recent strength in manufacturing is amazing considering the hurricane-related disruptions along the Gulf coast. I expect manufacturing to remain strong through year-end. I also believe we are seeing a cyclical peak in inflation readings and the prices paid indices will decelerate over the intermediate-term.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Shanghai built more skyscrapers in 15 years than New York did in a century, Beijing has the equivalent of three Manhattans under construction, and China’s government says it’s concerned about a property bubble.
- China, the world’s largest iron ore importer, needs to clear the backlogs at ports that handle commodities used for steelmaking to reduce vessel delays and help sustain the nation’s economic growth, according to analysts attending this week’s World Shipping Summit in Shanghai.

South China Morning Post:
- Sinochem Corp., a state-owned petroleum company, was among 85 Chinese companies named in a United Nations investigative report as illegally paying $6 million to Saddam Hussein’s Iraqi government.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY.
- Reiterated Underperform on PFG and WPT.

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated -.36%.
NASDAQ 100 indicated -.47%.

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/EPS Estimate
AGN/.79
BJS/.42
CEPH/.70
CL/.67
EDS/.14
ERTS/.04
EMR/.99
HTCH/.12
IACI/.26
MMC/.38
MBI/1.38
MHS/.60
MLS/-.19
PNRA/.36
PG/.76
PDLI/-.03
RDC/.41
SIRI/-.16
SYMC/.20
TIE/.64
TXU/2.45
UNA/.17
VIA/.45
ZBRA/.36

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Construction Spending for September is estimated to rise .5% versus a .4% gain in August.
- ISM Manufacturing for October is estimated to fall to 57.1 from a reading of 59.4 in September.
- ISM Prices Paid for October is estimated to fall to 75.0 versus a reading of 78.0 in September.

2:15 am EST
- The FOMC is expected to raise the Fed Funds rate by 25 basis points to 4.0%.

Afternoon
- Total Vehicle Sales for October are estimated to fall to 15.5M versus 16.4M in September.
- Domestic Vehicle Sales for October are estimated to fall to 12.5M versus 13.0M in September.

BOTTOM LINE: Asian indices are mostly higher on strength in exporting shares in the region after US economic reports boosted optimism. I expect US equities to open modestly lower and to rise later in the day. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Falling Energy Prices, Better Economic Data and More Optimism

Indices
S&P 500 1,207.01 +.72%
DJIA 10,440.07 +.36%
NASDAQ 2,120.30 +1.46%
Russell 2000 646.61 +1.78%
DJ Wilshire 5000 12,043.73 +.92%
S&P Barra Growth 577.40 +.68%
S&P Barra Value 625.43 +.75%
Morgan Stanley Consumer 587.19 +.43%
Morgan Stanley Cyclical 717.91 +1.19%
Morgan Stanley Technology 499.38 +1.52%
Transports 3,815.46 +1.97%
Utilities 401.11 +1.29%
Put/Call .88 +7.32%
NYSE Arms .92 +82.40%
Volatility(VIX) 15.32 +7.51%
ISE Sentiment 194.00 +55.20%
US Dollar 90.06 +.52%
CRB 316.29 -1.81%

Futures Spot Prices
Crude Oil 59.83 -2.27%
Unleaded Gasoline 152.61 -6.04%
Natural Gas 12.22 -6.37%
Heating Oil 176.98 -4.0%
Gold 467.40 -1.56%
Base Metals 135.03 +1.53%
Copper 181.10 -.49%
10-year US Treasury Yield 4.55% -1.41%

Leading Sectors
Airlines +3.91%
Retail +3.51%
Computer Hardware +2.39%

Lagging Sectors
Defense +.25%
Telecom +.19%
Foods -.16%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DDR.
- Reiterated Underperform on LVLT.

Afternoon/Evening Headlines
Bloomberg:
- US stocks staged their biggest two-day rally in almost a year as oil prices fell and companies proposed more than $19 billion in acquisitions.
- Fidelity Investments said Robert Stansky will retire after nine years of managing its flagship Magellan Fund.
- Verizon and SBC Communications cleared the final federal hurdle to their multibillion-dollar acquisitions without having to sell assets.
- GM and Wal-Mart are helping convince some economists that the Federal Reserve can stop worrying about wage pressures driving inflation.
- Ralph Acampora, the former director of technical research at Prudential Equity Group whose department was shut down last month, was hired by Knight Capital Group.
- Dell said third-quarter sales missed forecasts because demand from US consumers and UK businesses fell short of its expectations.
- Crude oil and heating oil tumbled, and gasoline fell to the lowest in almost five months, as warmer-than-normal weather may cut consumption in the US Northeast.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Retail longs, Semi longs, Computer longs and Airline longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, a very good day for the bulls as the major indices and breadth finished near session highs. Stabilizing long-term rates even with the strong stock rally and better-than-expected economic data are a big positive. Moreover, I sense a shift in psychology with respect to the positive implications of the sharp fall in energy prices. Unleaded gas futures have now collapsed close to 50% even as refinery utilization remains substantially lower than pre-hurricane levels. Hedge funds had one of their worst months in a long time during October as energy stocks fell and emerging markets faltered. I expect follow-through on today's gains as those funds pile on long to try and recoup recent losses.