Monday Watch

Weekend Headlines
Bloomberg:
- French police arrested 349 people overnight as gangs burned cars and buildings for the 10th consecutive night in Paris suburbs, other cities around France, and, for the first time, within the city of Paris itself. Almost 1,300 vehicles were set ablaze across the nation.
- Wal-Mart Stores said November sales at its US stores are rising within its forecast, led by groceries.
- The US dollar surged to an 18-month high against the euro this week on increasing optimism over US economic growth.
- Refco Inc., the US futures broker, said it received five offers for all or some of its assets that will be sold at a bankruptcy court auction next week.
- The Chinese government’s attempts to revive its stock market are failing, and more losses may lie ahead in the absence of further action.
- Senator Biden said he and his fellow Democrats are unlikely to block the Supreme Court nomination of Samuel Alito Jr. by using a filibuster to prevent a vote of the full Senate.
- Crude oil is falling for a second day in NY on expectations rising production in the Gulf of Mexico and warmer-than-usual weather will help bolster US fuel stockpiles before winter.

Barron’s:
- Berkshire Hathaway, Exxon Mobil and Microsoft are among companies with hefty cash reserves on their balance sheets because of robust earnings and conservative capital spending.
- Hythiam has to prove to investors through controlled study or peer review that its “Prometa” outpatient system can treat drug and alcohol addiction.

Business Week:
- The next tidal wave of advances will be in biotech, and the person who leads the way stands to reap immense wealth.

Wall Street Journal:
- JPMorgan Chase has put its life insurance and annuity business up for auction.
- Connecticut Attorney General Richard Blumenthal is forming a task force of regulators and hedge-fund executives to come up with recommendations for rules for funds operating in the state.
- Low interest rates and companies flush with cash are fueling the highest level of mergers and acquisitions activity worldwide since the 1990s.

NY Times:
- Estee Lauder is seeking to win more young customers with a new line of cosmetics and a fragrance designed by Tom Ford.
- The US government is considering the benefits of having home testing available for HIV, since rapid testing and counseling have been used to try to prevent the spread of AIDS.
- FEMA said 60,000 houses in New Orleans and other places hit by Hurricane Katrina are damaged beyond repair.
- FEMA said it will give as much as $26,200 to each of 60,000 homeowners and renters in the Louisiana and Mississippi areas hardest hit by Hurricane Katrina.
- Google has drawn attention and caution from many companies, including Wal-Mart Stores, as they watch to see what technology it develops next.
- The US Interior Department’s National Wildlife Health Center is recruiting hundreds of veterinarians, ornithologists, park rangers and amateur bird-watchers to test birds and water samples for signs of avian influenza.

San Francisco Chronicle:
- Sun Microsystems shareholders Thursday approved a non-binding measure to abolish the company’s takeover defense provision.

Washington Post:
- China and the US have reached a tentative agreement that would resolve a textile dispute.

AP:
- A Carnival Corp. cruise ship was attacked by pirates firing rocket-propelled grenades and machine guns off the east coast of Africa today.

Financial Times:
- Wal-Mart Stores plans to open a banking branch in Utah to handle credit and debit card-payment processing, despite opposition from financial institutions.

The Observer:
- China is to hire British engineers to help build several so-called eco-cities that are self-sufficient in energy, water and most food products.
- The NYSE is considering a bid for London Stock Exchange Plc.

Weekend Recommendations
Barron's:
- Had positive comments on MEE, SONO, ASH and ACW.

Goldman Sachs:
- Reiterated Outperform on FDC.
- Reiterated Underperform on HBAN.

Night Trading
Asian indices are -1.0% to -.50% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.12%.

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
ADRX/.05
EP/.15
PPC/1.08

Upcoming Splits
DNR 2-for-1

Economic Releases
3:00 pm EST
- Consumer Credit for September is estimated to rise to $5.9B versus $4.9B in August.

BOTTOM LINE: Asian Indices are lower, pressured by commodity stocks in the region. I expect US stocks to open mixed and to rise modestly later in the day. The Portfolio is 100% net long heading into the week.

Weekly Outlook

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

Economic reports for the week include:

Mon. - Consumer Credit
Tues. - None of note
Wed. - Wholesale Inventories
Thur. - Trade Balance, Import Price Index, Initial Jobless Claims, Univ. of Mich. Confidence, Monthly Budge Statement
Fri. - None of note

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

Mon. - El Paso Corp.(EP)
Tues. - Alcan(AL), Cablevision Systems(CVC), EchoStar Communications(DISH), MBIA Inc.(MBI), McKesson Corp.(MCK), Transocean Inc.(RIG)
Wed. - Cisco Systems(CSCO), DR Horton(DHI), Federated Department Store(FD), JDS Uniphase(JDSU), Whole Foods(WFMI)
Thur. - Dell Inc.(DELL), International Game Technology(IGT), Kohl’s(KSS), Pacific Sunwear(PSUN), Target Corp.(TGT), Urban Outfitters(URBN)
Fri. - None of note

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

Mon. - CIBC Healthcare Conference, Goldman Software & IT Services Conference, Bear Stearns Smid-Cap Conference
Tue. - Goldman Software & IT Services Conference, Bear Stearns Smid-Cap Conference, CIBC Healthcare Conference
Wed. - Morgan Stanley Global Consumer & Retail Conference, the Fed’s Santomero speaking, the Fed’s Poole speaking, Oppenheimer Restaurant Conference, Citigroup Transportation Conference, CIBC Healthcare Conference, the Fed’s Pianalto speaking
Thur. - Citigroup Transportation Conference, the Fed’s Bies speaking
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher, spurred by lower energy prices, stabilizing long-term rates, decelerating inflation data, short-covering and increasing optimism. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,220.14 +1.81%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very positive considering another rise in long-term rates, another Fed rate hike and an earnings warning from Dell Inc. The advance/decline line rose, almost every sector gained and volume was heavy on the week. Measures of investor anxiety were mostly lower. The AAII % Bulls rose for the week and is now at around average levels. The average 30-year mortgage rate rose to 6.31% which is 110 basis points above all-time lows set in June 2003 and the highest since June of last year. The benchmark 10-year T-note yield rose 9 basis points on the week as investors shifted from bonds to stocks and economic data were mostly positive. This also boosted small-caps, tech and cyclicals. The US dollar rose on the week, spurred by expectations of higher interest rates and optimism over US economic growth relative to that of other developed nations. Strength in the dollar and lower inflation readings led to more profit-taking in gold. Unleaded Gas futures have collapsed, falling almost 45% since September highs even as refinery utilization remains well below normal. Moreover, natural gas saw another inventory build even as a substantial amount of daily Gulf of Mexico production remains shut-in. Natural Gas plunged 12.5% for the week on this news and unseasonably warm weather. It is now down 22.8% from September highs. Natural Gas supplies are now about 3% above the five-year average for this time of the year heading into the winter. In my opinion, global energy demand destruction, which began a number of months ago, has accelerated meaningfully over the last couple of months and will send energy prices substantially lower over the intermediate-term. I continue to believe the major stock averages have seen their intermediate-term lows. I expect the S&P 500 to end the year strongly, finishing with around a 10% gain for the year.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,220.14 +1.81%
DJIA 10,530.76 +1.23%
NASDAQ 2,169.43 +3.81%
Russell 2000 658.16 +3.59%
DJ Wilshire 5000 12,194.17 +2.18%
S&P Equity Long/Short Index 1,059.27 +.56%
S&P Barra Growth 584.33 +1.89%
S&P Barra Value 631.56 +1.74%
Morgan Stanley Consumer 585.42 +.13%
Morgan Stanley Cyclical 732.22 +3.21%
Morgan Stanley Technology 510.26 +3.73%
Transports 3,935.22 +5.17%
Utilities 392.90 -.79%
S&P 500 Cum A/D Line 7,227.00 +15.12%
Bloomberg Crude Oil % Bulls 23.0 -8.0%
Put/Call .86 +4.88%
NYSE Arms .86 +68.63%
Volatility(VIX) 13.17 -7.58%
ISE Sentiment 189.00 +51.20%
AAII % Bulls 42.95 +34.01%
US Dollar 91.26 +1.87%
CRB 318.77 -1.04%

Futures Spot Prices
Crude Oil 60.58 -1.17%
Unleaded Gasoline 160.80 -3.13%
Natural Gas 11.41 -12.53%
Heating Oil 179.62 -5.46%
Gold 457.90 -1.93%
Base Metals 136.47 +2.61%
Copper 184.70 +2.04%
10-year US Treasury Yield 4.66% +1.97%
Average 30-year Mortgage Rate 6.31% +2.60%

Leading Sectors
Retail +7.09%
Gaming +6.48%
Semis +6.35%

Lagging Sectors
Foods -.90%
Gold & Silver -.91%
REITs -1.48%

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

*5-Day % Change

Stocks Mixed Mid-day as Profit-taking Offsets Lower Energy Prices

Indices
S&P 500 1,216.47 -.28%
DJIA 10,503.27 -.18%
NASDAQ 2,161.42 +.06%
Russell 2000 655.48 -.50%
DJ Wilshire 5000 12,158.20 -.30%
S&P Barra Growth 582.72 -.18%
S&P Barra Value 629.71 -.35%
Morgan Stanley Consumer 584.50 -.33%
Morgan Stanley Cyclical 729.07 +2.69%
Morgan Stanley Technology 507.78 -.23%
Transports 3,919.38 -1.36%
Utilities 391.83 -.60%
Put/Call .83 -8.79%
NYSE Arms 1.05 +31.47%
Volatility(VIX) 13.47 +3.62%
ISE Sentiment 179.00 +12.58%
US Dollar 91.29 +.94%
CRB 318.83 -.77%

Futures Spot Prices
Crude Oil 60.80 -1.67%
Unleaded Gasoline 161.00 -1.03%
Natural Gas 11.36 -2.81%
Heating Oil 179.30 -2.21%
Gold 457.50 -.95%
Base Metals 136.47 +.72%
Copper 184.60 +1.04%
10-year US Treasury Yield 4.65% +.14%

Leading Sectors %
Gaming +1.21%
Restaurants +1.04%
HMOs +.77%

Lagging Sectors
Steel -1.48%
Energy -2.80%
Oil Service -2.85%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Software longs, Steel shorts and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is lower, sector performance is mixed and volume is slightly above average. Measures of investor anxiety are mixed. Today's market action appears to be a healthy consolidation of recent gains to me. A number of sectors are higher or just slightly lower. The only real losses are in the commodity stocks, which is positive for the market as a whole. I have been forecasting continued strength in the US dollar for some time. This is now helping to pressure commodity prices. Gold is especially weak, due to US dollar strength, and will likely remain so over the intermediate-term as inflation decelerates and the dollar remains relatively strong. The 10-year T-note yield is slightly higher to 4.66%. However, this is still lower than the 4.92% it touched intraday last year and still near historically low levels. I expect US stocks to trade modestly higher from current levels into the close on more optimism and short-covering.

Today's Headlines

Bloomberg:
- Berkshire Hathaway may report its lowest quarterly profit in almost four years because of losses from Hurricane Katrina and an incorrect bet against the US dollar.
- The US House of Representatives voted to bolster private-property rights by limiting local governments’ power to seize land for economic development.
- Crude oil may decline as stockpiles increase and warm weather in the northern US cuts demand for heating oil, a Bloomberg survey showed.
- Autonomy, whose software helps businesses keep track of data, agreed to buy US competitor Verity for $500 million in cash to add programs for searching databases.
- The US dollar rose to a 26-month high against the yen and the strongest level of the year versus the euro on continuing optimism over the US economy relative to the economies of other developed nations.

Wall Street Journal:
- Investors, including private partnerships and real-estate investment trusts, are buying millions of acres of US forest land from companies such as International Paper under pressure to boost profit.

NY Times:
- Mazada Motor joined Toyota Motor, Honda Motor and Ford Motor in featuring alternative-fuel vehicles at the Tokyo Motor Show.
- Ford Motor is expected to announce plans today to subsidize the installation of around 100 ethanol fuel pumps at gasoline stations in the US Midwest to push a money-saving alternative to gas.

Washington Post:
- SBC Communications CEO Whitacre stirred controversy over access to the Internet when he indicated companies wouldn’t be able to use SBC’s network for free.
- FEMA said it will set aside as much as $1.5 billion worth for small companies to maintain trailers for Hurricane Katrina evacuees.

Philadelphia Inquirer:
- Planet Hollywood International plans to build a $380 million casino along the Penn’s Landing waterfront in Philadelphia, subject to approval by city and state officials.

Detroit News:
- GM has been operating several assembly plans on overtime and ordering more parts from suppliers to prepare for a possible strike at Delphi.

Financial Times:
- Pierre Omidyar, the founder of EBay, will start a $100 million fund with a view to lending to small businesses in developing countries.