Tuesday Watch

Late-Night Headlines
Bloomberg:
- Target Corp. said November sales may rise 2% to 3%, half its earlier forecast.
- Berkshire Hathaway owned 44.7 million shares of Anheuser-Busch Cos. as of Sept. 30.
- Wal-Mart will open stores an hour earlier this year on Black Friday and match any competitors’ price to win holiday sales after a lackluster season last year.
- Chinese industrial companies’ profits grew at a slower pace in October as competition drove down prices of products including steel, cell phones and cars, and higher energy prices boosted manufacturers’ costs.
- The death toll from Hurricane Katrina, totaling 1,306 so far, may rise as 6,644 people are still unaccounted for, USA Today reported.
- London Metal Exchange CEO Heale said a China Daily report that China had to deliver 200,000 tons of copper into exchange-approved warehouses by Dec. 21 was “market rumor and speculation.”

Wall Street Journal:
- A group led by Russell Glass, a former Icahn Associates president and chief investment officer, offered to buy the New York Knicks and Rangers for $700 million.

Financial Times:
- Shopping on the Internet will rise by over 40% in the UK during this year’s holiday period, compared with a year earlier.
- Internet hackers are targeting desktop software such as anti-viruses, after operating systems and e-mail systems tightened security.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, COH and SGMS.

Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 indicated -.10%.
NASDAQ 100 indicated -.21%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
ABS/.27
BSG/.17
CWTR/.20
DE/.78
DG/.19
DLTR/.27
EV/.30
FLS/.28
HNZ/.54
MIK/.37
PETC/.26
TECD/.45
WIND/.07

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- The Richmond Fed Index for November is estimated to fall to 10 versus a reading of 12 in October.

2:00 pm EST
- Minutes of Nov. 1 FOMC Meeting

BOTTOM LINE: Asian indices are lower, dragged down by losses in semiconductor companies in the region. I expect US equities to open modestly lower and to rally later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs on Increasing Optimism

Indices
S&P 500 1,254.85 +.53%
DJIA 10,820.28 +.50%
NASDAQ 2,241.67 +.66%
Russell 2000 678.96 +1.0%
DJ Wilshire 5000 12,543.34 +.60%
S&P Barra Growth 601.49 +.56%
S&P Barra Value 648.98 +.50%
Morgan Stanley Consumer 593.61 +.04%
Morgan Stanley Cyclical 767.96 +.43%
Morgan Stanley Technology 527.92 +.30%
Transports 4,156.48 +.38%
Utilities 397.69 +.31%
Put/Call .79 +27.42%
NYSE Arms .77 +5.45%
Volatility(VIX) 10.82 -2.70%
ISE Sentiment 226.00 +24.86%
US Dollar 92.04 +.11%
CRB 313.63 +.28%

Futures Spot Prices
Crude Oil 57.68 -.03%
Unleaded Gasoline 145.73 -.32%
Natural Gas 11.40 +.65%
Heating Oil 170.95 +.78%
Gold 491.90 +.47%
Base Metals 142.62 +1.0%
Copper 190.75 -.18%
10-year US Treasury Yield 4.46% -.48%

Leading Sectors
Steel +3.78%
Oil Service +2.74%
Gold & Silver +2.55%

Lagging Sectors
Computer Services -.94%
Airlines -1.59%
Disk Drives -1.91%

Evening Review
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Economic Calendar
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GuruFocus.com
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After-hours Movers
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW.

Afternoon/Evening Headlines
Bloomberg:
- Vice President Dick Cheney said the administration won’t set a timetable for withdrawing US troops from Iraq and that Iraqi forces are making progress toward securing the country on their own.
- Sprint Nextel, the third-largest US mobile phone provider, agreed to buy affiliate Alamosa Holdings for $3.4 billion to end a legal dispute and gain almost 1.5 million direct customers.
- Palm’s third-largest shareholder is demanding the maker of Treo phones and Palm handheld devices take steps to boost its stock price, including a share buyback or a possible sale of the company.
- Pfizer may pay Incyte as much as $803 million for rights to experimental medicines against diseases including rheumatoid arthritis.
- Robert Johnson, who became a billionaire after selling Black Entertainment Television, is starting a hedge-fund venture with Deutsche Bank AG in his aim to develop the largest money manager owned by black Americans.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Retail longs, Medical longs and Homebuilding 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 higher, almost every sector rose and volume was about average. Measures of investor anxiety were mixed into the close. Overall, today's market action was positive. As I predicted last week, the S&P 500 is making a new 52-week high. I am beginning to sense some panic in the short-selling community as the averages grind higher on little news during a holiday-shortened week. Take a look at Overstock.com (OSTK) for evidence. This controversial stock, with 62% of the float sold short, is breaking up through its 200-day moving average and has gained 28% in less than a month on above-average volume.

Stocks Modestly Higher Mid-day as Long-term Rated Decline Again

Indices
S&P 500 1,250.58 +.19%
DJIA 10,790.18 +.22%
NASDAQ 2,232.22 +.23%
Russell 2000 675.65 +.51%
DJ Wilshire 5000 12,497.73 +.23%
S&P Barra Growth 599.47 +.22%
S&P Barra Value 646.61 +.14%
Morgan Stanley Consumer 593.03 -.06%
Morgan Stanley Cyclical 764.37 -.04%
Morgan Stanley Technology 525.30 -.20%
Transports 4,144.02 +.09%
Utilities 396.94 +.12%
Put/Call .85 +37.10%
NYSE Arms .91 +24.66%
Volatility(VIX) 11.10 -.18%
ISE Sentiment 255.00 +40.88%
US Dollar 92.03 +.11%
CRB 313.13 +.12%

Futures Spot Prices
Crude Oil 57.20 -.20%
Unleaded Gasoline 146.10 -.14%
Natural Gas 11.31 -.91%
Heating Oil 170.90 +.75%
Gold 489.50 +.68%
Base Metals 142.62 +1.0%
Copper 191.10 -.10%
10-year US Treasury Yield 4.45% -.78%

Leading Sectors
Steel +2.95%
Gaming +1.31%
Homebuilders +1.20%

Lagging Sectors
Computer Services -1.09%
Airlines -1.63%
Disk Drives -2.54%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Internet longs and Retail longs are offsetting losses in my Steel shorts and Medical Information Systems longs. I exited a Medical Information Systems long this morning as it hit my stop-loss and added to some existing longs including SKYW, BRCM and ELOS, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is barely higher, most sectors are rising and volume is about average. Measures of investor anxiety are mixed. Overall, today’s market action is slightly negative considering the fall in long-term interest rates and stable energy prices. According to David Rosenberg, Merrill's chief North American economist, blue-chip companies are on track for their greatest run of double-digit quarterly profit gains since at least 1936. The estimated 16% profit gain in the third quarter would mark the 14th quarter in a row in which the S&P 500's component companies increased operating profits by double digits. However, P/E multiples have contracted throughout this period, notwithstanding this amazing streak. As I have pointed out before, the U.S. economy has withstood significant headwinds such as terrorism fears, war, multiple natural disasters, soaring commodity prices, pandemic worries, many Fed rate hikes, corporate scandals, historically bitter politics and the hangover effects from the overcapacity generated during the bubble years. I continue to believe the bulletproof disposition of the U.S. economy will result in P/E multiple expansion for equities. I expect US stocks to trade modestly higher from current levels into the close on short-covering, lower long-term interest rates, more optimism and falling energy prices.

Today's Headlines

Bloomberg:
- Crude oil may extend a two-month decline as concern about shortages eases, leaving traders who bet on $100 oil with near-worthless investments.
- Microsoft went out of its way to court Electronic Arts, the world’s largest developer of video games, to help make its $12 billion investment in the Xbox a success.
- Shares of GlaxoSmithKline Plc, Europe’s largest drugmaker, fell as much as 5% after the US FDA proposed a label change that would restrict the use of Glaxo’s best-selling Advair asthma medicine.
- Apple Computer reached long-term supply agreements with a group of flash memory components makers including Intel and Micron.
- European Central Bank President Jean-Claude Trichet said an increase in interest rates as early as next month may not be the first of many.
- US Treasury 10-year notes gained on speculation that the Fed’s interest-rate increases will keep inflation contained.
- General Motors will close 12 North American plants and other operations and purge 30,000 jobs in its deepest round of cuts since 1991.
- Crude oil and heating oil are rising today because of speculation that falling temperatures in the US Northeast and central Europe will increase fuel use.

Wall Street Journal:
- S&P will say today that it intends to include stock-options expenses in all its calculations of company earnings.
- TiVo Inc. may today announce plans to let users of its digital video recorders download any television show onto their Apple Computer iPod digital players.
- More realistic testing of driving patterns under different conditions by the US Environmental Protection Agency may reduce the stated fuel mileage on new cars by as much as 10%.
- SBC Communications, which completed its $16 billion purchase of long-distance operator AT&T on Friday, wants to be the first major company to use Internet technology to deliver all types of telecommunications services in the US.

AP:
- Camden, New Jersey, has been named the most dangerous US city for the second year running, citing an annual ranking by Morgan Quitno Press.

Reuters:
- EBay’s Skype Technologies SA, which offers Web-based phone services for 66 million users mostly in Europe and Asia, said yesterday that it will distribute telephone kits at 3,500 RadioShack stores in the US.

Leading Indicators Jump

- Leading Indicators for October rose .9% versus estimates of a .8% increase and a .8% decline in September.

BOTTOM LINE: The index of leading economic indicators in the US rose in October for the first time in four months as the labor market improved and companies in the South rebounded after three recent hurricanes, Bloomberg reported. Falling energy prices are boosting consumer sentiment and spending causing companies to replenish inventories. Money supply, the largest component of the index, added .13 percentage points to the measure. The manufacturing workweek, the second-largest component of the index, increased to 41 hours from 40.6 hours in September, adding .25 percentage points to the gauge. I expect the Leading Indicators for November to rise again on rising consumer sentiment, an improving labor market and rising stock market.

Links of Interest

Market Snapshot
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IBD New America
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