Wednesday Watch

Late-Night Headlines
Bloomberg:
- Shanghai copper futures fell the most in a month following price declines in London and New York on speculation China has rescheduled part of the 200,000 tons of deliveries its was due to make to international markets.

Commercial Times:
- Quanta Computer sees its fourth-quarter to Dec. 31 notebook computer shipments gaining as much as 15% from the third quarter.
- AU Optronics plans to spin off three of its older plants early next year to focus on making large-sized liquid-crystal displays.
- International orders for Taiwan’s information technology products this year are expected to grow 19.7%, twice the original forecast of 10%.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Underperform on NFS and DE.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
DCN/-.02
HRL/.57
LGND/-.16
PDCO/.33

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 312K versus 303K the prior week.
- Continuing Claims are estimated to fall to 2750K versus 2793K prior.

9:45 am EST
- Final Univ. of Mich. Consumer Confidence for November is estimated to rise to 81.0 versus a prior estimate 79.9.

10:30 am EST
-Bloomberg consensus estimates call for a weekly crude build of 250,000 barrels. Gasoline inventories are estimated to rise 1.0 million barrels and distillate supplies are expected to rise 700,000 barrels. Finally, refinery utilization is expected to rise 1.5%.

BOTTOM LINE: Asian indices are higher, boosted by semiconductor companies in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs as Fed Hints at "Pause"

Indices
S&P 500 1,261.23 +.51%
DJIA 10,871.43 +.47%
NASDAQ 2,253.56 +.53%
Russell 2000 682.55 +.53%
DJ Wilshire 5000 12,609.54 +.53%
S&P Barra Growth 603.88 +.40%
S&P Barra Value 652.97 +.61%
Morgan Stanley Consumer 593.78 +.03%
Morgan Stanley Cyclical 773.08 +.67%
Morgan Stanley Technology 531.58 +.69%
Transports 4,180.19 +.57%
Utilities 398.51 +.21%
Put/Call .97 +22.78%
NYSE Arms .73 -7.35%
Volatility(VIX) 10.60 -2.03%
ISE Sentiment 176.00 -22.12%
US Dollar 91.50 -.58%
CRB 315.50 +.60%

Futures Spot Prices
Crude Oil 59.00 +.27%
Unleaded Gasoline 148.65 -.07%
Natural Gas 11.75 +1.21%
Heating Oil 174.60 +.57%
Gold 494.80 +.39%
Base Metals 140.15 -1.73%
Copper 184.75 unch.
10-year US Treasury Yield 4.42% -.74%

Leading Sectors
Oil Service +2.20%
Disk Drives +2.18%
Homebuilders +1.85%

Lagging Sectors
Computer Services -.20%
Steel -.95%
Airlines -2.09%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on ENH, UVN and COH.
- Reiterated Underperform on GCO, SBSA and ROIAK.

Afternoon/Evening Headlines
Bloomberg:
- Ahmed Omar Abu Ali, a US citizen accused of plotting with al-Qaeda terrorists, was found guilty on nine charges that included conspiracy to assassinate President Bush.
- Federal Reserve policy makers discussed the need “before long” to change their outlook for the benchmark US interest rate, with some expressing concern they might go too far, the minutes of their Nov. 1 meeting showed.
- US Treasuries rose after the minutes of the Federal Reserve’s most recent meeting on interest rates showed the central bank is preparing to slow down the pace of interest rate increases.
- Microsoft’s new Xbox 360 video-game console began selling out at stores across the US, a boon for Chairman Bill Gate’s aim to wrest control of the $28.5 billion industry from Sony Corp.
- Travelers entering the US with fever and other flu-like symptoms would be reported by the airline or ship that brought them, under new rules proposed today, a US public-health official said.

Reuters:
- CBS Corp. is in talks with Google about making its video searchable and available on demand, citing CBS Chairman Leslie Moonves.

AP:
- New York Supreme Court Justice Laura Blackburne should be fired for helping a robbery suspect evade arrest by having him taken out a back door of her Queens courthouse, the state’s Commission on Judicial Conduct found.
- The University of Kansas’s religious studies department plans to offer a class next semester that labels intelligent design a myth. Intelligent design holds that nature is too complicated to have happened by chance alone and had to have been created by a higher being.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet longs, Retail longs, Medical longs, Semi 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 modestly higher, almost every sector rose and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market action was positive. It appears to me that P/E multiple expansion was at work today. The S&P 500's forward P/E is 16.45. To put this in perspective, an expansion back to a P/E of 20, with no earnings growth, would mean a 22% gain for the market from current levels.

Stocks Mixed Mid-day Ahead of Fed Minutes

Indices
S&P 500 1,254.20 -.05%
DJIA 10,815.32 -.05%
NASDAQ 2,245.00 +.15%
Russell 2000 678.83 -.02%
DJ Wilshire 5000 12,539.67 -.03%
S&P Barra Growth 601.26 -.04%
S&P Barra Value 648.57 -.06%
Morgan Stanley Consumer 591.60 -.34%
Morgan Stanley Cyclical 766.16 -.23%
Morgan Stanley Technology 530.09 +.41%
Transports 4,140.56 -.38%
Utilities 395.81 -.48%
Put/Call 1.11 +40.51%
NYSE Arms .75 -4.51%
Volatility(VIX) 10.78 -.46%
ISE Sentiment 165.00 -26.99%
US Dollar 91.97 -.08%
CRB 315.26 +.52%

Futures Spot Prices
Crude Oil 58.80 +1.91%
Unleaded Gasoline 147.40 +1.15%
Natural Gas 11.55 +1.93%
Heating Oil 175.00 +2.37%
Gold 492.70 +.65%
Base Metals 140.15 -1.73%
Copper 184.70 -3.35%
10-year US Treasury Yield 4.46% +.04%

Leading Sectors
Disk Drives +1.72%
Oil Service +1.56%
Semis +1.0%

Lagging Sectors
Wireless -.92%
Steel -1.90%
Airlines -2.29%

BOTTOM LINE: The Portfolio is higher mid-day as gains in my Internet longs, Medical longs, Semi longs and Retail longs. 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 modestly lower, most sectors are declining and volume is about average. Measures of investor anxiety are mixed. Overall, today’s market action is slightly negative considering yesterday’s late afternoon gains and today’s rise in energy prices. The Johnson Redbook same-store sales index rose 3.8% year-over-year last week vs. a 3.8% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 29th week in a row the index has risen 3% or more. Retail sales should remain strong into the holidays on colder weather, rising stock prices, a healthy job market, better sentiment and lower-than-expected energy costs. I expect US stocks to trade modestly higher from current levels into the close on short-covering, lower long-term interest rates and more optimism.

Today's Headlines

Bloomberg:
- The National Retail Federation raised its sales forecast to 6% from an estimate of 5% two months ago, citing strong October gains and a decline in gas prices.
- Nokia Oyj and Motorola, the world’s two largest mobile-phone makers, widened their lead over smaller competitors in the third quarter on demand in emerging markets.
- French consumer spending on manufactured goods unexpectedly fell for a second month in October, suggesting momentum in Europe’s third-largest economy is slowing further.
- Crude oil and heating oil rose for a second day as speculation increased that demand is rising because of colder weather in the US and Europe.
- Microsoft released its Xbox 360 video-game console across the US, a machine Chairman Bill Gates says will let the company wrest control of the $28.5 billion industry from Sony Corp.
- Value Capital LP, a $570 million hedge fund backed by billionaire investor Warren Buffett, may report an annual loss for the first time in seven years after making a bad bet on US interest rates.

Wall Street Journal:
- Time Warner’s AOL unit wants to use instant messaging to boost traffic to AOL’s other Web sites on which it carries advertising.
- IAC/Interactive Corp., Time Warner’s AOL and other US companies are investing in Brightcove, a startup company developing technology to make television on the Internet easier.
- US manufacturers can’t find enough skilled workers and the shortfall is disrupting their ability to supply customers.
- Many US physicians have stopped issuing prescriptions for the Ortho Evra contraceptive patch since the FDA warned this month of increased hormone exposure for women who use it.
- Many US investors see rosy prospects for pharmacy shares, given the aging population and the proliferation of generic pharmaceuticals that are cheaper for individuals and more profitable for drugstores.

AP:
- Representative Tom DeLay’s lawyers will ask a judge for dismissal of conspiracy and money-laundering charges.

National Post:
- Almost half of Canadians say they should be allowed to buy health-care services from private companies to bypass waiting lists at public hospitals, citing a new poll.

NY Times:
- JPMorgan Chase is starting a mutual fund that will be accessible to investors with $10,000 and will be managed by its hedge fund unit.
- Russian Muslims are being monitored by an agency reminiscent of the Soviet era, as Islamic faith and militancy are on the rise.
- More US colleges now offer formal programs in video game design and the academic study of games.
- Goldman Sachs Group has set out an environmental policy that commits itself to investing $1 billion in alternative energy projects and would spend $5 million to set up a research center on the free market and the environment.

San Francisco Chronicle:
- Visa USA is offering a medical debit card for members of participating Blue Cross and Blue Shield Association companies to use with their flexible savings or health savings accounts.

Dow Jones:
- Newmont Mining is mulling a takeover offer for Placer Dome that may rival an unsolicited $9.2 billion bid last month by Barrick Gold.

Economic Releases

- None of note

Links of Interest

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