Stocks Higher Mid-day on Rising Optimism, Lower Energy Prices and Short-Covering

Indices
S&P 500 1,267.99 +.54%
DJIA 10,928.18 +.52%
NASDAQ 2,264.74 +.50%
Russell 2000 684.47 +.28%
DJ Wilshire 5000 12,672.98 +.51%
S&P Barra Growth 606.25 +.39%
S&P Barra Value 657.42 +.68%
Morgan Stanley Consumer 595.55 +.30%
Morgan Stanley Cyclical 777.36 +.55%
Morgan Stanley Technology 536.23 +.87%
Transports 4,182.99 +.07%
Utilities 401.30 +.70%
Put/Call .68 -29.90%
NYSE Arms .72 -1.97%
Volatility(VIX) 10.81 +1.89%
ISE Sentiment 174.00 -1.14%
US Dollar 91.48 -.02%
CRB 314.08 -.45%

Futures Spot Prices
Crude Oil 58.25 -1.0%
Unleaded Gasoline 146.10 -1.78%
Natural Gas 11.66 +.40%
Heating Oil 169.25 -2.51%
Gold 491.10 -.37%
Base Metals 139.70 -.32%
Copper 185.00 +.14%
10-year US Treasury Yield 4.46% +.97%

Leading Sectors
Steel +3.06%
Gaming +1.52%
Networking +1.47%

Lagging Sectors
Biotech -.71%
Oil Tankers -.72%
Gold & Silver -1.42%

BOTTOM LINE: The Portfolio is higher mid-day as gains in my Internet longs, Medical Information Systems longs, Semi longs, Computer longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is modestly higher, most sectors are rising and volume is about average. Measures of investor anxiety are mostly higher. Overall, today’s market action is slightly positive considering recent gains and the bounce in long-term rates. Here are some thoughts on the Xbox 360:
1. The improvement over prior gaming systems is significant.
2. Microsoft (MSFT) over-promised to retailers.
3. There is going to be a severe shortage for the holidays.
4. Stories of ridiculous auctions on eBay (EBAY) will be common, generating more buzz.
5. The Xbox will take more market share from Sony (SNE) than most expect.
6. High definition television and surround sound equipment sales will accelerate as a result.
7. Rumors of excessive crashing are likely over-hyped.

I expect US stocks to trade modestly higher from current levels into the close on short-covering, lower energy prices and more optimism.

Today's Headlines

Bloomberg:
- Worldwide server sales increased 8.1% in the third quarter, the 10th straight advance, as demand increased for computers that run corporate networks and Web sites, researcher IDC said.
- Research In Motion, maker of the BlackBerry e-mail pager, cut its forecast for signing up new clients because of delay in introducing products.
- Crude oil, heating oil and gasoline are falling after an Energy Department report showed that US fuel stockpiles rose and on forecasts for warmer weather in the US Northeast.
- US Treasuries are falling after the government’s auction of two-year notes drew less demand than some traders expected, a day after the Fed signaled it may be ready to slow the pace of interest-rate increases.

Wall Street Journal:
- Google’s expansion has sparked a hiring frenzy in Silicon Valley as Internet companies compete for qualified candidates.
- Neurointensive care is helping stroke patients once considered untreatable to recover from brain damage.
- Saks Fifth Avenue, Ralph Lauren, Bergdorf Goodman and other retailers are finding e-mail advertising is one of fashion’s most effective marketing methods.
- Verizon Communications and Cablevision Systems are fighting in NYC and other US communities as phone companies’ network upgrades push them into competition with cable companies.
- Loral Space & Communications may add as many as 600 employees at its satellite-making unit.
- The Motion Picture Association of America and Bram Cohen, creator of software used to download movies illegally over the Internet, reached an accord to remove links to copyrighted movies from Cohen’s search engine and Web site.
- The IRS plans more audits next year as agents examine more returns of US taxpayers with incomes of at least $100,000 for evidence of abusive shelters, offshore accounts or transactions designed to avoid paying taxes.

Washington Post:
- The Defense Department plans to cut the number of US troops in Iraq early next year by as many as three combat brigades, from 18 now, citing unidentified senior military officers.

Rocky Mountain News:
- Denver-area single-family homes sold for an average of $309,030 in November, down from $314,586 in October and $289,934 a year ago.

NY Times:
- The US energy-drinks market grew 61% to $3 billion this year, citing Beverage Digest.

AP:
- Iraqi Foreign Minister Zebari arrived in Tokyo today for a four-day visit to meet with Prime Minister Koizumi and Foreign Minister Aso to discuss Japan’s support for Iraq’s reconstruction.

Gazeta Wyborcza:
- An Iraqi government delegation will visit Poland on Dec. 6 to discuss the presence of Polish troops in Iraq and investment opportunities for Polish companies in the Middle Eastern country.

Jobless Claims Rise, Consumer Sentiment Improves

- Initial Jobless Claims for last week rose to 335K versus estimates of 312K and 305K the prior week.
- Continuing Claims rose to 2824K versus estimates of 2750K and 2765K prior.
- The Final Univ. of Mich. Consumer Confidence reading for November rose to 81.6 versus estimates of 81.0 and a prior estimate of 79.9.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits rose more than forecast last week, suggesting the Veteran’s Day holiday may have helped push filings down to a four-month low a week earlier, Bloomberg reported. The unemployment rate for people eligible for benefits, which tracks the US unemployment rate, stayed at 2.2%. The four-week moving-average of jobless claims rose to 323,250 from 322,000. I continue to believe the labor market will remain healthy, but fail to surpass pre-hurricane levels, which will help hold unit labor costs(the largest component of inflation) in check.

Confidence among US consumers rose this month, rebounding from its lowest level in 13 years as people paid less at the gas pump, Bloomberg said. Unleaded gas futures have now collapsed almost 50% from September highs. The current conditions component of the index, which measures Americans’ perceptions of their financial health and whether or not it’s a good time to buy big-ticket items like cars, jumped to 100.2 from 91.2 the prior month. With the economy in the middle of the longest 3%+ growth streak since 1986, I continue to believe the irrational pessimism that has permeated the consumer psyche will evaporate over the intermediate-term.

Links of Interest

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IBD New America
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Real-time Intraday Chart/Quote

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%.

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
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Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

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%

Evening Review
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S&P 500 Gallery View
Economic Calendar
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In Play

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.