Tuesday Watch

Late-Night Headlines
Bloomberg:
- DaimlerChrysler AG may spend as much as $1 billion to improve flexibility at two St. Louis-area assembly plants that build minivans and pickup trucks.
- Oil may fall below $55 a barrel, extending a 22% decline from August’s record, as warmer weather cuts fuel demand and inventories rise, said Mitsubishi Corp., Japan’s largest trading company.
- Delphi Corp. CEO Miller backed away from his threat to cancel union contracts by mid-December, averting a potential strike that could cripple production at its former parent, GM.
- A premature US troop withdrawal from Iraq might trigger a regional conflict in the Middle East that could draw in predominately Shiite Iran and Sunni Arab states, US Ambassador to Iraq Zalmay Khalilzad warns in a television interview.
- The yen declined in Asia after Japanese government reports showed industrial production last month was less than half what economists forecast.
- Merck, with one victory and one loss in Vioxx lawsuits tried in state courts, may win the first federal trial over the painkiller, lawyers said.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, RE and GE

Night Trading
Asian Indices are -1.0% to -.50% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/EPS Estimate
GME/.14
REY/.35
SMTC/.14
UNFI/.24

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for October are estimated to rise 1.5% versus a 2.4% decline in September.
- Durables Ex Transportation for October are estimated to rise 1.0% versus a 1.1% decline in September.

10:00 am EST
- Consumer Confidence for November is estimated to rise to 90.1 versus a reading of 85.0 in October.

BOTTOM LINE: Asian indices are lower on weakness in exporters in the region. I expect US equities to trade modestly lower on the open and to rally slightly later in the day, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish Near Session Lows on Profit-taking

Indices
S&P 500 1,257.46 -.85%
DJIA 10,890.72 -.37%
NASDAQ 2,239.37 -1.04%
Russell 2000 671.50 -1.77%
DJ Wilshire 5000 12,548.01 -1.0%
S&P Barra Growth 601.59 -.80%
S&P Barra Value 651.52 -.90%
Morgan Stanley Consumer 592.31 -.56%
Morgan Stanley Cyclical 771.74 -.60%
Morgan Stanley Technology 531.88 -.78%
Transports 4,121.80 -1.37%
Utilities 401.97 -.50%
Put/Call 1.01 +13.48%
NYSE Arms 1.34 +50.57%
Volatility(VIX) 11.84 +8.82%
ISE Sentiment 153.00 -52.34%
US Dollar 91.17 -.95%
CRB 312.72 -.62%

Futures Spot Prices
Crude Oil 57.30 -.10%
Unleaded Gasoline 141.85 +.02%
Natural Gas 11.71 +.65%
Heating Oil 163.65 +.06%
Gold 503.30 +.14%
Base Metals 144.20 +.03%
Copper 190.75 -.18%
10-year US Treasury Yield 4.40% -.57%

Leading Sectors
Disk Drives +1.36%
Telecom +.47%
Restaurants +.09%

Lagging Sectors
Coal -3.03%
Energy -3.44%
Oil Service -3.90%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on GM.

Afternoon/Evening Headlines
Bloomberg:
- Analysts have improved over the past six quarters as the US stocks most favored by Wall Street have outperformed those that are least favored, according to Citigroup Investment Research’s Tobias Levkovich.
- The US dollar fell the most in more than seven weeks against the euro and dropped versus the yen after an industry report showed US home sales in October declined more than analysts forecast.
- Crude oil fell and heating oil plunged to a four-month low as warm weather in the eastern US and rising inventories spurred selling in the commodities.

Barron’s:
- Palatin Technologies’ treatment for sexual dysfunction in both men and women will soon enter Phase III trials.

Australian:
- BlueScope Steel, Australia’s biggest steelmaker, may cut its domestic prices to stay competitive with cheaper Asian product.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Retail longs, Medical longs and Semi longs. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was below average. Measures of investor anxiety were higher into the close. Overall, today's market action was slightly negative. I view today’s pullback as orderly and healthy, given recent gains. Most losses were confined to the energy sector and stocks that were short-term overextended.

Indices
S&P 500 1,260.11 -.64%
DJIA 10,902.23 -.27%
NASDAQ 2,244.07 -.83%
Russell 2000 672.88 -1.56%
DJ Wilshire 5000 12,576.95 -.78%
S&P Barra Growth 602.62 -.63%
S&P Barra Value 653.18 -.65%
Morgan Stanley Consumer 592.98 -.45%
Morgan Stanley Cyclical 773.22 -.41%
Morgan Stanley Technology 533.37 -.50%
Transports 4,130.18 -1.17%
Utilities 403.12 -.22%
Put/Call 1.02 +14.61%
NYSE Arms 1.20 +34.25%
Volatility(VIX) 11.87 +9.10%
ISE Sentiment 169.00 -47.35%
US Dollar 90.96 -1.17%
CRB 312.74 -.61%

Futures Spot Prices
Crude Oil 57.35 -2.32%
Unleaded Gasoline 141.90 -2.65%
Natural Gas 11.40 -1.89%
Heating Oil 163.50 -3.21%
Gold 498.50 +1.14%
Base Metals 144.20 +.03%
Copper 190.30 +2.67%
10-year US Treasury Yield 4.40% -.57%

Leading Sectors
Disk Drives +1.53%
Telecom +.80%
Gold & Silver +.57%

Lagging Sectors
Coal -2.71%
Energy -2.95%
Oil Service -3.25%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Medical longs, Semi longs and Retail longs. I added IWM and QQQQ shorts and took profits in a few longs this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Measures of investor anxiety are higher. Overall, today’s market action is slightly negative considering recent gains and the fall in oil and long-term rates. Over the weekend, Newmont Mining's (NEM) president said he sees gold rising to more than $1,000 an ounce in 5-7 years. This reminds me of Valero's (VLO) prediction a few months ago that a "new era for energy pricing" was at hand. Of course, most still believe this prediction. I suspect a sustained move in oil below $50 will break this mentality. Gold will follow oil lower over the intermediate term, in my opinion. I expect US stocks to trade mixed from current levels into the close as short-covering, lower energy prices and declining long-term rates offset profit-taking and housing worries.

Today's Headlines

Bloomberg:
- French Interior Minister Nicolas Sarkozy said 10,000 cars, more than 200 administration buildings and thousands of square meters of commercial property were torched in violence that rocked the country earlier this month.
- Mexico probably will surpass the US in obesity rates for the first time next year.
- US retailers recorded sales of $27.8 billion over the holiday weekend, putting the industry on track for its second-biggest selling season since 1999, said the National Retail Federation.
- Saddam Hussein argued with the judge in his murder and torture case minutes after proceedings resumed in Baghdad today.
- Merck & Co. will eliminate 7,000 jobs and close five plants and said it still has “work to do.”
- Online sales for US retailers rose 24% to $6.96 billion this month as shoppers got an early start on their holiday purchases.
- Crude oil is falling and heating oil touched a four-month low as warm weather in the eastern US reduces fuel consumption, pushing inventories even higher.

Wall Street Journal:
- Tivo Inc. is joining with media-buying groups, including Interpublic Group’s Interpublic Media, to offer customers a way to search for commercials on topics in which they are interested.
- Alvaro de Molina took over as chief financial officer at Bank of America on Sept. 8, and the bank’s shares have risen 9.2% since then, as some investors and analysts bet on de Molina as the “Mr. Fix-It” who’s been needed.
- American Pharmaceutical Partners, a Schaumberg, Illinois-based maker of generic hospital drugs, may acquire its largest shareholder, closely held American BioScience of Santa Monica, California.
- Dallas has distributed about $160 million in grants and tax abatements to convert most of the city’s downtown business district into an upscale neighborhood with 10,000 residences.

NY Post:
- J. Crew Group Inc. will sell men’s accessories out of a custom-outfitted sport-utility vehicle that will make stops throughout Manhattan this week.

Washington Post:
- Democrats are split over legislation aimed at controlling Medicaid growth, with federal lawmakers opposed to the provisions and Democratic governors supporting them.

NY Times:
- Classified advertising on Internet sites rose more than 80% this year, with traffic at Craigslist.org climbing 165% from a year ago.

AP:
- President Bush will travel to Arizona today to speak about border enforcement and call for immigration reform.

Sudan Tribune:
- Sudan will boost oil production to 600,000 barrels a day by the middle of 2006 and may reach 1 million barrels a day by the end of the year, President Umar al-Bashir said.

Existing Home Sales Fall Modestly

- Existing Home Sales for October fell to 7.09 million versus estimates of 7.20 million and 7.29 million in September.

BOTTOM LINE: US previously owned home sales fell a larger-than-expected 2.7% last month, Bloomberg reported. Sales would have declined 3.2% in October excluding hurricane-related buying activity. The median price of an existing home rose 16.6% to $218,000 in October, the largest increase since July 1979. Sales fell 7.4% in the Northeast, 1.9% in the Midwest, 1.8% in the South and 1.2% in the West. Existing home inventories rose to 4.9 months’ worth at the current sales pace, an increase from 4.6 months’ worth the prior month. I continue to believe the housing market is slowing, not plunging, to more healthy sustainable levels.

Links of Interest

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