Stocks Slightly Higher into Final Hour on Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs and Computer longs. I covered my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is below average. Most headline inflation measures are still above-average levels, but are lagging indicators of inflation. The Fed knows this. Thus, I expect members to continue to talk modestly hawkish while taking no additional policy action. More dovish talk will likely occur when headline inflation numbers begin showing meaningful deceleration. The ISE Sentiment Index is plunging again today, down 32% to a depressed level of 55. It has been this low only one other time. I continue to believe most are bearish and the bulls are weak bulls. I had anticipated a mixed week for stocks, but given the set-up I wouldn't be surprised to see another push higher over the next few days. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Iran said its is ready to hold “serious negotiations” on its nuclear program, a day after the supreme leader, Ayatollah Ali Khamenei, vowed he wouldn’t bow to UN demands to curtail the possible military effort.
- The euro dropped the most in a month against the dollar after investor confidence in Germany, Europe’s biggest economy, fell to the lowest since 2001.
- Fed Bank of Chicago President Moskow said the central bank may need to resume raising interest rates to reduce inflation and ensure that expectations for higher prices don’t rise.
- A tropical depression that emerged yesterday off the western coast of Africa may become Tropical Storm Debby as early as today.
- Long-time Democratic Connecticut Senator Joe Lieberman, who’s running for re-election as an independent, is in a statistical tie with anti-war Democratic primary winner Ned Lamont, according to a poll taken by the American Research Group.

Wall Street Journal:
- Sylvester Stallone and fellow actor John Cusack are being sued by the federal trustee overseeing collapsed hedge fund Lipper Convertibles LP.
- Citigroup(C) is cutting its credit card reward program as card purchases become more and more an everyday activity.
- More fuel-efficient, cleaner vehicles using laboratory guidelines set by the Environmental Protection Agency are about to appear on US roads.

NY Times:
- Felix Rohatyn, a former Lazard LLC banker who helped save NYC from bankruptcy in the 1970s, will join Lehman Bros.(LEH) as a senior adviser to Chairman and CEO Richard Fuld.
- US and European authorities are seeking expanded access into airline and passenger records to help weed out terror suspects.

NY Post:
- The NYMEX, the world’s largest energy market, plans to cut as many as one fourth of its employees before an IPO.

Financial Times:
- Middle-eastern companies selling equities raised almost $15 billion in the last year, a 400% increase over the year earlier.

al-Hayat:
- A group of Egyptian companies won a $722 million contract to develop oil fields in an offshore buffer zone between Kuwait and Saudi Arabia, citing Egyptian Oil Minister Sameh Fahmy.

AFP:
- Ousted Iraqi dictator Saddam Hussein ordered his forces to kill civilians and exterminate Kurds in northern Iraq, the first witness at his genocide trial testified today.

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Late-Night Headlines
Bloomberg:
- The US dollar rose as Iran said it will reject UN demands to stop enriching uranium, raising speculation investors will seek safety in US government debt.
- Microsoft Corp.(MSFT) is in talks with personal-computer makers and retailers to offer discounted upgrades to its Windows Vista operating system to help bolster holiday sales.
- President Bush’s approval rating advanced to its highest level in six months as more Americans said he was handling terrorism well, according to a USA Today/Gallup Poll.

Commerical Times:
- Nanya Technology Corp. said strong demand for DRAM chips pushed up contract prices by 3% to 5% this week.

People’s Daily:
- Speculation China will allow for greater yuan gains is the “primary problem” for the nation’s economy.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (LOW), target $35.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated +.08%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/EPS Estimate
- (INTU)/-.04
- (JKHY)/.27
- (MDT)/.54
- (MYGN)/-.29
- (PERY)/-.29
- (TOL)/1.04

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are higher, boosted by automaking and commodity stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Lower on Light Volume Profit-taking

Indices
S&P 1,297.52 -.37%
DJIA 11,345.05 -.32%
NASDAQ 2,147.75 -.75%
Russell 2000 705.33 -.89%
Wilshire 5000 12,959.86 -.42%
S&P Barra Growth 600.64 -.39%
S&P Barra Value 695.09 -.34%
Morgan Stanley Consumer 631.26 -.12%
Morgan Stanley Cyclical 792.82 -1.04%
Morgan Stanley Technology 496.25 -1.28%
Transports 4,296.59 -2.05%
Utilities 438.72 +.13%
Put/Call 1.18 +29.67%
NYSE Arms 1.21 +43.37%
Volatility(VIX) 12.22 +4.98%
ISE Sentiment 80.00 +3.90%
US Dollar 84.67 -.49%
CRB 335.50 +.96%

Futures Spot Prices
Crude Oil 72.52 +1.94%
Unleaded Gasoline 194.50 -1.11%
Natural Gas 6.65 -1.08%
Heating Oil 203.25 +2.16%
Gold 638.20 +.47%
Base Metals 231.54 +1.90%
Copper 348.00 -.27%
10-year US Treasury Yield 4.81% -.58%

Leading Sectors
Gold & Silver +4.91%
Oil Service +.93%
HMOs +.57%

Lagging Sectors
Airlines -1.84%
Semis -2.05%
Homebuilders -2.13%

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Afternoon Recommendations
Piper Jaffray:
- Rated (RNVS), (PGNX) and (NUVO) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- Treatments used to promote a younger appearance, including laser facial resurfacing, chemical peels, and topical creams, may reduce pre-cancerous lesions and lower the risk of skin cancer, a study found.
- American Airlines, United Airlines and Delta Air Lines, the three largest US carriers, rescinded a $10 increase on round-trip tickets because rivals didn’t match the higher prices.
- Treasuries rose, pushing yields on 10-year notes to their lowest since March, on signs that inflation and growth in the US economy are slowing.
- Italy will make a “significant” contribution to a UN peacekeeping force in southern Lebanon, Italian Prime Minister Romano Prodi told UN Secretary General Kofi Annan.

Panorama:
- Petroleos de Venezuela SA, South America’s largest oil company, expects production from its Tomoporo oil field in western Venezuela to rise 75% to 315,000 barrels per day over the next six years.

BOTTOM LINE: The Portfolio finished lower today on losses in my Retail longs, Semi longs and Commodity shorts. I added (IWM) and (QQQQ) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was very light. Measures of investor anxiety were higher into the close. Overall, today's market performance was slightly bearish. Unleaded gas futures have declined 18% in less than a month. The average 30-year mortgage rate has declined 28 basis points in a month, as well. The Mid-East cease fire and JonBenet case have resulted in war moving into the background on the news channels. Finally, the S&P 500 has surged 6.3% from June lows. These developments should spur a rebound in upcoming consumer sentiment gauges.

Stocks Lower into Final Hour on Low Volume Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on looses in my Retail longs, Semi longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is very light. The Chicago Fed recently released its third-quarter edition of the bank's Economic Perspectives. In this edition, there is an interesting study entitled "The great turn-of-the-century housing boom" by Jonas D. M. Fisher and Saad Quayyum. They say the boom has to do with gains in Americans' wealth and the introduction of innovative mortgages. They say record-high home ownership rates will last due to an aging population. Finally, they say that due to the fact that home sales gains had sound underpinnings, the economy won't suffer as much pain from the current slowdown as it has in prior corrections. Overall, this report is arguing for a "soft-landing" in housing as home sales stabilize at relatively high levels by historic standards. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting.