Stocks Finish Modestly Higher, Building on Recent Gains

Indices
S&P 1,318.07 +.38%
DJIA 11,543.32 +.39%
NASDAQ 2,227.67 +.53%
Russell 2000 730.70 +.86%
Wilshire 5000 13,186.82 +.46%
S&P Barra Growth 612.54 +.21%
S&P Barra Value 703.37 +.54%
Morgan Stanley Consumer 648.68 -.44%
Morgan Stanley Cyclical 822.31 +1.0%
Morgan Stanley Technology 519.98 +.13%
Transports 4,451.45 +1.87%
Utilities 429.81 +.41%
Put/Call .75 -20.21%
NYSE Arms .79 -11.83%
Volatility(VIX) 11.18 -6.21%
ISE Sentiment 113.00 -.88%
US Dollar 85.86 -.07%
CRB 311.27 +.18%

Futures Spot Prices
Crude Oil 64.10 +.53%
Unleaded Gasoline 156.50 +.83%
Natural Gas 5.40 -3.03%
Heating Oil 175.00 -.55%
Gold 596.70 +.07%
Base Metals 226.00 -.87%
Copper 339.45 +.28%
10-year US Treasury Yield 4.75% -.25%

Leading Sectors
Oil Service +3.14%
Steel +2.62%
I-Banks +2.39%

Lagging Sectors
Drugs -.27%
Gaming -.47%
Semis -.76%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Natural gas fell to the lowest in almost two years in NY as moderate US temperatures cut demand for the fuel and speculators abandoned losing bets on the commodity.
- Xilinx(XLNX) said second-quarter sales may fall 4-7%, slightly more than originally forecast. The stock is down .02 on the news.

Mobile Press-Register:
- Nascar driver Dale Earnhardt Jr. and two siblings are part of a group that plans to build a $624 million auto-racing track in southwestern Alabama.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Medical longs and Computer longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was bullish. Natural gas finished near session lows and oil barely bounced notwithstanding recent declines. The tone of the broad market is very good right now and feels more like November than September. I suspect this bodes very well for a strong finish to the year. Tomorrow's import price index will likely rise less than estimates, while retail sales will probably exceed estimates.

Stocks Modstly Higher into Final Hour, Led by I-Banking Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Internet longs and Computer longs. I added to my (ISRG) long and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is above average. Google (GOOG) is trading up 10, back above $400. Google is one of the greatest growth stocks in the world trading at a very reasonable valuation, in my opinion. I suspect it is in the early stages of another stunning move higher. I remain long the stock. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering.

Today's Headlines

Bloomberg:
- Lehman Brothers(LEH), buoyed by stock and bond trading in the third quarter, extending the longest streak of earnings gains on Wall Street.
- US homebuilders’ shares gained this week, led by KB Home(KBH), Hovnanian(HOV) and Pulte Homes(PHM), as investors bought on expectations of a rebound.
- Global investment in real estate may increase 26% to $600 billion this year, according to Jones Lang LaSalle.
- Peruvian stocks became the world’s best performers this year as metals prices soared. A slump in silver, gold, copper and zinc, whose producers account for half the trading on the Lima exchange, may end the five-year rally.
- Mortgage applications in the US rose last week to the highest level in more than three months after a recent decline in borrowing costs spurred home buying.
- France, whose lenders account for 24% of bank loans to Iran, may reject a US campaign to sever financial ties with the Middle Eastern nation.

Wall Street Journal:
- ESPN drew a network record 12.6 million viewers for the first game of its opening National Football League doubleheader two nights ago, citing Nielsen Media Research.
- Goldman Sachs Group’s(GS) Global Alpha fund, a hedge fund offered to the investment bank’s wealthiest clients, lost nearly 10% of its value in August.
- Some celestial beings in the hedge-fund firmament are being made to seem all-too-human this year.
- Bristol-Myers Squibb’s(BMY) appointment of James Cornelius as interim CEO has spurred conjecture that the company is seeking to be acquired.
- Hitachi Ltd. developed the ability to store 345 gigabits, or billions of bits, of data per square inch on a disk drive, 212 gigabits more than the current maximum.

NY Times:
- The American Medical Assoc., which has never before demanded regulation of a food ingredient, in June called on the FDA to regulate salt.

NY Post:
- The New York Board of Trade’s board of governors is expected to agree today to be bought by Intercontinental Exchange(ICE) for about $1 billion.

LA Times:
- Nine major US ports received a record amount of cargo in July, citing Global Insight.

Star-Ledger:
- Red Bull GmbH and Anschutz Entertainment Group are building a $220 million stadium for the NY Red Bulls, a soccer team named for the energy-drink maker.

Financial Times:
- The US auto-parts industry is showing some signs of life.

La Tribune:
- The French government is considering a “social tax” on stock options to “raise funds” for its 2007 budget.

Milliyet:
- The IMF said Turkey and other emerging markets could face a second capital flight of the kind that caused the lira to slump in May and June.

China Land and Resources News:
- China discovered one super-size and three smaller lead and zinc mines in the central Henan province. The discovery is the biggest by reserves in decades.

Economic Releases

- None of note

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil traded near its lowest in more than five months after falling for a seventh day as the IEA lowered consumption forecasts. “We’re in the midst of a tectonic change,” said Peter Beutel, president of Cameron Hanover, an energy consultant. “The rally in oil that has lasted five years may be over. We keep seeing lower demand estimates which show the impact of very high prices.”
- China’s industrial production grew last month at the slowest pace in 17 months as government lending curbs began to cool the world’s fastest-growing major economy.
- China, the world’s biggest maker of steel, made 17% more of the metal last month from a year earlier, the National Bureau of Statistics said.
- Gold in Asia fell for the sixth day, the longest losing streak in three months, after declining crude oil prices reduced the metal’s appeal as an inflation hedge. Movements in oil and gold prices are 81% correlated, Merrill Lynch said in a recent report.

Wall Street Journal:
- Institutional investment in Asian real estate has climbed so high it has reached what one property executive calls “nosebleed levels.”

AP:
- US Senator Hillary Clinton, seeking re-election, turned back a Democratic primary challenge in NY from an anti-war candidate today, and Eliot Spitzer bested his opponent to win the party’s gubernatorial nomination.

Financial Times:
- Hedge funds have increased their purchase of high-risk corporate instruments in Europe amid forecasts that a corporate restructuring will take place soon.
- French Interior Minister Nicolas Sarkozy said he is “proud” of his “friendship” with the US. Though Israel’s response in Lebanon was “clumsy and disproportionate,” Israel has the right to defend itself against Hezbollah, which was the “aggressor,” Sarkozy said.

China Securities Journal:
- China’s government should use its $1 trillion of foreign currency reserves to buy overseas companies and assets, citing a central government economist.
- China should raise medium- and long-term deposit rates to curb increasing liquidity in the market.

Commercial Times:
- S&P may downgrade Taiwan’s credit ratings because of slowing economic growth, a government budget deficit and political instability.

China Daily:
- Walt Disney(DIS), Sony’s Columbia Pictures Entertainment and News Corp.’s Twentieth Century Fox Film Corp. are among five movie studios suing a Beijing-based company on piracy claims.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MRVL), target $29.
- Reiterated Buy on (SNDK), target $69.
- Reiterated Buy on (EBAY), target $38.
- Reiterated Buy on (BBY), target $65.

Morgan Stanley:
- Cut (PCL) to Underweight, target $32.

Night Trading
Asian Indices are +.50% to +.75% on average.
S&P 500 indicated -.08.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/EPS Estimate
- (FOE)/.28
- (LEH)/1.49

Upcoming Splits
- (CXW) 3-for-2

Economic Releases
2:00 pm EST
- The monthly budget deficit for August is estimated to widen to -$65.5 billion versus -$51.3 billion in July.

BOTTOM LINE: Asian indices are modestly higher, boosted by automaker and technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.