Tuesday Watch

Late-Night Headlines
Bloomberg:
- Western Union will join the S&P 500 Index, replacing Andrew Corp.(ANDW) on Sept. 29, S&P said.
- BP Plc(BP) and Total SA are among 34 overseas oil companies bidding to drill in India, lured by more favorable tax terms and legal certainty.
- PMC-Sierra(PMCS), a maker of chips for telecommunications equipment, cut its third-quarter revenue forecast, citing a drop in customer demand.
- Lowe’s Cos.(LOW) lowered its profit and sales forecasts for the third time in four months amid a cooling housing market.
- A former NY hedge fund manager was charged with illegally short-selling Compudyne Corp. shares hours before the company announced a private share offering.

Shanghai Securities News:
- China’s alumina prices fell 53% from March to about $379 because of surging production capacity. China’s alumina output surged 51% in the first eight months of this year to 8.33 million tons from a year earlier.

Financial Express:
- Starbucks(SBUX) will partner with the RPG Group in India.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (HNT), target $58.
- Reiterated Buy on (ATVI), target $18.
- Reiterated Buy on (CAH), target $82.

Goldman Sachs:
- Added (FORM) to Conviction Buy List, target $50.

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

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Earnings of Note
Company/EPS Estimate
- (DBRN)/.31
- (FUL)/.33
- (JBL)/.34
- (LEN)/1.28
- (PAYX)/.34
- (RHAT)/.10
- (SRR)/.24
- (WOR)/.53

Upcoming Splits
- (FTBK) 3-for-2

Economic Releases
10:00 am EST
- Consumer Confidence for September is estimated to rise to 103.0 versus a reading of 99.6 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by 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.

S&P 500 Hits 5-Year High

Indices
S&P 1,326.37 +.88%
DJIA 11,575.81 +.59%
NASDAQ 2,249.07 +1.36%
Russell 2000 727.09 +1.18%
Wilshire 5000 13,231.17 +.86%
S&P Barra Growth 615.61 +.82%
S&P Barra Value 708.70 +.94%
Morgan Stanley Consumer 649.27 +.20%
Morgan Stanley Cyclical 808.39 +.81%
Morgan Stanley Technology 529.21 +1.91%
Transports 4,343.52 +.37%
Utilities 428 .65 +1.40%
Put/Call .83 -7.78%
NYSE Arms .91 -13.70%
Volatility(VIX) 12.12 -3.73%
ISE Sentiment 148.00 +13.85%
US Dollar 85.34 +.20%
CRB 300.71 -.05%

Futures Spot Prices
Crude Oil 61.40 +1.40%
Unleaded Gasoline 150.55 +2.33%
Natural Gas 4.49 -2.85%
Heating Oil 165.60 +.53%
Gold 594.80 -.17%
Base Metals 225.02 -3.06%
Copper 344.40 -.10%
10-year US Treasury Yield 4.54% -.90%

Leading Sectors
Semis +2.51%
Homebuilders +2.37%
Retail +2.17%

Lagging Sectors
Gold & Silver -.90%
Tobacco -1.62%
Steel -1.63%

Evening Review
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In Play

Afternoon Recommendations
Oppenheimer:
- Rated (FMC) Buy, target $75.

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied, sending the S&P 500 to a five-year high, after Fed Bank of Dallas President Fisher said the economy remains strong.
- Starbucks(SBUX) was sued by an independent café owner for alleged anti-competitive activities.
- President Bush and four business leaders led by Cisco Systems(CSCO) CEO Chambers pledged to provide $400 million in public and private money to help rebuild war-torn Lebanon as a demonstration of US commitment to democracy there.

AP:
- Iran’s foreign minister today said talks between top Iranian and European negotiators about his country’s nuclear program are “on track” and that a way out of the stand-off with the UN is possible.

Nikkei English News:
- Japan, the US and European nations are among 41 countries that agreed to draft a treaty for standardizing the patent approval process based on the first-to-file principle.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs, Retail longs, Medical longs and Steel shorts. 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, almost every sector gained and volume was about average. Measures of investor anxiety were lower into the close. Overall, today's market performance was bullish. Russian stocks fell 3.48% today, the world's worst performer. The RTSI is up 1,256% since October 1998. The index is testing its 200-day moving-average. Commodity-related companies account for the vast majority of the components of this index. I continue to believe that the recent mania for emerging market stocks was a function of the mania for commodities, and that emerging market stocks will underperform U.S. stocks over the intermediate term. I remain short iShares MSCI Emerging Markets Index (EEM).

Stocks Sharply Higher into Final Hour, Led by Tech, on Rotation Out of Commodities

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs, Retail longs and Computer longs. I exited my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. The latest report from the NYSE shows that short interest on the exchange as a percentage of total shares outstanding (NYSIPRTS Index on Bloomberg) rose to 2.6% in mid September from 2.5% the prior month. This is another all-time record. This is up from an all-time low of 1.0% during September 1999. This bodes well for my prediction of significantly higher US stock prices through year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining interest rates and bargain hunting.

Today's Headlines

Bloomberg:
- Crude oil fell below $60/bbl. to a six-month low after BP Plc(BP) started work to restore production at Alaska’s Prudhoe Bay, the largest US oil field, and Iran said it favors talks on the country’s nuclear program.
- BP Plc(BP) began work to resume production on a portion of the eastern side of the Prudhoe Bay oilfield in Alaska, which has been shut since early August because of leaks and corroded pipelines.
- Altria Group’s(MO) Philip Morris USA and other cigarette makers must face a class-action lawsuit on behalf of “light” cigarette smokers nationwide, a judge ruled.
- Goldman Sachs(GS) and Morgan Stanley(MS), the Wall Street giants that sell more of everything from stocks and bonds to risk-analysis software to the burgeoning hedge fund industry, may be the biggest winners after Amaranth Advisors LLC said it lost $6 billion on natural gas speculation.
- Fed Bank of Dallas President Fisher said the central bank will take “appropriate action” to reduce inflation should the slowing economy fail to do so.
- US Treasuries are rising again, pushing the 10-year T-note to a seven month high, as a continuing fall in commodity prices lessons inflation concerns.

Wall Street Journal:
- MasterCard Inc.(MC) and Visa USA are starting to fine merchants who don’t follow rules that seek to guard transactions from fraud artists.
- Four US airlines are battling for the right to fly a new daily route to China that has the potential to be highly profitable.
- Wal-Mart Stores(WMT) is confronting a cultural clash in cities such as Boston where critics see the retailer as the epitome of pedestrian suburban values.
- The US Treasury Dept. and IRS are to introduce regulations to stop transactions intended to avoid US taxes when involving foreign companies.
- US health saving accounts plans that require employees to pay as much as $5,250 a year in medical costs out of their own pockets before insurance applies have forced many employers to become medical experts.
- Venezuela’s President Chavez has created his own version of Dante’s inferno with its nine concentric circles of evil, Alvaro Vargas Llosa wrote. Poverty in Venezuela has risen from 43% in 1999 when Chavez took over to 53% in the most recent survey, citing Venezuela’s Instituto Nacional de Estadistica.
- Luxury fashion houses such as Dolce & Gabbana, Versace and Marc Jacobs are using secondary, lower-priced labels to help boost sales.

NY Times:
- In Iraq, the so-called generator man, who owns and operates the neighborhood power plant, has become probably the most vilified figure in Iraqi society after Saddam Hussein.

NY Daily News:
- The rate of crimes in the New York City subway system is the lowest in 37 years, averages seven felonies a day, citing Police Commissioner Raymond Kelly.

Washington Post:
- Iraq will need a US military presence for a “long time” to prevent “foreign interference” in its affairs, citing Iraqi President Jalal Talabani.

AP:
- The US Department of Homeland Security will announce a nearly fourfold boost in annual funding to safeguard New York and New Jersey’s port perimeters.

Washington Times:
- A Hollywood producer is suing former President Bill Clinton, saying he cheated him out of a multi-million-dollar Internet venture.

Advertising Age:
- Advertising rates for Howard Stern’s radio program on Sirius Satellite Radio(SIRI) have fallen by at least two-thirds from when he was on free radio.

El Universal:
- Venezuelan poverty leaves about 70% of the population without a bank account, citing a poll by Caracas-based research firm Datanalisis.

Existing Home Sales Exceed Estimates

- Existing Home Sales for August fell to 6.3M versus estimates of 6.2M and 6.33M in July.

BOTTOM LINE: Sales of previously owned home in the US exceeded estimates in August, Bloomberg reported. The median sales price fell 1.7% to $225,000 from a year earlier. The supply of months for sale rose to 7.5 months versus 7.3 months in July. Purchases fell 2.3% in the West and .8% in the South. Sales rose .7% in the Midwest and 1.9% in the Northeast. I continue to believe housing will begin stabilizing over the next few months after only modest price declines which would be considered a soft-landing. The overall negative effects of housing on the US economy are being mostly offset by other very positive factors.

Links of Interest

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