Stocks Higher into Final Hour on More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs and Biotech 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 higher, sector performance is mixed and volume is above average. The Johnson Redbook same-store sales index rose 4.0% year over year last week vs. a 3.9% rise the prior week. The long-term average is a gain of around 2.9%. This is still more evidence that the anticipated collapse in consumer spending won't materialize anytime soon, even as most investors continue to worry about such a decline. A healthy labor market, falling energy prices, lower long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will continue to more than offset slowing housing over the intermediate term. The Morgan Stanley Retail Index (MVRX) has surged 16.0% in the last two months. I expect continued outperformance by the sector during the fourth quarter. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism and bargain hunting.

Today's Headlines

Bloomberg:
- Oil is falling another .20 after OPEC’s president said many factors point to oversupply and a soft market for crude next year.
- Ex-Enron Corp. CFO Fastow, who created the illicit partnerships at the heart of the fraud that destroyed the company, was sentenced to six year in prison.
- Former WorldCom CEO Ebbers, convicted of masterminding one of the biggest frauds in US history, is due to report to a federal prison today to begin serving a 25-year term.

Wall Street Journal:
- Oprah Winfrey, the US talk show queen, and XM Satellite Radio Holdings(XMSR) started a 24-hour radio channel hosted by her and other celebrities from her television show.

NY Times:
- US Republicans are pushing for laws mandating stricter enforcement of identification for potential votes to prevent fraud, while Democrats largely oppose such measures.
- The US leads the world in nanotechnology research.
- A group of American Civil Liberties Union supporters is calling for a change in the organization’s leadership for failing to stick with the principles it demands of others.

AP:
- Former Iraqi leader Saddam Hussein returned to his genocide trial after being rejected from court yesterday.

Financial Times:
- The European Union and the US are near a deal on sharing airplane passenger information that would avoid disruption of flights that might have come had agreement not been reached.

Vatan:
- General Ilker Basbug, the head of Turkey’s armed forces, warned of what he called the rising threat of Islamic extremism in the Muslim nation.

Reuters:
- Iraq intends to buy 300,000 metric tons of wheat this month, with 90% supplied by US exporters and the remainder from Australia.

AFP:
- Gilberto and Miquel Rodriguez Orejuela, the former leaders of Colombia’s Cali cocaine cartel, were each sentenced to 30 years in prison for cocaine trafficking.

Interfax:
- Russia will deliver nuclear fuel to Iran’s Bushehr nuclear plant in March 2007, citing the head of Russia’s nuclear technology exporter Atomstroyexport.

Haaretz:
- President Bush plans to visit the Middle East or hold a summit with regional leaders by the end of the year to promote Israeli-Palestinian peace talks and allay concern over Iran’s growing influence.

Consumer Confidence Rises as Gas Prices Plunge, Stocks Rise to 5-year Highs and Rates Fall

- Consumer Confidence for September rose to 104.5 versus estimates of 103.0 and a reading of 100.2 in August.

BOTTOM LINE: Confidence among US consumers rebounded more than forecast in September as Americans paid less at the gas pump and interest rates fell, Bloomberg reported. The expectations component of the index rose to 89 versus a reading of 84.4 the prior month. Optimism about consumers’ present situation surged to 127.7 this month from 123.9 the prior month. The share of consumers that perceived jobs as plentiful rose to 25.9% versus 24.5% the prior month. I expect confidence readings to rise further over the intermediate-term as stocks rise further, energy prices continue to decline, the job market remains healthy, interest rates remain low, inflation decelerates, housing stabilizes and irrational pessimism lifts.

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.

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
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

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
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
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.