BETWEEN THE HEDGES

Monday, October 02, 2006

Tuesday Watch

Posted by Gary .....at 11:22 PM

Late-Night Headlines
Bloomberg:
- US inventories of distillate fuel, a category that includes heating oil and diesel, probably rose as refineries prepared for the winter months, a Bloomberg News survey indicated. Distillate inventories are already 18% above their five-year average for this time of the year.
- Crude oil fell below $61 a barrel for a second day in New York on concern a cut in output by Venezuela and Nigeria will do little to reduce global supplies.
- US Steel(X) may curb output if North American demand falters and inventories climb, said CEO John Surma. “I don’t like to make a lot of steel to put it on the warehouse floor,” Surma said. “The trends are obvious, and they are tracking somewhat what happened in 2004 or 2005.”

South China Morning Post:
- LDK Solar Hi-Tech, a maker of solar power equipment in China, plans to raise $300 million in an IPO on the Nasdaq Stock Market(NDAQ) next year.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SPLS), target $31.
- Office products and consumer electronics retailers likely experienced the strongest sales gains in September, with the former driven by a better than expected back-to-school season, and the latter driven by continued strength in flat panel TVs and laptops.

Night Trading
Asian Indices are -.25% to unch. on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated -.03%.

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
- (LWSN)/.01
- (MOS)/.23

Upcoming Splits
- (LIHR) 2-for-1

Economic Releases
Afternoon:
- Total Vehicle Sales for September are estimated to rise to 16.5M versus 16.1M in August.
- Domestic Vehicle Sales for September are estimated to rise to 12.6M from 12.5M in August.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on US Political Concerns and Profit-taking

Posted by Gary .....at 4:55 PM

Indices
S&P 500 1,331.33 -.34%
DJIA 11,670.35 -.07%
NASDAQ 2,237.60 -.92%
Russell 2000 718.81 -.93%
Wilshire 5000 13,267.09 -.42%
S&P Barra Growth 616.99 -.48%
S&P Barra Value 712.39 -.20%
Morgan Stanley Consumer 650.62 -.44%
Morgan Stanley Cyclical 820.66 +.13%
Morgan Stanley Technology 527.03 -.79%
Transports 4,433.11 -.46%
Utilities 430.57 +.51%
Put/Call 1.12 +34.94%
NYSE Arms 1.20 +39.64%
Volatility(VIX) 12.57 +4.92%
ISE Sentiment 119.00 +48.75%
US Dollar 85.60 -.50%
CRB 301.36 -1.38%

Futures Spot Prices
Crude Oil 60.96 -3.08%
Unleaded Gasoline 150.75 -3.02%
Natural Gas 5.63 +.27%
Heating Oil 169.80 -3.17%
Gold 600.20 -.51%
Base Metals 233.15 -.08%
Copper 341.35 -.47%
10-year US Treasury Yield 4.60% -.43%

Leading Sectors
Gaming +2.87%
Airlines +1.13%
Homebuilders +.90%

Lagging Sectors
Energy -1.20%
Software -1.38%
Oil Service -2.58%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US gasoline prices at the pump fell for an eighth straight week, dropping 6.8 cents to a nationwide average of $2.31/gallon.
- Crude oil plunged almost $2/bbl. to below $61/bbl. on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.
- Brazil’s stocks and currency rose on expectations President Luiz Inacio Lula da Silva will be forced to moderate spending plans to prevail in a run-off against opposition candidate Geraldo Alckmin.
- Marvell Technology Group(MRVL) said sales for the third-quarter ending this month will be about 10% below second-quarter revenue on lower-than-expected demand for disk drives.

AP:
- Iraqi Prime Minister Nuri al-Maliki announced a peace plan today intended to unite the Shiite and Sunni factions in his government behind efforts to stop sectarian violence.

AFP:
- The head of Russia’s security council will meet Iran’s nuclear negotiator, Ali Larijani, in Tehran tomorrow.

BOTTOM LINE: The Portfolio finished lower today on losses in my Medical longs, Computer longs and Biotech longs. 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 about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bearish. The growth rate of ECRI's Future Inflation Gauge fell 4.2% in the week ended Sept. 15. The gauge was rising at a 9% rate in October 2005. Besides runaway speculation on their continued rise, many investment funds had been loading up on commodities as an inflation hedge. This is another hindrance to the paper demand for the futures of the underlying commodities.

Stocks Lower into Final Hour on Political Concerns, Profit-taking and Slower Growth Worries

Posted by Gary .....at 3:17 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Biotech longs. 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 declining and volume is below average. This morning on CNBC, instead of talking about the great third quarter for U.S. stocks, there was much talk that stocks are at the high end of a trading range that will last another decade. This is symptomatic of the current “negativity bubble.” As I have said many times before, there has never been a time in U.S. history when more market participants believed they benefited from a negative or trading range environment in the major averages. They must keep this belief in tact. The pendulum has swung way too far against U.S. stocks on a long-term basis, in my opinion. The “mother of all short-covering rallies” will begin when the predominant belief that the U.S. is in a secular bear fades. This will likely occur sooner rather than later. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Posted by Gary .....at 12:55 PM

Bloomberg:
- Crude oil is falling again below $62/bbl. on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.
- US researchers Andrew Fire and Craig Mello won the Nobel Prize for medicine for finding a mechanism that regulates the flow of genetic information in plants, animals, and humans.
- President Bush said the UN shouldn’t wait any longer to send peacekeepers into Sudan’s war-torn Darfur region to end the killing and deprivation there.
- Gilead Sciences(GILD), maker of the world’s best-selling AIDS medicine, will buy Myogen(MYOG) for about $2.5 billion to acquire experimental biotechnology drugs for hard-to-treat heart and lung conditions.
- Morgan Stanley(MS) is offering its top-paid traders and bankers millions of dollars of incentives to avoid defections to rival banks and attract new hires.

Wall Street Journal:
- Harrah’s Entertainment(HET) may be purchased by private-equity companies that could include Colony Capital and Texas Pacific Group.
- Though many Americans are unhappy with the perception that the rich are getting richer, they still want to be rich themselves and don’t favor political candidates who attack wealth creation. Moreover, the most recent data from the IRS shows the income share of the top 1% of Americans declined to 19.0% in 2004 from an all-time high of 20.8% in 2000.
- US corporate directors are abandoning their former club-house boardroom style and have become more assertive, after scandals such as the one at Enron Corp.
- Facebook.com and News Corp.’s MySpace.com, both social networking sites, face competition from smaller, second-tier sites including Piczo Inc. and XuQa.com.
- HJ Heinz(HNZ), Sara Lee(SLE) and other US companies are testing a variety of oils to satisfy growing demand from health groups and government regulators for food with less trans fats.
- US insurer-owned banks are becoming more profitable and now make up five of the 20 fastest-growing banks in the US.
- Rising prices for energy, and not faltering wage growth, are what most hurt the paychecks of US workers, economists Allan Hubbard and Edward Lazear wrote. At an annualized rate, nominal wage growth has been about 4% this year, about the same rate as in the late 1990s.

NY Times:
- US Representative John Murtha, a Democrat of Pennsylvania, may be best know outside Washington for his break with President Bush over the Iraq War; in the Capitol he’s best known for turning Congressional members’ pet projects, or earmarks, into power. Murtha, who is the top Democrat on the House military spending subcommittee and who announced this year a bid to become the next House Democratic leader, often tacitly trades Democrat votes with Republican leaders for earmarks for himself and his allies.

NY Post:
- Google(GOOG) will open a new 300,000 square-foot office today at 111 Eighth Avenue in NY.

Sunday Times of London:
- Mohamed Atta, leader of the Sept. 11 hijackers, smiles and jokes with another hijacker in a newly released al-Qaeda video taped in 2000.

Interfax:
- The latest talks between Russia and the US on Russia’s accession to the World Trade Organization are progressing “very constructively.”

Le Figaro:
- A French high school philosophy teacher, facing death threats from extremist groups for a critical article he wrote on Islam in Le Figaro, received support from daily newspaper Le Monde.

Kommersant:
- Declining oil prices may help slow growth of consumer prices in October, citing central bank Deputy Chairman Alexei Ulyukayev.

Asharq al-Awsat:
- MA Kharafi Group of Kuwait plans to build a $1 billion oil refinery in Egypt.

Rzeczpospolita:
- Poland may invest at least $3 billion to set up wind power plants.

Construction Spending Rises on Commerical Boom, ISM Manufacturing Slows Slightly, Prices Paid Falls Again, Pending Home Sales Rebound

Posted by Gary .....at 11:18 AM

- Construction Spending for August rose .3% versus estimates of a .3% decline and a 1.0% decline in July.
- ISM Manufacturing for September fell to 52.9 versus estimates of 53.5 and a reading of 54.5 in August.
- ISM Prices Paid for September fell to 61.0 versus estimates of 67.5 and a reading of 73.0 in August.
- Pending Home Sales for August rose 4.3% versus estimates of unch. and a 7.0% decline in July.

BOTTOM LINE: Construction spending in the US unexpectedly rose in August as companies increased investment in office buildings, factories and hospitals, Bloomberg said. Booming corporate investment in new facilities is helping to offset slower residential construction. Private non-residential construction rose 3.4% and has soared 24% from year-ago levels. Private residential construction spending fell 1.5% versus a 2.1% decline the prior month. I expect construction spending to continue to slow, but remain relatively healthy over the intermediate-term.

Manufacturing in the US last month expanded at a slower pace than economists’ expected last month, Bloomberg reported. The new orders component of the index held at 54.2, while the employment component of the index fell to 49.4 from 54 the prior month. The prices paid component of the index fell to 61 and is now 31% below April 2004 highs. Business investment will grow 7.8% this year, up from 6.8% growth in 2005, according to a survey of economists by Blue Chip Economic Indicators. I expect manufacturing to continue to slow to more average levels over the intermediate-term as auto production cutbacks offset inventory rebuilding.

Contracts to buy previously owned homes in the US unexpectedly rose in August, suggesting the downturn in housing is losing steam, Bloomberg reported. Pending re-sales rose 9.2% in the West, 4% in the South, 3.6% in the Northeast and were unchanged in the Midwest. The average 30-year mortgage rate was 6.31% last week, down 49 basis points from July highs. As well, low unemployment, a rising stock market and income growth are helping to cushion the slowdown in housing. I continue to believe that housing will stabilize at relatively high levels over the coming months after modest price declines.