Today's Headlines

Bloomberg:
- The Dow Jones Industrial Average reached a new all-time high today, surpassing its prior peak of 11,750 on January 14, 2000.
- Crude oil plunged over $2/bbl. to a seven-month low of $58.84/bbl., despite more calls from OPEC to cut production, on speculation that a government report will show US fuel inventories jumped.
- Gold is dropping $16/oz. to $587.70 on diminishing inflation worries and less speculation after oil continued to fall.
- UK natural-gas sellers are being forced to give the fuel away after a new pipeline from Norway increased supply at a time when storage sites are full, pushing prices below zero for the first time in nine years.
- The greatest hurricane danger in the Atlantic is over for the year, according to Colorado State University forecasters who had predicted the season would be one of the worst.
- DaimlerChrysler’s(DCX) US auto sales fell 2.3% to 188,761 in September, while Ford Motor’s(F) rose 4.7% to 238,848 on higher demand for passenger cars.

Wall Street Journal:
- Global steelmakers are worried about world oversupply and rising exports from China, the biggest steel producer and consumer, citing comments made at the International Iron and Steel Institute conference in Buenos Aires, Argentina.
- Swedish government incentives to use cars run on renewable fuels have led to a big increase in sales, and automakers such as General Motors(GM) are hailing the country’s good example.
- The Medicare drug-benefit program will enter its second year next month, when beneficiaries will have new options to explore.

NY Times:
- In Georgia, divisions over jobs and government benefits that split the black and Hispanic communities have been overcome by two churchmen who have forged a long friendship.

Washington Post:
- Trial lawyers, labor unions, and Moveon.org spent almost $1 million on ads against Republican Representative Deborah Pryce of Ohio, more than she and her Democratic opponent, Franklin County Commissioner Mary Jo Kilroy, spent combined. The $34 million in “independent expenditures” already reported for this election is almost double what outside interest groups spent in total for the 2002 mid-term election, citing PoliticalMoneyLine.com.

Reuters:
- OPEC President Edmund Daukoru said members of the oil producing group should follow Nigeria’s example in cutting production because the market is “slightly oversupplied.”

AP:
- The US Energy Dept. said it won’t buy oil for the country’s Strategic Petroleum Reserve this winter.

Financial Times:
- The bid for Harrah’s Entertainment(HET) by Apollo Management and Texas Pacific Group shows how private-equity firms are looking at takeovers of companies previously thought unsuitable for leveraged buyouts.

Economic Releases

- None of note

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Tuesday Watch

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%.

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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

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
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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

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.