BETWEEN THE HEDGES

Tuesday, October 03, 2006

Wednesday Watch

Posted by Gary .....at 11:35 PM

Late-Night Headlines
Bloomberg:
- Crude oil is trading below $59/bbl. in NY after yesterday dropping the most in almost 14 months on expectations that a US government report will show a jump in fuel stockpiles.
- The Chinese government may relax rules concerning foreign ownership of its steel companies in order to help the industry to consolidate.
- Shares of Nintendo gained after the company raised its full-year profit forecast by 20%, citing sales of its DS model.
- South Korea expressed its “deeply serious concern and regret” over North Korea’s announcement it will conduct a nuclear test and told Kim Jong Il’s regime to withdraw plans.
- Australia’s central bank kept its benchmark interest rate unchanged at a 5 ½ year high today as economic growth slows and global inflation cools.
- China’s government will speed up the closure of small-scale steel plants as the country’s economy slows, Xie Qihua, chairwoman of China’s largest steelmaker Baosteel Group, said.

Commercial Times:
- Asustek Computer may ship more than 2 million notebook computers this quarter, up by more than 25% from the previous three months.

Late Buy/Sell Recommendations
Citigroup:
- According to our US Enterprise contacts, business picked up in a major way in Sept., enough to make up for a slower than expected summer, resulting in what looks to be an in-line September quarter. More importantly, 4Q optimism is very high with many of our contacts raising their expectations for 4Q, 2006 on the whole, and 2007.
- Reiterated Buy on (SWKS), target $9.30.
- Reiterated Buy on (DKS), raised target to $54.
- Reiterated Buy on (URBN), target lowered to $23.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.08%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (ARRO)/.38
- (CPRT)/.29
- (SSI)/.18
- (VTS)/.42

Upcoming Splits
- (DRQ) 2-for-1

Economic Releases
8:15 am EST:
- The ADP employment change for September is estimated at 115K versus 107K.

10:00 am EST:
- The ISM Non-Manufacturing Index for September is estimated to fall to 56.0 versus a reading of 57.0 in August.
- Factory Orders for August are estimated to fall .2% versus a .6% decline in July.

10:30 am EST:
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 1,100,000 barrels versus a 109,000 barrel decline the prior week. Gasoline supplies are expected to rise by 1,200,000 barrels versus a 6,345,000 barrel build the prior week. Distillate inventories are estimated to rise by 1,500,000 barrels versus a 2,618,000 barrel increase the prior week. Finally, refinery utilization is estimated to fall .83% versus a .99% decline the prior week.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Dow Jones Industrial Average Hits All-time High, Surpassing January 14, 2000 Record on Plunging Oil Prices

Posted by Gary .....at 6:48 PM

Indices
S&P 500 1,334.11 +.21%
DJIA 11,727.34 +.49%
NASDAQ 2,243.65 +.27%
Russell 2000 718.35 -.06%
Wilshire 5000 13,282.11 +.11%
S&P Barra Growth 617.75 +.12%
S&P Barra Value 714.47 +.29%
Morgan Stanley Consumer 653.63 +.46%
Morgan Stanley Cyclical 818.49 -.26%
Morgan Stanley Technology 528.53 +.28%
Transports 4,469.96 +.82%
Utilities 431.29 +.17%
Put/Call 1.17 +4.46%
NYSE Arms 1.15 -13.77%
Volatility(VIX) 12.24 -2.63%
ISE Sentiment 124.0 +.81%
US Dollar 85.71 +.13%
CRB 295.13 -2.07%

Futures Spot Prices
Crude Oil 58.45 -4.23%
Unleaded Gasoline 145.75 -3.39%
Natural Gas 5.75 +2.06%
Heating Oil 165.10 -2.99%
Gold 579.70 -.31%
Base Metals 229.14 -1.72%
Copper 328.50 +.08%
10-year US Treasury Yield 4.61% +.25%

Leading Sectors
Airlines +3.07%
Retail +1.63%
I-Banks +1.15%

Lagging Sectors
Oil Tankers -3.90%
Oil Service -4.41%
Gold & Silver -6.63%

Evening Review
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Afternoon Recommendations
Bank of America:
- Upgraded (TM) to Buy.

Afternoon/Evening Headlines
Bloomberg:
- The Dow Jones Industrial Average eclipsed its 2000 high as a two-month plunge in oil prices accelerated, improving the outlook for consumer spending.
- Crude oil in NY dropped the most in almost 14 months as investment funds continued paring speculative bets on a rise in the commodity.
- Valero Energy(VLO), the largest US oil refiner, said it expects to report third-quarter profit of $2.25 to $2.35 a share, less than analysts expected.
- Billionaire investor Carl Icahn refused to support a $36-a-share bid for ImClone Systems(IMCL), the biotechnology company said in a filing today.
- Porsche AG said vehicle sales rose 3% in September on demand for the Boxster and 911 sports cars.
- Venezuela’s benchmark bond fell the most in almost a year after crude oil declined to a seven-month low, raising concern that the country’s oil-dependent economy may falter.
- Construction spending in NYC will rise to a record $20.8 billion this year and exceed $21 billion in each of the next two years, fueled by a surge in public spending, said the NY Building Congress.
- Toyota Motor’s(TM) US sales jumped 25% in September, led by smaller, more fuel-efficient cars, while General Motors(GM) posted a 3.1% sales decline and cut its fourth-quarter production forecast.
- Private-equity funds have gathered $300 billion this year, led by 13 buyout funds that account for about a third of the total, according to a report by Private Equity Intelligence.

Wall Street Journal:
- Intel(INTC) could face European Union antitrust charges as part of a five-year probe.

El Universal:
- Venezuela may be headed “down the road of Cuba” on free speech issues as a “kill-the-messenger” attitude gains strength in the law and among the populace, said Inter American Press Assoc. President Diana Daniels.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Internet longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was neutral today as the advance/decline line finished slightly lower, sector performance was mostly positive and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bullish. I sense the serious declines in many commodities are resulting in another round of margin selling by investment funds in high beta stocks. I think the fact that the DJIA made a new all-time high is a huge deal due to the psychological ramifications. I think most Americans will be stunned when they see this headline. However, I'm sure that it won't be a headline most places or will be downplayed due to the current “negativity bubble.” I expect stocks to break convincingly higher on better breadth over the coming weeks.

Dow Jones Industrial Average Exceeds January 2000 All-time High on Plunging Energy Prices

Posted by Gary .....at 3:18 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Internet longs and Commodity shorts. I covered my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is slightly lower, most sectors are rising and volume is above average. The Johnson Redbook same-store sales index rose 3.8% year over year last week vs. a 4.0% rise the prior week. The long-term average is a gain of around 2.9%. There is still no evidence, in my opinion, that a substantial slowdown in consumer spending is underway, even as most investors continue to worry about such a decline. Recent weaker-than-expected manufacturing data is likely related to auto production cutbacks and will prove temporary. 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 15.7% in nine weeks. I expect continued outperformance by the sector during the remainder of this quarter. Bloomberg reported today that natural gas sellers in the U.K. are now giving it away and having to pay for the transport costs. This is what can happen when storage is full, while supplies continue to increase at a time of decelerating demand. I sense the hordes of speculators that drove energy prices to insane levels are just beginning to turn on the commodities. If they begin to jump on the short side in a meaningful way, energy prices could fall even more than I had anticipated. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower commodity prices and bargain-hunting.

Today's Headlines

Posted by Gary .....at 1:18 PM

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

Posted by Gary .....at 9:42 AM

- None of note