Stocks Finish Slightly Higher as Oil Reverses and Shorts Cover

Indices
S&P 500 1,350.66 +.08%
DJIA 11,857.81 +.06%
NASDAQ 2,311.77 +.51%
Russell 2000 744.57 +.64%
Wilshire 5000 13,492.61 +.18%
S&P Barra Growth 626.55 -.02%
S&P Barra Value 722.05 +.17%
Morgan Stanley Consumer 654.40 +.23%
Morgan Stanley Cyclical 842.56 +.60%
Morgan Stanley Technology 542.38 +.88%
Transports 4,581.56 +.26%
Utilities 428.88 -.06%
Put/Call .96 unch.
NYSE Arms 1.07 +.91%
Volatility(VIX) 11.68 +1.04%
ISE Sentiment 111.0 +.91%
US Dollar 86.54 +.03%
CRB 303.56 +1.12%

Futures Spot Prices
Crude Oil 59.90 +.23%
Unleaded Gasoline 149.95 -.31%
Natural Gas 6.34 -1.28%
Heating Oil 172.57 +1.87%
Gold 580.0 -.48%
Base Metals 237.96 +3.10%
Copper 341.20 -.03%
10-year US Treasury Yield 4.69% unch.

Leading Sectors
Steel +2.35%
Homebuilders +1.66%
Computer Hardware +1.20%

Lagging Sectors
Hospitals -.99%
Energy -1.24%
Oil Service -1.68%

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Afternoon Recommendations
UBS:
- Rated (HAIN) Buy, target $31.

Citigroup:
- Rated (VAR) Buy, target $62.
- Rated (SPNC) Buy, target $17.
- Rated (HOLX) Buy, target $55.

Afternoon/Evening Headlines
Bloomberg:
- OPEC will rely on an informal agreement among members to cut supplies and won’t hold an emergency meeting, a spokesman for the group’s president said.
- Monster Worldwide(MNST) said founder Andrew McKelvey resigned as chairman and CEO, citing the time consumed by a probe of stock-options grants.
- Google(GOOG) agreed to buy YouTube Inc. for $1.65 billion in stock, adding the largest video-sharing site on the Web and an audience that watches more than 100 million clips a day.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Internet longs, Biotech longs, and Semi longs. 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, most sectors rose and volume was heavy. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was mildly bullish. The underlying tone was even better as many market-leading stocks posted substantial gains. Oil finished only .20 higher, losing almost all of the morning’s OPEC cut announcement gains. I still expect oil to head into the low 50s before year-end. The CBOE total put/call and NYSE Arms are finished near session highs at above-average levels. As well, the ISE Sentiment Index is finished near session lows, at a low 111.0. I expect further gains in the major averages in the near-term as investors continue remain very skeptical of the advance.

Stocks Higher into Final Hour on a Reversal Lower in Oil Prices and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Semi longs, Biotech longs and Medical longs. I add a small long position in (LVLT) and took some more profits in my (TLT) long, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are gaining and volume is light. The major averages were rising even in the face of a bounce in energy prices this morning. I suspect it would take a move in oil back near $70 per barrel to significantly impact the market in a negative way. I don't anticipate that happening. The underlying market action today is much better than the averages suggest. I am seeing a number of growth stock leaders gain substantial upside traction. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less pessimism, performance anxiety, a reversal lower in oil and bargain-hunting.

Today's Headlines

Bloomberg:
- North Korea said it detonated a nuclear bomb, hours after the Japanese and Chinese governments joined the UN Security Council in warning the communist country against proceeding with the test.
- Total SA, Europe’s largest oil refiner, unveiled France’s first pump station for flexible fuel, which is partly derived from organic matter, as the government promotes alternatives to crude oil.
- Google(GOOG) and YouTube boosted their rival video-sharing services by agreeing with three of the world’s largest record companies to add their music videos.
- President Bush condemned North Korea’s reported first nuclear test and call on the UN to take quick, decisive action.
- Thomas Lee, the billionaire buyout investor, plans to raise $400 million in an IPO for a fund to invest in hedge funds.
- Crude oil is rising $1.40/bbl. after OPEC said Saudi Arabia, Libya, Algeria, Kuwait, Venezuela and Nigeria will reduce output to stem a 23% plunge in prices.
- Goldman Sachs(GS) may receive a windfall of as much as $3.9 billion from Industrial & Commercial Bank of China’s record IPO.
- New Star Asset Management Group plc will sell an investment that tracks the hedge fund market and can be bought and sold like a company share. New Star will sell the Hedge ETS on the London Stock Exchange.
- Calyon, the investment-banking unit of Credit Agricole SA, France’s second-largest bank, said copper and aluminum prices will probably average lower than this year because of a “deceleration” in global economic growth.

Wall Street Journal:
- Toyota Motor(TM) will set between $10 billion and $13 billion in capital spending annually for the next few years to add manufacturing capacity, citing Mitsuo Kinoshita, a Toyota executive vice president.
- LVMH Moet Hennessy Louis Vuitton SA introduced factory style techniques to speed up production of luxury items that were previously individually handcrafted.
- PNC Financial Services Group(PNC) is close to buying Mercantile Bankshares Corp. for about $6 billion in stock and cash, as the Pittsburgh-based bank seeks to expand in the US Northeast.
- Target Corp.(TGT) has told film studios it is concerned downloading services have obtained better terms for online movies than it gets for DVDs.
- Google(GOOG) is close to completing an agreement to buy online video site YouTube Inc. for about $1.65 billion in stock and may announce the purchase today.

NY Times:
- The Dolan family of NY offered to take Cablevision Systems(CVC) private in a $19.2 billion leveraged buyout, citing a letter written by founder Charles Dolan and CEO James Dolan to the company’s board.
- US conservative Christians in southeastern Virginia, a battleground for House and Senate races, say the disclosure of former Representative Mark Foley’s behavior with pages reinforced their reasons to vote for their two Republican incumbents in close re-election races, citing interviews.
- Cingular Wireless LLC and Tellme Networks are developing a directory service that will let callers make Internet-like searches of telephone directories using voice recognition technology.

Reuters:
- Chevron Corp.(CVX) may start producing crude oil from a joint development zone shared by Sao Tome and Principe, and Nigeria, within 3 years.

AFP:
- Former Iraqi dictator Saddam Hussein’s genocide trial resumed today after an adjournment that began Sept. 26.
- Uganda will begin commercial oil production in three years, breaking its exclusive dependence on imports, citing President Yoweri Museveni.

Vedomosti:
- Starbucks(SBUX) will open its first Russian coffee shop next year.

Dagens Industri:
- Svenska Cellulosa AB, Europe’s biggest tissue maker, may invest in hydropower projects to secure its own electricity supply and counter high energy costs.

Iran Daily:
- Ayatollah Mohammad Kazemeini Boroujerdi, a prominent religious figure and his supporters, were arrested on Oct. 7 in Tehran, citing a senior security official. Boroujerdi is known for advocating “traditional religion” in which religion and politics are separated.

Independent:
- John Thain, the CEO of the NYSE(NYX), said long-term shareholders in big stock exchanges shouldn’t let themselves be pushed into disadvantageous mergers by hedge funds.

Interfax:
- Russia will raise gas output as much as 18% within 8 years as production begins at projects such as Shtokman and Kovytka, and increases at fields off Sakhalin Island, citing the Energy Minister.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Former US Fed chairman Alan Greenspan said the “worst may well be over” for the US housing slowdown.
- US stocks rallied last week, pushing the Dow Jones Industrial Average to an all-time high, as oil fell the most since March.
- The US gasoline pump price fell another 14 cents in the past two weeks to $2.28 a gallon, Trilby Lundberg said, citing her survey of about 7,000 filling stations nationwide.
- Gold’s appeal is fading as slumping commodity prices reduce the appeal of the precious metal as a hedge against inflation.
- Crude oil is up .71 in NY after six members of OPEC agreed to cut production by 1 million barrels a day to help stem the slide in prices.
- Natural gas futures, the worst-performing commodity this year, may fall in New York as inventories rise further, straining storage capacity and forcing producers to shut down wells, according to a Bloomberg survey of analysts.
- Russian journalist Anna Politkovskaya, one of the most vocal critics of Russian President Putin, was gunned down in Moscow yesterday, the third execution-style killing in the past three weeks.
- Japan and China warned North Korea not to conduct a nuclear weapons test and agreed to improve their own relations as Prime Minister Abe made the first visit by a Japanese leader to Beijing in five years.
- The consumer spending spree that Prime Minster Abe and central banker Toshihiko Fukui are counting on to drive Japan’s economic growth may fizzle.
- Deutsche Telekom AG, Europe’s biggest phone company, plans to spend $2.7 billion over three years to build a high-speed mobile network in the US.
- The US dollar surged to the highest against the yen since March this week after a US government report showed a drop in unemployment to 5-year lows.
- President Bush proposed strengthening the No Child Left Behind law, saying he wasn’t to further improve the quality of US teachers and giv4e parents more options to flee failing schools.
- Wall Street and corporate America have found a potent champion in Washington to back their demands for reduced corporate regulation: Treasury Secretary, and former Goldman Sachs(GS) CEO, Henry Paulson.
- Merrill Lynch(MER) leads as hedge fund drive a resurgence in Wall Street research.

Wall Street Journal:
- Harrah’s Entertainment’s(HET) private equity bidders plan to borrow against the company’s real estate to fund their $15 billion takeover.
- Chicago Mercantile Exchange(CME), the top US futures market, and Deutsche Boerse AG have considered discussing a combination.

Time:
- Many in the US government are now convinced that Cuban leader Fidel Castro has terminal cancer and won’t return to power.

NY Times:
- If US cars had the same fuel efficiency as those in Europe, global oil demand would decline by 4 million barrels a day, equal to Iran’s production, the CEO of Eni SpA said.
- Ismail Haniya, the Palestinian prime minister from Hamas, vowed not to recognize Israel in a speech before thousands of supporters in a soccer stadium in Gaza City.
- Archer-Daniels-Midland(ADM) CEO Woertz said the company will work over the next decade to develop ways to make ethanol from agricultural waste, grasses and other materials besides corn.

Rocky Mountain News:
- UAL Corp. and JetBlue Airways(JBLU) both may be studying mergers with rival carriers as part of an industry wide consolidation, citing airline analysts.

LA Times:
- The Tribune Co.(TRB) has hardened its resistance to selling off individual assets, making a potential sale of the LA Times to local investors less likely.

Financial Times:
- Over 100 US technology companies are considering listing on London Stocks Exchange Plc’s Alternative Investment Market.
- Recent move by some hedge funds to outsource some so-called “middle office” functions to cut costs will help make the industry more transparent, citing the SEC.
- Starbucks(SBUX) will sell packaged coffee in UK supermarkets from next year as part of a distribution agreement with Kraft Foods(KFT).

Observer:
- Chicago Board of Trade CEO Dan will talk with London Metal Exchange chief Martin Abbott about a link-up at a meeting this week.

Automobilqoche:
- German carmakers DaimlerChrysler AG(DCX), BMW AG, Audi AG and Volkswagen AG plan to form an alliance to help market their new diesel engines in the US.

Khaleej Times:
- Oman’s budget for next year will be based on an average oil price of $40 a barrel.

Sunday Times:
- Al-Qaeda planned to kill the Australian and English cricket teams during the 2005 Ashes series using sarin nerve gas. Mohammad Sidique Khan and Shehzad Tanweer, who bombed the London Underground, were allegedly ordered to get jobs as stewards at the Edgbaston, Birmingham cricket ground and spray the lethal gas in the changing rooms.

Weekend Recommendations
Barron's:
- Made positive comments on (CSCO), (BID) and (WU).

Night Trading
Asian indices are -.25% to +.25% on average.
S&P 500 indicated -.15%
NASDAQ 100 indicated -.24%.

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Earnings of Note
Company/Estimate
- (CAKE)/.28
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BOTTOM LINE: Asian Indices are mostly lower on reports of a North Korea nuclear test. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.