Dow Jones Industrial Average Approaches 12,000, Making Another All-Time High

Indices
S&P 500 1,369.05 +.25%
DJIA 11,980.60 +.17%
NASDAQ 2,363.84 +.28%
Russell 2000 769.48 +.90%
Wilshire 5000 13,717.75 unch.
S&P Barra Growth 633.80 +.32%
S&P Barra Value 733.32 +.19%
Morgan Stanley Consumer 658.53 +.45%
Morgan Stanley Cyclical 862.73 +.88%
Morgan Stanley Technology 555.53 +.13%
Transports 4,728.00 +1.51%
Utilities 436.68 +.35%
Put/Call .79 -5.95%
NYSE Arms 1.04 +16.25%
Volatility(VIX) 11.09 +3.16%
ISE Sentiment 162.00 +10.20%
US Dollar 87.0 -.14%
CRB 308.56 +1.70%

Futures Spot Prices
Crude Oil 59.94 unch.
Unleaded Gasoline 149.17 unch.
Natural Gas 6.44 unch.
Heating Oil 175.65 unch.
Gold 600.50 +.33%
Base Metals 242.34 +.43%
Copper 357.0 -.31%
10-year US Treasury Yield 4.78% -.33%

Leading Sectors
Oil Service +2.97%
Disk Drives +2.46%
Energy +2.18%

Lagging Sectors
Banks -.57%
Wireless -.82%
Telecom -1.13%

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Afternoon Recommendations
CSFB:
- Rated (OKE) Outperform.
- Rated (NFG) Underperform.

Deutsche Bank:
- Rated (PNRA) Buy, target $81.
- Rated (YUM) Buy, target $66.

Afternoon/Evening Headlines
Bloomberg:
- Guatemala led Venezuela after 10 rounds of voting for a Latin American seat on the UN Security Council, as the US lobbied to keep Venezuelan President Hugo Chavez from gaining influence on the panel.
- Attorney Lynne Stewart was sentenced to 28 months behind bars for helping an extremist Egyptian cleric pass messages from prison urging his followers on the outside to launch terrorist attacks.
- Fed Bank of St. Louis President William Poole said the chances of an interest-rate cut and an increase are about equal, without giving a time frame for a change.
- Roche Holding AG and InterMune(ITMN) agreed to collaborate on Hepatitis C drugs in an agreement worth as much as $530 million to InterMune.

Wall Street Journal:
- Wal-Mart Stores(WMT) has agreed to buy Trust-Mart, a Chinese hypermarket chain, for about $1 billion.

Financial Times:
- The European Union plans to introduce new regulations to encourage energy saving to cut the use of energy across the region by 20% by 2020.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Retail 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 about average. Measures of investor anxiety were mixed into the close. Today's overall market action was bullish. Over the weekend, several major financial media outlets ran more stories on the probability of $100/bbl. oil. I sense there is tremendous complacency among energy bulls regarding recent losses. I have heard from several trusted sources that some very large funds that have taken significant hits from energy speculation over the last few months have dramatically raised their long bets on oil as it broke below $60/bbl. I continue to believe another significant move lower in oil is coming as this massive speculation unwinds further and many funds liquidate positions to meet year-end redemptions. I still expect oil to trade down to around $50 by year-end, which will likely lead to another large hedge fund blow-up. Oil is now entering its seasonally weak period.

DJIA Approaching 12,000 Heading into Final Hour on Positive Economic Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Biotech longs and Retail 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 positive and volume is about average. This morning Forbes.com reported that OPEC lowered its 2006 global demand growth forecast by 100,000 barrels per day. As well, it cut demand estimates for its oil next year from 28.7 million bpd this year to 28.1 million bpd next. The cartel said 2007 appears "far from robust" and that it is worried about government policies around the world promoting conservation and substitution, as well as the elimination of energy price subsidies in some Asian countries. Moreover, OPEC said it sees non-OPEC production to grow a stronger-than-expected 1.1 million bpd this year and 1.3 million bpd next year. This would be the strongest non-OPEC supply growth since 1984 as demand wanes. OPEC reiterated its belief that there is "a clear imbalance between supply and demand." Finally, it said that by the second quarter of next year excess oil supply could overwhelm storage capacity in OECD countries, which is approaching the all-time high set in 1998.These comments by OPEC, which had been using every opportunity to talk up oil prices and boost speculation over the last few years, are very bearish for oil. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism, stable long-term rates and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- Oil is mostly unchanged after OPEC lowered its 4th quarter global demand growth forecast and said Non-OPEC production is poised to rise the fastest pace since 1984.
- Intel Corp.(INTC) said fourth-quarter sales will be higher than expected because of market share gained from smaller rival Advanced Micro Devices(AMD).
- Charles Schwab(SCHW), the largest US discount broker, said third-quarter profit rose 29% as lower commissions and the biggest stock gains of the year spurred demand from retail investors.
- Carlyle Group and Providence Equity Partners agreed to purchased Open Solutions(OPEN) for about $1.3 billion including debt as buyout firms increase their takeovers of technology companies.
- Mitsubishi Electric Corp., a Japanese maker of robots and other factory gear, said it will be investigated by the US government for alleged antitrust violations related to SRAM memory chips.
- General Motors(GM) said sales volume in China rose 37% to a record in the first nine months from a year earlier as the company added more models in the country.
- Natural gas is rising in NY, rebounding from a 12% slump the past three trading days, as forecasters predicted cooler weather in the Midwest will lift consumption.

Wall Street Journal:
- Tom LaSorda, who heads DaimlerChrysler AG’s(DCX) Chrysler subsidiary, and Joe Eberhardt, the unit’s top marketing executive, will hold the first of a series of meetings with US dealers today aimed at cutting Chrysler’s inventory of 50,000 vehicles.
- More hedge funds are focusing on a single Asian country as investors are willing to take on more risk in the region. There were 301 single-country funds in Asia at the end of 2005, up 31% from the end of 2004.
- Apple Computer’s(AAPL) COO Tim Cook has run the company smoothly from behind the scenes, in contrast to the public profile of CEO Steve Jobs.
- Liz Claiborne(LIZ) has picked Willliam McComb, 43, an executive at Johnson & Johnson(JNJ), as its new CEO.
- UnitedHealth Group(UNH), whose CEO, William McGuire, is stepping down because of an options scandal, has a big reserve of management talent, so it may well be possible for it to get back on track.
- The US Department of Homeland Security will restructure the way it works with local police departments in dealing with tips on terrorist and other attacks.

NY Times:
- The SEC is investigating whether some hedge funds acted on insider knowledge because they lent money to Movie Gallery.
- Procter & Gamble(PG) and JP Morgan(JPM) are among companies that are experimenting with non-traditional advertising to find new customers among visitors to social networking Web sites.

AP:
- Japan must watch out for possible terrorist attacks by North Korea after sanctions were imposed on the country, Deputy Director General Hiroto Yoshimura of the National Police Agency said.
- Yahoo!(YHOO) will carry news clips from 16 CBS Corp.(CBS) television stations across the country.

AFP:
- The chief prosecutor in former Iraqi dictator Saddam Hussein’s first trial hopes the verdict will be delivered in a session scheduled today for Nov. 5.

Interfax:
- Russian industrial output rose an annual 4.1% in September, slowing from 5.6% a month earlier.

Empire Manufacturing Strong, Prices Paid Down 49.1% in 6 Months

- The Empire Manufacturing Index for October rose to 22.9 versus a reading of 11.2 in September.

BOTTOM LINE: Manufacturing in NY state unexpectedly accelerated this month as costs of energy and raw materials eased and shipments increased, Bloomberg said. Manufacturers are investing rising profits in new equipment and re-building inventories to meet strong demand. The prices paid component of the fell to 30.8 versus a reading of 41 in September. The employment component of the index rose to 19.4 versus 12.5 in September. I continue to believe manufacturing will remain relatively healthy over the intermediate-term as companies gain confidence in the sustainability of the current expansion.

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Monday Watch

Weekend Headlines
Bloomberg:
- The UN Security Council voted 15-0 to adopt a resolution that punishes North Korea for a suspected nuclear-bomb test Oct. 9 and demands that the communist nations not conduct any further tests.
- China’s agreement to vote for a UN resolution punishing North Korea for a suspected nuclear-bomb test is critical to US efforts to halt proliferation, US Secretary of State Condoleezza Rice said. “This is the toughest action that China has ever signed on to vis-à-vis North Korea,” Rice said in an interview on “Fox News Sunday.” “It sends a very strong signal to North Korea that it is now completely isolated. You cannot underestimate how big a blow it is.”
- OPEC will hold an emergency meeting Oct. 19 to discuss a 1 million barrel-a-day output cut, an OPEC delegate said. Qatar said OPEC will take preemptive measures to prevent a price crash.
- Saudi Arabia’s main stock market, the Tadawul All Share Index, has plunged 49% from its February highs.
- Malaysian Prime Minister Abdullah Ahmad Badawi called for greater understanding between Muslims and Western nations. There is nothing in the Koran that condones violence against those who don’t believe in Islam, Abdullah said.
- BP Plc(BP), Europe’s largest oil company, said production at Alaska’s Prudhoe Bay oilfield, the largest in the US, will probably be back to “normal” levels by Monday for the first time since a leak in early August.
- The US dollar advanced against the euro and yen for the third straight week as reports on retail sales and consumer confidence suggest that the US economy is more vibrant than analysts had forecast.
- Goldman Sachs(GS) elevated Thomas Montag to succeed Gary Cohn as head of securities trading in the Americas, the largest unit by revenue at Wall Street’s most-profitable firm.
- Two earthquakes of magnitude 6.3 and 5.8, occurring seven minutes apart, struck Hawaii this morning, the US Geological Survey said.
- Morgan Stanley(MS) says the US dollar will rally in the fourth quarter and investors should be on gains against currencies including the Canadian dollar.
- Samsung Electronics, Asia’s biggest maker of chips, flat screens and mobile phones, reported net income rose to 2.19 trillion won from 1.88 trillion won a year earlier. Analysts had expected net income of 1.9 trillion won.
- Japan’s five-year government notes dropped the most in two weeks after US reports showed retail sales and consumer confidence increased, suggesting exports may support growth in Japan’s economy.

Wall Street Journal:
- Oshkosh Truck Corp.(OSK) agreed to buy JLG Industries(JLG) for about $3 billion in cash. JLG holders will get $28 per share.

Barron’s:
- Merrill Lynch’s(MER) wealth-management division topped the annual Barron’s list of the 40 best private banks by assets with $879 billion in US client accounts.

Minyanville:
- Bernie Schaeffer, of Schaeffer’s Investment Research, thinks the S&P 500 could rally another 15% before year-end.

NY Times:
- Microsoft CEO Ballmer expects most software to be distributed through the Internet in the future.
- Iraqi Interior Minister Jawad al-Bolani intends to purge the ministry’s top commanders to remove the influence of Muslim sects and stem killings by Shiite Muslims.

AP:
- Former Democratic US Representative Gerry Studds, who was censured by the House for his relationship with a 17-year-old male page, died in Boston over the weekend at the age of 69.

NY Post:
- Democratic NY Representative Charles Rangel plans to examine the NCAA’s tax-free status next year.

Crain’s Chicago Business:
- Wal-Mart Stores(WMT) presented the city of Chicago with five sites in predominately black neighborhoods where it would like to build supercenters.

Financial Times:
- London house prices have risen nearly 10% in the past year, driving up the value of property throughout England and Wales, citing the FT house price index.

AFP:
- Iraq has resumed the export of crude oil from the northern part of the country to the Turkish port of Ceyhan.

Guardian:
- More than half British voters want Muslims in Britain to do more to integrate, and agree with the statement made by the House of Commons leader Jack Straw that full veils worn by Muslim women was a “visible statement of separation and difference,” citing a poll from ICM.

Frankfurter Allgemeine Sonntagszeitung:
- Black & Decker(BDK), the biggest US maker of power tools, is winning market share in Germany as it aims to replace rival Robert Bosch GmbH as the region’s leader.

Sunday Telegraph:
- Nasdaq Stock Market Inc.(NDAQ) favors listing shares in both London and New York should its succeed in a new bid to buy London Stock Exchange Plc.

Handelsblatt:
- Former European Central Bank Chief Economist Otmar Issing will join Goldman Sachs(GS) as an international adviser from next year.

Shanghai Securities News:
- China and Russia are working to make the yuan free convertible with the ruble to boost trade, citing Russian Finance Minister Alexei Kudrin.

Weekend Recommendations
Barron's:
- Made positive comments on (JNJ), (WTR), (PNR), (WTS) and (X).
- Made negative comments on (ENT).

Night Trading
Asian indices are unch. to +.75% on average.
S&P 500 indicated -.05%
NASDAQ 100 indicated -.13%.

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Earnings of Note
Company/Estimate
- (BSG)/.15
- (CBH)/.41
- (ETN)/1.59
- (LAB)/.11
- (MAT)/.61
- (SONC)/.28
- (TMA)/.57
- (WB)/1.19

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Economic Releases
8:30 am EST
- Empire Manufacturing for October is estimated to fall to 11.2 versus a reading of 13.8 in September.

BOTTOM LINE: Asian Indices are higher, boosted by technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.