Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fidelity Investments sold most of its Yahoo!(YHOO) stake over the last four months as the stock fell.
- Japan’s economy grew at an annualized 2% in the three months ended Sept. 30, the Cabinet office said in Tokyo. Second quarter growth was revised to 1.5% from 1%.
- Drew Matus, a senior economist at Lehman Brothers(LEH) says US consumer spending may be accelerating.
- Sony Corp.(SNE) said its PlayStation 3 can’t play software titles designed for older consoles properly, marring the company’s launch of its newest machine after a shortage.

Financial Times:
- NATO advisers are warning the alliance needs to guard against attempts by Russia to create an “OPEC for natural gas” that would strengthen Moscow’s leverage over Europe. An economic study warned that Russia may try to build a gas cartel that would include Algeria, Qatar, Libya, the countries of central Asia and possibly Iran. Russia supplies 24% of Europe’s natural gas.

Guardian:
- The US government is lobbying UK ministers to allow the world’s largest drug companies unrestricted access to the UK’s National Health Service as it begins to adapt free-market reforms.

New Straits Times:
- Malaysia will more than double production of biodiesel next year, citing the Minister for Plantation Industries and Commodities.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BEAS), target $18.
- Reiterated Buy on (LUV), target $19.40.

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
- (ANF)/1.10
- (A)/.53
- (AEOS)/.65
- (ADI)/.40
- (BJ)/.26
- (DHI)/.69
- (FOSL)/.30
- (HD)/.75
- (PBY)/-.05
- (PPC)/.14
- (ROST)/.31
- (SKS)/.03
- (SCHS)/1.22
- (SPLS)/.36
- (SNS)/.27
- (TGT)/.55
- (TJX)/.46
- (WMT)/.60

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for October is estimated to fall .5% versus a 1.3% decline in September.
- The PPI Ex Food & Energy for October is estimated to rise .1% versus a .6% increase in September.
- Advance Retail Sales for October are estimated to fall .4% versus a .4% decline in September.
- Retail Sales Less Autos for October are estimated to fall .2% versus a .5% decline in September.

10:00 am EST
- Business Inventories for September are estimated to rise .6% versus a .6% increase in August.

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

Stocks Finish Higher, Boosted by Technology Shares as Commodity Prices Fall

Indices
S&P 500 1,384.42 +.25%
DJIA 12,131.88 +.19%
NASDAQ 2,406.38 +.70%
Russell 2000 772.41 +.42%
Wilshire 5000 13,870.77 +.26%
S&P Barra Growth 641.16 +.23%
S&P Barra Value 741.29 +.28%
Morgan Stanley Consumer 669.16 -.06%
Morgan Stanley Cyclical 868.41 +.52%
Morgan Stanley Technology 568.30 +1.09%
Transports 4,774.45 +.87%
Utilities 449.20 -.14%
Put/Call .79 -19.39%
NYSE Arms .82 -43.17%
Volatility(VIX) 10.86 +.65%
ISE Sentiment 145.0 +7.41%
US Dollar 85.38 +.36%
CRB 308.03 -.87%

Futures Spot Prices
Crude Oil 58.52 -1.80%
Unleaded Gasoline 153.70 -1.64%
Natural Gas 7.95 +2.12%
Heating Oil 165.90 -2.22%
Gold 627.20 +.22%
Base Metals 230.34 -4.72%
Copper 311.60 +.08%
10-year US Treasury Yield 4.6% +.34%

Leading Sectors
Airlines +3.11%
Semis +1.56%
Computer Hardware +1.23%

Lagging Sectors
Oil Service -.34%
Coal -1.0%
Retail -1.09%

Evening Review
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Afternoon Recommendations
Bank of America:
- Rated (FFIV) and (NICE) Buy.

Afternoon/Evening Headlines
Bloomberg:
- The California Public Employees’ Retirement System, the largest US public pension, will use $500 million to speculate on oil, metals and other commodities for the first time. Speculation in commodity indexes by pension funds and other investment vehicles doubled in the past year to $110 billion. Notwithstanding this record infusion of capital, the CRB Index is 7% lower this year and down 16% from record highs set in May.
- Shares of American Airlines(AMR) surpassed the price they reached the day before the 9/11 terrorist attacks as the world’s largest airline benefits from more than five years of retooling how it flies.
- Microsoft(MSFT) plans to add a video-sharing feature to its Zune player and will eventually sell a model that combines the device with a phone, CEO Ballmer said.
- Chevron(CVX) said it’s boosting expansion plans at its largest refinery to raise gasoline output to 6.25 million gallons a day, enough to supply more than half the cars in New Jersey.
- Natural gas may fall in NY as mild weather reduces demand and inventories remain near all-time highs, a Bloomberg survey showed.
- Venezuela said exploration in the country’s heavy-crude belt along the Orinoco River has added as much as 7.6 billion barrels to the country’s certified recoverable oil reserves.

Andina:
- President Bush and Colombian leader Alvaro Uribe will sign a free trade agreement on Nov. 22.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs and Internet 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, sector performance was mostly positive and volume was about average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was modestly bullish. The 10-year rallied into the afternoon, pushing the yield down to 4.6%. Commodities finished lower, with lead falling 12% intraday, the most in 16 years, however commodity stocks finished mostly higher as investors continue to treat weakness as temporary and remain complacent, in my opinion. The U.S. dollar index finished near session highs. I expect retail sales, excluding service station receipts, to exceed estimates tomorrow. Another sharp decline in the PPI is expected. I expect stocks to build on today's modest gains later this week.

Stocks Higher into Final Hour on Falling Commodity Prices and Buyout Speculation

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs and Internet longs. I added a long position in (ILMN) and took profits in another trading long today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is modestly higher, most sectors are rising and volume is about average. Today's decline in Illumina(ILMN) is a severe overreaction by momentum players to the announcement of its purchase of Solexa(SLXA), in my opinion. I added this new long position when it was down about 12%. The Airline Index (XAL) has risen 23.0% since I highlighted the group back in September. It is up another 3% today to session highs. AMR (AMR), my favorite, has rocketed 52% over the same timeframe, making a five-year high. I expect airlines to continue to outperform over the intermediate term as the overwhelming majority of investors remain significantly underexposed to the group and fundamentals continue to improve. I expect US stocks to trade modestly higher into the close from current levels on short-covering, performance anxiety, lower energy prices and buyout speculation.

Today's Headlines

Bloomberg:
- Crude oil is falling again, another .84 to $58.75/bbl., as warm weather in the eastern US reduced heating fuel consumption and speculators continued to trim bets on production disruptions.
- The 250 biggest US law firms grew 4% in the past year, slower growth than the previous year, and half of the rate in 2001, according to a survey published today by the National Law Journal.
- Citigroup(C) will put its name on the NY Mets’ new ballpark under a 20-year agreement that also includes a partnership to develop sports and entertainment ventures.
- Wynn Resorts(WYNN) will pay shareholders a $609.3 million special cash dividend, almost a quarter of which will go to billionaire founder Steve Wynn.
- The US dollar is rising the most in more than a week against the euro and yen as traders bet comments by the head of China’s central bank do not indicate a faster pace of US currency sales in the near future.
- House Democratic leader Nancy Pelosi said she supports Representative John Murtha, who has called for the immediate withdrawal of US troops from Iraq, for the post of majority leader, bypassing the current No. 2, Steny Hoyer.
- Duke University Management Co. CEO Thruston Morton will retire at the end of the year to form his own investment firm, following the leads of the former endowment heads at Harvard and Stanford universities.
- Lead is headed for its biggest loss in 16 years, falling 12% today, leading zinc and copper lower in London.
- Eddie Bauer Holdings said it plans to be acquired by Sun Capital Partners and Golden Gate Capital, for $286 million.
- The SEC expects to file more enforcement actions against hedge funds over illegal trading and violations of client trust.

Wall Street Journal:
- Tribune Co.(TRB) has received a preliminary bid from Gannett Co.(GCI), the nation’s largest newspaper publisher by circulation.
- News Corp.’s(NWS) Twentieth Century Fox plans to sell cheap DVDs in China to help reduce sales of counterfeits.
- Some US hedge funds and other large investors are transferring some cash to speculative energy stocks from commodities. Yet some analysts say the energy stocks are risky, especially if gas prices fall again.
- A Los Angeles entrepreneur has built a thriving business fixing defective imported apparel.
- GM(GM) plans to increase publicity for its gasoline-electric hybrid cars and other fuel-saving projects over the next few weeks.
- Merck(MRK) CEO Richard Clark has set tough financial targets for the company and so far succeeded in achieving them.

NY Times:
- Maurice R. Greenberg, former chairman of American International Group(AIG), is considering a bid for Tribune Co.(TRB).
- Half of all US identity-theft victims say the thief was a family member, a friend, a neighbor or an in-home employee, citing surveys by the FTC and private research firm Javelin Strategy and Research.
- Clear Channel Communications(CCU) today may get final bids worth $18 billion from two groups of private equity firms.
- Gap Inc.(GPS), Apple Computer(AAPL) and Motorola(MOT) are among US retailers that will use the holiday season to link their product lines to charitable causes.

NY Post:
- Telkonet Inc. subsidiary Microwave Satellite Technologies will cover the southern half of New York’s Central Park with a wireless network.

La Tribune:
- Beneteau SA, the world’s biggest sailboat maker, is considering acquisitions in the US and could spend about $708 million to expand, CEO Cathelinais said.

El Universal:
- Venezuela faces economic policy challenges as crude oil prices decline and may fall further next year.

Panorama:
- Petroleos de Venezuela SA, South America’s largest oil company, found a new oil field in the western state of Zulia, citing Energy and Oil Minister Rafael Ramirez.

Calgary Herald:
- US buyout firms the Carlyle Group and Riverstone Holdings LLC are among investors planning a $352 million refinery that produces ethanol and bio-diesel in Alberta.

Xinhua News:
- China next year will use less state funds for construction projects to counteract overheated growth in fixed-asset investment, citing the Ministry of Finance. The government will use more funds from the sale of treasury bonds for projects in areas including social security, resource conservation and rural development, and less on “blind investment” in construction, citing ministry spokesman Zhang Tong.

Economic Releases

- None of note

Links of Interest

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