Stocks Finish Lower on Below-Average Volume

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Stocks Lower into Final Hour on Profit-Taking

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are declining and volume is around average. Intuitive Surgical (ISRG) is surging after Oppenheimer raised its target to $270. I think that is doable before year-end. EchoStar Communications (DISH), which has recently been the subject of buyout speculation, is surging on volume on no news. The dollar is notably strong against the yen of late. The CurrencyShares Japanese Yen Trust (FXY) is breaking down technically. Many market-leading stocks are rising again today, despite mild losses in the major averages. According to Brad Cole, of Cole Partners, commodity hedge fund investments have surged 293% over the last two years and 83% in just the last year, to $55 billion. As well, the number of commodity hedge funds have risen from 134 to 400 over the last two years. This doesn't even take into account all the other investment funds that now allocate a portion of their capital to commodity speculation. In my opinion, speculation by these types of funds is mainly responsible for the huge surge in prices of the underlying commodities over the last couple of years rather than supply/demand fundamentals. I continue to believe the next meaningful global slowdown will result in massive drops in most commodities as many of these funds unwind their long positions and go short. This will likely result in a significant drop in all inflation gauges and talk of disinflation or deflation once again. I still think that the secular trend of disinflation remains firmly in tact. I took profits on my iShares Lehman 20+ Year Treasury Bond (TLT) long awhile back, but I plan to build it back up on any significant rise in yields from current levels. I expect US stocks to trade mixed into the close from current levels less economic pessimism offsets profit-taking.

Today's Headlines

Bloomberg:
- Investment in commodity funds has swollen to about $55 billion, from about $30 billion last year and $14 billion two years ago, said Brad Cole, founder of Chicago-based Cole Partners Asset Management, which invests in such funds. There are about 400 commodity hedge funds now, up from 203 in 2006 and 134 the prior year.
- Corn is falling for a fourth straight session on signs output from a US record crop will exceed demand and signals that speculators are unwinding bets on higher prices.
- Democratic Senator Charles Schumer said he would introduce legislation to raise taxes on executives at private-equity firms and a broad range of other partnerships.
- Former Fed Chairman Greenspan said the worst of the credit turmoil was over and that US growth should bottom early next year.

Wall Street Journal:
- Wal-Mart(WMT) Influence on Retail Industry Starts to Wane.
- Toyota Tries to Sell Priuses Where Tractors Are Sexy.

NY Times:
- Philip Morris(MO) and Reynolds American(RAI) have begun test marketing snus, a smokeless tobacco that is popular in Sweden.

NY Post:
- Spitzer Popularity Plunges in Quinnipiac Poll.

Financial Times:
- The IAEA is telling Iran that it must answer questions on its uranium enrichment program before the end of 2007 or face new sanctions.

Arab News:
- Saudi Arabia’s most senior Islamic cleric called on the kingdom’s young men to stop waging jihad in Iraq because it damages Islam, citing a speech by Grand Mufti Sheikh Abdul Aziz al-Asheikh.

Service Sector Still Expanding, Job Component Rises

- ISM Non-Manufacturing for September fell to 54.8 versus estimates of 54.6 and 55.8 in August.

BOTTOM LINE: US service industries continued to grow in September, easing concerns that the housing slump will end the six-year expansion, Bloomberg reported. The New Orders component of the index fell to 53.4 from 57 the prior month. The Inventories component fell to 50 from 57. The Prices Paid component rose to 66.1 from 58.6 in August. The Employment component rose to 52.7 from 47.9 the prior month. As well, Challenger reported job cuts fell 28.5% during September and ADP reported 58,000 new jobs were created during the month. I expect the service sector to remain healthy over the intermediate-term as Americans’ net worth makes new record highs, interest rates remain low, inflation decelerates further, housing fears subside, stocks continue making record highs, wages continue to substantially outpace inflation and unemployment remains historically low.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Goldman Sachs Group(GS) may buy Litton Loan Servicing LP, the Houston-based services of US subprime mortgages.
- Wind Energy Systems Technology was the top bidder in the first sale of leases for offshore wind facilities in Texas, the biggest producer of wind power among US states.
- Wheat plunged the most allowed by exchanges in Chicago and Kansas City on speculation farmers worldwide will plant more after grain prices surged to a record.
- ImClone Systems(IMCL) won US approval to market Erbitux, its only drug, as a medicine proven to help colon cancer patients live longer.
- Australia’s central bank kept its interest rate unchanged for a second month to provide time for policy makers to assess whether global financial-market turmoil will slow economic growth.
- Australia’s August retail sales increased at a faster pace than economists predicted as jobs growth, rising wages and lower gasoline prices stoked spending at restaurants and homewares stores.
- China will prevent foreign investors from taking control of domestic brokerages, a setback to Wall Street’s ambitions to tap the world’s fastest-growing stock market.

USA Today.com:
- So much for the credit crunch killing the merger boom.
- Mazada shows sexy sportscar, hydrogen hybrid.
- Viewership of music videos moved from TV to the Web at such a fast pace that few saw it coming.

Financial Times:
- The number of cases involving manipulation and false price reporting in commodity and commodity futures markets caught by US regulators has reached record levels in the past 12 months.

Canadian Press:
- Canada’s government may add a national security test required in takeovers of Canadian companies by foreign state-owned entities to block a deal by the United Arab Emirates.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (HUM), target $88.
- Reiterated Buy on (VAR), target $51.
- Reiterated Buy on (OMTR), raising estimates and boosting target to $37.

Night Trading
Asian Indices are unch. to +1.25% on average.
S&P 500 futures -.03%.
NASDAQ 100 futures -.08%.

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Earnings of Note
Company/EPS Estimate
- (RPM)/.55
- (WWW)/.52
- (BLUD)/.22
- (ARRO)/.42
- (GRB)/.10
- (IDT)/-.37

Upcoming Splits
- (PCAR) 3-for-2
- (RUSHA) 3-for-2

Economic Releases
10:00 am EST
- ISM Non-Manufacturing for September is estimated to fall to 54.6 versus 55.8 in August.

10:30 am EST:
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -550,000 barrels versus a 1,842,000 barrel build the prior week. Gasoline supplies are estimated to rise by 550,000 barrels versus a 532,000 barrel build the prior week. Distillate inventories are expected to rise by 1,300,000 barrels versus a 1,533,000 barrel increase the prior week. Finally, refinery utilization is estimated to rise by .15% versus a -2.64% decline the prior week.

Other Potential Market Movers
- The Challenger Job Cuts report, ADP Employment Change report, (CBRL) analyst meeting, (NSM) analyst meeting, (RENT) analyst presentation, (MYL) analyst meeting, (APU) analyst meeting, (UGI) analyst meeting, (FUL) analyst meeting, (JBL) analyst meeting, (TOC) investor conference, weekly EIA energy inventory data report, weekly MBA Mortgage Applications report, CIBC Industrials Conference, Gabelli RFID Conference, Deutsche Bank Leveraged Finance Conference and William Blair Small-cap Growth Conference could also impact trading today.

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