Stocks Mixed into Final Hour as Profit-taking Offsets Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Medical longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is lower, sector performance is mixed and volume is below average. Fed fund futures now imply a 48% chance for a 25-basis-point cut at the upcoming meeting, down from 72% before Friday's jobs report and down from 84% a week ago. Given better economic data, a stock market at record highs, significant improvement in the credit markets, recent gains in commodities and a weaker dollar, I think the odds now favor the Fed remaining on hold at the upcoming meeting. I would expect to hear Fed speakers this week take on a more hawkish tone if they in fact plan to keep rates steady. This should boost the U.S. dollar and pressure many commodities further, including oil. Recent stock gains and less economic pessimism should help propel Friday's University of Michigan Consumer Confidence reading above estimates. However, September retail sales reports will likely come in modestly below estimates due to the fact that temperatures across the country remain significantly above normal for this time of the year. Google (GOOG) is hitting the $600 I predicted at the beginning of the year, however, as I said last week, I now think $650-$675 is likely before year-end. Broadcom (BRCM) is breaking out of the trading range it has been in since May 2006 on above-average volume as investors cheer the company's recent 3G inroads at Samsung. Broadcom also recently announced meaningfully positive developments with Nokia (NOK). These announcements are significant. Caris recently rated the shares a buy, with a $44 target, which I view as very conservative. As well, Lehman Brothers made positive comments on the stock this morning, saying third-quarter results will be "solid." Finally, Deutsche Bank also reiterated its buy today, saying Broadcom is poised to become a "major handset player" over the next few years. Citigroup, Piper Jaffray, CSFB, Goldman Sachs and Morgan Stanley, however, are still either negative or neutral on the shares. I expect some more upgrades soon. I went long Broadcom during the peak of option backdating fears around $25 per share in September 2006 and have added to the position on pullbacks. I plan to do the same going forward as I continue to see substantial upside in the stock from current levels. Broadcom's breakout also bodes well for the Nasdaq and other semis. I still see many signs that bulls remain underinvested and bears remain too short, notwithstanding the recent surge in equities to record highs. As I said on Friday, short interest actually rose during the last two weeks of September, with the S&P 500 tacking on another 3% during that time. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, investment manager performance anxiety and short-covering.

Today's Headlines

Bloomberg:
- Chile’s Karen Poniachik, mining minister in the world’s biggest copper producer, said about $17 billion will be spent on new projects to bolster output as prices for the metal head for a sixth consecutive annual gain.
- Wheat plunged 3.2%, the exchange limit, in Chicago and Kansas City after rains moistened dry ground in the southern Great Plains as US farmers plant the winter crop.
- Crude oil is dropping almost $3/bbl. to $78.70/bbl. on reduced speculation by investment funds as demand is seen waning and the US dollar rises.
- Corn is falling to a two-month low on speculation US farmers will harvest a larger crop than the US Dept. of Agriculture estimated last month.
- Vonage Holdings(VG) is having its biggest single-day advance since going public last year after it settled on of two-patent suits that threatened its survival.
- Cognos Inc.(COGN), the Canadian maker of business-management software, rose the most in more than five years in Nasdaq Stock Market trading after analysts said it may be an acquisition target.
- Garmin Ltd.(GRMN), the biggest US maker of car navigation devices, climbed as much as 5.1% on speculation the company may be bought by Microsoft Corp.(MSFT) and after an analyst raised his rating on the shares.
- Google Inc.(GOOG), owner of the world’s most popular Internet search engine, surpassed $600 in Nasdaq trading, joining Warren Buffett’s Berkshire Hathaway(BRK/A) among the six stocks that crack that mark.
- Warren Buffett’s Berkshire Hathaway(BRK/A) reported cutting its PetroChina(PTR) stake for the fifth time.

Wall Street Journal:
- Can Ailes Outfox CNBC? Invoking Stonewall Jackson, Fox Business Chief Prepares To Battle Entrenched Rival.
- The market for new issues of collateralized loan obligations, which repackage money lent to leveraged-buyout firms, returned almost to last year’s level in September, citing a Deutsche Bank AG study.

NY Times:
- For Google(GOOG), Advertising and Phones Go Together.
- Quick, name the competitors of US News & World Report. Time and Newsweek right? Would you believe Consumer Reports?
- Credit Crunch Shows Signs of Easing.

NY Post:
- Nintendo’s Wii May Be in Short Holiday Supply.

USAToday.com:
- Medicaid spending, which increased 10.7% in the first six months, may reach a record $330 billion this year.

Financial Times:
- Investors will withdraw $500 billion – a quarter of the asset base – from hedge funds in the next year, leading to the collapse of a “large number” of hedge funds. So predicts Giles Conway-Gordon, managing partner of Cogo Wolf, a San-Francisco-based fund of hedge funds, who believes investors are increasingly dissatisfied with industry performance, and that computer-driven quantitative hedge funds now simply run too much money to make healthy returns.

Straits Times:
- Clean energy quietly taking hold in China.

Economic Releases

- None of note

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Monday Watch

Weekend Headlines
Bloomberg:
- US stocks rallied, sending the S&P 500 to a record, after job growth exceeded forecasts and signaled the economy has weathered the August financial turmoil.
- The dollar posted the biggest weekly gains against the yen in more than a year, and the euro since August on signs the economy is weathering the housing slump.
- The average price for gasoline in the US dropped about 4 cents over the last two weeks, according to the Lundberg Survey.
- The widening gap between crude oil and the relatively low price of gasoline is signaling the first quarterly decline in oil prices in a year. While oil has fallen in the fourth quarter during 13 of the past 20 years because of the transition from peak summer demand, the pressure for another drop in the months ahead is the most intense since 2004 and may defer any rebound to record crude prices until the first half of 2008.
- Venezuela, the fourth-largest supplier of crude oil to the US, said its proven oil reserves have risen to 100 billion barrels. The energy and oil ministry said it has certified 12.4 billion additional barrels of proven reserves in the country’s Faja del Orinoco region, where the government assumed control of oil ventures with foreign companies earlier this year. Venezuela plans to lift its oil output to 5.9 million barrels a day, up from the current 2.4 million barrels a day, by 2012.
- South Korea, which imports almost all its energy needs, produced 22% more oil from its overseas projects in the first half of this year than a year earlier as more fields came on stream.
- President Bush dismissed as “baseless gossip” Arab press reports that he is preparing to attack Iran because of a dispute over its nuclear program. “I would call that empty propaganda,” Bush said.
- Iraqi President Jalal Talabani endorsed a plan to divide Iraq along ethnic lines into three separate regions under a limited central government.
- SAP AG(SAP), the world’s largest maker of business-management software, agreed to buy Business Objects SA(BOBJ) for “slightly” more than $6.8 Billion.
- Somewhere in the wreckage of securities backed by subprime mortgages and the resulting seizure in the credit markets, is a new paradigm on Wall Street where Goldman Sachs Group(GS), increasingly perceived as the world’s biggest hedge fund, will report record earnings for 2007.
- Au Optronics Corp.(AUO), the world’s third-largest maker of liquid-crystal displays, headed for its highest close in more than three years on Taiwan’s exchange after it said September sales were a record high.

Wall Street Journal:
- Apollo, Blackstone Express Interest in Northern Rock.

NY Times:
- College enrollment in Sun Belt states such as Arizona and California has exploded.
- Demand for high-end Manhattan apartments is like a “luxury-home arms race” compared with the slowing housing market nationwide, and wealthy residents are spending extra time and money on renovations, citing brokers.
- Syria, confident US power will wane in neighboring Iraq, is encouraging insurgents and loyalists from Saddam Hussein’s regime to gather in Damascus. The hospitality may win Syria influence should its guests succeed in toppling or replacing the US-backed Iraqi government.

CNBC.com:
- The US federal budge deficit fell to $161 billion in fiscal 2007 from $248 billion the prior year as growth in tax receipts, fueled by capital gains and other non-withheld income, outstripped spending growth, the Congressional Budget Office said on Friday.

MarketWatch.com:
- The top-performing investment newsletter writers over the past 10 years are also the most bullish.

IBD:
- Friday’s stronger-than-expected jobs report show a recession is likely off the table, propelling stocks to record highs.

A Dash of Insight:
- Bears Prepares for Fox Business News.

TheStreet.com:
- Cramer: Don’t Listen to Google Haters.(video)
- Apple’s ‘Leopard’ Operating System Could Hit the Spot.

CNNMoney.com:
- Dell vs. Apple: 10 Years Later.

Alaska Journal of Commerce:
- BP Plc(BP), Europe’s second-biggest oil company, said production in Alaska’s North Slope this year is ahead of its forecast, citing BP Alaska President Doug Suttles. Sixty new wells are being drilled in the bay this year, adding about 400,000 barrels per day of new production, citing Shuttles. During the past decade, 800 new wells have been drilled in Prudhoe Bay, which added 4 billion barrels of recoverable reserves for BP.

Oregonian:
- Ethanol and bio-diesel production in Oregon and Washington is poised to surge 30-fold in the next few years if all planned bio-fuel refineries are built.

USA Today:
- Web portals hope to expand ads beyond their own sites.
- Once-thriving securities-fraud lawsuits, hailed by shareholders and bashed by businesses, are facing an onslaught of legal challenges that could cripple the controversial class actions.

Reuters:
- US August machine tool demand rises sharply from July.

Financial Times:
- Tommy Hilfiger, the US clothing label that this week launched the first collection designed by former Arsenal star Thierry Henry, is being prepared for a stock market flotation with a price tag of up to $3 billion.
- Managing directors of the IMF are traditionally circumspect when talking about currency values. But with only a few weeks left in the job, Rodrigo Rato is unusually forthright. “Right no the dollar is undervalued” on many measures used by the IMF to evaluate currencies, he says, though he adds that it was “certainly overvalued a few years ago.”
- Investment banks are creating discounted securities to help them clear out billions of dollars of assets they had been holding for complex structured credit deals cancelled during the summer credit squeeze.
- Commodities bull story relies heavily on guesswork.

Times:
- Citigroup Inc.(C) plans to lend Northern Rock Plc as much as $20.4 billion to help cut the mortgage lender’s cost of borrowing.

Daily Telegraph:
- Goldman Sachs(GS) is starting a new private-equity fund to buy stakes in hedge funds.

Wirtschaftswoche:
- Germans are growing more pessimistic about the country’s economic outlook, citing an Allensbach poll. 37% of 1,000 respondents to the survey said they expect Germany’s economy to improve in coming months, a decline from 56% in April.

Handelsblatt:
- Goldman Sachs(GS) expects the world economy to weather effects of the US sub-prime mortgage crisis, citing CEO Lloyd Blankfein. “The market disturbance of August seems broadly overcome,” Blankfein said.

Yonhap News:
- North Korea will likely begin disabling its nuclear facilities in mid-October under a disarmament-for-aid deal signed last week, citing officials in Seoul.

Weekend Recommendations
Barron's:
- Made positive comments on (PAYX), (UNF), (CXW), (MFE), (SNPS), (CTAS), (GKSR) and (CAH).
- Made negative comments on (ERTS), (CREE) and (ARUN).

Morgan Stanley:
- Reiterated Overweight on (CELG), raised target to $82.
- Reiterated Overweight on (GPS), target $23.

Night Trading
Asian indices are +1.0% to +2.0% on average.
S&P 500 futures -.17%.
NASDAQ 100 futures -.21%

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (BMET)/.49
- (YUM)/.45

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

Economic Releases
- None of note

Other Potential Market Movers
- The (TEG) Financial Analyst Meeting, (ROC) Analyst Meeting and (HRL) Analyst Meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by mining and technology shares in the region. 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.

Weekly Outlook

Click here for a weekly preview by MarketWatch.com.

Click here for Stocks in Focus for Monday by MarketWatch.com.

There are a few economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – IDB/TIPP Economic Optimism, weekly retail sales, Minutes of Sept. 18 FOMC Meeting

Wed. – Weekly EIA energy inventory report, weekly MBA Mortgage Applications report, Wholesale Inventories

Thur. – Trade Balance, Import Price Index, Initial Jobless Claims, ICSC Chain Store Sales

Fri. – Producer Price Index, Advance Retail Sales, Univ. of Mich. Consumer Confidence, Business Inventories

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Biomet(BMET), Yum! Brands(YUM), Mosaic Company(MOS)

Tues. – Alcoa Inc.(AA), OSI Pharmaceuticals(OSIP), Host Hotels(HST), Progressive Corp.(PGR), Monsanto(MON), Ruby Tuesday(RT)

Wed. – Costco Wholesale(COST), Lam Research(LRCX), Schnitzer Steel(SCHN)

Thur. – PepsiCo Inc.(PEP), Safeway Inc.(SWY), SLM Corp.(SLM), Fastenal(FAST), IDT Corp.(IDT), Winnebago Industries(WGO)

Fri. – General Electric(GE), JB Hunt(JBHT)

Other events that have market-moving potential this week include:

Mon. – (TEG) financial analyst meeting, (ROC) analyst meeting, (HRL) analyst meeting

Tue. – The Fed’s Yellen speaking, (SFE) analyst day, (JCI) strategic review, (HRL) analyst meeting, (HME) analyst day, (MMM) investor day

Wed. – The Fed’s Rosengren speaking, (HRL) analyst meeting, (PETM) analyst meeting, (MSCC) analyst day, (MMM) investor day

Thur. – (HRL) analyst meeting, (IHS) investor day, (MSCS) analyst meeting

Fri. – The Fed’s Bernanke speaking, Fed’s Fisher speaking, Fed’s Yellen speaking and Fed’s Kohn speaking

BOTTOM LINE: I expect US stocks to finish the week mixed as diminishing credit market fears, lower energy prices, investment manager performance anxiety, a stronger US dollar, short-covering and better-than-expected consumer confidence offsets weaker-than-expected retail sales, more hawkish Fed commentary and profit-taking. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.