Weekly Outlook

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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. – Empire Manufacturing, Industrial Production, Capacity Utilization

Tues. – Consumer Price Index, Net Long-term TIC Flows, NAHB Housing Market Index, FOMC Rate Decision, weekly retail sales reports

Wed. – Weekly MBA Mortgage Applications report, Current Account Deficit, Housing Starts, Building Permits

Thur. – Initial Jobless Claims, Philly Fed., Leading Indicators

Fri. – None of note

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

Mon. – Titan Machinery(TITN)

Tues. – CBRL Group(CBRL), Goldman Sachs(GS), Darden Restaurant(DRI), Best Buy(BBY), Kroger(KR), Adobe Systems(ADBE)

Wed. – Dress Barn(DBRN), Herman Miller(MLHR), CKE Restaurants(CKR), General Mills(GIS), Morgan Stanley(MS)

Thur. – ConAgra(CAG), FedEx Corp.(FDX), Palm Inc.(PALM), Oracle Corp.(ORCL), Cintas Corp.(CTAS), Carnival Corp.(CCL)

Fri. – None of note

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

Mon. – (HPQ) analyst meeting, (RVBD) vision day, (ATVI) analyst meeting, (WNS) analyst meeting, Bank of America Investment Conference

Tue. – (AIQ) investor day, (ATR) analyst day, (MNKD) analyst day, (CSCO) financial analyst conference, (TOT) mid-year review, CSFB Chemical Conference, BB&T Consumer Softlines Conference, Bank of America Investment Conference, Jeffries Shipping/Logistics/Offshore Services Conference, RBC Financial Institutions Conference, UBS Global Paper/Forest Products Conference

Wed. – (BRCD) analyst meeting, Goldman Sachs Communications Conference, UBS Global Paper/Forest Products Conference, Jeffries Shipping/Logistics/Offshore Services Conference, CSFB Chemical Conference, Bank of America Investment Conference, Merrill Lynch Global Real Estate Conference, RBC Financial Institutions Conference, BMO Capital Markets Real Estate Conference

Thur. – DA Davidson Engineering/Construction Conference, Calyon Airline Conference, CSFB Chemical Conference, Merrill Lynch Global Real Estate Conference, Goldman Communications Conference

Fri. – DA Davidson Engineering/Construction Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on bargain-hunting, less credit market angst, diminishing financial sector pessimism, lower commodity prices, a stronger US dollar, mostly positive economic data and short-covering. My trading indicators are giving neutral signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,251 .70 +.76%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,251 .70 +.76%
DJIA 11,421.99 +1.79%
NASDAQ 2,261.27 +.24%
Russell 2000 720.26 +.20%
Wilshire 5000 12,708.52 +.57%
Russell 1000 Growth 526.13 +.92%
Russell 1000 Value 672.97 +.27%
Morgan Stanley Consumer 700.22 +2.15%
Morgan Stanley Cyclical 869.99 +3.28%
Morgan Stanley Technology 525.09 -.39%
Transports 5,074.07 +3.79%
Utilities 459.11 +2.36%
MSCI Emerging Markets 36.10 -2.09%

Sentiment/Internals
NYSE Cumulative A/D Line 41,225 -3.36%
Bloomberg New Highs-Lows Index -666 +37.64%
Bloomberg Crude Oil % Bulls 41.0 -4.65%
CFTC Oil Large Speculative Longs 198,328 +2.47%
Total Put/Call 1.01 +2.02%
OEX Put/Call .64 -27.27%
ISE Sentiment 104.0 +2.97%
NYSE Arms .85 +23.19%
Volatility(VIX) 25.66 +11.27%
G7 Currency Volatility (VXY) 11.57 +.17%
Smart Money Flow Index 8,183.31 +1.40%
AAII % Bulls 29.27 -20.98%
AAII % Bears 54.88 +27.01%

Futures Spot Prices
Crude Oil 101.18 -5.17%
Reformulated Gasoline 276.96 +2.58%
Natural Gas 7.37 -1.19%
Heating Oil 293.91 -1.72%
Gold 764.50 -5.39%
Base Metals 209.78 +.75%
Copper 319.40 +2.34%
Agriculture 384.83 +.36%

Economy
10-year US Treasury Yield 3.72% +2 basis points
10-year TIPS Spread 1.95% -4 basis points
TED Spread 1.35 +31 basis points
N. Amer. Investment Grade Credit Default Swap Index 149.71 +2.54%
Emerging Markets Credit Default Swap Index 288.81 +2.32%
Citi US Economic Surprise Index +46.0 -30.51%
Fed Fund Futures 12.0% chance of 25 cut, 88.0% chance of no move on 9/16
Iraqi 2028 Govt Bonds 72.75 -.26%
4-Wk MA of Jobless Claims 440,000 unch.
Average 30-year Mortgage Rate 5.93% -42 basis points
Weekly Mortgage Applications 496,200 +9.51%
Weekly Retail Sales +1.8%
Nationwide Gas $3.68/gallon +.01/gallon
US Cooling Demand Next 7 Days 17.0% above normal
ECRI Weekly Leading Economic Index 125.97 -.19%
US Dollar Index 78.97 +.04%
Baltic Dry Index 4,800 -15.24%
CRB Index 360.01 -2.09%

Best Performing Style
Small-cap Value +1.22%

Worst Performing Style
Small-cap Growth -.88%

Leading Sectors
HMOs +4.48%
Restaurants +3.24%
Software +3.23%
Banks +3.17%
Road&Rail +3.17%

Lagging Sectors
Disk Drives -3.33%
Coal -5.55%
Insurance -5.64%
Alternative Energy -6.52%
I-Banks -11.60%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Mixed as Strength in Commodity and Construction Shares Offset Weakness in Retail and Insurance Stocks

Evening Review
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After-hours Commentary
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In Play

Stocks Slightly Lower into Final Hour on Surging Credit Angst, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Software longs and Medical longs. I added to my (AAPL) long today and added back to an existing commodity short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is slightly bullish. The VIX is rising 5.74% and is high at 25.79. The ISE Sentiment Index is low at 104.0 and the total put/call is above-average at .99. Finally, the NYSE Arms has been running around average most of the day, after peaking at 1.71 this morning, and is currently .83. The Euro Financial Sector Credit Default Swap Index is +1.9% today to 95.17 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is +2.2% at 149.71 basis points. The TED spread is rising 10.14% to 1.33 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.95%, which is down 67 basis points in seven weeks and at the lowest level since August 2003. Oil continues to trade very poorly given the OPEC production cut, recent price declines, today’s US dollar weakness, that it is at the psychologically important $100/bbl. level, a larger-than-expected inventory decline, hurricane worries and recent Iranian shipping sanctions. Refinery Utilization is now at 78.3%, the lowest since the historic hurricanes in 2005 wreaked havoc with the Gulf energy infrastructure and slashed oil demand by refiners. The (XLF) has been very resilient again given recent news. The etf continues to hold its recent range of $19.50-$23.50, which is a broad market positive. The Bank Index(BKX) is actually .73% higher today. Many market leading stocks are significantly outperforming the broad market again today. The broad market, in general, is behaving very well given the spike in credit market angst and financial sector pessimism. There remains massive bull firepower available as the worst case economic scenario is likely factored into most stock prices at current levels. The US dollar will likely pull back a bit further before embarking upon another surge higher next month. The Citi eurozone economic surprise index is now -157.60, while the US economic surprise index is +46.0. Apple(AAPL) may have a bit more downside here, but it isn’t worth waiting on, in my opinion. I suspect those intermediate/long-term investors that are selling around currently levels will greatly regret it by year-end. Nikkei futures indicate an +90 open in Japan and DAX futures indicate an unch. open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Citigroup Inc.(C) analyst Prashant Bhatia reiterated his “buy” rating on Merrill Lynch(MER) shares, saying the firm has “ample liquidity” and the stock is worth $40. Bhatia said NY-based Merrill’s stake in BlackRock Inc.(BLK) is worth $9 a share, its wealth-management business has $16 in value and the rest of the third-largest US securities firm is worth $15.
- Micron(MU) Slump Shows Sign of Bottom, End to Chip Glut.
- The cost of protecting bank bonds from default fell for the first day in four on speculation Lehman Brothers Holdings Inc. will be bought by one or more of its Wall Street rivals. Credit-default swaps on the Markit iTraxx Financial index of 25 European banks and insurers dropped 5 basis points to 88, according to JPMorgan Chase & Co. prices at 10:35 a.m. in London.
- Copper and aluminum may decline by as much as 29 percent in 12 months as slower global growth saps demand for metals, according to Ebullio Capital Management LLP, a U.K. money manager that has returned 63 percent this year. ``The markets can go lower than what a lot of people thought,'' said Steffensen, who has traded industrial and precious metals for 22 years including at companies such as Gerald Metals Inc. Slower global economic growth will likely means fewer Chinese exports, which in turn should curb the nation's growth in demand for metals, he said.
- Russia's ruble fell against its dollar-euro basket for a third week as oil and stocks declined. The currency slipped for a third week versus the dollar as oil extended losses from a record high in July and Russian equities slid 8.3 percent in the past five days, their fourth weekly drop. Investors have withdrawn more than $20 billion out of Russia since the start of the five-day war with Georgia Aug. 8, says UniCredit SpA analyst Vladimir Osakovsky. Investor sentiment toward Russia is worsening amid concern economic growth may falter, Credit Suisse equities analysts led by Hugo Swann in London wrote in a research note today. ``Further ruble weakening could amplify concerns of individuals and investors regarding its standing as a currency,'' he wrote in a client note today.
- Oil dropped below $100 a barrel in New York today for the first time since April amid forecasts that a slowing global economy will curtail energy demand. Futures traded as low as $99.99 a barrel and have erased almost a third of their value since reaching a record $147.27 on July 11. Traders have shrugged off forecasts that Hurricane Ike will hit the Texas coast later today, an OPEC call for reduced supplies and a decline in U.S. inventories. Demand for fuels averaged over the past four weeks declined 3.8 percent, the Energy Department report showed Sept. 10. OPEC's call for members to honor production quotas ``may be the most bearish signal to date in the oil market rout,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``The ministers appear genuinely concerned that the bottom is falling out of global demand and that once-depleted stocks are rebounding with a vengeance,'' he said in a Sept. 10 report. ``Their panic is a testament to how soft the market has become. It is likely to grow even softer.''
- World wheat production this year will be higher than expected a month ago as bigger crops in Europe, Russia and Ukraine offset smaller output in Argentina and Australia, according to the US Dept. of Agriculture. Global output will be a record 676.3 million metric tons, up 5.5 million from last month’s estimate and up 11% from last year’s crop of 610 million tons, the USDA said. Unsold supplies at the end of the year will total 139.9 million tons, up 2.7% from the August estimate, and up 18% from last year. Wheat futures on the Chicago Board of Trade have plunged 46% from a record $13.49 a bushel in late February.
- Cemex SAB(CX), the largest cement maker in the Americas, fell the most since listing its shares in New York after reducing its 2008 operating cash-flow forecast for a second time this year amid slumping demand.
- General Electric Co.(GE) fell the most in New York trading since cutting its annual forecast five months ago, dragged down by financial stocks including American International Group Inc. and Lehman Brothers Holdings Inc.

Wall Street Journal:
- Carlyle Group L.P. continues to have big ambitions for its financial services group, despite the departures of four members of the team in the past few months, including two former co-heads. The Washington-based firm told investors at its annual meeting on Monday and Tuesday that it plans to raise $3 billion to $5 billion for its first financial services fund, according to three prospective investors.

American Banker:
- JPMorgan Chase(JPM) is in “advanced talks” to buy Washington Mutual(WM), the biggest US Negotiations are being conducted “at the highest levels of both companies” and include JPMorgan CEO Dimon and WaMu CEO Fishman, citing sources. The government isn’t involved. savings and loan.

Reuters:
- Treasury Secretary Henry Paulson is "adamant" that no government money be used in any deal that resolves the crisis at Wall Street investment bank Lehman Brothers, a source familiar with his thinking said on Friday.

Financial Times:
- Bank of America (BAC) , JC Flowers & Co, the financial investor, and China Investment Co., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman Brothers (LEH) , the embattled Wall Street bank.