Stocks Finish Lower on Profit-taking Ahead of Housing Data

Indices
S&P 500 1,517.73 -.53%
DJIA 13,759.06 -.44%
NASDAQ 2,667.95 -.12%
Russell 2000 805.80 -.90%
Wilshire 5000 15,219.84 -.53%
Russell 1000 Growth 612.39 -.29%
Russell 1000 Value 847.57 -.74%
Morgan Stanley Consumer 738.25 -.38%
Morgan Stanley Cyclical 1,049.28 -.61%
Morgan Stanley Technology 658.39 +.17%
Transports 4,767.75 -1.23%
Utilities 509.16 +.18%
MSCI Emerging Markets 146.67 +1.42%

Sentiment/Internals
Total Put/Call .91 +5.81%
NYSE Arms 1.19 +42.45%
Volatility(VIX) 19.37 +1.95%
ISE Sentiment 133.0 -17.90%

Futures Spot Prices
Crude Oil 80.56 -1.30%
Reformulated Gasoline 207.35 -1.94%
Natural Gas 6.38 +4.93%
Heating Oil 222.39 -1.43%
Gold 737.80 -.16%
Base Metals 248.54 +.42%
Copper 364.20 +1.38%

Economy
10-year US Treasury Yield 4.62% unch.
US Dollar 78.54 -.07%
CRB Index 333.75 +.18%

Leading Sectors
REITs +1.53%
Gaming +1.21%
Computer Hardware +.30%

Lagging Sectors
Homebuilders -2.49%
Networking -2.55%
Airlines -5.41%

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Afternoon Recommendations
Bank of America:
- Rated (EMC) Buy, target $24.

Afternoon/Evening Headlines
Bloomberg:
- In its ongoing effort to curb foreclosures, Countrywide Financial(CFC) is actively working with borrowers who are experiencing financial challenges.
- Lowe’s Cos.(LOW) said earnings this year may be below its prior estimate because a drought slowed sales of patio furniture and plants. The stock fell 5.8% in after-hours trading.
- Iranian President Mahmoud Ahmadinejad said the Palestinian people are paying for the Holocaust with the violence in the Middle East and asked why varying views of the genocide aren’t allowed to be expressed.
- Protesters at Columbia University demonstrated against a speech by Iranian President Mahmoud Ahmadinejad scheduled for this afternoon.
- ValueClick Inc.(VCLK), the second-biggest US Internet advertising broker, rose as much as 10% in Nasdaq Stock Market trading on speculation the company may be bought.

Wall Street Journal:
- Microsoft Corp.(MSFT), lagging behind Google Inc.(GOOG) in the online ad market, is in talks to purchase a stake of as much as 5% in social-networking site Facebook Inc.

Boston Globe:
- Boston asset manager MFS Investment Management today said it is entering the alternative investments business with a new subsidiary that will provide seed and expansion capital to emerging hedge fund managers.

Nikkei English News:
- Toyota Motor(TM) plans to offer an ultracompact car for the European market around 2009 as emissions rules boost demand for small, fuel-efficient vehicles.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Internet longs, Retail longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was below average. Measures of investor anxiety were above-average into the close. Today's overall market action was mildly bearish. Meaningful weakness was mainly confined to the homebuilders, airlines and financials. The homebuilding index looks poised to take out its recent lows. While I don't see significant downside risk in this sector from current levels, I would continue to avoid it over the intermediate-term. I suspect financials have see their lows, but I doubt they will be any better than market performers over the intermediate-term. On the positive side, the bears were unable to gain any downside traction today despite the market's huge run over the last two weeks. The Vix is back near 20. The NYSE Arms was above-average most of the afternoon, as well. This remains one of the best markets I can remember for true stock-pickers, which could be attributed to the explosion in popularity of ETFs and technical analysis. Many growth stocks rose today, not just the leaders. My monitor pages are filled with several hundred names putting in meaningful upside today. A number of sectors also rose: the gaming, REIT, HMO, wireless, computer hardware, software, steel, alternative energy and utility sectors all posted gains, notwithstanding losses in the major averages. The NYSE cumulative advance/decline line is now back above its 200-day moving average. I still believe way too many bulls are underinvested and many bears are too short, given the recent change in the macro backdrop and psychology. Thus, I continue to expect any near-term market weakness to remain muted and short-lived. Given ongoing earnings jitters, I wouldn't be surprised to see the S&P 500 make a new all-time high as earnings season commences in earnest.

Stocks Lower into Final Hour on Profit-taking Ahead of Housing Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Medical longs and Retail 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 below-average. The Bear Stearns High Yield Index is 1.2% higher over the last week. The JPMorgan Emerging Market Bond Index is 1.0% higher over that period and hit an all-time high three days ago. As well, the speculative grade credit default swap index is down 24.4% in five days and the LCDX leveraged loan index is back to levels seen before the credit turmoil accelerated. Moreover, the dollar-based 3-month Libor rate has dropped 45 basis points in 5 days and the 10-year swap rate has declined 4 basis points over that period. Given recent more positive economic data, the surge in commodities, dollar weakness and stocks back near their highs, I still wouldn't be surprised to hear more hawkish comments from this week's Fed speakers. This could also boost the oversold dollar and put pressure on overbought crude prices. Despite the 9% gain in the S&P 500 in just five weeks and that the index is just 1.4% off its all-time high, equity index futures traders' positions remain extraordinarily bearish. In my opinion, one of the indications that stocks were just correcting recently and not beginning a new bear market was the very strong bullish sentiment displayed by corporate insiders. According to CNBC, insider buying over the past 12 months was the greatest last month during the peak of the credit turmoil. Despite the recent surge in stocks back near record highs, insider selling remains muted, which is a big positive and bodes well for further gains. Citi raised its target price on Apple (AAPL) to $185 from $160. AAPL is making a new all-time high on the news, and I still except AAPL to exceed $180 before year-end. The MS Tech Index is substantially outperforming the S&P 500 today, and the index is now 28% higher over the last year and up 17.5% year to date. As I said at the beginning of the year, I still expect tech to outperform over the intermediate-term. The Fed's Fisher said this morning that the US is experiencing a "mitigation" in inflation, which gives the Fed some "wiggle room." He also said "some might have lost sight of our economy's resiliency." I expect US stocks to trade mixed into the close from current levels as short-covering and investment manager performance anxiety offsets worries over tomorrow’s housing data and profit-taking.

Today's Headlines

Bloomberg:
- Crude oil is falling for a second day as companies increased output at platforms in the Gulf of Mexico after a storm threat passed.
- Banks reduced the backlog of unsold corporate debt to $370 billion after seizing on improved investor demand to issue $7 billion of leveraged loans and bonds in the past two weeks, Bank of America(BAC) analysts said.
- C-Cor Inc.(CCBL), the provider of broadband equipment and services to companies including Comcast Corp.(CMCSA), gained the most in eight years in early trading after Arris Group(ARRS) said it will buy the company for $730 million.
- Bristol-Myers Squibb(BMY) agreed to buy closely held Adnexus Therapeutics for as much as $505 million to gain an experimental cancer medicine.
- EMC Corp.(EMC) rose the most in six weeks after analysts at Bear Stearns(BSC) and Citi Investment Research recommended investors buy shares of the world’s largest maker of data-storage computers and software.
- Sims Group Ltd. agreed to buy Metal Management(MM) for about $1.49 billion in stock to create the world’s largest publicly traded scrap-metal recycler.

Wall Street Journal:
- Hard Case: Job Market Wanes for US Lawyers. Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate.
- China has issued strict rules for television talent shows, banning “American Idol”-style, mass-audience voting by mobile text messaging.
- Wachovia Corp.(WB) and Bank of America(BAC) are among US companies adding jobs in wealth and asset management as more Americans enter retirement with more money than ever before.

NY Times:
- New York Grudgingly Opens Door to Ahmadinejad.

Business Week:
- US: mortgage default rate stabilizing.

NY Sun:
- State lawmakers threatened to withhold funding from Columbia University in New York over its invitation to Iranian President Mahmoud Ahmadinejad.

LA Times:
- California Governor Arnold Schwarzenegger will sign a bill requiring the state’s two public pension funds, the largest in the US, to sell investments in companies doing business in Iran.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- US stocks posted the biggest weekly gain since March, pushing the DJIA to within 181 points of a record, after the Fed cut its benchmark interest rate by half a percent.
- Goldman Sachs Group(GS), the world’s biggest and most profitable securities firm, has good news for its competitors: The worst credit-market shakeout since 1998 is abating.
- US oil and natural-gas output increased in the Gulf of Mexico as companies returned workers to offshore platforms following a potentially dangerous storm in the region.
- China Shenhua Energy, the nation’s largest coal producer, plans to raise $8.9 billion to fund expansion in what would be the biggest share sale this year.
- Democratic presidential candidate Hillary Clinton called overhauling the US health-insurance system a “moral imperative” and said that raising taxes on the wealthy along with cost savings will be enough to pay for the proposal she unveiled last week.
- General Motors(GM) and the United Auto Workers today bargained for the ninth day past a deadline for a new contract that may reduce retiree health-care costs at the biggest US automaker.
- The Persian Gulf states, flush with cash from burgeoning oil revenues, are buying overseas assets at a record rate and countering the paucity of acquisitions hampered by the summer’s surge in corporate borrowing costs.
- Prime Minister John Howard set a target for 15% of Australia’s energy to come from renewable sources by 2020, in a bid to woo voters ahead of an election before early December.
- The activist group MoveOn.org said it will pay the NY Times $77,083 to make up the difference between what it paid for an advertisement attacking US Army General David Petraeus and the regular ad rate.
- Worldwide deliveries of business jets will climb to a record 1,300 next year amid surging demand from Asia and Europe, Honeywell International said in its annual forecast.
- Farmers are sowing the seeds for an end to the biggest rally in wheat since the Soviet Union corned the US market in the 1970s. Prices will fall 30% to $6 a bushel within a year, said James Gutman at Goldman Sachs(GS) in London and Pierre Martin, manager of a $400 million commodity fund at DWS Investment GmbH.

Wall Street Journal:
- In a bid to help a Democrat to reclaim the White House, labor unions plan to spend a record amount on next year’s election to boost its already ambitious voter-outreach program, which will include great use of email, text messaging and other technologies.
- Dell Inc. is set to announce a deal to sell its personal computers through China’s largest electronics retailer, the latest departure from its direct-sales model as it seeks to grab a larger piece of the global market.

NY Times:
- The weaker US dollar has attracted Canadian shoppers seeking more for their money when buying shoes, supplies and gasoline.
- Starbucks Corp.(SBUX), the world’s biggest coffee-shop chain, is “far from” facing saturation in its US home market and expects China to become the second-largest market for the company, citing Chairman Howard Schultz.
- Investor Known for Turnarounds Looks at Mortgages.
- Gamers, on Your Marks: Halo 3 Arrives.
- Retailers are increasingly offering ways for consumers to shop online but pick up their goods in stores, letting customers avoid shipping costs.

CNBC.com:
- Weak Dollar? Not To Worry, Many Economists Say.

MarketWatch.com:
- Top 10 US cities for business.
- It may be too late for newspapers. There are too many newspapers, says John Dvorak, and the worst is yet to come.

BusinessWeek.com
- Oracle(ORCL): What Market Malaise?

TheStreet.com:
- Google's(GOOG) Got It Going On.

CNNMoney.com:
- Top 10 Companies for Leaders.

Journal of Finance:
- Hedge Funds: Performance, Risk, and Capital Formation.

USA Today:
- Investors can cash in as demand for fiber optics takes off.
- Executive Suite: You can bet on MGM Mirage’s Lanni.

Washington Post:
- Only a fool would have stayed in the market after the dot-com collapse. To look past the stock market’s swoon and stay invested would have been a mistake, right? Perhaps, for those nearing retirement or getting ready to pay for college. But the strong returns that emerged after the dot-com slide illustrate again that it’s often wiser for long-term investors to simply stay invested.

Reuters:
- Recent accidents and spills have made the US energy industry more risk-averse in the fact of potential hurricanes, leading to more extensive precautionary shutdowns than in the past and adding to supply disruptions during hurricane season.

Financial Times:
- Online advertising spending is widely predicted to continue its strong growth even if a US economic downturn squeezes the advertising sector as a whole.
- US television networks believe they have found the business model needed to profit in the digital age – streaming their hit shows over the internet as opposed to selling them to consumers as digital downloads.

Times:
- Hedge funds may have made a $2 billion profit short-selling shares of Northern Rock Plc, citing Philip Richards, co-founder of fund manager RAB Capital Plc.
- Israeli commandos seized North Korean nuclear material during a raid on a secret military site in Syria before Israeli warplanes bombed it Sept. 6.

WirtschaftsWoche:
- Volkswagen AG may build a factory in North America as the dollar drops against the euro, citing CEO Martin Winterkorn.

AFP:
- President Mahmoud Ahmadinejad said “psychological warfare and economic sanction” won’t halt Iran’s nuclear drive, a day after the world powers met to discuss further measures against the nation.

Automobilwoche:
- BMW AG plans to increase its worldwide production capacity, citing Frank-Peter Arndt, the automaker’s head of production.

Der Spiegel:
- Deutsche Bank AG CEO Ackerman said he saw the “first encouraging signs” that financial markets are recovering from a global credit crisis. Ackerman said he expects investors to “return in the coming months” and financial markets to “normalize.”

Sankei Shimbun:
- Sharp Corp. is developing chips for mobile phones that can receive digital terrestrial television programs at high resolution.

Agencia Bolivariana de Noticias:
- Venezuelan President Hugo Chavez told owners of private hospitals to lower their prices or face nationalization.

Herald Sun:
- BHP Billiton(BHP) is expected to say this week that it has uncovered what is potentially the world’s largest gold resources at its Olympic Dam mine in South Australia.

Asharq al-Awsat:
- The Saudi Arabian Monetary Agency, known as SAMA, may revalue the Saudi riyal against the US dollar instead of de-pegging it, if the dollar continues to decline, citing an official “close” to SAMA.

Weekend Recommendations
Barron's:
- Made positive comments on (PHH), (BWA), (TEN), (F), (PPG), (JCI) and (GM).

Citigroup:
- Reiterated Buy on (SNDK), boosted 2H07 estimates.
- Reiterated Buy on (HGSI), target $17.
- Rated (TKR) Buy, target $43.

Night Trading
Asian indices are unch. to +1.0% on average.
S&P 500 futures +.05%.
NASDAQ 100 futures +.02%

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Earnings of Note
Company/Estimate
- (ALOG)/.52
- (FIF)/.49
- (LCI)/.01
- (SNX)/.46
- (THO)/.68

Upcoming Splits
- (FCSX) 3-for-2
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Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Fisher speaking, (COL) analyst meeting, UBS Global Life Sciences Conference, JPMorgan Asia Pacific/Emerging Markets Conference and Piper Jaffray Solar Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and 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.