Monday Watch

Weekend Headlines
Bloomberg:
- Not since 1995 have so many CEOs of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.
- US stocks posted their biggest advance in five months, boosted by speculation the Fed will stem losses in credit markets and revive this year’s record pace of takeovers.
- The US dollar fell the most against the euro since March on diminished concern that US housing weakness will slow global growth.
- French Foreign Minister Bernard Kouchner said the days of “anti-Americanism” are over for the French government.
- Billionaire investor Carl C. Icahn may increase his stake in Biogen Idec(BIIB) because he says the company is undervalued and a takeover candidate, according to an individual familiar with Icahn’s thinking.
- NY law firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae are in merger discussions that would create a 1,300-lawyer firm with revenue of more than $900 million.
- The rally in 30-year Treasury bonds, the most profitable US government securities the past 15 months, may become a casualty of the Fed’s efforts to ease a widening credit crunch.
- Chrysler LLC will begin selling its first Dodge crossover next year as it looks to reach new customers.
- The New Zealand dollar is rising as buoyant US stocks boosted risk appetite and lured investors back to using cheaply borrowed yen to buy higher-yielding fixed income assets such as those in New Zealand.
- US Welcomes Iraqi Pledge to Boost Reconciliation.
- India will fight to “eliminate” terrorism, Home Minister Shivraj Patil said, after bombings in Hyderabad killed 42 people, in the worst incident since 65 people died when a train traveling to Pakistan was attacked in February.

Wall Street Journal:
-Altria Group(MO) will probably announce a spinoff of its Philip Morris International unit following a board meeting Aug. 29.
- Global copper prices have retreated from last year’s records, and demand could fall further because of greater use of substitutes for the metal, industry participants say.
- Pension Managers Rethink Their Love of Hedge Funds.

NY Times:
- McDonald’s(MCD) is upgrading its restaurants in Europe with designer chairs, leather upholstery and an expanded menu to create a more relaxed and sophisticated dining experience.
- Mind Over Matter, With a Machine’s Help.
- Vaccines and Their Promise Are Roaring Back.
- Calisthenics for the Older Mind, on the Home Computer.
- As China Roars, Pollution Reaches Deadly Extremes.
- Home Depot(HD) has reached a tentative deal to sell its contractor-supply unit for $8.5 billion.

Barron’s:
- John W. Rafal of Essex Financial Services, which manages $2 billion, topped the list of the 100 best independent financial advisers compiled by consultant RJ Shook for Barron’s.

MarketWatch.com:
- Sony Corp.(SNE) has developed a prototype battery that runs on sugar, breaking down a glucose solution to generate electricity, media reports say.
- Stemming the inbox influx. The latest strategies and tips for wresting back control of your email.
- Dolby Labs(DLB) has traditionally been a low-profile high-prestige little company tucked into a corner of San Francisco raking in millions of dollars for various licenses for use of its proprietary sound processing system.

IBD:
- Supply Chain Software Once Again Hot Sector.

Reuters:
- Four leading investment banks and securities dealers will report fiscal third-quarter earnings next month, and markets are expecting some gloomy results.

CNNMoney.com:
- Hot 6-figure jobs now.
- Hackers say they’ve unlocked iPhone. A group called iPhoneSIMfree.com says that it has created software that allows you to run the iPhone on rival mobile services, such as T-Mobile.
- How to Unlock an iPhone, Three Different Ways.
- Debunking the Latest gPhone Rumor.

Washington Post:
- The US Democratic National Committee will decide today whether to shut Florida out of the party’s 2008 national convention after the state’s Democrats violated party rules.

Minyanville:
- 21 Bullish Predictions For Tech.

AP:
- The $100 bill’s latest counterfeit protection will be a thread that creates the illusion that Benjamin Franklin’s image moves, citing Crane & Co. Vice President Douglas Crane.

Financial Times:
- Hedge fund strategies, quants and the ‘copycat’ factor.
- Yields on three-month Treasury bills plummeted almost 200 basis points as investors scrambled for government paper. Surely, this dramatic flight to quality should have pushed gold through the roof. Yet the price of gold did not shift from exactly $657 per troy ounce from Friday to Tuesday.
- A US military commander says pulling troops out of Iraq by Christmas would be a “giant step backwards.”
- Wal-Mart is considering acquisitions in its home market for the first time in more than 25 years as it seeks to open smaller stores and cut its reliance on its giant Supercenters for future growth.
- Commercial banks with big balance sheets are poised for a resurgence, with the liquidity crisis having cut off cheap funding to pure capital markets participants and US regulators now easing curbs on banks’ capital deployment.
- VC funding for homeland security up by third.

Sunday Times:
- Temasek Holdings Ltd., an investment unit of Singapore’s government, wants to buy Nasdaq Stock Market’s(NDAQ) 30% stake in London Stock Exchange Plc.

Finanz & Wirtschaft:
- General Motors(GM) Vice Chairman Robert Lutz expects his company to bet the “most profitable” and largest carmaker in 10 years.

Il Sole-24 Ore:
- Blackstone Group LP, a US private-equity fund, may buy as much as 30% of Wind Telecomunicazioni SpA, Italy’s third-largest mobile-phone company.

Yonhap:
- North Korea is building fences along its border with China to halt an exodus of refugees.

Iran Daily:
- Trade between Iran and China will total $18 billion this year, up from $15 billion in 2006, citing Iran’s ambassador to Beijing.

Weekend Recommendations
Barron's:
- Made positive comments on (CLUB), (CHTT) and (CMCSK).

Citigroup:
- Rated (SMTC) Buy, target $23.
- Reiterated Buy on (MO), target $84..

Night Trading
Asian indices are +1.0% to +1.75% on average.
S&P 500 futures -.17%.
NASDAQ 100 futures -.10%.

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
- (SNDA)/.35
- (WINN)/.09

Upcoming Splits
- (NE) 2-for-1
- (SSYS) 2-for-1
- (TISI) 2-for-1

Economic Releases
10:00 am EST
- Existing Home Sales for July are estimated to fall to 5.7M versus 5.75M in June.

Other Potential Market Movers
- None of note

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

Weekly Outlook

Click here for The Week Ahead by Reuters.

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

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

Economic reports for the week include:

Mon. – Existing Home Sales

Tues. – Consumer Confidence, August 7 FOMC Minutes, weekly retail sales

Wed. – Weekly MBA Mortgage Applications, Preliminary 2Q GDP, Preliminary 2Q Personal Consumption, Preliminary 2Q GDP Price Index, Preliminary 2Q Core PCE

Thur. – Initial Jobless Claims, Continuing Claims, House Price Index

Fri. – Personal Income, Personal Spending, PCE Core, Chicago Purchasing Manager, Factory Orders, Univ. of Mich. Consumer Confidence

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

Mon. – Shanda Interactive(SNDA), Winn-Dixie Stores(WINN)

Tues. – Borders Group(BGP), Corinthian Colleges(COCO), Micros Systems(MCRS), Sanderson Farms(SAFM), Tuesday Morning(TUES)

Wed. – Big Lots(BIG), Brown Shoe(BWS), Chico’s FAS(CHS), Coldwater Creek(CWTR), Dollar Tree Stores(DLTR), Energy Conversion Devices(ENER), Fred’s Inc.(FRED), Jo-Ann Stores(JAS), Joy Global(JOYG), Novell Inc.(NOVL), Quanex Corp.(NX), Tivo Inc.(TIVO), Williams-Sonoma Inc.(WSM)

Thur. – Brown-Forman(BF/A), Ciena Corp.(CIEN), Cost Plus(CPWM), Del Monte Foods(DLM), Dell Inc.(DELL), Freddie Mac(FRE), Genesco Inc.(GCO), H&R Block(HRB), Omnivision Technologies(OVTI), Sears Holdings(SHLD), Tiffany & Co.(TIF), United Natural Foods(UNFI), Wind River(WIND), Zale Corp.(ZLC)

Fri. – BearingPoint(BE), Dollar General(DG), Focus Media(FMCN), Shaw Group(SGR)

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

Mon. – None of note

Tue. – None of note

Wed. – None of note

Thur. – Moody’s State of the Credit Markets Weekly Update

Fri. – Fed Chief Bernanke in Jackson Hole

BOTTOM LINE: I expect US stocks to finish the week modestly higher on bargain-hunting, diminishing credit market fears, 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 1,479.37 +2.31%*

Click here for What a Week from TheStreet.com.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,479.37 +2.31%
DJIA 13,378.87 +2.29%
NASDAQ 2,576.69 +2.86%
Russell 2000 798.93 +1.64%
Wilshire 5000 14,855.94 +2.46%
Russell 1000 Growth 591.48 +3.02%
Russell 1000 Value 833.09 +2.05%
Morgan Stanley Consumer 719.15 +1.65%
Morgan Stanley Cyclical 1,031.87 +4.26%
Morgan Stanley Technology 629.74 +3.1%
Transports 4,915.95 +3.1%
Utilities 498.80 +2.34%
MSCI Emerging Markets 129.59 +7.29%

Sentiment/Internals
NYSE Cumulative A/D Line 65,381 +10.1%
Bloomberg New Highs-Lows Index -145 +92.2%
Bloomberg Crude Oil % Bulls n/a
CFTC Oil Large Speculative Longs 206,977 -6.2%
Total Put/Call 1.07 -12.3%
NYSE Arms .62 -7.14%
Volatility(VIX) 20.72 -30.91%
ISE Sentiment 115.0 -11.6%
AAII % Bulls 41.28 -2.2%
AAII % Bears 43.1 -5.4%

Futures Spot Prices
Crude Oil 71.2 -.61%
Reformulated Gasoline 197.85 -2.22%
Natural Gas 5.49 -21.1%
Heating Oil 199.70 -.74%
Gold 678.30 +1.53%
Base Metals 233.95 +4.45%
Copper 336.50 +7.82%

Economy
10-year US Treasury Yield 4.62% -7 basis points
4-Wk MA of Jobless Claims 317,800 +1.5%
Average 30-year Mortgage Rate 6.52% -10 basis points
Weekly Mortgage Applications 641.10 -5.5%
Weekly Retail Sales +2.2%
Nationwide Gas $2.78/gallon -.02/gallon
US Cooling Demand Next 7 Days 25.0% above normal
ECRI Weekly Leading Economic Index 139.80 -1.34%
US Dollar Index 80.69 -.93%
CRB Index 305.64 -.17%

Best Performing Style
Mid-cap Growth +3.8%

Worst Performing Style
Small-cap Value +1.4%

Leading Sectors
Steel +12.3%
Engineering & Construction +11.2%
Airlines +7.8%
Gaming +7.1%
Retail +5.1%

Lagging Sectors
Medical Equipment +1.95%
Alternative Energy +1.8%
Insurance +1.73%
Tobacco +1.30%
Banks -.98%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Higher into Final Hour on Positive Economic Data, Diminishing Credit Fears

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Internet longs and Retail longs. I covered my some of my (EEM) short and all of my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, every sector is rising and volume is below average. My intraday gauge of investor angst is still above average. Bloomberg is reporting that Google's (GOOG) chief economist is saying that the advertisers have not slowed Web spending. This is a positive for the stock and market. I expect Google to outperform the market substantially through year-end. There has been a lot of recession talk of late, mainly by those who know that the more the media talk about it, the more the consumer will retrench. A recession this year, defined by two consecutive quarters of negative growth, is virtually impossible, in my opinion. We would have to see a contraction this quarter. Based on my analysis, that is a very remote possibility. I also believe the likelihood of a recession beginning next year is fairly low. Recessions don't occur often. We never even saw two consecutive quarters of negative growth during the 2000-2002 bubble bursting and 9/11 terrorist attacks. I see few signs that point to a recession now, however, if we did start to get substantially weaker economic data, there is no doubt in my mind that the Fed would act and act vigorously. The Fed has a lot of ammunition to fire, and I strongly disagree with those who think that doesn't matter. We have heard for several years every time we get some weak data that the bulls are in a lose-lose situation. If the Fed cuts, it means the economy is too weak; if they don't, investors will sell because they will be disappointed. In my opinion, we are in a win-win situation. I think stocks rally if an imminent recession begins to be taken out of the equation, and I think we rally if the Fed cuts rates. We saw historic levels of investor angst in many gauges over the last few weeks as investors prepared for the worst. What if the worst doesn't happen? There is a mountain of cash on the sidelines, insiders are buying at levels last seen before we took off in 2003, fear is high, bears are partying likes it's 2000-2002, and the S&P 500 is just 4.8% off its record high. If the major averages continue to trade around current levels or even grind higher over the coming weeks as we get more negative news, investment manager performance anxiety will come back into play in a monstrous way. This could pave the way for an extraordinarily bullish fourth-quarter for stocks. Money market funds are at new record levels and have now seen $127.79 billion in cash inflows over the last two weeks, the most in several years. Asia will likely take today's U.S. economic data very well on Monday, especially the 9.8% surge in auto orders and decline in new home inventories. The average 30-year mortgage rate fell 10 basis points, to 6.52% this week, the largest weekly decline since Nov. 24, 2005. This is also down 22 basis points from mid-June highs. As well, the average 30-year jumbo mortgage rate has declined 7 basis points over the last week, to 7.21%. I expect rates to fall further over the intermediate term as credit fears subside and inflation decelerates further. The 10-year swap rate is falling another 3.25%, to 68.15 basis points over Treasuries. This is down from 83.75 on Aug. 17, which was the day after the S&P 500 bottomed. The Broker/Dealer Index, the source of much angst, is at session highs, rising 1.0%. Nikkei futures are indicating an up 220 open in Japan on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit fears, less economic pessimism and bargain hunting.

Today's Headlines

Bloomberg:
- German Chancellor Angela Merkel said the recent turmoil in world financial markets underscores the need for greater transparency in hedge funds, a key aim of Germany’s presidency of the Group of Eight leading nations.
- Credit investors are overcompensating for their years of complacency by “shunning deals with innovation and added risk,” S&P analysts said in a report today.
- David Kelly, an economic adviser at Putnam Investments LLC, says worries about a slower housing market and losses on subprime mortgages have been blown out of proportion by Wall Street.
- Crude oil rose after a report showed orders for US-made durable goods rose more than expected last month, easing concern that loan defaults will slow economic growth.
- Sugar is falling 1% on speculation that a global surplus will overwhelm demand next year and that lower energy prices will reduce the value of ethanol made from sugar cane.
- Zbigniew Brzezinski, one of the most influential foreign-policy experts in the Democratic Party, threw his support behind Barack Obama’s presidential candidacy, saying the Illinois senator has a better global grasp than his chief rival, Hillary Clinton.
- US three-month Treasury bill yields rose for a fourth day as demand eased for the safest government securities.
- Republican presidential candidate Mitt Romney will propose tax breaks to help Americans pay for health insurance and incentives for states to craft their own programs to make sure everyone gets coverage.

NY Times:
- The headquarters of Google Inc.(GOOG) is increasingly popular among US presidential candidates as a fund-raising destination.

USA Today:
- More Americans with varying levels of wealth are giving it to relatives or charitable causes while they’re still alive.

Washington Post:
- What Credit Crunch?

Financial Times:
- Vulture funds, or seekers of distressed securities, are poised to pick through dead or wounded companies and securities. A net flow of $20 billion into distressed-securities funds in the first half of 2007 was double the entire amount for 2003-2006, citing Hedge Fund Research data.

Reuters:
- Robert Merton, the Nobel Prize winner who co-founded the failed hedge fund Long-Term Capital Management, said his new firm plans to start and asset management business and open new hedge funds.