Wednesday Watch

Late-Night Headlines
Bloomberg:
- Tiger Woods and PepsiCo’s(PEP) Gatorade unit will develop a line of drinks to be introduced in March, led by a signature brand for the world’s top-ranked golfer. The first product will be called Gatorade Tiger.
- Stahlman of Gartner Says Technology Stocks to ‘Take Off’: Video.
- This year’s accelerating gains in food prices will slow to normal rates of growth in 2008 as farmers increase production of crops such as corn and wheat, Acting US Agriculture Secretary Chuck Conner said.
- Japan’s economic growth may falter because changes to building rules requiring stricter inspections will cause housing starts to slump, analysts said.

Wall Street Journal:
- One in seven hedge-fund managers expect to raise capital in the next two years either through a flotation or the sale of a stake in their firm, before falling fee scales and rising costs squeeze some of them out of business, according to an Ernst & Young survey.
- Disney’s(DIS) $1 Billion Adventure. Planned Five-Year Revamp of Its California-Themed Park Aims to Boost Attendance by Mirroring Neighbor Disneyland.
- As much as 20% of the audience for television’s most popular shows are skipping the commercials.

AP:
- A House vote to label the century-old deaths of Armenians as genocide was in jeopardy Tuesday after several Democrats withdrew support and sounded alarms it could cripple US relations with Turkey. The loss of support is a major setback to Democratic House Speaker Nancy Pelosi and other Democratic leaders on Capitol Hill, who have fiercely defended the resolution to Republicans and the Bush administration as a moral imperative in condemning the World War I-era killings of up to 1.5 million Armenians by Ottoman Turks.

MarketWatch.com:
- Delta(DAL) could take role in airline mergers, CEO says.

IBD:
- Congress’ foolish move to declare the massacre of Armenians by the Ottoman Empire a genocide will have an impact far beyond politics. It affects you – both in your pocketbook and in your security.

Reuters:
- Apple’s(AAPL) new operating system to hit stores October 26.

Financial Times:
- Chinese companies are set to be Asia’s most acquisitive in the US or Europe next year, according to a survey of the region’s dealmakers.
- Tata Consultancy Services plans to open two computer services centres in the US in one of the biggest expansions by an Indian information technology outsourcing company in a developed market.
- Toyota received another black eye in North America when Consumer Reports, an influential consumer-advice publication, said its vehicles’ reliability had slipped to the point where its new models can no longer be recommended without owners’ feedback.

TimesOnline:
- The most extraordinary spectacle of the past week has been the apparent desire of the US Congress to pronounce as genocide the 1915 massacre of Armenians by Turks, even though there is nothing more provocative to Turkey, and no worse time at which to do it.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (DPZ), target $20.

Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 futures +.32%.
NASDAQ 100 futures +.57%.

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/EPS Estimate
- (AMR)/.75
- (ABT)/.66
- (BLK)/1.90
- (CIT)/1.23
- (CMA)/1.22
- (KO)/.68
- (GCI)/1.00
- (MAN)/1.39
- (MTG)/.61
- (MI)/.83
- (PJC)/.50
- (UTX)/1.16
- (MO)/1.14
- (JPM)/.90
- (ITW)/.87
- (SYK)/.55
- (TER)/.18
- (ALL)/1.70
- (CTXS)/.38
- (ETFC)/.11
- (EBAY)/.33
- (RX)/.40
- (KNX)/.19
- (NE)/1.17
- (WM)/.23
- (BOT)/1.18
- (GRB)/.10
- (KMP)/.42

Upcoming Splits
- (DKS) 2-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for September is estimated to rise .2% versus a -.1% decline in August.
- The CPI Ex Food & Energy for September is estimated to rise .2% versus a .2% increase in August.
- Housing Starts for September are estimated to fall to 1280K versus 1331K in August.
- Building Permits for September are estimated to fall to 1285K versus 1322K in August.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,050,000 barrels versus a -1,674,000 barrel drawdown the prior week. Gasoline supplies are expected to rise by 400,000 barrels versus a 1,675,000 barrel build the prior week. Distillate inventories are estimated to fall by -750,000 barrels versus a -563,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall -.25% versus a .33% increase the prior week.

2:00 pm EST
- Fed’s Beige Book

Other Potential Market Movers
- The Fed’s Beige Book report, Fed’s Hoenig speaking, weekly EIA energy inventory report, weekly MBA Mortgage Application report, Bear Stearns Retail Outing and Wachovia Consumer Growth Conference could also impact trading today.

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

Stocks Finish Lower on Rising Energy Prices, Housing Worries

Indices
S&P 500 1,538.53 -.66%
DJIA 13,912.94 -.51%
NASDAQ 2,763.91 -.58%
Russell 2000 823.35 -.72%
Wilshire 5000 15,480.26 -.66%
Russell 1000 Growth 627.06 -.48%
Russell 1000 Value 854.22 -.89%
Morgan Stanley Consumer 743.12 -.32%
Morgan Stanley Cyclical 1,067.53 -1.03%
Morgan Stanley Technology 672.36 -1.42%
Transports 4,833.35 -1.14%
Utilities 512.89 -.23%
MSCI Emerging Markets 154.82 -2.17%

Sentiment/Internals
Total Put/Call .94 +17.5%
NYSE Arms 1.30 +10.7%
Volatility(VIX) 20.02 +4.0%
ISE Sentiment 121.0 -20.92%

Futures Spot Prices
Crude Oil $87.42 +1.50%
Reformulated Gasoline 217.20 +.67%
Natural Gas 7.37 -.98%
Heating Oil 233.75 +1.31%
Gold 764.60 +.31%
Base Metals 252.23 -2.47%
Copper 363.75 -1.32%

Economy
10-year US Treasury Yield 4.64% -3 basis points
US Dollar 78.23 +.19%
CRB Index 339.33 +.35%

Leading Sectors
Computer Services +.83%
Restaurants +.68%
Semis +.51%

Lagging Sectors
Coal -1.85%
Banks -2.11%
Homebuilders -2.16%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
Bear Stearns:
- Rated (GME) Outperform, target $74.
- Rated (ANSS) Outperform, target $45.

Deutsche Bank:
- Upgraded (X) to Buy.

Oppenheimer:
- Rated (IVC) Buy, target $30.

Afternoon/Evening Headlines
Bloomberg:
- Intel Corp.(INTC), the world’s largest semiconductor maker, said profit rose 43% on higher demand for personal computers in Europe and Asia. The company forecast sales that beat estimates, sending the shares 5.7% higher in after-hours trading.
- Yahoo!(YHOO) reported third-quarter results that beat analysts’ estimates, signaling that acquisitions and new advertising software may be spurring growth. The shares jumped 10% in extended trading.
- Research In Motion(RIMM), maker of the BlackBerry e-mail phone, will see a rush of holiday sales this season as more consumers buy the devices, Co-CEO Balsillie said.
- IBM(IBM), the biggest computer-services company, said third-quarter profit rose 6.3% on new contracts and software sales.
- Bristol-Myers Squibb(BMY) won US approval for a drug to treat the most advanced form of breast cancer, the first new type of chemotherapy for the disease in 14 years. The stock rose 2.5% in after-hours trading.

BOTTOM LINE: The Portfolio finished about even today as losses in my Software longs and Medical longs offset gains in my Biotech longs, Computer longs and Semi 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, sector performance was mostly negative and volume was about average. Measures of investor anxiety were above average into the close. Today's overall market action was mildly bearish. Growth stocks have been outperforming value stocks in both up and down markets, and the same was the case today. Hundreds of stocks I monitor posted gains or just slight losses today, notwithstanding the major averages. Weakness was the most severe in the homebuilders and financials. Semi, energy, restaurant, computer service and defense stocks were sources of strength. Given the headlines today, today's losses and breadth weren't too bad. The NYSE Arms ran above 1.3 most of the day, yet the bears were unable to gain significant traction. This bodes well for gains tomorrow, especially given the earnings announcements in tech after the close today.

Stocks Lower into Final Hour on Higher Energy Prices, Housing Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Software longs. I covered my (IWM)/(QQQQ) hedges and some of my (EEM) short 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 falling and volume is about average. The U.S. Dollar Index is actually 0.22% higher despite Bernanke’s comments last night and the large outflows seen in the TIC data. I still expect a countertrend rally in the dollar beginning at any time. The 10-year yield is at session lows, falling 4 basis points. Thirty-day asset-backed commercial paper yields are falling another 8 basis points, to 5.12%. This is down 121 basis points from September highs. Weekly retail sales rose 2.6% this week, up from 2.0% the prior week and up from 1.4% in early July. I still see little evidence of a significant slowdown in consumer spending. Growth stock leaders are again outperforming the broad market today. Apple (AAPL) is rising 1.4% after saying it will release its Leopard operating system on Oct. 26. As well, BusinessWeek reports that Apple (AAPL) may announce in January that it is unlocking the iPhone, which will allow programmers to create applications for the device. This should be another driver of demand for the product, especially among the younger set. Piper Jaffray also made positive comments earlier today regarding Apple's upcoming earnings release, saying they could do EPS of 94 cents, 10 cents above consensus and near Caris' Street high of 98 cents. I still think Apple could see an initial "sell the news" reaction on its earnings report given how much it has risen but that any weakness will remain muted and short term in nature. I would add to my long position on any unexpected substantial weakness. It remains my second largest long position behind Google (GOOG) and just ahead of Intuitive Surgical (ISRG). Needham raised its target on Google (GOOG) to $690 and made the case for a stock split. I agree with that analysis and definitely think the stock should split. As I predicted a couple of days ago, Broadcom (BRCM) is starting to get some upgrades. Citi upgraded the shares this morning to buy, with a $52 target. I expect more upgrades soon. For the second day in a row, semis are outperforming tech and the broad market ahead of Intel's (INTC) earnings after the close. Yesterday, I said I thought there wasn't enough investor angst into the sell-off. We are getting higher levels of angst today. I expect earnings after the close to provide an upside catalyst for trading tomorrow. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Saks Inc.(SKS) may be acquired by a private-equity firm because of the luxury retailer’s global brand recognition, according to Citi Investment Research.
- State Street(STT) said earnings will rise more than 15% this year, beating its forecast, after completing the acquisition of Investors Financial Services and weathering a rout in the credit markets.
- Crude oil rose above $88 a barrel for the first time in NY on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Wall Street Journal:
- As Burgers Boom in Russia, McDonald’s Touts Discipline.
- US Plans Alternate Route For Iraq Supplies Amid Turkish Turmoil. Relations between Washington and Ankara have been strained by Turkey’s preparations to invade northern Iraq to rout out Kurdish rebels at the same time as US lawmakers consider a resolution accusing Turkey of genocide against Armenians following WWI.

NY Times:
- Dow Jones Drops CNBC Ads From Web Sites in Favor of Fox Links.

BusinessWeek.com:
- Apple will release a software-development kit for the iPhone is early 2008, enabling programmers to create games, business-productivity tools, and countless other applications for the device.

TheStreet.com:
- AT&T(T) has hired Goldman Sachs(GS) to explore the acquisition of EchoStar(DISH).

Newsday.com:
- Record NYC building boom, spurred by commercial construction.

Reuters:
- Angola’s crude oil production is expected to rise above 2 million barrels per day for the first time in December as new fields come online and others ramp up output, trade sources said.

TIC Flows Decline on Credit Turmoil, Industrial Production Decelerates on GM Strike

- Net Long-term TIC Flows for August fell to -$69.3 Billion versus estimates of $60.0 Billion and $19.5 Billion in July.

- Industrial Production for September rose .1% versus estimates of a .1% gain and a downwardly revised 0.0% in August.

- Capacity Utilization for September was 82.1% versus estimates of 82.1% and 82.1% in August.

BOTTOM LINE: International investors sold a net $69.3 billion of US securities in August during the peak of the credit market turmoil, Bloomberg reported. The last decline was seen in 1998 during the Russian debt crisis in 1998. International demand for Treasuries fell by $2.6 billion, compared with a $9.4 billion drop the prior month. International holdings of US stocks fell a net $40.6 billion, compared to net purchases of $21.2 billion in July. I think this report was an aberration and expect to see a significant uptick in demand for US assets in September and October.

Industrial production in the US rose .1% in September, Bloomberg reported. The GM strike helped to production last month. Motor vehicle and parts production declined 3.3% versus a 1.6% decline the prior month. Manufacturing excluding vehicles and parts rose .3%. Production of computers and peripheral equipment increased .9%. Capacity Utilization is just slightly above the long-term average of 81.1. I expect industrial production to show acceleration this month.

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