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Friday Watch

Late-Night Headlines
Bloomberg:
- Goldman Sachs Group(GS), Morgan Stanley(MS) and US futures exchanges are fighting efforts by Congress to give two regulators authority over the $4.2 trillion commodities market, a move they say will drive trading overseas.
- China’s refined copper imports, the world’s biggest, may plunge next year as domestic output increases, Beijing Antaike Information Development said. Imports may decline 43% to 800,000 metric tons from an estimated 1.4 million tons this year.
- Japan’s consumer prices fell for an eighth month in September, a sign that deflation lingers in the world’s second-largest economy.
- Honda Motor(HMC), Japan’s second-largest automaker, gained the most in two months after it raised its full-year profit forecast on a weaker yen and higher sales of fuel-efficient models.
- Microsoft Corp.(MSFT) said first-quarter earnings rose 23%, exceeding analysts’ estimates, and raised its forecasts for this year on sales of the new versions of Windows and the “Halo” video game. The stock surged 11.2% in after-hours trading.
- Sony Corp., the world’s second-largest consumer electronics maker, rose the most in 21 months on the Tokyo Stock Exchange as sales of Cyber-shot cameras boosted earnings to the highest in three quarters.

Wall Street Journal:
- Facebook Looks to Hedge Funds, Private Equity for More Cash.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EL), raised target to $52.
- Reiterated Buy on (BMY), target $35.

Morgan Stanley:
- Reiterated Outperform on (CELG), target $73.

Raymond James:
- Raised (AKAM) to Strong Buy, target $46.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 futures -.05%.
NASDAQ 100 futures +.17%.

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Earnings of Note
Company/EPS Estimate
- (ALE)/.62
- (ALEX)/1.00
- (BHI)/1.22
- (BC)/.12
- (CRDC)/-.34
- (CVH)/1.08
- (FO)/1.29
- (HMA)/.06
- (IR)/.88
- (TDW)/1.55
- (WMI)/.59
- (IDXX)/.79
- (ITT)/.89
- (CFC)/-1.34
- (LZ)/.93
- (EXC)/1.21
- (HTV)/.13
- (HCR)/.66

Upcoming Splits
- (MNRK) 6-for-5

Economic Releases
10:00 am EST
- The Final Univ. of Mich. Consumer Confidence reading for October is estimated at 82.0 versus 82.0 in September.

Other Potential Market Movers
- The Fed’s Mishkin speaking and (MSA) investors’ day could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

Evening Review

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In Play

Stocks Lower into Final Hour on Rise in Oil, Tech Share Weakness

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs and Computer longs. I added to my (IWM)/(QQQQ) hedges and took some profits in a few technically extended longs today, thus leaving the Portfolio 50% 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 heavy. The dollar-based three-month LIBOR rate continues to plunge. It is down another 5 basis points today and has declined 72 basis points from its Sept. 7 high. It is also at the lowest level since March 2006. VMware (VMW) is jumping 10% today. While I'm not long the stock, I think its crazy that over 30% of the float is short. The days of shorts throwing darts at any stock with a "high valuation" and hitting a bull's-eye are long gone, in my opinion. The AAII percentage of bulls plunged to 31.25% this week from 41.96% the prior week. This reading is now approaching depressed levels. The AAII percentage of bears soared to 48.21% this week from 35.71% the prior week. This reading is now approaching elevated levels. Moreover, the 10-week moving average of the percentage of bears is currently at 36.8%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. The 50-week moving average of the percentage of bears is currently 37.0%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990 to July 1991 and March 2003 to May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently still close to eclipsing the peak in long-term bearish sentiment during the 2000 to 2003 market meltdown, which I find astonishing given that the S&P 500 is 105% higher from the October 2002 major bear market lows and recently made new record highs. Moreover, U.S. stock mutual funds have seen outflows for most of the past five years; domestic ETFs have just recently seen improved inflows; there has been an explosion in low correlation/negative correlation U.S. stock fund strategies; the quantity of research that caters to these funds has soared; the U.S. dollar is seen to have no bottom; U.S. equities are arguably the most hated securities by global portfolio managers; permabear pundits are more popular than ever; there have been huge spikes in gauges of investor anxiety over the last couple of years on relatively mild market pullbacks; a fairly large chunk of the public generally hates U.S. stocks and says it won't ever invest in them again; public short-selling continues to explode higher; short interest on the major exchanges has rocketed higher this year; S&P 500 index futures traders remain positioned near historically short levels; the mainstream press obsesses with what is wrong and what could go wrong; investors seem to always price in the worst case scenario immediately rather than the most likely scenario; money-market funds are at record levels; and long-term investors are denigrated, while day-trading is championed as a crash is always seen as just around the corner. I contend there has never been a time in U.S. history when more market participants actually wanted a stock crash or recession for both political and financial gain, which has helped to produce the current U.S. "negativity bubble." I still believe that overall investor sentiment regarding U.S. stocks has never been worse in history with the market near record highs, which bodes very well for further outsized gains. I expect US stocks to trade mixed into the close from current levels as bargain-hunting and rising fed rate cut odds offset the rise in energy prices and earnings worries.

Durable Goods Orders Decline on Falling Military Orders, Jobless Claims Fall, New Home Sales Rise, New Home Inventories Decline

- Durable Goods Orders for September fell 1.7% versus estimates of a 1.5% increase and a downwardly revised 5.3% decline in August.

- Durables Ex Transports for September rose .3% versus estimates of a .7% gain and a 1.8% decline in August.

- Initial Jobless Claims for last week fell to 331K versus estimates of 320K and 339K the prior week.

- Continuing Claims rose to 2530K versus estimates of 2528K and 2523K prior.

- New Home Sales for September rose to 770K versus estimates of 770K and a downwardly revised 735K in August.

BOTTOM LINE: Orders for US-made durable goods unexpectedly fell in September, restrained by a slump in demand for military equipment that overshadowed increases in business investment, Bloomberg said. Excluding the 39% decline in orders for defense equipment, orders rose .7%. International demand and rising business spending will continue to boost manufacturing, according to economists. Computer orders surged 1.1% in September and machinery bookings jumped 4.3%. I continue to believe manufacturing will remain healthy as companies gain confidence is the sustainability of the current expansion and rebuild depleted inventories.

Fewer Americans filed first-time applications for state unemployment benefits last week, Bloomberg reported. The four-week moving-average of claims rose to 324,750 from 317,000 the prior week. The unemployment rate for those eligible to collect benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Sales of new US homes unexpectedly rose in September, prices gained and inventories fell, Bloomberg reported. New home prices rose 5% in September year-over-year to $238,000. As well, the number of new homes for sale fell 1.5%, to 523,000, the lowest number since January 2006. The inventory of new homes fell to 8.3 months worth at the current sales pace from nine months in August. This is just a start, but it is a big positive nonetheless, especially considering the credit market turmoil peaked in September. I expect New Home Sales to bounce back further 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