Dow + 42.66    I  Nasdaq - 7.90    I  S&P 500 + 1.91    

Market Wrap
(Briefing):

It took all of about one minute Wednesday for the Dow to garner the 50 points it needed to surpass the 12,000 level, as stocks got a big boost from Big Blue and a benign reading on inflation.

Proving more difficult, though, was sustaining such a gain as a wall of worry that stocks are overbought on a short-term basis was erected almost as quickly as the milestone was attained. Add to that volatile oil prices, relatively no validation in the bond market that core inflation at the consumer level is well contained, and split sector leadership and the bulls struggled to more convincingly keep the three-month rally intact.

Since earnings reports from several tech bellwethers the night before were mixed, investors initially waited for the September CPI report to set a more definitive tone to trading since it typically provides a helpful signal as to the direction of Fed policy. To the delight of the bulls, core CPI rose just 0.2%, in line with economists' forecasts and offering some relief following Tuesday's jarring headline increase on inflation at the producer level. Even though Wednesday's CPI data left the core rate at a decade-high 2.9% year/year, clearly higher than the Fed would like, the steady dose of 0.2% gains for a third straight month confirmed that the recent uptrend is moderating, easing the worst of inflation fears and providing further evidence that the Fed may again forego a rate hike at next week's FOMC meeting.

Meanwhile, International Business Machines (IBM 89.90 +2.95) opening up 4.1% at a new 52-week high after handily beating analysts' forecasts was the biggest reason behind the Dow eclipsing 12,000. Fellow Dow component Intel (INTC 21.16 +0.26), which also posted a better than expected Q3 report Tuesday night, provided additional market support but only managed to recoup a portion of the 3.3% sell-off in INTC shares that took a toll on all three major averages a day earlier.

In fact, a sell-off in Semiconductor Equipment, Wednesday's second worst performing S&P industry group (-4.8%), was largely responsible for removing some notable leadership in the Tech sector. Novellus Systems (NVLS 26.45 -2.12) said Q3 profits tripled, but issued downside Q4 revenue guidance, while Linear Technology (LLTC 30.54 -2.36) posted a 13% rise in Q1 earnings but also said it sees weaker than expected sales in its December quarter. Yahoo! (YHOO 22.95 -1.20) issuing downside Q4 revenue guidance and Motorola (MOT 23.70 -1.15) missing expectations on a 45% year/year decline in Q3 earnings added insult to injury for a sector where we believe valuations remain reasonable.

The only Dow component out with results Wednesday was JPMorgan Chase (JPM 47.13 -0.86), which also topped Wall Street estimates and played into our Overweight rating on Financials. However, company CEO Jamie Dimon again warning that JPM was benefiting from an unusually favorable credit environment that's not expected to continue prompted investors to consolidate gains that lifted JPM shares to a 52-week high last Thursday.

Fortunately for the bulls, leadership in other influential sectors like Health Care and Consumer Staples eventually helped to offset the lack of support from Technology and the profit engine that continues to be Energy. Oil prices, which were up earlier in the day following larger than expected declines in distillate and gas supplies, closed down more than 2.0% and below $58/bbl a day before Thursday's emergency OPEC meeting.

Since packaging and transportation costs aren't likely to be as high as previously forecast, and lower oil should improve the profit margin impact of commodity-cost inflation, Consumer Staples continued to draw incremental relief from a pullback in energy prices. Despite the sector's defensive characteristics resonating with investors still questioning the pace of economic growth, it was Health Care that was the day's best performing sector as Johnson & Johnson (JNJ 68.15 +2.07) hit a new 52-week high after Prudential raised its price target on the Dow component from $59 to $70.

---

Trade system guidelines only available to newsletter subscribers

---

Today's Picks - October 19, 2006

1.   BAX - BAXTER INTL

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-19-06		Long	Above 15 high	Sell 1/2 once risk covered	Below LOD at time of setup
	* Please Note: If the stock gaps down at the open do not enter the trade unless it trades above 46.99

2.   CNI - CANADIAN NATL

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-19-06		Long	Above 15 high	Sell 1/2 once risk covered	Below LOD at time of setup
	* Please Note: If the stock gaps down at the open do not enter the trade unless it trades above 45.06

3.   EAGL - EGL INC

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-19-06		Short	Below 15 low	Cover 1/2 once risk covered	Above HOD at time of setup
	* Please Note: If the stock gaps up at the open do not enter the trade unless it trades below 35.96

Previous Trades

WYE - WYETH

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-18-06	10-19-06	Long	53.20	53.40	Below 52.88	up to - 38 cents per share (53.28 HOT)

ETR - ENTERGY CORP

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-18-06		Long	84.81	Reached (85.05)	Below 84.81	up to + 72 cents per share (85.53)

CHRW - C H ROBINSON WORLDWIDE

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-18-06		Short	41.60	Reached (40.69)	Above 41.60	up to + $1.67 per share (39.93)
	* 10-18-06 - Stock gapped up.

ICE - INTERCONTINENTAL EXCHANGE

Entry Date	Exit Date	Position	Entry Price	Target Price	Stop Price	Max P/L
10-17-06		Long	82.66	84.00	Below 80.00	up to + 46 cents per share (83.12)