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Off to a Rocky Start

S&P 500 futures drop about 6 points as August durable good orders were well below expectations: down 2.4 percent vs. consensus of up 0.4 percent.

The dollar rallied, as it did yesterday on the disappointing existing home sales report.

Elsewhere:

1) KB Home down 5 percent despite posting a narrower-than-expected Q3 loss as better margins and smaller writedowns. The homebuilder's revenues fell 33 percent as home deliveries fell 20 percent and average prices declined 15 percent. However, new orders soared 62 percent from the year-ago quarter, but were down 27 percent sequentially from the prior quarter.

Weighing on the shares is CEO Jeff Mezger's cautious comments: "it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry's future growth."

2) Sara Lee rises 7 percent pre-open after Unilever agreed to buy its soap and personal care units for $1.9 billion dollars. The acquisition allows Unilever to diversify its portfolio of consumer product brands, while the deal will help Sara Lee repurchase $1 billion in stock and "invest for growth" in core businesses. The companies expect the deal to close next year.

3) Another IPO: The busy week for IPOs continues today. Shanda Games (GAME) priced its Nasdaq-listed shares at $12.50 - at the high end of the previously announced range of $10.50-$12.50. The Chinese online video game operator raised $1 billion and becomes the biggest IPO in the U.S. this year.

4) We're growing, but not as much as you wanted. Hewlett Packard down 1 percent pre-open as CEO Mark Hurd said the magic words: "We expect the IT industry to return to growth in 2010 and believe that HP will outpace the market," but their guidance was not as strong as expected. Diluted EPS in the range of $4.20 to $4.30 was near analyst estimates of $4.23, while revenue of approximately $117.0 billion to $118.0 billion is below consensus of $118 billion.

5) Airlines trading up about 2 percent pre-open as UBS upgrades airlines including AMR , Continental, US Air, with United its top pick. UBS says that "Thanks to the recent flurry of capital raises the balance sheets of several of US airlines will be flush with new cash."

6) Goldman Sachs upgrades refining sectorm including Holly, Occidental and Sunoco.

7) The two-day decline in stocks (less than 2 percent on the S&P 500), has some again wondering about the long-sought correction. Bears point out that we have moved over 50 percent since the March lows and are due for a correction, but Laszlo Birinyi (quoted in Morningstar) notes that there is little evidence for an imminent correction: "Give me the evidence...in 1982 we went 424 days before we had a correction. In 2000, we went seven years before we had a 10% correction. In 2002, we went three or four years."

8) Short interest continues to decrease. Traders have bitterly complained that shorting the market has been a recipe for disaster in the past several months; many have told me they have been shorting much less.

We continue to get evidence that shorting is indeed down. From August 31st to September 15th, the total amount of securities on the S&P 500 sold short dropped by 7.3 percent.

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