Mid-day Update

S&P 500 1,113.84 -.05%
NASDAQ 1,933.84 -.16%

Leading Sectors
Homebuilders +2.64%
HMO's +1.86%
Iron/Steel +.98%

Lagging Sectors
I-Banks -1.12%
Software -1.48%
Airlines -2.62%

Other
Crude Oil 39.45 -.55%
Natural Gas 5.90 +.82%
Gold 402.00 -1.57%
Base Metals 111.94 -.48%
U.S. Dollar 88.01 +.71%
10-Yr. T-note Yield 4.49% +1.01%
VIX 14.78 -1.20%
Put/Call .72 -39.50%
NYSE Arms .92 -31.85%

Market Movers
RHAT -21.2% after saying it will restate three years of sales and profit to correct accounting for subscription revenue.
ADTN -12.5% after meeting 2Q estimates.
FIC -21.5% after lowering 3Q and 4Q guidance substantially and multiple downgrades.
SCCS -26.3% after lowering 2Q and 04 forecast and multiple downgrades.
OPTN +21.9% after raising 2Q and 04 guidance.
FAST +8.7% after exceeding 2Q estimates.
MDC +6.8% after beating 2Q estimates substantially.
STLY +7.2% after beating 2Q estimates and raising 3Q and 04 guidance.
CYT +6.2% after CSFB upgrade to Outperform from Neutral.
CNJ +9.7% after saying Moulin Intl. revised its bid to buy it to $25/share.
NAP -10.8% after saying Bank of America would acquire it for $1.4B.
AGN -7.4% after saying its acne drug Tazoral failed to win the recommendation of a FDA panel as a treatment for psoriasis.
STT -8.6% after meeting 2Q estimates, but giving cautious 2nd half guidance.
TZOO -11.6% on profit-taking after strong 2Q report.

Economic Data
Trade Balance for May came in at -$46.0B versus an estimate of -$48.3B and -$48.1B in April.

Recommendations
ARM raised to Buy at UBS, target $25. IBM raised to Overweight at Morgan Stanley, target $100. HSIC rated Overweight at Morgan Stanley, target $74. PHCC rated Underweight at Morgan Stanley. JKHY rated Outperform at CSFB, target $24. CYT raised to Outperform at CSFB, target $54. YHOO rated Buy at Bank of America, target $39. AMSG rated Buy at Bank of America, target $30. SMBI rated Buy at Bank of America, target $22. SLNK cut to Underweight at JP Morgan. AAP rated new Buy at Oppenheimer. Goldman Sachs reiterated Attractive view of Paper stocks, favorites are IP, SPP and DTC. Goldman reiterated Underweight on LSI, TLAB, DO and S. Goldman reiterated Overweight on ZION, CSCO, ACN, MDT, MER, PFGC, DELL, CTSH and TPX. Citi SmithBarney reiterated Buy on GCI, target $95. Citi reiterated Buy on MTB, target $102.00.

Mid-day News
U.S. stocks are modestly lower mid-day on continuing earnings worries and rising interest rates. Google plans to introduce a function that allows users to comb the Web for audio and video clips, the NY Post reported. Citigroup will transfer more than 1,000 employees to New Jersey from Lower Manhattan, raising concerns about the recovery of downtown New York after the Sept. 11 attacks, the NY Times reported. Baghdad police arrested 527 suspects in a crackdown on criminals in the Iraqi capital, Sky News reported. Median LA County home prices rose 32% to $414,000 in June, the biggest increase in at least 15 years, the LA Times reported. Mike Ditka, the former Chicago Bears head coach, is considering joining the race to represent Illinois as a Republican in the U.S. Senate, the Chicago Sun-Times reported. Seventeen suspected members of the Ansar al-Islam terrorist group were captured in the Iraqi city of Kirkuk in raids over the last three days, Agence France-Presse said. Delta Air said it plans a total $1.65 billion in charges for the second quarter because of income-tax deferrals and a settlement for pilot pensions, Bloomberg reported. Oil demand will rise by 2.2% next year, almost double the average annual rate in the 90's, because of rising consumption from strong economic growth in China and the U.S., the IEA said. A Manhattan apartment's average price for the first time topped $1 million, the highest of any U.S. city, as New York's economic growth outpaced the nation's, Bloomberg reported. The U.S. trade deficit narrowed in May for the first time in six months as exports surged to a record, led by aircraft, engines and other capital goods, Bloomberg reported. President Bush leads Senator Kerry by 15 percentage points in North Carolina, the home state of Kerry's ticket mate, John Edwards, according to a poll by USA Today and CNN. Duke Energy, the largest U.S. utility owner, agreed to pay $207.5 million to settle claims that the company overcharged customers for power during the western energy crisis of 2000 and 2001, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly lower today as my medical and technology distribution shorts are rising more than my oil service and software shorts are falling. I exited a couple of shorts and longs this morning as I reposition the Portfolio, leaving market exposure at 25% net short. I expect U.S. stocks to fall modestly into the afternoon on rising interest rates and fears over technology reports after the close. Moreover, the Put/Call and Arms readings are plunging which also points to a weaker close.