Mid-day Update

S&P 500 1,087.62 -.84%
NASDAQ 1,856.77 -1.72%    

Leading Sectors
Telecom +1.74%
Papers +.58%
Gaming +.33%    

Lagging Sectors
Internet -2.69%
Semis -2.74%
Networking -3.02%    

Other
Crude Oil 41.34 -.05%
Natural Gas 6.15 -.03%
Gold 389.30 -1.52%
Base Metals 108.18 -2.52%
U.S. Dollar 89.13 +.77%
10-Yr. T-note Yield 4.44% -.05%
VIX 16.42 +4.25%
Put/Call .71 -21.98%
NYSE Arms 1.85 +128.39%    

Market Movers
AMZN -9.65% after missing 2Q estimates and giving weak guidance.
KO -7.9% after missing 2Q sales estimates and giving weak guidance.
ERTS -6.1% after beating 1Q estimates, but making cautious comments on year.
TKLC +12.7% after substantially beating 2Q estimates and raising 3Q guidance.
EFII +8.7% on rebound after fall on earnings yesterday.
CCMP +7.6% after beating 3Q estimates substantially and WR Hambrecht upgrade to Buy.
ARTI +9.3% after beating 3Q estimates.
NTMD +11.2% on continued optimism over recent study showing an experimental medicine showed "significant survival benefits" in African American patients with heart failure.
TWP +14.0% after beating 2Q estimates and giving positive guidance.
RHI +7.4% after beating 2Q estimates substantially and multiple upgrades.
FOE -20.2% after cutting 2Q estimates after finding an accounting error.
MTLG -14.6% after missing 2Q estimates and reaffirming 04 guidance.
CLSR -14.8% after beating 2Q estimates, but giving disappointing guidance.
NTY -18.3% after disappointing 3Q estimates. 

Economic Data
None of note.    

Recommendations
BLS raised to Buy at UBS, target $30.  VZ raised to Buy at UBS, target $40.  EMT cut to Reduce at UBS, target $10.50.  BEAV raised to Outperform at CSFB, target $12.  MCIP rated Underweight at Morgan Stanley, target $8.  Merrill Lynch cut IGT to Sell from Buy.  Goldman Sachs reiterated Underperform on SAY, PYX, DCLK, T and VRSN.  Goldman reiterated Outperform on BAX, GE, AVP, SVU, STA, SLB, SBC, GDT and MSFT.  Citi SmithBarney reiterated Buy on TXT, target $70.  Citi reiterated Buy on AMGN, target $90.  Citi reiterated Buy on MSFT, target $33.  Citi reiterated Buy on VIAB, target $50.  Citi reiterated Buy on MDU, target $28.  Citi reiterated Buy on MCD, target $34.  Citi reiterated Buy on BA, target $36.  Citi reiterated Buy on PLUG, target $13.  Citi reiterated Buy on RYL, target $125.  Citi reiterated Buy on IGT, target $50.  Citi reiterated Buy on RSAS, target $22.  Citi reiterated Buy on FDRY, target $15.  Citi reiterated Buy on WC, target $53.  Citi reiterated Buy on AA, target $48.  Citi reiterated Buy on ERTS, target $60.  Citi reiterated Sell on T, target $14.  

Mid-day News
U.S. stocks are falling mid-day on terrorism fears, earnings worries and upcoming negative political rhetoric.  Lawmakers and corporate executives have discussed the possibility of amending part of the Sarbanes-Oxley Act, which bolstered requirements for corporate governance, the Washington Post reported.  China's electricity consumption surged to a record yesterday as rising temperatures across the country increased usage of air-conditioners, Xinhua news said.  Al-Qaeda members caught in Saudi Arabia, Pakistan and Afghanistan have provided details about a possible terrorist attack similar in scale to the attacks carried out on Sept. 11, the NY Times reported.  An increasing number of Germans support working longer hours to save their jobs, ZDF tv reported.  The FBI said terrorists may try to attack tv news trucks in an attempt to disrupt the July 26-29 Democratic convention in Boston, the Boston Globe reported.  Copper prices in New York had their biggest decline in six weeks after Grupo Mexico SA, the world's third-biggest copper producer, won a ruling to stop two strikes that threatened to reduce half of the company's production, Bloomberg said.  The U.S. FCC approved a six-month freeze on rates paid by AT&T and other telephone companies to rent lines from local carriers such as Verizon, Bloomberg reported.  Goldman Sachs economists disagree with fears of a job-creation slowdown and have raised their July forecast to 300,000 non-farm payroll gains from 250,000 amid an "auspicious confluence" of events that has occurred only two other times in the past 30 years, Bloomberg reported.  United Air and Northwest Air each won U.S. approval for a new daily flight between the U.S. and China, the first awards under an agreement the countries reached last month, Bloomberg said.

BOTTOM LINE:  The Portfolio is substantially higher today as my software and semiconductor shorts are falling significantly.  I have not traded today and the Portfolio is still 50% net short.  The tone of the market is bad.  The advance/decline line is poor, technology shares are very weak, oil remains high and the Put/Call ratio is falling.  However, it is good to see the ARMS index spiking and the AAII % Bulls falling.  The Morgan Stanley Tech Index is now down 17.5% from its January high.  The P/E on the S&P 500's 04 estimated earnings is now 16.5 and falling.  I continue to believe the major U.S. indices will make a bottom sometime during the next 2 months and show a significant gain in the 4th quarter.  Longer-term investors should use any extreme weakness during the next several weeks to add to favorite long positions.