Tuesday Close

S&P 500 1,104.24 +.46%
NASDAQ 1,838.10 +.09%

Leading Sectors
Oil Service +2.00%
Energy +1.75%
Iron/Steel +1.63%

Lagging Sectors
Retail -.57%
Semis -.70%
Fashion -1.02%

Other
Crude Oil 42.22 +.24%
Natural Gas 5.07 -.08%
Gold 412.00 -.10%
Base Metals 108.43 +.21%
U.S. Dollar 88.94 -.84%
10-Yr. T-note Yield 4.12% -1.29%
VIX 15.29 -.97%
Put/Call .70 -16.67%
NYSE Arms 1.10 -57.53%

After-hours Movers
FRX -5.98% after saying that a clinical study of the experimental drug Neramexane showed the compound may be ineffective at treating Alzheimer's disease.
OTEX -18.17% after missing 4Q estimates and lowering 1Q guidance.

Recommendations
Goldman Sachs reiterated Outperform on MDT, target $57. Goldman reiterated Outperform on BNS and CAT.

After-hours News
U.S. stocks finished modestly higher today as a late session rally in the S&P futures boosted shares. After the close, the U.S. Federal Trade Commission said it is seeking the first fines for breaches of a rule barring calls to people whose numbers are on a "do-not-call" registry, saying a Las Vegas telemarketer made more than 300,000 unwelcome pitches, Bloomberg reported. Boston Scientific may forecast a drop in third-quarter sales of its Taxus heart stent after three recalls cut demand for the device, the company's top-selling product, Bloomberg said. Microsoft co-founder Bill Gates' personal investment fund, which is the second-largest Six Flags shareholder, has become "increasingly dissatisfied" with the amusement park operator's financial performance and may seek a spot on the company's board, Bloomberg reported. Astronomers have found a new class of planets beyond our solar system that appear more similar to Earth than other comparable objects that have been discovered, NASA and university scientists said.

BOTTOM LINE: The Portfolio finished lower today, notwithstanding the late-afternoon rebound. I added a few new longs on the close, bringing the Portfolio's market exposure to 100% net long. One of my new longs is MICC and I am using a stop-loss of $15 on this position. The market's tone improved substantially in the afternoon as many stocks rose on good volume. I expect U.S. equities to continue to rally short-term as optimism over falling energy prices, declining interest rates, pro-business political rhetoric, improvements in Iraq and subsiding terrorism fears more than offsets worries over a slowing economy.

Mid-day Update

S&P 500 1,097.01 -.19%
NASDAQ 1,823.33 -.72%

Leading Sectors
Oil Service +1.40%
Iron/Steel +1.03%
Homebuilders +.85%

Lagging Sectors
Software -1.02%
Internet -1.21%
Semis -1.95%

Other
Crude Oil 41.95 -.78%
Natural Gas 5.10 -2.56%
Gold 412.00 +.49%
Base Metals 108.65 +.42%
U.S. Dollar 88.92 -.87%
10-Yr. T-note Yield 4.10% -1.70%
VIX 15.75 +2.01%
Put/Call .77 -8.33%
NYSE Arms 1.71 -33.98%

Market Movers
IPIX +13.8% after saying it signed an agreement with Soling Company to supply, install, and support Ipix systems in Russia.
UNFI +6.6% after beating 4Q estimates and raising 05 outlook.
POS +7.9% after saying it reached agreement on a five-year, $125 million revolving credit line.
SWIR -10.5% on worries over competition.

Economic Data
Chicago Purchasing Manager for August was 57.3 versus estimates of 60.0 and a reading of 64.7 in July.
Consumer Confidence for August was 98.2 versus estimates of 103.5 and a reading of 105.7 in July.

Recommendations
BLKB rated Overweight at JP Morgan. UPL raised to Overweight at JP Morgan, target $47. KSS raised to Buy at Merrill, target $58. DEX rated Buy at Deutsche Bank, target $24. DEX rated Buy at Merrill, target $25. RIG raised to Buy at Merrill, target $36. NE raised to BUY at Merrill and named Focus 1 stock of the week, target $47. GSF raised to Buy at Merrill, target $33. BLKB rated Outperform at Thomas Weisel. Goldman Sachs rated IDIX Outperform, target $23. Goldman reiterated Outperform on ROH, target $50. Goldman reiterated Outperform on PFE and Underperform on SGP, PNY. Citi SmithBarney rated TXU Buy, target $49.

Mid-day News
U.S. stocks are quietly lower mid-day on declines in technology shares after weaker-than-expected economic data. U.S. Senate and Defense Department computers were invaded by hackers who used them to send spam e-mail, USA Today reported. Senator John McCain speaking at the Republican Convention, described Michael Moore as "a disingenuous filmmaker" and Moore, who was in the convention hall with a press pass, responded with a wave an formed an "L," for loser, with his thumb and forefinger, the New York Times reported. Wal-Mart didn't renew a contract to build a second store in Chicago because of concerns over minimum wage and other standards the city is considering, the Chicago Sun-Times reported. Russian President Putin today said the explosions that brought down two airliners in Russia a week ago were the work of terrorists linked to the al-Qaeda terrorist network, Bloomberg said. Apple Computer will start shipping a new version of the iMac personal computer in the middle of September, missing the back-to-school shopping season, Bloomberg reported. U.S. Treasury notes rose, heading for their biggest monthly gain since September 2003, after indices measuring consumer confidence and Chicago-area manufacturing fell more than forecast this month, Bloomberg reported. Crude oil futures fell for the seventh session in eight as Iraqi exports rose to near-normal rates and Russia said it would increase production this year, Bloomberg reported.

BOTTOM LINE: The Portfolio is lower mid-day on declines in my technology longs and rising steel shorts. I exited a few technology longs as they hit my stop-losses, thus leaving the Portfolio 75% net long. Another disappointing day for the Bulls as technology shares continue to deteriorate on light volume. While today's economic releases were disappointing, they are not near worrisome levels. It is my belief the Bears are looking in the rear-view mirror as the economy should accelerate meaningfully in the fourth quarter. Energy prices are down 15-25% in a very short period of time, inflation fears are subsiding, long-term interest rates have fallen over 80 basis points just since June, the big picture in Iraq is improving, terrorism worries are diminishing the closer we get to the U.S. election, the uncertainty and negative political rhetoric associated with the election will end in the next couple of months and most stocks are at attractive valuations relative to interest rates and growth. I expect stocks to trade mixed into the afternoon as worries over slowing economic growth are offset by falling energy prices and plunging interest rates.

Tuesday Watch

Earnings of Note
Company/Estimate
ABS/.33
COO/.67
DCI/.33
EASI/.75
FCEL/-.40
ZLC/.13

Splits
CFC 2-for-1
HOC 2-for-1

Economic Data
Chicago Purchasing Manager for August estimated at 60.0 versus 64.7 in July.
Consumer Confidence for August estimated at 103.5 versus 106.1 in July.

Recommendations
None of note.

Late-Night News
Asian indices are mixed as weakness in Japan is being offset by strength in China. AOL is testing an Internet telephone service to let customers place calls over the Web, Cnet News reported on its Web site, Bloomberg said. Cautious U.S. companies are holding $1.17 trillion of cash, much of it accumulated from improved profits they are choosing not to spend, the Financial Times reported. A group led by Colony Capital LLC is close to an agreement to buy four properties from Harrah's Entertainment and Caesars Entertainment for about $1.26 billion, Dow Jones Newswires reported. Apple Computer may unveil a new version of its iMax personal computer at the Apple Expo 2004 that starts tomorrow in Paris, the AP reported. A fund that has collected more than $540 million for victims of the Sept. 11, 2001, terrorist attacks will close in December, the AP reported. Senator John McCain told delegates at the Republican Convention that the U.S. mission in Iraq was "necessary, achievable and noble," saying the U.S. "couldn't afford the risk posed by an unconstrained Saddam in these dangerous times," Bloomberg reported.

Late-Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.07%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on a better-than-expected Consumer Confidence reading and no acts of terror on opening night at the Republican Convention. The Portfolio is 100% net long heading into tomorrow.

Monday Close

S&P 500 1,099.15 -.78%
NASDAQ 1,836.49 -1.37%

Leading Sectors
Airlines +.38%
Utilities +.17%
Telecom -.11%

Lagging Sectors
Internet -2.05%
Semis -2.28%
Biotech -2.59%

Other
Crude Oil 42.35 +.17%
Natural Gas 5.23 +.02%
Gold 409.40 -.15%
Base Metals 108.20 -.21%
U.S. Dollar 89.69 -.09%
10-Yr. T-note Yield 4.18% -1.10%
VIX 15.44 +4.96%
Put/Call .84 +12.0%
NYSE Arms 2.59 +153.92%

After-hours Movers
None of note.

Recommendations
Goldman reiterated Outperform on SYMC, NEM and PDG.

After-hours News
U.S. stocks finished lower today on the lowest volume of the year as buyers failed to materialize on worries over terrorism at the Republican Convention. After the close, Samsung Electronics, the world's largest memory-chip maker, may increase production of dynamic random-access memory chips because prices haven't fallen as much as for flash-memory chips, the Wall Street Journal reported. The benchmark 10-yr U.S. Treasury note rose for the fourth day in five after a measure of inflation was unchanged in July, Bloomberg reported. Surgery and other procedures to clear heart arteries are just as effective as drug treatment in the elderly and cause no more complications after a year, according to research in the new issue of Circulation. Merck's Zocor failed to reduce complications in the first four months after a heart attack, according to a study that may give an edge to Pfizer's Lipitor medicine, Bloomberg said. Crude oil futures in New York fell for the sixth session in seven, to $42.28 a barrel, as a decline in political unrest in Iraq reduced concern that supplies from the fifth-largest Middle East producer will be disrupted, Bloomberg reported.

BOTTOM LINE: The Portfolio finished lower today as weakness in my biotechnology and technology longs more than offset my declining steel shorts. I exited a few of my biotech and tech positions in the afternoon after their stop-losses were triggered. Thus, the Portfolio is now 100% net long. While today was unexpectedly weak and disappointing for the Bulls, I am not reading too much into it at this point. Trading activity was exceptionally light and measures of investor anxiety rose. Moreover, interest rates and energy prices continue to fall. I still expect stocks to rally as the week progresses. However, if the major U.S. indices fail to rise later in the week I will assume that the weakness I anticipated later in September has begun.

Mid-day Update

S&P 500 1,103.63 -.37%
NASDAQ 1,844.36 -.95%

Leading Sectors
Airlines +1.62%
Utilities +.37%
Insurance +.13%

Lagging Sectors
Internet -1.40%
I-Banks -1.54%
Biotech -2.08%

Other
Crude Oil 41.90 -2.96%
Natural Gas 5.19 +.02%
Gold 409.50 +.99%
Base Metals 108.20 -.21%
U.S. Dollar 89.69 -.09%
10-Yr. T-note Yield 4.19% -.78%
VIX 15.33 +4.28%
Put/Call .87 +16.0%
NYSE Arms 1.78 +74.51%

Market Movers
ACDO -23.2% after missing 4Q estimates and lowering 05 guidance.
TSN -7.7% after lowering 4Q estimates.
URI -16.7% after saying it received a subpoena from the U.S. SEC for some of its accounting records.
SWIR -7.9% after GMP cut to Reduce, target $19.

Economic Data
Personal Income for July rose .1% versus expectations of a .5% increase and a .2% rise in June.
Personal Spending for July rose .8% versus estimates of a .7% increase and an upwardly revised .2% decline in June.
PCE Deflator(YoY) for July rose 2.4% versus estimates of a 2.4% increase and a 2.5% rise in June.
PCE Core(YoY) for July rose 1.5% versus estimates of a 1.5% increase and a 1.5% rise in June.

Recommendations
Goldman Sachs reiterated Outperform on COH, MSFT, INTC, WMT, FD, FS and IGT. Citi SmithBarney reiterated Buy on LLY, target $82. Citi reiterated Buy on INTC, target $30. Citi reiterated Buy on PRU, target $55. PFGC downgraded to Sell at Deutsche Bank, target $19.50. NXTL raised to Sector Outperform at CIBC.

Mid-day News
U.S. stocks are quietly lower mid-day on profit-taking and terrorism worries ahead of the Republican Convention. Google stock options started trading Friday and volume was higher than may expected, the Wall Street Journal reported. Production at Ford's Hapeville, Georgia, plant was stopped at least for today because of a parts shortage, the AP reported. Venezuela, the world's fifth-largest oil supplier, expects oil prices to stabilize at $30/bbl. in the near future, El Universal reported, citing the country's oil minister. Washington and 11 other U.S. states have adopted laws barring suits for obesity against restaurants and food companies, the New York Post reported. Most big cell-phone companies intend to compile publicly accessible listings of wireless phone numbers starting in October, the NY Times said. UBS AG wants to make an acquisition such as a trust bank to target wealthy customers in the U.S., the Wall Street Journal reported. The U.S. Patent and Trademark Office turned down Donald Trump's initial attempt to register the expression, "You're Fired," for games and toys, the NY Times said. Radical cleric al-Sadr called on his followers across Iraq to stop fighting U.S.-led coalition troops and Iraqi forces and lay down their arms, the AP reported. France said it will maintain its law banning religious garb in state schools, rejected a demand by the Iraqi kidnappers of two French reporters for its revocation, Bloomberg reported. Crude oil futures in New York fell for the sixth session in seven amid reports that exports from Iraq, the Middle East's fifth-largest oil producer, were unaffected after an explosion damaged a pipeline, Bloomberg reported.

BOTTOM LINE: The Portfolio is lower mid-day on weakness in my biotechnology and technology longs. I have not traded and the Portfolio is still 125% net long. The weakness today is a worse than I expected, however measures of investor anxiety are rising, which is a positive. Moreover, I continue to expect oil prices to head toward the mid-$30's/bbl. within the next couple of months. With energy prices and interest rates dropping, I expect U.S. stocks to rise into the close on short-covering.

Monday Watch

Earnings of Note
Company/Estimate
ACDO/.39
DY/.35
CEN/.19

Splits
BAC 2-for-1

Economic Data
Personal Income for July estimated up .5% versus an increase of .2% in June.
Personal Spending for July estimated up .7% versus a decline of .7% in June.
PCE Deflator(YoY) for July estimated up 2.4% versus a 2.5% increase in June.
PCE Core(YoY) for July estimated up 1.5% versus a 1.5% increase in June.

Weekend Recommendations
Forbes on Fox had guests that were positive on COF, PVN, TGT and mixed on INTC, FPL. Bulls and Bears had guests that were positive on IDA, SU, HDWR, DPZ, NOK, GE, WTW, AMGN, IVX and negative on LLY, KKD. Cashin' In had guests that were positive on CCMP, CPWM, BAC, CRM and PRX. Wall St. Week w/Fortune had guests that were positive on NYT, YHOO, DCLK, SSP, GCI, INTC, IDTI, TM, GM, F, DD, TRFX, AMSWA and negative on CP, JPM. Barron's had positive columns on OSIS, ASE, VICL, DRXR, LOJN, XRAY and negative columns on CCU and CDL. Goldman Sachs reiterated Attractive view of Lodging and Cruise sectors. Goldman reiterated Outperform on EBAY.

Weekend News
Audi AG, which makes luxury cars for Volkswagen AG, is considering a plan to produce vehicles in the U.S. or Mexico to help reduce the risk of currency fluctuations, Die Welt reported. Russian investigators found traces of explosives in the wreckage of the second plane that crashed this week in Russia, Agence France-Presse reported. Wal-Mart canceled plans to build its first store in Washington, D.C., the Washington Post reported. Two men were arrested yesterday in connection with a plot to detonate a bomb on a New York City subway at the Herald Square station, the New York Post reported. The California state Legislature approved a package of bills allowing the importation of less expensive drugs from Canada, the LA Times reported. French government officials called for the release of two journalists kidnapped in Iraq by a group demanding the France rescind a ban on religious garb in the nation's schools, Agence France-Presse said. Brandsonsale.com, an Internet toy and clothing retailer, said "pimp" suits and "ho" dresses for children are among its best sellers for Halloween this year, the Washington Post reported. Target plans to spend $100 million to build a warehouse in DeKalb, Illinois, by 2006, Crain's Chicago Business said. Young adults are growing "bored" of sexually explicit ads and could be better targeted by more wholesome marketing methods, the Financial Times said, citing a survey by WPP Group. UBS AG, Europe's biggest bank by assets, plans to buy Charles Schwab's institutional research and trading unit for $265 million, the Wall Street Journal reported. Sanofi-Aventis SA, the world's third biggest drugmaker, said its experimental anti-craving pill, rimonabant, helped obese patients lose about 19 pounds and trim 3.5 inches from their waists in a study, Bloomberg reported. U.S. weather forecasters urged those in the northern Lesser Antilles and northeastern Caribbean Sea to "closely monitor" the progress of Hurricane Frances, which may become a Category 5 storm within 24 hours, Bloomberg said. Senator John McCain said Senator Kerry's anti-war activities after he returned from Vietnam are an appropriate subject for political debate, Bloomberg reported. Europe is slipping further behind the U.S. in competitiveness as the leaders of Germany, France and Italy, weakened by election setbacks, fail to take advantage of the economic recovery to reduce taxes and over-regulation, Bloomberg reported.

Late-Night Trading
Asian indices are mixed, -.50% to +.25% on average.
S&P 500 indicated -.23%.
NASDAQ indicated -.14%.

BOTTOM LINE: I expect U.S. stock to open modestly lower in the morning on fears over terrorism during the Republican Convention. However, equities should rise later in the day on short-covering and optimism over the recent fall in energy prices. The Portfolio is 125% net long heading into tomorrow.

Chart of the Week

Click here for a graph of the recently released Poverty Rate (1959-2003).

Bottom Line: The current U.S. Poverty Rate of 12.5% is down from over 22% in 1959 and over 15% in 1983 and 1993. The stock market and economy began to collapse in 2000, resulting in a move higher in the poverty rate from very low levels. The ensuing corporate scandals, recession and 9/11 terrorist attacks resulted in an increase in poverty through 2003. However, recent data showing Americans' net worth at all-time high levels, very strong economic growth since the end of the recent recession and the creation of over 1.2 million new jobs this year will likely result in a fairly large decrease in the U.S. poverty rate for 2004.

Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Personal Income, Personal Spending, PCE Deflator(YoY), Chicago Purchasing Manager, Consumer Confidence, Construction Spending, ISM Manufacturing/Prices Paid, Total Vehicle Sales, Final 2Q Productivity, Final Unit Labor Costs, Initial Jobless Claims, Factory Orders, Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, Average Weekly Hours and ISM Non-Manufacturing. Chicago Purchasing Manager, Consumer Confidence, ISM Manufacturing/Prices Paid, Change in Non-farm Payrolls and ISM Non-Manufacturing all have market-moving potential.

Accredo Health(ACDO), Cooper Companies(COO), Engineered Support Systems(EASI), Corinthian Colleges(COCO), Cardinal Health(CAH), Shuffle Master(SHFL), Mandalay Resort Group(MBG) and Albertson's(ABS) are some of the more important companies that release quarterly earnings this week. There are also several other events that have market-moving potential. The Republican National Convention, Boston Scientific's 2004 Update, Altera's Business Update and Intel's Mid-quarter Update could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on light volume as terrorism fears subside, optimism increases over the effects of falling energy prices on future economic growth, President Bush rises in the polls with pro-business political rhetoric and economic data show stabilizing growth. Measures of investor anxiety will likely fall again this week and then begin to head higher ahead of the 9/11 anniversary. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,107.77 +.86%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Overall, last week's market action was positive. U.S. stocks were able to add to the very strong gains seen the prior week, notwithstanding fears of terrorism ahead of the Republican Convention and mixed economic data. Breadth continued to improve and most sectors registered gains. Technology and financial stocks led the way as inflation fears subsided and interest rates declined. Commodity prices fell across the board as evidenced by the 2.23% decrease in the CRB Index. Volume was very light, however I am not reading too much into this. Traders and investors usually go on vacation this time of year. The Olympics and terrorism jitters contributed to the lackluster environment as well. The main negative from last week's trading action was that investor complacency measures rose. However, it is hard to gauge how much of this was a result of the very low volume.

Economic Week in Review

ECRI Weekly Leading Index 131.40 -.23%

Existing Home Sales for July were 6.72 million versus estimates of 6.81 million and 6.92 million in June. The 2.9% decline from June's record-high was the first drop in seven months, Bloomberg reported. The median sales price was $191,300, up 8.7% from July of last year. Economists attributed the higher prices to tight supply. Ted Wieseman, an economist at Morgan Stanley, said that a six month supply of houses is required for a balanced market, compared with the 4.3 months of supply NAR reported for July. "I've been looking for these numbers to fade for several months now, because they've been so incredibly high," said Joel Naroff, chief economist at Naroff Economic Advisors. Re-sales account for 85% of the residential real estate market. New home sales, which had their best months ever in May and June, account for the rest, Bloomberg reported.

Durable Goods Orders for July rose 1.7% versus estimates of a 1.0% rise and an increase of 1.1% in June. Durable Goods Less Transportation rose .1% in July versus estimates of a 1.3% increase and a .3% decline in June. The report showed bookings surged for commercial aircraft and demand increased for business equipment. Businesses, flush with profits amid rising sales, are using the cash to replace aging equipment and replenish inventories, Bloomberg reported. Orders waiting to be filled rose the most since March. Excluding defense hardware, which fell 16.2% last month, orders increased 2.7%, the biggest rise since March, as well. "We are very confident going forward," said Michael Splinter, CEO of Applied Materials.

New Home Sales for July were 1.13 million versus estimates of 1.3 million and 1.21 million in June. "Mortgage rates have been much lower recently, and I wouldn't write off the housing market until we see a clear turn," said Michael Englund, chief economist at Action Economics. The median selling price of new homes increased 9% from July of last year. The inventory of new homes for sale rose to a 4.2 month supply, Bloomberg reported.

Initial Jobless Claims for last week rose to 343K versus estimates of 335K and 333K the prior week. Continuing Claims rose to 2897K versus estimates of 2885K and 2892K prior. This was the first time claims rose in four weeks, boosted by more filings related to Hurricane Charley, Bloomberg said. "We may see some additional upward pressure for another two weeks," from job losses related to the hurricane, said Henry Willmore, chief U.S. economist at Barclays Capital. Hurricane recovery efforts are expected to create more jobs in Southwest Florida than are lost over the longer-run, Bloomberg reported.

Preliminary 2Q GDP rose 2.8% versus expectations of a 2.7% increase and a prior estimate of 3.0%. Preliminary 2Q Personal Consumption rose 1.6% versus estimates of a 1.3% rise and a prior estimate of 1.3%. Preliminary GDP Price Deflator rose 3.2% versus estimates of a 3.2% increase and a prior estimate of 3.2%. Corporate profits after taxes for the quarter rose 17.9% in the 12 months ended in June, Bloomberg said. Business investment in equipment and software was revised up in the quarter to the strongest pace since the third quarter of last year. The core personal consumption expenditures index, the Fed's favorite measure of inflation, rose 1.7% at an annual rate in the second quarter after a 1.8% rise initially reported and a 2.1% pace in the first three months of the year. Nominal GDP rose at a 6.1% annual rate for the second quarter after rising at a 7.4% pace in the first quarter, Bloomberg reported.

The final reading from the University of Michigan's Consumer Confidence Index came in at 95.9 versus estimates of 94.0 and a prior estimate of 94.0. "Confidence is relatively high because we're in the middle of an expansion with fairly rapid growth in the economy and low interest rates," Mike Englund, chief economist at Action Economics. Job gains typically contribute to optimism, and the median forecast of economists suggests that payrolls expanded at a faster pace this month after slowing in July, Bloomberg reported.

Bottom Line: Overall, last week's economic data was mildly negative. While home sales have slowed from their blistering pace earlier in the year, the market remains very healthy. Supply is still low relative to demand. Mortgage rates averaged 6.29% in June when properties closed for the July readings. Since then, rates have fallen 47 basis points to an average mortgage rate of 5.82%. Durable Goods Orders should continue to remain robust through year-end as companies take advantage of tax incentives that are set to expire at the end of the year. Hurricane Charley is currently disrupting readings on jobless claims in a negative way. The hurricane is likely affecting other economic readings, as well. As rebuilding takes hold, the economy should benefit. U.S. GDP has recently slowed as a result of anti-business political rhetoric, less tax-cut stimulus, terrorism fears, higher commodities prices, the slowing Chinese economy, unseasonably wet weather and higher interest rates. Most of these problems are currently diminishing or reversing themselves which should lead to a substantial acceleration in GDP growth during the fourth quarter. Moreover, most of the trouble with the current slowdown is due to inflation, as nominal GDP grew 6.1% in the second quarter. Commodities prices have been the main source of inflation. Most commodities have now entered intermediate-term downtrends, which bodes well for future inflation readings and thus future GDP reports. Consumer confidence remains relatively strong and should rise with improvements in Iraq, subsiding terrorism fears, falling interest rates, declining energy prices and a pick-up in hiring.

Weekly Scoreboard*

Indices
S&P 500 1,107.77 +.86%
Dow 10,195.01 +.84%
NASDAQ 1,862.09 +1.31%
Russell 2000 551.67 +.68%
S&P Equity Long/Short Index 953.30 +.22%
Put/Call .75 -21.88%
NYSE Arms 1.02 +54.54%
Volatility(VIX) 14.71 -8.06%
AAII % Bulls 41.53 +19.07%
US Dollar 89.77 +1.87%
CRB 270.33 -2.23%

Futures Spot Prices
Gold 405.40 -2.43%
Crude Oil 43.18 -7.58%
Unleaded Gasoline 117.69 -7.13%
Natural Gas 5.19 -8.85%
Base Metals 108.20 -2.30%
10-year US Treasury Yield 4.22% -.14%
Average 30-year Mortgage Rate 5.82% +.17%

Leading Sectors
Fashion +3.46%
Internet +2.06%
Computer Boxmakers +1.90%

Lagging Sectors
Semis -.95%
Broadcasting -2.11%
Iron/Steel -2.17%

*% Gain or loss for the week

Mid-day Update

S&P 500 1,107.39 +.21%
NASDAQ 1,862.02 +.49%

Leading Sectors
Biotech +1.20%
Disk Drives +1.19%
Semis +.95%

Lagging Sectors
Restaurants -.36%
I-Banks -.49%
Airlines -3.67%

Other
Crude Oil 43.01 -.21%
Natural Gas 5.16 -.56%
Gold 404.80 -1.17%
Base Metals 108.20 -.21%
U.S. Dollar 89.69 +.44%
10-Yr. T-note Yield 4.19% -.28%
VIX 14.90 -.07%
Put/Call .97 +19.75%
NYSE Arms .93 -7.0%

Market Movers
CHIR -7.9% after saying it will delay shipments of its Fluvirin flu shots until October because testing indicated some products might not be sterile.
LCAV +10.2% after Raymond James upgrade to Strong Buy.
NX +4.6% after beating 3Q estimates, raising 04 outlook, boosting dividend and announcing 1M share buyback.
CHTT +6.9% saying it won final court approval of a settlement of as much as $76M in claims that an additive in its Dexatrim diet drug had caused some users to have strokes and raising 3Q forecast.
OSIS -17.9% after beating 4Q estimates and lowering 1Q guidance.
JUPM -11.4% after saying CEO and COO sold 1M shares.
KWD -6.11% after missing 2Q estimates and lowering 3Q forecast.

Economic Data
Preliminary GDP for 2Q rose 2.8% versus estimates of 2.7% and 3.0% prior.
Preliminary Personal Consumption for 2Q increased 1.6% versus estimates of 1.3% and 1.0% prior.
GDP Price Deflator for 2Q rose 3.2% versus estimates of 3.2% and 3.2% prior.
Final Univ. of Mich. Consumer Confidence for August was 95.9 versus estimates of 94.0 and a prior reading of 94.0.

Recommendations
Citi SmithBarney said to Buy PNR, target $40. Citi reiterated Buy on CHS, target $48. Citi reiterated Buy on FLEX, target $22. CRK raised to Sector Outperform at CIBC. LCAV raised to Strong Buy at Raymond James, target $27. Goldman Sachs reiterated Outperform on MON.

Mid-day News
U.S. stocks are quietly higher mid-day as economic data met expectations and oil prices continue to fall. France's new foreign minister, Michel Barnier, told a conference of the country's ambassadors yesterday that France "is not great when it is arrogant" and "not strong if it is alone," the NY Times reported. About half of video game players say they reduced their tv viewing this year, or plan to next year, the NY Post reported. California legislators scrapped a proposal to build a Las Vegas-style casino near San Francisco, the LA Times reported. Hewlett-Packard plans to unveil printer ink today that it hopes will brand ink like Intel's "Intel Inside" advertising campaign branded computer chips, the LA Times reported. The Bond Market Association has stepped up political contributions to Republicans, the Bond Buyer said. The U.S. dollar headed for its biggest weekly advance against the euro in a month as policy makers at the Federal Reserve said a slowdown in the U.S. economy during the second quarter won't last and oil prices retreated, Bloomberg reported. Russia's security service said it found traces of explosives in the wreckage of one of two Russian planes that crashed on Tuesday night, killing 89 people, Bloomberg reported. Iraqi Foreign Minister Zebari said he's "optimistic" the crisis in Najaf has been resolved after three weeks of clashes between militiamen loyal to al-Sadr and U.S.-led coalition forces, Bloomberg said. GE's NBC will get 20% less for advertising time on its spin-off comedy, "Joey," this year than it did for the show's predecessor, "Friends," Bloomberg reported.

BOTTOM LINE: The Portfolio is unchanged mid-day as my longs are slightly higher and my shorts are rising. I added a few new longs this morning, bringing the Portfolio's market exposure to 100% net long. One of my new longs is LRCX and I am using a $21.75 stop-loss on this position. The market continues to consolidate recent gains in an orderly fashion. The CRB Index is falling again and the Put/Call ratio is spiking which are positives. As well, interest rates and oil prices are still declining. I continue to anticipate a resumption of the recent rally next week. The main worries of investors are improving. Energy prices are falling, interest rates are declining, inflation fears are falling, Iraq is improving, Bush's poll numbers are rising, terrorism fears are subsiding and economic growth is stabilizing. I expect U.S. stocks to rise modestly into the close on short-covering.

Friday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
PGTV 2-for-1

Economic Data
Preliminary 2Q GDP estimated up 2.7% versus 3.0% prior.
Preliminary 2Q Personal Consumption estimated up 1.3% versus 1.0% prior.
Preliminary 2Q Price Deflator estimated up 3.2% versus 3.2% prior.
Final Univ. of Mich. Consumer Confidence reading for August estimated at 94.0 versus 94.0 prior.

Recommendations
Goldman Sachs reiterated Outperform on MDT and Underperform on GCO. Shares of BE Aerospace(BEAV), the world's biggest maker of interiors for airlines, may rise more than 50% over the next year as airlines pick up spending on their fleets, Business Week reported. Shares of Angiotech Pharmaceuticals(ANPI), which licenses its stent-coating technology to Boston Scientific, may rise because the company is a pioneer in drug-coated medical devices, Business Week reported. Manpower(MAN) and Monster Worldwide(MNST) shares will rise after a sell-off from weak job reports in June and July left the stocks undervalued, Business Week reported.

Late-Night News
Asian indices are quietly mixed as optimism over falling energy prices is mostly offset by terrorism concerns. Lazard LLC Chairman Michel David-Weill and other partners who together control 36% of the investment-banking partnership would demand to be bought out as a condition for approving an IPO, Business Week reported. Microsoft will start an internet music store allowing customers to purchase and download music tracks to their computers, the Financial Times reported. Two Russia airline crashes minutes apart of Tuesday were probably caused by terrorism, the AP said. Crude oil's five-day plunge since failing to reach $50/bbl. has convinced more traders and analysts that the price will continue to fall, according to a Bloomberg survey. Tyco International CEO Breen, who runs businesses touching at least a dozen industries, said higher commodity prices are constraining profits and may reduce U.S. economic growth by about .5 percentage points, Bloomberg reported.

Late-Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.25%

BOTTOM LINE: I expect U.S. equities to open modestly lower on weaker economic data. However, stocks should rise into the afternoon on short-covering ahead of potential positive catalysts next week. The Portfolio is 75% net long heading into tomorrow.

Thursday Close

S&P 500 1,105.09 +.01%
NASDAQ 1,852.92 -.42%

Leading Sectors
Oil Service +1.88%
Gaming +1.05%
I-Banks +.78%

Lagging Sectors
Semis -1.01%
Iron/Steel -1.02%
Disk Drives -2.40%

Other
Crude Oil 43.14 +.09%
Natural Gas 5.14 -.94%
Gold 408.60 -.24%
Base Metals 108.43 +.49%
U.S. Dollar 89.30 -.13%
10-Yr. T-note Yield 4.21% -1.23%
VIX 14.91 -.47%
Put/Call .81 +3.85%
NYSE Arms 1.0 +26.58%

After-hours Movers
TECD +4.27% after beating 2Q estimates and raising 3Q forecast.
COH +3.17% after announcing it would replace Charter One Financial in S&P 500.
CHS -4.28% on profit-taking after beating 2Q estimates and making positive comments.
CHIR -6.30% after saying it will delay shipments of its Fluvirin flu shots until October because testing indicated some products might not be sterile.

Recommendations
Goldman reiterated Outperform on FS, GDT and GILD.

After-hours News
U.S. stocks finished mostly lower today as investor apprehension over terrorism rose ahead of the Republican convention, offsetting a continuing fall in energy prices. After the close, Rebel cleric al-Sadr's militia is set to leave the Imam Ali Mosque in Najaf today, abandoning the focal point of a three-week siege involving U.S. and Iraqi forces, Agence France-Presse reported. U.S. authorities arrested or obtained convictions of 156 people since June 1 in an investigation of economic crimes committed on the Internet, Attorney General John Ashcroft said. Health insurers including Aetna, Kaiser Permanente and WellPoint Health are considering discouraging use of Merck's Vioxx painkiller because of concerns about the drug's heart risk, Bloomberg reported. The U.S. women's soccer team beat Brazil 2-1 in extra time for its second Olympic title, hitting the winning goal with eight minutes left, Bloomberg reported.

BOTTOM LINE: The Portfolio finished lower today as my technology and restaurant longs declined. A few of my longs hit stop-losses in the afternoon and I exited the positions, leaving the Portfolio 75% net long. Volume was very light today and the market's tone remains positive. Further gains are likely next week, barring any domestic terrorism. Natural Gas futures are now down 24% from their recent highs. This is very positive and, as usual, is barely mentioned by the mainstream press.

Mid-day Update

S&P 500 1,104.09 -.08%
NASDAQ 1,852.40 -.45%

Leading Sectors
Oil Service +1.68%
Fashion +.88%
Gaming +.80%

Lagging Sectors
Restaurants -.85%
Semis -1.24%
Disk Drives -1.55%

Other
Crude Oil 43.18 -.67%
Natural Gas 5.12 -3.36%
Gold 409.30 -.17%
Base Metals 108.43 +.49%
U.S. Dollar 89.39 -.03%
10-Yr. T-note Yield 4.22% -.96%
VIX 15.02 +.27%
Put/Call .83 +6.41%
NYSE Arms .92 +16.46%

Market Movers
SBUX -5.9% after saying August same-store-sales rose 8%, less than the 11% average gain in the first 11 months of its fiscal year.
APOL +8.9% after reiterating 1Q guidance and raising 05 outlook.
TASR +6.7% after saying it won four additional orders from police departments valued at more than $1 million.
WFI +33.0% after saying it agreed to be purchased by WesBanco(WSBC) for $102.5 million in cash and stock.
SAM -15.7% after lowering 04 estimates and Prudential downgrade to Neutral Weight.
FRED -11.11% after missing 2Q estimates and giving weak guidance.
KKD -10.8% after missing 2Q estimates and lowering 05 outlook.
AOS -9.42% on Robert W. Baird downgrade to Neutral.

Economic Data
Initial Jobless Claims for last week were 343K versus estimates of 335K and 333K the prior week.
Continuing Claims were 2897K versus estimates of 2885K and 2892K prior.
Help Wanted Index for July was 37 versus estimates of 38 and 38 in June.

Recommendations
Goldman Sachs reiterated Underperform on Newspaper industry. Goldman reiterated Outperform on UST, IR, FS, HOT, GCI and FON. Goldman reiterated Underperform on DJ and CVH. Citi SmithBarney said to Buy PEP on weakness, target $60. Recent Citi CIO survey points to strength at BEAS, VRTS, RSAS, COGN and MSTR. Citi reiterated Buy on TOL, target $62. Citi reiterated Buy on AFC, target $40. BAX cut to Reduce at UBS. EFX and WW cut to Sector Underperform at CIBC. KLAC rated Buy at Deutsche Bank, target $44. CCI rated Buy at Bank of America, target $18. SSI rated Buy at Bank of America, target $51. PSYS raised to Strong Buy at Raymond James, target $30. Mario Gabelli, founder and chief executive officer of Gabelli Assest Management, told CNBC that investors should buy oil stocks. Gabelli also said investors should buy shares of LBTYA.

Mid-day News
U.S. stocks are quietly lower mid-day as investor apprehension over terrorism rises ahead of the Republican Convention. Democratic U.S. Senator Daschle faces a close re-election race, with allegations that, as Senate Minority Leader, he helped block President Bush's judicial nominees and Republican-backed legislation in a state where Bush is popular, the Washington Post reported. General Electric's NBC has sold $20 million to $30 million in tv ads in recent days, due to the popularity of the Olympics, the New York Daily News reported. Fifty of the U.S.'s leading anarchists are expected to be in NYC for next week's Republican Convention, some with histories of violent and disruptive tactics, the New York Daily News reported. Illegal immigrants cost the U.S. government more than $10 billion annually and efforts to legalize them would boost the cost to $29 billion a year, the LA Times reported. Workers at Southern Peru Copper Corp., Peru's biggest copper miner, plan to strike Tuesday, Platts reported. UPS plans to deliver packages using a van with the latest fuel-cell technology starting today, the LA Times said. Nearly 300 anti-Semitic acts have been recorded in France so far this year, 67 of them involving physical or verbal assaults on individual Jews, LCI tv reported. Bonds of Toys "R" Us Inc. are being shunned by investors on speculation a corporate restructuring may leave the securities with a more heavily indebted entity, Bloomberg reported. Crude oil futures declined for a fifth straight session, the longest period in 10 months, as a cease-fire in Najaf eased concern that shipments from Iraq will be disrupted, Bloomberg said. President Bush took a 3 percentage point lead over Senator Kerry in a recent poll by the LA Times for the first time this year, Bloomberg reported. U.S. initial jobless claims rose for the first time in four weeks, boosted by more filings related to Hurricane Charley, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly lower mid-day as my declining technology and restaurant longs are more than offsetting my declining steel shorts. I have not traded today and the Portfolio is 100% net long. Oil, Natural Gas and Gasoline futures are all falling and interest rates are declining again today. I continue to believe inflation worries have peaked for at least the intermediate-term and that U.S. economic growth will accelerate in the fourth quarter. Oil prices should drift lower throughout the remainder of the year as supply catches up to demand and the terror premium erodes. The major U.S. indices appear to be consolidating recent gains before a move higher next week. I expect stocks to remain mixed-to-weaker through tomorrow morning and begin rising later tomorrow on short-covering.

Thursday Watch

Earnings of Note
Company/Estimate
CHS/.38
DG/.20
MCRS/.60
KKD/.22
SFD/.47
TSA/.44
TECD/.49
VIP/1.69

Splits
WOOF 2-for-1
ZBRA 3-for-2

Economic Data
Initial Jobless Claims for last week are estimated at 335K versus 331K the prior week.
Continuing Claims are estimated at 2885K versus 2904K prior.
Help Wanted Index for July estimated at 38 versus 38 in June.

Recommendations
Goldman Sachs reiterated Underperform on CMOS.

Late-Night News
Asian indices are mostly higher as crude oil futures had their steepest decline in three months. Career Education is the subject of a grand jury investigation by the U.S. Justice Department and could face criminal charges, the Financial Times reported. Toronto-Dominion Bank, Canada's second-largest bank by assets, may announce a deal as early as tomorrow to buy a majority stake of Banknorth Group, the Wall Street Journal reported. Taiwan's Nanya Technology Corp., ProMOS Technologies Inc. and Powerchip Semiconductor Corp. are expected to make a combined $440 million in the third quarter because a typhoon caused a worldwide shortage of dynamic random access memory chips and pushed up prices, the Economic Daily News said. Russian President Putin ordered security controls at the country's airports to be taken over by the Interior Ministry, Interfax reported.

Late-Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated -.14%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on continuing optimism over falling energy prices and short-covering. It is likely the rally in U.S. stocks will pause sometime during the next 2 days as apprehension rises on terrorism fears ahead of the Republican Convention. However, barring any domestic terror acts, equities should resume their rise next week. The Portfolio is 100% net long heading into tomorrow.

Wednesday Close

S&P 500 1,104.96 +.80%
NASDAQ 1,860.72 +1.30%

Leading Sectors
Networking +2.52%
Internet +2.06%
I-Banks +2.04%

Lagging Sectors
Papers -.15%
Fashion -.30%
Homebuilders -.93%

Other
Crude Oil 43.63 +.37%
Natural Gas 5.31 +.32
Gold 409.20 -.20%
Base Metals 107.90 -1.18%
U.S. Dollar 89.42 -.03%
10-Yr. T-note Yield 4.26% -.14%
VIX 14.98 -2.28%
Put/Call .78 -1.27%
NYSE Arms .79 -35.77%

After-hours Movers
CECO -9.71% after saying Robert McNamara Jr., former general counsel to the CIA, will be the company's first senior v.p. of compliance.
CWTR +10.01% after beating 2Q estimates.
SBUX -4.11% after saying August same-store-sales rose 8%, less than the 11% average gain in the first 11 months of its fiscal year.
CYBX -4.48% after raising 2Q profit forecast and lowering 2Q sales guidance.
ZIGO +17.62% after reporting strong 4Q and saying it had entered into an agreement to sell its vacant Westborough, Mass., facility.

Recommendations
Goldman Sachs reiterated Outperform on TU and UNH. Goldman reiterated Underperform on BA.

After-hours News
U.S. stocks finished higher today as the Dow hit a six-week high on optimism over falling oil prices. After the close, Microsoft was fined by Brazil's antitrust regulator the equivalent of 10% of its 1998 sales to the federal government for illegal practices, Bloomberg reported. Iraqi police rounded up dozens of journalists in a Najaf hotel today and took them to the station. "You are brought here because I want to tell you that you never publish the truth," Najaf police Chief Ghaleb al-Jezari told the reporters, Agence France-Presse reported. Crude oil futures plunged 3.9% to $43.47/bbl., the biggest decline in almost three months, after a government reported showed that U.S. gasoline supplies were higher-than-expected. Former Enron director of investor relations, Mark Koenig, pleaded guilty in federal court in Houston to aiding and abetting securities fraud and has agreed to cooperate with prosecutors, Bloomberg reported. Militiamen loyal to Moqtada al-Sadr will suspend fighting in Iraq to market the return of the nation's leading Shiite Muslim cleric, Grand Ayatollah Ali al-Sistani, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slightly higher today as my falling steel shorts and rising alternative energy longs more than offset my declining homebuilding longs. I added a few new technology and restaurant longs in the afternoon, leaving the Portfolio 100% net long. One of my new longs is OSTK and I am using a $30.75 stop-loss on the position. The action in the unleaded gasoline and oil futures is very encouraging and will provide further stimuli to economic demand in the fourth quarter. Many large investors are vacationing this week and many more are planning on leaving NYC during the Republican Convention next week. This leads me to conclude this rally has further to go, barring an act of terror at the convention. The market is also anticipating pro-business political rhetoric and a bounce in the polls for President Bush, which the majority of investors view favorably.

Mid-day Update

S&P 500 1,099.48 +.30%
NASDAQ 1,845.68 +.48%

Leading Sectors
Networking +1.24%
Oil Service +.99%
Semis +.88%

Lagging Sectors
Papers -.94%
Iron/Steel -1.21%
Homebuilders -1.73%

Other
Crude Oil 45.12 -.20%
Natural Gas 5.34 +.04%
Gold 409.20 +1.06%
Base Metals 107.78 -1.29%
U.S. Dollar 89.36 -.10%
10-Yr. T-note Yield 4.24% -.73%
VIX 15.0 -2.15%
Put/Call .66 -16.46%
NYSE Arms 1.05 -14.63%

Market Movers
DITC +20.8% after beating 1Q estimates and raising 2Q forecast.
SMTC +7.3% after beating 2Q estimates, reiterating 3Q forecast and Legg Mason upgrade to Buy.
BNK +10.5% after disclosing it is in talks with Toronto-Dominion Bank for "a possible transaction."
WSM +10.2% after beating 2Q estimates and raising 3Q/4Q forecasts.
TZOO +5.3% on continuing short-squeeze.
EYET +4.7% after saying they will learn Friday whether their drug for treating blindness will move closer to FDA approval.
SEAC -10.4% after beating 2Q forecast and reiterating 3Q guidance.
HRB -7.6% after missing 1Q estimates and giving weak 05 guidance.
CNX -6.9% after lowering 3Q estimates substantially.

Economic Data
Durable Goods Orders for July rose 1.7% versus estimates of a 1.0% increase and an upwardly revised 1.1% rise in June.
Durable Goods Less Transportation rose .1% versus estimates of a 1.3% increase and a .3% fall in June.
New Home Sales for July came in at 1.13M versus estimates of 1.3M and a downwardly revised 1.21M in June.

Recommendations
Goldman Sachs reiterated Outperform on GDT, STLD, CVD, IACI, WAG and FSL. Goldman reiterated Underperform on HRB. Citi SmithBarney reiterated Buy on GIS, target $51.50. Citi reiterated Buy on AVO, target $46. Citi reiterated Buy on COO, target $70. CFSI rated Overweight at JP Morgan. PIR rated Sell at Deutsche, target $14. JWN rated Buy at Deutsche Bank, target $47. NMG/A rated Buy at Deutsche Bank, target $67. FD rated Buy at Deutsche Bank, target $55. SKS rated Sell at Deutsche Bank, target $10. DDS rated Sell at Deutsche Bank, target $15. SMTC raised to Buy at Legg Mason, target $23. PPC raised to Outperform at CSFB, target $30. CFSI rated Outperform at CSFB, target $16. Merrill Lynch rated COO Focus 1 stock of the week.

Mid-day News
U.S. stocks are higher mid-day on another fall in oil prices and mixed economic reports. Senator Kerry's campaign promises conflict with his pledge to reduce the federal budget deficit, the Washington Post said, citing its review of the four-term senator's tax cut and spending proposals. Scientists at a Becton, Dickinson unit and the U.S. Army have developed an inhaled vaccine that could potentially protect against anthrax infection and be more easily stockpiled for emergencies, Reuters reported. Viacom may enter the video game business and is eyeing Electronic Arts as a purchase target, the New York Post said. GM, Ford and Chrysler are offering rebates and financing deals that lower the value of their vehicles in the minds of consumers, the AP reported. California may surpass Nevada in annual revenue from gambling by the end of the decade, the LA Times said. Sprint and Mediacom agreed to provide phone service to more than 2 million Mediacom cable customers starting next year, the companies said. The UN appealed for $434 million to provide for humanitarian needs in Sudan's western Darfur region, and other areas of the African country, Bloomberg reported. U.S. orders for durable goods rose 1.7% in July, more than forecast, as bookings surged for commercial aircraft and demand increased for business equipment, Bloomberg reported. U.S. new home sales in July fell more than forecast to a 1.13 million annual rate, the slowest pace of the year, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher mid-day as my declining homebuilding longs are more than offset by my falling steel shorts and rising alternative energy longs. I have not traded today and the Portfolio is still 50% net long. The tone of the market is improving again today as oil continues to fall. While the new home sales numbers were disappointing, they were still relatively strong and will likely accelerate as mortgage rates fall further and energy prices decline. I expect U.S. stocks to rise modestly into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
CWTR/.00
DLTR/.26
SJM/.56
MIK/.40
TOL/1.19
WSM/.19

Splits
IVX 5-for-4

Economic Data
Durable Goods Orders for July estimated up 1.0% versus an increase of .9% in June.
Durable Goods Less Transportation for July estimated up 1.3% versus a decrease of .4% in June.
New Home Sales for July estimated at 1.3M versus 1.33M in June.

Recommendations
Goldman Sachs reiterated Outperform on NFP.

Late-Night News
Asian indices are mostly higher as exporters rise after oil prices remained near a 2-week low. General Motors is cutting back production of its Hummer H2 sport-utility vehicle because of lower consumer demand for the large vehicles, the Wall Street Journal reported. Boeing won a $3.7 billion order from Singapore Airlines for 18 long-range 777s, beating out Airbus SAS, Bloomberg reported. Shareholders of Wal-Mart Stores say the world's biggest retailer should proceed with a plan to buy stores from Daiei, a Japanese supermarket chain that is trying to restructure more than $9 billion in debt, Bloomberg said. Two Russian airliners crashed nearly simultaneously late Tuesday, purportedly killing all 86 people on board. Authorities suspect terrorism, CNN reported. A resurgence of capital spending by companies such as Boeing, Caterpillar and Verizon Communications may create jobs and strengthen the U.S. economy after a mid-year lull, economists say.

Late-Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated -.11%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on strength in Asia and continuing optimism over falling oil prices. The Portfolio is 50% net long heading into tomorrow.

Tuesday Close

S&P 500 1,096.19 +.05%
NASDAQ 1,836.89 -.10%

Leading Sectors
Airlines +2.44%
Restaurants +1.07%
Transports +.84%

Lagging Sectors
Broadcasting -.79%
Networking -1.15%
Semis -2.52%

Other
Crude Oil 45.15 -1.95%
Natural Gas 5.36 +1.04%
Gold 405.50 -1.77%
Base Metals 109.19 +.26%
U.S. Dollar 89.43 +.42%
10-Yr. T-note Yield 4.27% -.36%
VIX 15.33 -3.46%
Put/Call .79 unch.
NYSE Arms 1.23 +21.78%

After-hours Movers
DITC +27.07% after beating 1Q estimates and raising 2Q forecast.
SMTC +7.2% after beating 2Q estimates and reiterating 3Q forecast.
SEAC -3.62% after beating 2Q forecast and reiterating 3Q guidance.
APPB -4.45% after saying the Olympics will hurt sales first week in Sept.
HRB -7.87% after missing 1Q estimates and giving weak 05 guidance.

Recommendations
Goldman Sachs reiterated Outperform on BBY, HD, SPLS, PETC, JTX and MDT.

After-hours News
U.S. stocks finished mixed today as falling oil prices offset weaker economic data and terrorism fears ahead of the Republican Convention. Hedge funds, pension funds and other buyers of bonds are planning to hire more fixed-income professionals even as U.S. bond markets are enduring a lackluster year, Reuters reported. Rapid advancements in biotechnology in the past five years have created demand for more lawyers in the field, the New York Law Journal reported. Sunoco, the largest oil refiner in the U.S. Northeast, will shut much of its plant in Marcus Hook, Pennsylvania, on Sept. 5 for two to three weeks of maintenance, Reuters said. Alan Greenspan said the case has not been made to monitor hedge funds and that China's slowing economy should rebound, Bloomberg reported. H&R Block had a $44.1 million loss in its fiscal first quarter as earnings from mortgage loans fell and an office expansion increased costs, Bloomberg said. Sugar-rich soft drinks and fruit punch are fueling twin surges in U.S. obesity and diabetes, according to a U.S. study in the Aug. 25 Journal of the American Medical Association. California's credit rating on $42.7 billion of bonds was raised three levels by S&P after the state's economy improved and Governor Schwarzenegger engineered a bond sale to avert a cast shortage, Bloomberg reported. Viacom, signaling that investors are shunning its plan to split off home-video unit Blockbuster, said it may once again have to write down the value of the video rental chain's assets, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today as my shorts were mixed and technology longs fell. I added a few new longs in the afternoon, bringing the Portfolio's market exposure to 50% net long. One of my new longs is AMXC and I am using a stop-loss of $16 on this position. The tone of the market was pretty good today, considering last week's run-up. The market appears to be consolidating before another move higher next week.

Mid-day Update

S&P 500 1,096.21 +.05%
NASDAQ 1,836.85 -.16%

Leading Sectors
Airlines +2.31%
Restaurants +1.17%
Transports +.61%

Lagging Sectors
Commodity -.71%
Oil Service -1.03%
Semis -2.11%

Other
Crude Oil 45.20 -1.89%
Natural Gas 5.27 -.66%
Gold 405.70 -1.72%
Base Metals 109.19 +.26%
U.S. Dollar 89.47 +.47%
10-Yr. T-note Yield 4.29% +.32%
VIX 15.54 -2.14%
Put/Call .76 -3.80%
NYSE Arms 1.29 +27.72%

Market Movers
POSS -37.4% after reiterating 4Q outlook, lowering 05 guidance and saying a study showed its AngioJet medical device shouldn't be routinely used to reduce blood vessel clots in heart attack patients.
BRCM -6.4% after CSFB lowered its 3Q/4Q estimates and price target.
PCP +6.7% after Bank of America upgrade to Buy.
DLP +9.8% after saying it will enter a long-term agreement with Syngenta AG to develop and sell new biotechnology products for cotton.
PERY +5.5% after exceeding 2Q estimates.
SAFM -23.2% after missing 3Q estimates and lowering 04 outlook.
AD -13.9% after lowering 04 guidance and multiple downgrades.
TTC -5.6% after exceeding 3Q estimates and lowering 04 guidance.
GOOG -4.4% on profit-taking after IPO run-up.

Economic Data
Existing Home Sales for July were 6.72M versus estimates of 6.81M and 6.92M in June.

Recommendations
OTEX rated Buy at Merrill, target $28. POT raised to Buy at Merrill. CLS raised to Outperform at Thomas Weisel. SANM raised to Outperform at Thomas Weisel. BEC raised to Outperform at Thomas Weisel. PCP raised to Buy at Bank of America, target $64. VSAT rated Buy at Oppenheimer, target $25. Goldman Sachs reiterated Outperform on A, IP, DTC, ALK, CAL and SPP. Goldman raised CAT to Outperform. Citi SmithBarney reiterated Buy on MWD, target $72. Citi reiterated Buy on PTP, target $34. Citi reiterated Buy on MXRE, target $24. Citi reiterated Buy on FLEX, target $22. Citi reiterated Buy on TOY, target $23.

Mid-day News
U.S. stocks are mixed mid-day as falling energy prices offset weaker economic data. Bioenvision expects as much as $300 million in sales from its clofarabine drug, which treats acute and chronic leukemia, CEO Wood told CNBC. The European Commission plans to extend its probe into plans by Microsoft and Time Warner to buy control of ContentGuard, a U.S. maker of anti-piracy software, Reuters said. Osama bin Laden's chauffeur was arraigned today on terrorism charges before a military tribunal at the U.S. naval base at Guantanamo Bay, Cuba, the AP said. California's Senate yesterday passed a bill aimed at keeping companies from moving jobs to other countries, the LA Times reported. The measure was passed even though an unreleased report commissioned by the leadership of the California State Assembly found the measure would cost more jobs than it would save, the newspaper said. Iraqi Vice-President Ibrahim al-Jafari made a surprise visit to neighboring Iran to meet President Mohammad Khatami and other members of the leadership, Agence France-Presse reported. U.S. 10-year Treasury notes declined for a third day, the longest drop in a month, after Federal Reserve Governor Bernanke said oil prices near record highs won't derail growth in the world's largest economy, Bloomberg reported. The U.S. Chamber of Commerce, the nation's largest business organization, said it will help pay for ads suggesting the economic "dangers" associated with having trial lawyers aligned with the White House, Bloomberg reported. Crude oil futures fell for a third session, dropping as low as $44.95 a barrel, on speculation that increased Iraqi shipments will help meet global needs, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly lower mid-day as my shorts are mixed and my technology longs are falling. I took profits in a few longs this morning and added a new short, bringing the Portfolio's market exposure to 25% net long. My new short is ERTS and I am using a $51.25 stop-loss on the position. I now believe oil has seen its highs for the intermediate-term. Another move up to test the highs could occur during September, however I believe it will fail and the price of crude will head relentlessly towards the mid-30's by year's end. This is a very positive development and was necessary for the strong rally I envision during the fourth quarter. Stocks will likely remain mixed into the close, however with oil falling I am not ruling out another leg up.

Tuesday Watch

Earnings of Note
Company/Estimate
APSG/.26
HUG/1.16
HNZ/.55
HRB/-.05
DITC/.22
OVTI/.30
RGS/.59
SAFM/1.93
SEAC/.11
SMTC/.21
TTC/1.28

Splits
BLL 2-for-1

Economic Data
Existing Home Sales for July estimated at 6.81M versus 6.95M in June.

Recommendations
Goldman Sachs reiterated Underperform on PVH. Goldman Sachs reiterated Outperform on JTX.

Late-Night News
Asian indices are mostly higher as oil prices decline for a third day. Nokia, Motorola and other international makers of mobile phones have stopped losing market share in China to local manufacturers, the Financial Times reported. The SEC has ordered a study of off-balance-sheet accounting to determine whether companies are complying with new rules, the Financial Times reported. American International Group will compete with HSBC Holdings and Metlife of the U.S. to buy South Korea's SK Life Insurance, Yonhap News said. Adelphia Communications asked a U.S. bankruptcy court to order the Rigas family, the company's founding family, to repay the bankrupt U.S. cable-tv operator $3.2 billion, the Wall Street Journal said. Afghanistan's voter registration program, which began in December, ended with 10.3 million people enrolled for October's presidential poll and National Assembly elections scheduled for April, Bloomberg reported. Honda Motor said it is developing motorcycles that can run on gasoline-electric engines and fuel cells, extending the so-called hybrid technology for the first time to two-wheeled vehicles, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on better economic data and declining oil prices. However, stocks will likely trade slightly lower later in the day on terrorism fears ahead of the Republican convention and profit-taking. The Portfolio is 50% net long heading into tomorrow.

Monday Close

S&P 500 1,095.68 -.24%
NASDAQ 1,838.70 +.04%

Leading Sectors
Fashion +2.30%
Homebuilders +1.42%
Semis +1.06%

Lagging Sectors
Commodity -1.66%
Broadcasting -1.76%
Iron/Steel -2.18%

Other
Crude Oil 45.96 -.20%
Natural Gas 5.31 unch.
Gold 411.10 -.41%
Base Metals 108.91 -1.66%
U.S. Dollar 89.10 +1.11%
10-Yr. T-note Yield 4.28% +1.19%
VIX 15.88 -.75%
Put/Call .79 -17.71%
NYSE Arms 1.01 +53.03%

After-hours Movers
None of note.

Recommendations
Goldman Sachs reiterated Outperform on DVN and RE.

After-hours News
U.S. stocks finished mixed today as oil fell, interest rates rose and companies reported mixed earnings. After the close, Gap Inc. is exploring ways to expand internationally and may start a fourth brand in the U.S., the Financial Times reported. The benchmark 10-year U.S. Treasury note fell for a third day in four as a decline in oil prices from record highs reduced speculation economic growth will slow, Bloomberg reported. The number of U.S. adults with high blood pressure increased 30% over the past decade, according to a study in the journal Hypertension. Toyota Motor is raising U.S. prices for the Prius, its hybrid car powered by gasoline and electricity, by 2.9% as orders outstrip supply, Bloomberg reported. Iraq, which is trying to rebuild its Olympic sports after decades of decline under one of Saddam Hussein's sons, can clinch its first medal in 44 years by beating Paraguay in a soccer semifinal in Athens, Bloomberg said. Taiwan's financial markets and government offices were closed today as Typhoon Aere approaches the island with torrential rains and winds of up to 102 mph, Bloomberg reported.

BOTTOM LINE: The Portfolio finished substantially higher today as my homebuilding, telecom equip. and Internet longs rose and my steel and Chinese ADR shorts fell. I took profits in a few longs in the afternoon, leaving the Portfolio 50% net long. The tone of the market was pretty good today considering recent gains. However, terrorism fears ahead of the Republican Convention will likely rise over the near-term. Moreover, I expect domestic terrorism fears to peak between the Republican Convention and the 9/11 anniversary. The terror premium in oil should erode, after this time period, through year's end. Finally, I continue to expect homebuilders and tech shares to outperform this week.

Mid-day Update

S&P 500 1,098.26 -.01%
NASDAQ 1,841.82 +.21%

Leading Sectors
Fashion +2.30%
Semis +1.51%
Wireless +.90%

Lagging Sectors
Broadcasting -1.51%
Commodity -1.53%
Iron/Steel -1.95%

Other
Crude Oil 46.60 -.30%
Natural Gas 5.37 -3.19%
Gold 412.70 -.67%
Base Metals 108.91 -1.66%
U.S. Dollar 88.78 +.75%
10-Yr. T-note Yield 4.27% +.92%
VIX 16.02 +.06%
Put/Call .76 -20.83%
NYSE Arms .82 +24.24%

Market Movers
GOOG +3.7% on continuing strong demand for its IPO.
ARTI +15.4% after ARMHY agreed to buy it for about $913 million. ARMHY -18.15%.
MOND +12.3% after it said it would eliminate its class B shares as part of a reincorporation, approving a $30 million stock repurchase plan and Prudential upgrade to Overweight.
FILE +8.4% after KeyBanc upgrade to Buy.
EYET +4.58% on optimism over an upcoming FDA review of Macugen, the company's experimental drug intended to treat an eye disease that is one of the leading causes of blindness.
SCST -26.4% after cutting 3Q outlook.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on A, JTX, WMT and PG. Goldman reiterated Underperform on HRB, TSG and BA. Citi SmithBarney reiterated Buy on UNM, target $20. Citi reiterated Buy on DPZ, target $18. RHI cut to Reduce at UBS, target $21. Bear Stearns raised Hospital stocks to Overweight. PBG cut to Underweight at Prudential, target $25. MOND raised to Overweight at Prudential, target $44. DPZ raised to Outperform at CSFB, target $17. BLS cut to Underperform at Raymond James. SBC raised to Outperform at Raymond James, target $28. MDCC raised to Outperform at Thomas Weisel.

Mid-day News
U.S. stocks are mixed mid-day as interest rates rise, oil stabilizes and earnings reports are mixed. Boeing and IPass are combining services to allow corporate travelers on long-distance flights to connect to the Internet, Reuters said. Comcast plans to offer a digital video recorder service beginning today that will enable viewers to record their shows without a videocassette recorder, the Star-Ledger reported. Sharp Corp. said it has created a microwave oven that can melt some of the fat and oil from steak, chicken, fish and other foods, Reuters reported. Infineon Technologies AG, Europe's second-largest chipmaker, plans to expand in the U.S. by bolstering its business for memory chips there, Die Welt reported. Norway's $140 billion Petroleum Fund hired Fidelity Investments, T. Rowe Price Group, Alliance Capital Management and three other companies to oversee stocks after investments stagnated in the second quarter, Bloomberg reported. Wal-Mart cut its August forecast for sales due to weaker-than-expected back-to-school demand, Bloomberg said. OAO Yukos Oil, Russia's biggest oil exporter, cut its 2004 production target to 1.72 million barrels a day of crude because payments on the company's tax bill forced it to spend less on drilling and maintaining wells, Bloomberg reported. FedEx raised its earnings estimates for a second time this fiscal year because of rising international and ground business, Bloomberg reported. RCN, a provider of cable tv, phone and Internet service, filed a plan to exit bankruptcy that will exchange $1.2 billion in unsecured debt for all of the equity in the company by the end of the year, Bloomberg said. Oil futures fell modestly after Iraq boosted shipments to tankers to normal rates for the first time in two weeks, Bloomberg reported. Merrill Lynch and UBS are among the Wall Street firms which together are losing some of the wealthiest Americans as clients, a group that pays as much as $28 billion in fees for financial advice every year, Bloomberg said.

BOTTOM LINE: The Portfolio is substantially higher mid-day as my homebuilding, internet, alternative energy and telecom equipment longs are rising and my Chinese ADR and steel shorts are falling. I have not traded and the Portfolio is still 125% net long. The market is maintaining its constructive tone today as many market leading stocks are higher. It is also positive to see Natural Gas making another intermediate-term low today and commodity-related stocks continue to weaken, which bodes well for future inflation readings. However, rising interest rates and a rebound in oil off its morning lows will likely result in more mixed trading into the close.

Monday Watch

Earnings of Note
Company/Estimate
PERY/-.30
TOY/-.03
WWE/.06

Splits
HTLD 3-for-2

Economic Data
None of note.

Weekend Recommendations
Cashin' In had guests that were positive on SYMC, ASA, POSS, EK, CHK, UBL and mixed on MCD. Wall Street Week w/Fortune had guests that were positive on AEOS, AAPL, CVX, SII, UTH, PLMO and XMSR. Barron's had positive comments on BSX, GET, MYL and MNST. Goldman Sachs reiterated Outperform on STZ, KO, EBAY, ENH, NKE and Underperform on PBG, EK and GAS.

Weekend News
The price of a barrel of oil will fall to around $30 within "a few months," Cinco Dias reported, citing comments from World Bank chief economist Francois Bourguignon. General Motors may hire Wolfgang Bernhard, who had helped DaimlerChrysler AG by cutting costs and creating new products, the Detroit Free Press reported. Among major Japanese companies, 96% expect the country's economy to expand, signaling optimism has increased the most since the early 1990's, the Sankei newspaper reported. Pakistan's security forces arrested nearly a dozen al-Qaeda-linked terror suspects plotting attacks on key sites, including the country's parliament and the U.S. Embassy in the capital of Islamabad, Agence France-Presse reported. U.S. newspapers are considering cutting some of their comic strips in order to reduce costs, yet risk alienating long-term readers, the NY Times said. Iran will delay the planned start-up of its first nuclear reactor until 2006, a year later than previously scheduled, Agence France-Presse reported. Morgan Stanley has invested $35 million in two Israeli venture capital funds in the last few months for the first time since 2001, Haaretz reported. The U.S. government is taking steps to help farmers and ranchers protect the nation's food supply from possible attacks by terrorists, the LA Times reported. China is making higher quality goods than competitors in Eastern Europe, though the perception is that Chinese products are inferior, the Financial Times reported. Cia. Vale do Rio Doce, Rio Tinto Plc and BHP Billiton plan to spend a combined $5.3 billion over the next four years to increase the output of iron ore, the main commodity used to make steel, by over 50%, the Financial Times said. Sony and Time Warner are nearing final negotiations for separate bids for MGM, valuing the company's debt and equity as much as $4.8 billion, the Financial Times reported. Southwest Air wants to boost revenue by overhauling its schedule in October, the Wall Street Journal reported. Pfizer Inc. faces the possibility of a 25% decline in revenue as at least four of its best-selling drugs lose patent protection in the next three years, the Wall Street Journal reported. The U.S. Department of Justice has started a criminal investigation of the medical-supply industry to determine whether hospitals are overcharging Medicare and other government health programs, the NY Times reported. U.S. warplanes and helicopters attacked followers of al-Sadr in the Iraqi city of Najaf, as negotiations to end the standoff continued, the AP reported.

Late-Night Trading
Asian indices are mixed, -.50% to +.75% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.07%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning after another weekend with no major terrorism and stabilizing oil prices. Volume will likely be light again this week as many on Wall Street vacation. The Portfolio is 125% net long heading into the week.

Chart of the Week

S&P 500 Price Momentum Oscillator



Bottom Line: The S&P 500 Price Momentum Oscillator generated a Buy signal last week. This is one of many technical indicators that point to the possibility that the major U.S. indices have entered an intermediate-term rally phase.

Weekly Outlook

There are a few important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports this week include Existing Home Sales, Durable Goods Orders, New Home Sales, Initial Jobless Claims, Preliminary 2Q GDP, Preliminary 2Q Personal Consumption, Preliminary 2Q Price Deflator, and the Final Univ. of Mich. Consumer Confidence reading for August. Home Sales, Durable Goods and the Preliminary 2Q GDP all have market-moving potential.

Toys "R" Us(TOY), H.J. Heinz(HNZ), Toll Brothers(TOL), H&R Block(HRB), OmniVision Tech(OVTI), SeaChange Intl.(SEAC), Williams-Sonoma(WSM), ADC Telecom(ADCT), The Sports Authority(TSA), Dollar General(DG) are some of the more important companies that release quarterly earnings this week. There are also several other events that have market-moving potential. The Fed's Guynn speaking to paper and pulp executives, Alan Greenspan's speech at the Kansas City Fed Symposium, the Raymond James Mid-west Mini-conference and the Novellus(NVLS) Mid-quarter update could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week modestly higher as oil prices fall further, more than offsetting terrorism fears ahead of the Republican Convention. Technology shares, continuing to rebound from oversold levels, and homebuilders should lead the way. I would like to see volume accelerate on any further advance and measures of investor anxiety increase. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,098.35 +3.15%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Last week's market action was very positive, considering the violence in Iraq, rising oil prices, continuing terrorism fears and mixed economic reports. The advance/decline line was very constructive and most sectors turned in very good performances for the week. The Dow's 2.9% gain was its best weekly performance in 16 months. The big picture in Iraq continues to improve, notwithstanding the recent violence. Trading action Friday seemed to indicate that oil prices put in at the very least a short-term top. Each day and each event that passes without a serious terror act gives the market more confidence in our abilities to preemptively thwart acts of terrorism. This should also result in an erosion of the terror premium in oil over the next few months. Several economic and retail earnings reports last week disproved the bearish assumption that the U.S. consumer was retrenching in any significant way. Finally, it was positive to see the AAII % Bulls drop on the week in the face of such a strong rally. The key takeaway for the week is that market psychology seems to have shifted for the better. However, the lack of substantial volume and severely oversold technical condition of most stocks makes it harder to predict an end to the recent weakness. It is likely that one last correction will occur in September before the significant rally I envision begins in earnest during the fourth quarter. It is very possible that the lows for the year are in place and the weakness in September will not take the major indices to new lows for the year. Longer-term investors should use any extreme weakness in the coming weeks to add to favorite long positions.

Economic Week in Review

ECRI Weekly Leading Index 131.70 +.23%

The Empire Manufacturing Index fell to 12.57 in August versus estimates of 32.3 and a reading of 35.75 in July. Readings above zero indicate expansion. Thirty-four percent of the state's manufacturers, down from 46% in July, reported an increase in new orders, pushing the measure of new orders to the lowest in almost a year, Bloomberg said. "We've seen a little bit of a lull this month," said David Freund, vice president of operations at Selflock Screw Products in East Syracuse, New York. Selflock believes business will accelerate again after the Republican convention in September, Bloomberg reported.

International investors stepped up purchases of U.S. securities in June amid faster U.S. economic growth than in Europe and Japan, Bloomberg reported. "The purchases may alleviate concern about the attractiveness of U.S. assets after a government report Friday showed the U.S. trade deficit widened," said Stephen Jen, head of currency research at Morgan Stanley in London. "Some investors are too fixated on the U.S. deficit," said Jen, who used to work at the International Monetary Fund and Federal Reserve. "If you look at the demand for dollar assets and U.S. Treasuries, it's hard to say people have a lot of fears about financing the U.S. deficit."

The NAHB Housing Market Index rose to 71 in August versus expectations of 67 and a reading of 67 in July. A reading above 50 means that builders view market conditions as more positive than negative. The index has exceeded 60 for 15 months in a row, Bloomberg said. "With the ongoing favorable financing climate and solid house-price performance, we have good reason to expect continue strength in the housing market in the months ahead," said Bobby Rayburn, the NAHB President. A gauge of buyer traffic in the builders' survey rose to 57, the highest since May 1999. NAHB is forecasting housing starts of 1.9 million in 2004, the most since 1978, and record single-family starts of 1.56 million, Bloomberg said. Finally, the National Association of Realtors increased its estimate for home sales last week for the eighth time this year, saying low mortgage rates and an improving economy will spur the housing market to records for both existing home sales and new home sales, Bloomberg reported.

The Consumer Price Index for July fell .1% versus estimates of a .2% rise and a .3% increase in June. CPI Ex Food & Energy for July rose .1% versus estimates of a .2% gain and a .1% rise in June. The decline in the CPI was the first drop in eight months, as shoppers paid less for gasoline, clothing and transportation, Bloomberg reported. Slowing inflation underscores Federal Reserve policy makers' comments that recent price increases will prove temporary, Bloomberg said. Energy prices, which account for about a 14th of the index fell 1.9% in July, the first decline since November.

Housing Starts for July were 1.98M versus estimates of 1.9M and an upwardly revised 1.83M in June. The 8.3% increase was a result of builders responding to the best two months of home sales on record. Construction permits, a sign of future activity, also increased, Bloomberg reported. The pace has averaged 1.94M units so far in 2004, surpassing last year's 1.85M, the most in 25 years, Bloomberg said. This was a "much stronger than expected report as inventories of new homes are quite lean and housing affordability is still very high," said David Greenlaw, chief U.S. fixed income economist at Moran Stanley. However, August starts in the South may be weaker in the aftermath of Hurricane Charley, which caused at least $11 billion of damage in Florida, Bloomberg said.

Industrial Production for July rose .4% versus estimates of a .5% increase and a .5% fall in June. Capacity Utilization for July was 77.1% versus estimates of 77.5% and 76.9% in June. U.S. industrial production strengthened for the third time in four months, led by business equipment such as computers and semiconductors, Bloomberg said. "This part of the economy is on pretty sound footing," said John Hermann, chief U.S. economist at Cantor Fitzgerald. "It's not a blistering pace, but it's a relatively solid pace that fits in with Greenspan's view that the economy is poised to resume stronger growth."

Initial Jobless Claims for last week fell to 331K versus estimates of 335K and 334K the prior week. Continuing Claims were 2.9M versus estimates of 2.87M and 2.89M prior. Claims are "trending down to the lower part of the range and that's consistent with an underlying labor market that is still sound and stronger that what the payroll numbers suggest," said Michael Gregory, senior economist at BMO Nesbitt Burns.

Leading Indicators for July fell .3% versus estimates of a .1% fall and a .1% decline in June. The index of coincident indicators, a gauge of current economic conditions, rose .1% last month. It tracks payrolls, incomes, sales and production, Bloomberg said. A declining stock market, rising energy prices and a fall in the money supply contributed to the decline in the leading index, Bloomberg reported. "There's a lot of uncertainty right now with the presidential elections and oil prices and kind of the mixed economic numbers," Agilent Technologies DEO Barnholt said. A recent survey by the National Association for Business Economics(NABE) showed that forty percent of CEOs believe terrorism is the biggest near-term threat to the U.S. economy, more than twice the percentage concerned about terror in a March poll, Bloomberg reported.

The Philadelphia Fed's Index for August was 28.5 versus estimates of 30.0 and a reading of 36.1 in July. The index is "more an indication of a pause in rapid growth than anything else," said Michael Trebing, an economist at the Fed bank. "The overall conclusion is we are still seeing growth." The component of the index that measures the outlook for six months from now rose to 52.7, the highest since January, Bloomberg said. The increase in the expectations index is "telling us that any pullback in the Philadelphia area manufacturing sector should be temporary," said Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank Securities.

Bottom Line: Overall, last week's economic data were mixed. Measures of manufacturing mostly weakened, but gauges of the future outlook remain relatively strong. Recent surveys say that terrorism worries ahead of the election are weighing heavily on executive purchasing decisions. Strong demand for U.S. securities by foreign investors continues to show that inflation and deficit fears perpetuated by the media and bears are overstated at this point. Many recent economic releases show inflation slowing, including the CPI last week. In my opinion, oil is at an intermediate-term high and will begin falling to the mid-30's within the next few months which bodes well for future inflation readings. As well, slowing demand from China should hold commodity prices in check. The U.S. housing market remains exceptionally strong. The supply of homes in the U.S. is relatively low compared to demand and future gauges of buying activity point to sustainable strength. I continue to believe overall U.S. economic activity will re-accelerate in the fourth quarter. Executive worries over terrorism and anti-business political rhetoric are the two main reasons U.S. growth has recently slowed from the torrid pace seen earlier in the year.

Weekly Scoreboard*

Indices
S&P 500 1,098.35 +3.15%
Dow 10,110.14 +2.90%
NASDAQ 1,838.02 +4.60%
Russell 2000 547.92 +5.90%
S&P Equity Long/Short Index 953.09 +.19%
Put/Call .96 -8.57%
NYSE Arms .66 -45.0%
Volatility(VIX) 16.00 -11.01%
AAII % Bulls 34.88 -9.57%
US Dollar 88.12 +.25%
CRB 276.49 +2.71%

Futures Spot Prices
Gold 415.50 +3.54%
Crude Oil 46.72 +1.30%
Unleaded Gasoline 126.73 -5.46%
Natural Gas 5.55 +.22%
Base Metals 110.75 -.29%
10-year US Treasury Yield 4.23% unch.
Average 30-year Mortgage Rate 5.81% -.68%

Leading Sectors
Airlines +12.03%
Networking +9.17%
Biotechnology +8.98%

Lagging Sectors
Utilities +1.34%
Hospitals +1.10%
Energy +.92%

*% Gain or loss for the week

Mid-day Update

S&P 500 1,094.53 +.30%
NASDAQ 1,827.50 +.42%

Leading Sectors
Oil Service +3.35%
Airlines +2.95%
Energy +1.48%

Lagging Sectors
Internet -.12%
Retail -.36%
Fashion -.85%

Other
Crude Oil 47.88 +.50%
Natural Gas 5.58 +1.33%
Gold 416.00 +1.64%
Base Metals 110.71 -.31%
U.S. Dollar 88.02 +.26%
10-Yr. T-note Yield 4.23% +.37%
VIX 16.38 -3.42%
Put/Call 1.16 +30.34%
NYSE Arms .74 -30.19%

Market Movers
CYBX +37.5% after announcing ANSI bought a 15% stake in the company last week and said it wants to discuss a merger. ANSI -5.1%.
RSE +40.0% after General Growth Properties agreed to buy it for about $7.2 billion in cash.
MRVL +6.7% after beating 2Q estimates and raising 3Q guidance.
ELBO +11.8% after beating 2Q estimates substantially and raising 3Q outlook.
CRDN +15.6% after announcing the receipt of a new 36-month Indefinite Delivery/Indefinite Quantity government contract for lightweight ceramic body armor with a maximum value of $461 million.
ADSK +9.8% after beating 2Q estimates and raising 3Q forecast.
BCSI -10.5% after Wachovia downgrade to Market Perform.
JWN -8.5% after missing 2Q forecast, lowering 3Q outlook, boosting 04 guidance and raising dividend.
SMRT -7.4% after beating 2Q estimates, raising 3Q outlook and downgrade to Neutral by SunTrust Robinson Humphrey.

Economic Data
None of note.

Recommendations
CREE rated Buy at Wells Fargo, target $31. FMX raised to Overweight at JP Morgan. RD raised to Buy at Merrill, target $53.27. BBA raised to Strong Buy, target $9. JNJ rated Overweight at Prudential, target $61. Goldman Sachs reiterated Outperform on BBY, STZ, MRVL, TRW, HD, PETC, AET, AIG, BIIB, PFE, NT, EXC, BSX and N. Goldman reiterated Underperform on GM, RAI, HCC, WIN and F. Citi SmithBarney raised HAIN to Buy, target $21. Citi upgraded PXLW to Buy, target $13. Citi reiterated Buy on WB, target $53. Citi rated IPXL Buy, target $18. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on AMAT, target $22.

Mid-day News
U.S. stocks are modestly higher mid-day on improvements in the big picture in Iraq and falling oil prices. Home Depot's Canadian unit plans to open stores with about half the space of its warehouse-size outlets to compete against Rona Inc. and Canadian Tire Corp. in smaller communities, the National Post reported. Lehman Brothers lowered its estimates for inflation next year, cutting its forecast for the CPI from 2.5% to 2.0%, Bloomberg reported. Moqtada al-Sadr favors a political role in the nation's future rather than persisting with a military standoff, said Rime Allaf at London's Royal Institute of International Affairs, Bloomberg said. Anadarko Petroleum, a U.S. oil and natural-gas producer agreed to sell properties in the Gulf of Mexico to Apache Corp. and Morgan Stanley Capital Group for a combined $1.31 billion, Bloomberg reported. Rubina Muqimyar, the first Afghan woman to compete in track and field at the Olympics, set a national 100-meter record in her heat in Athens, Bloomberg said. The U.S. charged three men with supporting the Islamist terror group Hamas through a 15-year racketeering conspiracy, Bloomberg reported. Oil prices approaching levels that triggered past recessions are unlikely to cause a downturn this time because interest rates are so low, economists at NY-based Economic Cycle Research Institute said. The Arab Janjaweed militia continues to attack black Africans in the Darfur region of Sudan and 30,000 people might flee across the border to Chad, Bloomberg reported. Phelps Dodge, Canada's Teck Cominco and the U.K.'s Antofagasta Plc are profiting from record prices for molybdenum, a byproduct of copper mining, as stainless-steel mills buy more of the metal that prevents corrosion, Bloomberg said.

BOTTOM LINE: The Portfolio is substantially higher mid-day as my alternative energy, homebuilding and technology longs are rising and my Chinese ADR shorts are falling. I have not traded and the Portfolio is still 125% net long. The tone of the market is pretty good. Most sectors are higher and the advance/decline line is showing strength. As well, the Put/Call ratio is rising again. I expect U.S. stocks to rise modestly into the close. However, a significant reversal in oil prices could send shares meaningfully higher.

Friday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
None of note.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on BSX, HD and BIIB.

Late-Night News
Asian indices are quietly mixed on strength in Australia and weakness in China. South Korea asked the U.S. to delay its troop reduction on the Korean peninsula by more than a year, the Korea Times newspaper said. Taiwan's AU Optronics, which makes flat-panel displays used in computers and televisions, forecasts flat-panel prices will stabilize after September on rising demand, the Economic Daily News said. A nationwide inventory by the U.S. Dept. of Energy has found that data involving nuclear weapons is missing from a regional office in Albuquerque, New Mexico, the AP reported. Moqtada al-Sadr ordered his militiamen to leave hold shrines in Najaf, Bloomberg reported. U.S. shrimp fishermen need to reduce the number of boats in their fleet and find a new way to market their product to combat falling prices and surging imports, Bloomberg said. California Governor Schwarzenegger reached agreements with five Indian tribes that will expand the gambling industry in the most-populous U.S. state and pave the way for California's first urban casino, Bloomberg reported.

Late-Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.22%

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on fears of further oil supply disruptions over the weekend. However, stocks should rise later in the day on short-covering and optimism that the big picture in Iraq is improving. The Portfolio is 125% net long heading into tomorrow.