Mid-day Update

S&P 500 1,094.39 -.49%
NASDAQ 1,846.99 -.67%

Leading Sectors
Tobacco +.59%
Computer Boxmakers +.35%
Software +.22%

Lagging Sectors
Oil Service -1.77%
Airlines -2.15%
Fashion -2.65%

Other
Crude Oil 43.88 -.61%
Natural Gas 5.74 -1.31%
Gold 395.50 -.25%
Base Metals 110.46 -.63%
U.S. Dollar 89.63 +.06%
10-Yr. T-note Yield 4.39% -.66%
VIX 16.33 +1.75%
Put/Call .85 +16.44%
NYSE Arms 1.81 +14.56%

Market Movers
IACI -16.5% after missing 2Q revenue estimates, lowering 04 guidance and multiple downgrades.
VCLK -26.0% meeting 2Q forecast, announcing $29M Pricerunner acquisition and giving weaker 3Q/04 guidance.
SGP -5.4% after announcing plans to sell $1.25 billion of convertible preferred stock and use the proceeds to pay legal settlements.
VSAT +12.3% after beating 1Q revenue estimates and Sanders Morris Harris upgrade to Strong Buy.
PDLI +9.1% after better-than-expected 2Q and Lazard Freres upgrade to Buy.
UTHR +4.7% on continued optimism over 2Q report.
RL +3.1% after beating 1Q estimates and reaffirming 05 outlook.
IPXL -17.3% after missing 2Q estimates.
BCO -17.3% after reporting strong 2Q results, but saying they may revise them lower due to unpaid customs duties and value-added taxes.
ALO -14.6% after beating 2Q estimates, but lowering 04 outlook.
SFCC -9.8% after announcing it intends to offer $100 million in convertible senior notes due 2024.
CKFR -8.7% after beating 04 estimates, but weaker 05 outlook.
NTLI -7.2% after missing 2Q revenue estimates.

Economic Data
Factory Orders for June rose .7% versus estimates of a .5% rise and a .4% increase in May.
ISM Non-Manufacturing for July came in at 64.8 versus estimates of 61.5 and a reading of 59.9 in June.

Recommendations
VSH and CIEN cut to Underweight at JP Morgan. MOTV rated Overweight at JP Morgan. OI raised to Overweight at JP Morgan. CAT raised to Buy at UBS, target $85. HON cut to Reduce at UBS, target $33. GGB raised to Buy at Deutsche Bank, target $19. DVA raised to Overweight at Morgan Stanley, target $33. CLRK rated Sector Outperform at CIBC, target $15. ACDO raised to Buy at Bank of America, target $34. EELN rated Outperform at Thomas Weisel. KWK cut to Underperform at Raymond James. Goldman Sachs reiterated Outperform on IACI, PFGC, KO and COH. Goldman reiterated Underperform on MHX. Citi SmithBarney upgraded AMAT to Buy, target $21. Citi reiterated Buy on THC, target $17.50. Citi reiterated Buy on PCG, target $32. Citi reiterated Buy on JCP, target $50. Citi reiterated Buy on TYC, target $40. Citi reiterated Buy on HNT, target $30. Citi reiterated Buy on L, target $11. Citi reiterated Buy on MAS, target $37. Citi reiterated Buy on CKFR, target $39.

Mid-day News
U.S. stocks are modestly lower mid-day as oil prices remain high and some earnings reports disappointed investors. Atlantic Coast Airlines changed its name to FLYi Inc. today and began trading under the new ticker FLYI, Bloomberg reported. The U.S. FBI is monitoring suspected members of al-Qaeda and two allied terrorist groups in the New York City area, the New York Daily News reported. Microsoft Chairman Bill Gates is ready to make an offer to buy Nintendo if there is any sign the Japanese game console maker is up for sale, WirtschaftsWoche reported. Illinois started a program to invest $50 million of taxpayer money in venture capital funds to help create jobs and make the state more attractive to entrepreneurs, the Chicago Tribune reported. Tyson Foods will begin a $75 million ad campaign on Aug. 30 to brand itself as a protein provider instead of just a chicken company, the NY Times reported. A federal judge has ordered First Data to give the IRS information about certain transactions, the Denver Post reported. Doctors at two of the top three U.S. heart centers aren't using Boston Scientific Taxus stent, the world's most widely used device for propping open arteries, for most patients because they believe the risk of complications in implanting them is too high, Bloomberg reported. President Bush will be re-elected in November, according to five computer models that use economic performance to forecast the vote, Bloomberg reported. Eli Lilly said U.S. regulators cleared its Cymbalta drug for depression, a medicine that analysts estimate may reach $1.5 billion to $2 billion in annual sales, Bloomberg said. The ISM Non-Manufacturing Index, which accounts for 85% of the U.S. economy, expanded at a faster-than-expected pace in July, suggesting the expansion may be reaccelerating, Bloomberg reported. Saudi Aramco, the world's largest oil company, has started production at two new fields three months ahead of schedule and may delay the shutdown of older wells to help meet increased oil demand, Bloomberg said. Federal regulators approved TiVo's application to let viewers send recorded tv shows via the Internet to other people, a plan opposed by Hollywood, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher today as my falling healthcare and retail shorts are more than offsetting declines in my biotech and gaming longs. I have not traded and the Portfolio is still 25% net long. The tone of the market is negative today as companies reporting minor disappointments are severely punished and the advance/decline line is weak. However, it is good to see the techs stabilizing and interest rates continuing to fall. As well, the Put/Call and Arms readings are spiking, which is a positive. Finally, economic data continue to show that the 2Q slowdown was only temporary and 3Q growth should exceed 4%. I continue to believe that overall fundamentals are very good and the current weakness in U.S. equities is a direct result of terrorism fears and worries over the outcome of the election. These fears and worries should reach their peaks within the next 2 months.