Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports this week include Wholesale Inventories, Preliminary Non-farm Productivity/Unit Labor Costs, Monthly Budget Statement, Import Price Index, Advance Retail Sales, Initial Jobless Claims, Business Inventories, Producer Price Index, Trade Balance and the preliminary Univ. of Mich. Consumer Confidence. Advance Retail Sales, Initial Jobless Claims, Producer Price Index and Consumer Confidence all have market-moving potential.

Cablevision Systems(CVC), EchoStar Communications(DISH), May Dept. Stores(MAY), Abercrombie & Fitch(ANF), Cisco Systems(CSCO), Computer Sciences(CSC), Walt Disney Company(DIS), Federated Dept. Stores(FD), Fox Entertainment Group(FOX), Target Corp.(TGT), Wal-Mart Stores(WMT) and Dell Inc.(DELL) 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 rate decision, Pacific Crest Technology Forum, CIBC Enterprise Software Conference and the Schwab Soundview Semiconductor Conference could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week mixed as shares rebound from oversold levels early in the week and see weakness towards week's end ahead of the Olympics. The P/E on the next 12 months expected earnings is 16.09 and falling. The Morgan Stanley Tech Index is down 21.64% since its recent highs in January. The argument that U.S. shares are expensive is getting harder to make by the day. Corporate earnings growth for the first half of the year exceeded 25% and should exceed 15% in the second half. Corporate Balance sheets are cleaner and profitability is at record-high levels, business models are better, managements are less aggressive, interest rates are historically low and there have been no terror acts on U.S. soil since 9/11. It is my contention that stocks will see their lows for the year this month. If terrorists are going to strike the U.S., it will likely happen imminently. In my opinion, the closer we get to the election, the more the chances of an attack diminish. Investor anxiety is finally rising significantly, which is a very good contrary indicator. If all goes relatively well at the Olympics a short-term rally will commence. However, levels of investor anxiety will probably reach their peaks toward the end of this month before the Republican Convention. A successful retest of this month's lows will likely occur in September. The substantial rally I envision for the fourth quarter should begin in earnest in October and accelerate after the election in November. I still expect all the major U.S. indices to show gains for the year. My short-term trading indicators are at very oversold levels and the Portfolio is 50% net long heading into the week.