Mid-day Update

S&P 500 1,116.68 -1.11%
NASDAQ 1,894.44 -1.39%

Leading Sectors
Broadcasting +.19%
Oil Service +.12%
Homebuilders +.11%

Lagging Sectors
I-Banks -2.18%
Restaurants -2.25%
Semis -2.30%

Other
Crude Oil 48.20 +3.08%
Natural Gas 5.61 +.04%
Gold 408.90 -.32%
Base Metals 115.28 +1.14%
U.S. Dollar 88.55 +.48%
10-Yr. T-note Yield 3.99% -1.04%
VIX 14.48 +6.0%
Put/Call 1.08 +56.52%
NYSE Arms 1.71 +101.18%

Market Movers
FNM -6.9% after saying federal regulators uncovered practices that don't comply with generally accepted accounting principles, raising doubts about the validity of earnings.
MWD -5.2% after missing 3Q estimates and giving cautious outlook.
CMTL +10.0% after beating 4Q estimates and giving positive guidance.
COCO +9.8% after saying its Bryman College campus now can comply with the U.S. Education Department's rules to receive tuition reimbursements in advance.
TIBX +8.65% after beating 3Q estimates and announcing a $50 million share buyback.
ONYX +67.5% after Capital One(COF) agreed to buy it for $191 million.
PETD +9.81% after saying it will be added to the S&P 600.
CYH +9.1% after Fortsmann Little sold its remaining 23% stake in the rural-hospital chain for $560 million and multiple upgrades.
PCLN +7.4% after announcing $161m acquisition, reaffirming 3Q and boosting 4Q.
JBL +5.8% after meeting 4Q estimates and raising 1Q forecast.
LEAP -16.7% after saying it expects customer turnover to rise.
CBK -11.4% after missing 2Q revenue estimates.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on KO, IP and CSCO. Citi SmithBarney reiterated Sell on ADP. Citi reiterated Buy on GS, target $125. Citi reiterated Buy on JBL, target $32. Citi reiterated Buy on CSCO, target $30. Citi reiterated Buy on CYH, target $36. Citi reiterated Sell on AFL, target $40. Citi reiterated Buy on PLUG, target $13. Citi reiterated Buy on DIS, target $30. Citi reiterated Buy on SPLS, target $35. Citi reiterated Buy on AZO, target $91. CYH named Merrill Lynch Focus 1 stock of the week.

Mid-day News
U.S. stocks are lower mid-day on worries over rising energy prices and weaker earnings. CBS News said a producer broke network policy by putting a source in contact with an aide to Senator Kerry in the ongoing falsified document scandal, the NY Times reported. American Capital Strategies(ACAS), a buyout fund, plans to offer 11.5 million shares at $31.60 each, with 9 million of the shares to be borrowed by underwriters and sold "short," the NY Times reported. The Swift Boat Veterans for Truth will air a new commercial that accuses Senator Kerry of secretly meeting with enemy leaders in Paris during the Vietnam War, the Washington Post reported. Republican leader in the U.S. Congress are pushing to revive legislation that would encourage contributions to charities through tax breaks, the Washington Post reported. Canada's federal government will ban low-carb claims and trademarks that imply such claims, such as Unilever's Carb Options and General Mills' Carb Monitor, the Toronto Star reported. Royal Dutch/Shell plans to increase spending to $15 billion/yr. and drill more to replenish oil and gas reserves that had been overstated for years, Bloomberg said. Eastman Kodak said sales of digital products are increasing more than it expected as film sales decline faster than it anticipated, Bloomberg reported. FedEx said quarterly profit more than doubles, as international air shipments climbed and the company carried more U.S. ground freight, Bloomberg said. Morgan Stanley said fiscal third-quarter profit tumbled 34% as bond trading plunged, Bloomberg reported. GM and Ford will offer no-interest loans of as long as six years on most 2004 cars and trucks to clear them from dealer lots amid slow sales, Bloomberg said. Viacom's CBS television unit was fined a record $550,000 by the U.S. Federal Communications Commission for airing indecent material during the Super Bowl halftime show, which singer Janet Jackson's breast was exposed, Bloomberg reported. Computer Associates will pay $225 million to settle an investigation by U.S. regulators into how the software maker inflated sales by $2.2 billion and won't be prosecuted for the fraud in exchange for instituting accounting reforms, including and outside examiner, Bloomberg reported. The benchmark 10-year U.S. Treasury note's yield fell below 4% for the first time since April 2 on growing speculation that inflation won't accelerate, Bloomberg said. Crude oil futures are rising after an Energy Department report showed that U.S. inventories declined because Hurricane Ivan forced oil companies to shut production platforms in the Gulf of Mexico, Bloomberg reported.

BOTTOM LINE: The Portfolio is lower mid-day on declines in my Chinese ADR longs, internet and telecom-related longs. I exited a few long positions this morning and added some more technology shorts, thus leaving the Portfolio 50% net long. One of my new shorts is AAPL and I am using a $39 stop-loss on this position. Rising energy prices finally caught up with the Bulls today. The tone of the market is poor today, however it is good to see measures of investor anxiety rising. Base Metal prices are close to a breakout on demand from rebuilding in Florida and an acceleration of Chinese growth. A short-term mild correction has likely begun in U.S. stocks that may extend through the first few weeks in October. Over the next several weeks, investors will likely focus on relatively disappointing 3Q earnings, violence in Iraq and high energy prices. This should present one last opportunity to buy stocks at depressed levels before the fourth quarter rally I envision beginning in the latter part of October.