Sunday, July 31, 2005

Weekly Outlook

There are several important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - ISM Manufacturing, ISM Prices Paid, Pending Home Sales
Tues. - Personal Income, Personal Spending, PCE Deflator, Factory Orders, Total Vehicle Sales
Wed. - ISM Non-Manufacturing
Thur. - Initial Jobless Claims
Fri. - Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, Consumer Credit

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Career Education(CECO), Goodyear Tire(GT), Proctor & Gamble(PG), Tyson Foods(TSN)
Tues. - Coach Inc.(COH), Comcast Corp(CMCSA), Emerson Electric(EMR), IAC/InterActiveCorp.(IACI), Sirius Satellite(SIRI), Transocean Inc.(RIG), Tyco International(TYC)
Wed. - CVS Corp.(CVS), Duke Energy(DUK), Electronic Data Systems(EDS), Time Warner(TWX)
Thur. - Gillette(G), Harrah's Entertainment(HET), Univision Communications(UVN)
Fri. - Cardinal Health(CAH), Nvidia Corp.(NVDA)

Other events that have market-moving potential this week include:

Mon. - RBC Capital Tech Conference
Tue. - RBC Capital Tech Conference, GM/F/DCX Sales Calls
Wed. - CSFB Electrical Equipment Conference, RBC Tech Conference
Thur. - CSFB Electrical Equipment Conference, RBC Tech Conference
Fri. - CSFB Electrical Equipment Conference

BOTTOM LINE: I expect US stocks to finish the week mixed as rising long-term rates and energy prices offset strong economic reports, positive earnings releases and short-covering. I continue to believe stocks are in a healthy period of consolidation before mounting another push higher. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Intermediate-Term Outlook

I originally wrote this post for The Street.com's Street Insight 2 weeks ago. I usually post 10-12 times a day on The Long/Short Trader inside of Street Insight. To try a free trial or subscribe click here.

Editor's Picks
7/19/2005 1:19 PM EDT

The Second-Half Bull Run Has Begun

Looking for 10%-Plus by Year-End
Since my last intermediate-term outlook, the S&P 500 has returned about 4.5%; 3.13 percentage points of this has occurred since June 30.

I said that I expected much better performance by the major averages in the second half of the year based on slowing but stable growth, lower inflation expectations, a stable dollar, declining commodity prices, reasonable valuations and excessive pessimism. I continue to hold these views.

Europe and Asia Will Pressure U.S. Growth
Growth in Europe, already near stagnation at around 1.0%, will likely continue to slow or turn negative as a result of the London bombings and political turmoil in the region. Europe's problems run deep and a quick solution is not forthcoming. However, political developments in Germany are encouraging.

As well, numerous signs abound of slowing Chinese growth. Even a modest decline in China's growth rate would send ripples throughout Asia and, therefore, the world. Almost every leading indicator in China is pointing to slowing growth. Demand growth for commodities from the country is plunging from last year's brisk levels. Excess capacity has been generated in China in numerous sectors, which will likely result in a return of deflation worries in the region.

Decelerating inflation and lower prices for oil imports should help boost U.S. GDP growth in the near term. While economic growth has picked-up recently from average rates to around 3.7%-4.0%, weakening global economies will likely send U.S. GDP growth back to around 3.0% early next year.

Inflation Set to Decline Further
Rising commodity prices have been the largest source of inflationary pressures. The CRB Index rose about 77.0% from lows set in early 1999 through March 2005 highs. Specifically, crude oil prices have risen about 465% since lows set during the Asian crisis of 1998 to the highs of recent weeks. This spurred a cyclical upturn in U.S. inflation, which was modest by historic standards. However, as I surmised here, I believe the secular trend of disinflation remains intact and is beginning to reassert itself.

A Cyclical Bear for Commodities?
Declining global demand, excess supply created to satisfy emerging economies' booming growth of recent years and a firmer U.S. dollar will likely push the CRB into, at the very least, a cyclical bear market. I continue to believe oil prices will collapse during the second half of the year to around $35-$40 per barrel.

Recently, the CRB has had a very high correlation with measures of inflation. As well, a number of global economies have been big beneficiaries of the commodities boom. A cyclical commodity bear would disproportionately affect the economies of these nations, further damping global growth.

Unit Labor Costs Should Remain in Check
Disinflationary forces, as a result of the 90s bubble, are still impacting the tech, biotech, airline, retail, auto, telecom, broadcasting and financial sectors. Capacity utilization at 80.0% is still only back to average levels.

Globalization, technological innovation, outsourcing, immigration and excessive hiring during the 90s continue to result in relatively mild unit labor cost increases compared to past expansions. Finally, U.S. job growth will likely return to more sluggish levels by early next year, thus resulting in a moderation of recent unit labor cost increases, which will further diminish inflationary concerns.

U.S. Dollar Will Remain Firm
The negative effects that oil has had on the U.S. economy are understated in my opinion. Oil has hurt the consumer to an extent, however, other factors such as an improving labor market, soaring home values, low long-term interest rates and rising stock prices have mitigated its negative effects.

Obviously, the significant decline in oil that I foresee would boost consumer spending and sentiment. However, it would also help shrink the U.S. budget and trade deficits, thus spurring further gains in the dollar. While the budget deficit would likely continue improving meaningfully under this scenario, the trade deficit will only improve marginally until reforms accelerate and growth improves in foreign nations.

Also, the recent political setbacks for the European Union are significant and ramifications underestimated. I expect the European Central Bank to cut interest rates over the coming months, notwithstanding comments by bankers suggesting otherwise. Recent global central bank diversification into the euro currency will likely subside. Finally, the relative health of the U.S. economy compared to other industrialized nations will become even more pronounced, thus further boosting demand for U.S. assets and the dollar.

Interest Rates to Remain Relatively Low
I had anticipated the Fed "pausing" after last month's rate hike. However, this appears increasingly unlikely with U.S. economic growth accelerating back to above-average rates. Also, I still suspect the Fed will pause before year-end. I do not believe they are overly concerned about inflation at this point.

Any subsequent rate hikes are likely the result of worries over the U.S. housing market and the belief that they need "ammunition" for the next crisis. However, weak global growth, decelerating U.S. growth, a moderation in home price appreciation, falling commodity prices and subdued unit labor costs will likely prompt a "pause." The 10-year T-note yield will likely rise to around 4.3%-4.4% over the coming months before falling back below 4% by earlier next year.

Goldilocks Returns and the Negativity Bubble Bursts
Recent economic data have been "better-than-Goldilocks" as growth has accelerated to above-average rates while inflation has decelerated. Goldilocks will likely appear in full form early next year, characterized by average economic growth with low inflation. Investors appear to be in the initial stage of anticipating her return.

I believe there has been a negativity bubble (meaning exceptional pessimism relative to reality) in the U.S. that began with the tech sector meltdown in early 2000 and is currently in the initial stages of bursting. The bubble inflated as the Nasdaq collapse brought comparisons of the 1929 crash and its ensuing economic devastation. The Bush/Gore election turmoil, recession, the 9/11 terrorist attacks, corporate scandals, the Iraq war, record-setting hurricanes and other natural disasters helped further inflate the bubble.

The negativity bubble peaked shortly before the Bush/Kerry election when talk of an impending recession, a U.S. dollar collapse, soaring inflation, spiraling twin deficits, a housing collapse, a horrible job market and a consumer meltdown were all the rage. Since the election, the air has been slowly seeping from the bubble. However, high energy prices, continuing negative political rhetoric and talk of an impending bankruptcy at General Motors (GM) had kept it intact.

The historically bitter political rhetoric will clearly not end anytime soon and will likely escalate. However, the problems at GM are now at least temporarily under control and I expect Goldilocks return to provide the catalyst for the temporary death of the negativity bubble.

'Buy All Dips' Returns
After 2000, the prevailing wisdom of the "smart money" crowd was to "sell every rally" as the major indices imploded. From early 2003 through early 2004, a "buy the dips" strategy was the wisest. Then from early 2004 through mid-2005 the "buy every dip and sell every rally" strategy prevailed as the major indices consolidated gains. I believe we have now entered an intermediate-term period that a "buy all dips" strategy will once again outperform.

Has There Been a Short-Selling Mania?
Market-neutral and negatively correlated strategies have seen a historical flood of cash inflows over the last few years as the negativity bubble grew and long-biased strategies languished. Total short sales have risen around 252% since 1999. Public short sales have risen an astounding 776% during this same period.

Many day-trading message boards that used to be filled with tales of the next profitless Internet stock that would soon duplicate the success of Yahoo! (YHOO) or eBay (EBAY) are now filled with newly minted short-sellers talking about $200-per-barrel oil sending the U.S. economy into a depression. There is more money betting against the U.S. market than at any time in our history. I believe many nimble investors are now positioning for a sell-off after recent gains believing the trading range is still intact.

P/E Multiples Expand
A Goldilocks U.S. economy, stronger dollar, weaker overseas economies, increased merger activity and more optimism should allow for P/E multiples, which have been contracting for several years, to expand.

The forward P/E on the S&P 500 is 16.4 vs. a historic average of around 12.0. However, I would argue that in the current environment the market deserves a premium multiple not an average one. Moreover, I expect earnings to exceed relatively pessimistic forward estimates.

Growth Takes the Reins from Value
The growth style has lagged value since 2000; however, I expect this trend to reverse given the environment I foresee. The belief in most circles that the U.S. dollar has only temporarily stabilized will likely result in increased foreign takeovers of U.S. companies for a premium. Moreover, the recent trend of significant capital inflows into funds investing in overseas companies will likely reverse as global growth slows and the dollar remains firm.

U.S. Stocks Should See Substantial Intermediate-Term Gains
I expect cyclical, defense, utility, telecom, commodity, hospital and pharmaceutical stocks to underperform over the intermediate-term and technology, biotechnology, medical, retail, airline, homebuilding, restaurant and financial shares to outperform during this period. As well, small caps will likely continue to remain strong as the dollar stays firm, global growth slows and the popularity of emerging market funds wanes.

U.S. stocks are overbought short term and are due for a period of consolidation. However, I expect at least a double-digit return from current levels in the major indices by year-end as fundamentals remain relatively strong, demand increases for U.S. assets, interest rates remain relatively low, P/E multiples expand and short-covering increases.

Saturday, July 30, 2005

Market Week in Review

S&P 500 1,234.18 +.04%*

Image hosted by Photobucket.com

Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was modestly positive as stocks consolidated recent gains. With 70% of S&P 500 companies reporting, about 70% have exceeded expectations and earnings are running more than 10% above year-ago levels. The advance/decline line rose, almost every sector gained and volume was about average on the week. Measures of investor anxiety were mostly higher. However, the AAII % Bulls rebounded sharply for the week and is now at above-average levels. Mortgage rates rose again, but are still only 56 basis points away from all-time lows set in June 2003. The benchmark 10-year T-note yield continued to rise on very positive economic reports. Cyclical and technology stocks outperformed on economic optimism and strong earnings reports. Moreover, optimism over the possibility of sweeping telecommunications deregulation boosted the Telecom, Wireless and Networking sectors. Finally, oil rose for the week as multiple refinery fires and a strong US economy heightened fears of a fourth quarter crude supply shortfall.

*5-day % Change

Friday, July 29, 2005

Weekly Scoreboard*

Indices
S&P 500 1,234.18 +.04%
DJIA 10,640.91 -.10%
NASDAQ 2,184.83 +.23%
Russell 2000 679.75 +.29%
DJ Wilshire 5000 12,333.31 +.18%
S&P Equity Long/Short Index 1,045.30 +.31%
S&P Barra Growth 591.91 -.01%
S&P Barra Value 637.87 +.09%
Morgan Stanley Consumer 590.13 +.61%
Morgan Stanley Cyclical 761.37 +.38%
Morgan Stanley Technology 500.54 +.36%
Transports 3,799.95 +.53%
Utilities 397.29 +1.11%
S&P 500 Cum A/D Line 8,705.00 +5.94%
Bloomberg Crude Oil % Bulls 50.0 +146.67%
Put/Call .88 +10.0%
NYSE Arms 1.41 +38.23%
Volatility(VIX) 11.57 +9.98%
ISE Sentiment 166.00 +3.75%
AAII % Bulls 57.52 +39.68%
US Dollar 89.35 -.35%
CRB 312.00 +2.55%

Futures Spot Prices
Crude Oil 60.57 +3.27%
Unleaded Gasoline 172.61 +2.26%
Natural Gas 7.88 +6.12%
Heating Oil 167.62 +2.52%
Gold 435.30 +.79%
Base Metals 126.42 +1.35%
Copper 164.45 +1.70%
10-year US Treasury Yield 4.28% +1.35%
Average 30-year Mortgage Rate 5.77% +.70%

Leading Sectors
Wireless +2.87%
Telecom +2.60%
Networking +2.16%

Lagging Sectors
Computer Hardware -2.53%
Gold & Silver -2.60%
Oil Tankers -3.28%

*5-Day % Change

Stocks Modestly Lower Mid-day on Rising Rates and Energy

Indices
S&P 500 1,240.02 -.30%
DJIA 10,693.61 +.10%
NASDAQ 2,192.48 -.27%
Russell 2000 681.35 -.25%
DJ Wilshire 5000 12,383.64 26%
S&P Barra Growth 594.91 -.35%
S&P Barra Value 640.96 -.20%
Morgan Stanley Consumer 592.29 -.09%
Morgan Stanley Cyclical 764.96 -.33%
Morgan Stanley Technology 502.11 -.50%
Transports 3,806.79 -.28%
Utilities 398.71 +.36%
Put/Call .88 +12.82%
NYSE Arms 1.13 +11.69%
Volatility(VIX) 11.33 +7.70%
ISE Sentiment 202.00 +36.49%
US Dollar 89.33 -.01%
CRB 311.56 +.33%

Futures Spot Prices
Crude Oil 60.30 +.60%
Unleaded Gasoline 175.10 +1.68%
Natural Gas 7.85 +2.03%
Heating Oil 164.00 -.33%
Gold 435.80 +.58%
Base Metals 126.42 +.32%
Copper 164.45 -.27%
10-year US Treasury Yield 4.29% +2.50%

Leading Sectors
Restaurants +1.73%
Papers +1.23%
Airlines +1.17%

Lagging Sectors
I-Banks -.88%
Software -.99%
Homebuilders -1.29%
BOTTOM LINE: The Portfolio is lower mid-day on losses in my Homebuilding, Medical and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are lower and volume is below average. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral considering the rise in energy prices and interest rates. The ECRI Weekly Leading Index remained at 134.50 this week, the same as last week. This is still up from 132.00 during the last week of May and near cycle highs of 135.90 set in mid-March. It is still forecasting healthy growth.

Today's Headlines

Bloomberg:
- The People’s Bank of China will release some “technical” details of the yuan’s currency basket.
- NY Governor Patakki ordered “hundreds” of additional National Guard troops to active duty today to augment security for NYC trains and subways according to a statement from his office.
- Six-nation talks to end North Korea’s nuclear arms program have “entered a new phase” with all sides in broad agreement on solving the crisis.
- President Bush signed legislation to reduce the number of patient injuries and deaths caused by medical mistakes.
- Crude oil is rising near $61/bbl. in NY after a fire at BP’s Texas City refinery heightened concern that fuel producers will struggle to meet increasing demand.
- US Treasuries are falling, heading for their biggest monthly drop since November, after a report suggested the economy may be growing fast enough for the Fed to keep raising interest rates beyond year-end.
- The deadline for investors to get money from Wall Street’s $1.4 billion settlement over biased research is today – and almost half may have failed to file claims.

Wall Street Journal:
- The US bond market’s muted response to the revaluation of China’s yuan indicates that the influence of Asian central banks over the US economy is overrated.
- An Iraqi radio station dedicated to promoting women’s rights is leading a fight in the country for gender equality.
- Proposed new fuel-efficiency standards for light trucks sold in the US may hurt manufacturers such as Toyota Motor and benefit larger truckmakers, including Ford Motor.

NY Times:
- US Senate majority leader Bill Frist is expected to back a bill that would increase federal funding for embryonic stem-cell research.

NY Daily News:
- Hotel occupancy in NYC is up 5% so far this year, with June bookings at a record 90.4% of capacity.

Recent US Growth Best in 19 Years, Inflation Contained, Confidence Improving, Manufacturing Rebounding Vigorously

- 2Q Advance GDP rose 3.4% versus estimates of a 3.5% rise and a 3.8% gain in 1Q.
- 2Q Advance Personal Consumption rose 3.3% versus estimates of a 3.5% increase and a 3.5% gain in 1Q.
- 2Q Advance GDP Price Index rose 2.4% versus estimates of a 2.6% gain and a 3.1% rise in 1Q.
- The 2Q Employment Cost Index rose .7% versus estimates of a .8% increase and a .7% gain in 1Q.
- Final Univ. of Mich. Consumer Confidence for July was 96.5 versus estimates of 96.5 and a prior estimate of 96.5.
- Chicago Purchasing Manager for July rose to 63.5 versus estimates of 55.0 and a reading of 53.6 in June.

BOTTOM LINE: The US economy grew at a 3.4% annual pace in the second quarter, the ninth straight quarter exceeding 3%, as sales boomed, allowing companies to pare bloated inventories, Bloomberg reported. The string of quarterly growth increases exceeding 3% is the longest since the 13 quarters ended in the first three months of 1986. A measure of demand excluding inventories rose 5.8%, the fastest rate in almost 2 years. The measure of prices paid by consumers for goods and services excluding food and energy increased at a 1.8% annual rate versus a 2.4% increase in 1Q. A narrowing trade deficit added 1.6 percentage points to GDP, the most since the fourth quarter of 1996. I now expect US GDP growth to come in around 4% during 3Q.

Employment costs, the main component of inflation, rose less than expected as benefit costs showed the smallest gain in more than three years. The Fed said in its Beige Book report that wage pressure “remained moderate.” This is more evidence that inflation is contained.

US consumer confidence rose to the highest level this year, boosted by a booming housing market, rising stocks market and a healthy labor market. The current conditions index, which reflects Americans’ perception of their financial situation and whether it’s a good time to buy big-ticket items, rose to 113.5 from 113.2 the prior month. The expectations index rose to 85.5 from 85 in June. This is a positive considering the terrorist bombings in London and record gas prices. I expect confidence to increase through year-end.

The Chicago PMI soared in July by the most since 1983 as manufacturing accelerated from en early year slump. The new-orders index jumped to 69.6 from 56.5. The production index increased to 70.5 from 57.8 and the prices paid index increased modestly to 61.3 from 59.7 the prior month. The manufacturing correction is definitely over and should help boost GDP in subsequent quarters.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- Google's plan to open a research center in China was disrupted today in Seattle, where a state judge temporarily blocked the company from hiring a former Microsoft executive to head the facility.
- Crude oil is rising to a two-week high and gasoline surged after an explosion and fire at the third-largest US refinery owned by BP Plc in Texas City.
- The US and North Korea will hold a fourth bilateral meeting today in Beijing as six nations try to hammer out an agreement on ending the communist country's nuclear weapons program.

Wall Street Journal:
- Italy may as early as today request indictments of units of Citigroup, UBS, Deutsche Bank and Morgan Stanley units for alleged securities violations connected to Parmalat SpA.

AP:
- New York State's Republican Party chairman, seeking a candidate to succeed Governor Pataki, said his first phone call would be to former NYC Mayor Rudolph Giuliani.

London-based Times:
- London is facing a terror "campaign – not a one-off event," citing Metropolitan Police Commissioner Ian Blair.

Economic Daily News:
- Taiwan Semiconductor Manufacturing received orders from Microsoft to make chips for the company's game consoles.

South China Morning Post:
- Cnooc Ltd. is preparing to withdraw or let its $18.5 billion cash bid for Unocal Corp. lapse because management believes a deal is politically impossible.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on KLAC and DDR.
- Reiterated Underperform on MRO and AEIS.

Business Week:
- Symbol Technologies(SBL), the maker of bar-code scanners whose stock has dropped 32% this year, may become an acquisition target.
- TurboChef(OVEN) shares are expected to climb as the maker of high-speed cook-to-order commercial ovens receives a boost in its orders.
- Shares of Stratagene(STGN), which makes testing products for biochemical research, may rise because of higher profit and a possible partner for it DNA testing instrument.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
APC/2.13
ADM/.28
BHI/.54
CVX/1.69
UCL/1.63

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Advance 2Q GDP is estimated to rise 3.5% versus estimates of a 3.8% gain in 1Q.
- Advance 2Q Personal Consumption is estimated to rise 3.5% versus a 3.8% increase in 1Q.
- Advance 2Q GDP Price Index is estimated to rise 2.6% versus a 2.9% increase in 1Q.
- The 2Q Employment Cost Index is estimated to rise .7% versus a .8% gain in 1Q.

9:45 am EST
- Final Univ. of Mich. Consumer Confidence for July is estimated at 96.5 versus a prior estimate of 96.5.

10:00 am EST
- Chicago Purchasing Manager for July is estimated to rise to 55.0 versus a reading of 53.6 in June.

BOTTOM LINE: Asian indices are mostly higher on gains in commodity-related shares in the region. I expect US equities to open modestly higher on positive economic reports. However, stocks may consolidate recent gains later in the day. The Portfolio is 100% net long heading into the day.

Thursday, July 28, 2005

Stocks Finish Near Highs as Long-Term Interest Rates Fall and Earnings Exceed Estimates

Indices
S&P 500 1,243.72 +.56%
DJIA 10,705.55 +.64%
NASDAQ 2,198.44 +.56%
Russell 2000 683.04 +1.21%
DJ Wilshire 5000 12,415.86 +.66%
S&P Barra Growth 597.02 +.57%
S&P Barra Value 642.24 +.55%
Morgan Stanley Consumer 592.82 +.92%
Morgan Stanley Cyclical 767.51 +.92%
Morgan Stanley Technology 504.61 +.15%
Transports 3,817.06 +1.47%
Utilities 397.26 +.84%
Put/Call .78 -1.27%
NYSE Arms 1.01 +14.91%
Volatility(VIX) 10.52 +1.54%
ISE Sentiment 148.00 -16.85%
US Dollar 89.34 -.43%
CRB 310.53 +1.12%

Futures Spot Prices
Crude Oil 60.09 +1.66%
Unleaded Gasoline 173.28 +.99%
Natural Gas 7.73 +1.82%
Heating Oil 164.50 +1.72%
Gold 433.60 +.07%
Base Metals 126.02 +.42%
Copper 164.65 -.15%
10-year US Treasury Yield 4.18% -1.53%

Leading Sectors
HMOs +3.45%
Gaming +2.58%
Homebuilders +2.36%

Lagging Sectors
Software +.08%
Hospitals +.01%
Computer Hardware -.36%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on PCO, SYMC, MERQ, MSFT and STN.
- Reiterated Underperform on UST, CNA and UALAQ.

Banc of America:
- Downgraded MOT to Neutral.

Afternoon/Evening Headlines
Bloomberg:
-

Financial Times:
- Cnooc’s executives and directors met yesterday to consider whether to raise the company’s offer for Unocal to about $20 billion.
- US Treasuries rose on speculation yields near three-month highs are excessive given the outlook for tame inflation.

CNet News.com:
- Microsoft won contracts to supply the UK government’s HM Revenue & Customs agency and Department for Works and Pensions with Windows XP Software.
BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Medical, Medical Information Systems and Retail longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was positive. The AAII % Bulls rose to 57.52% this week from 41.18% the prior week; this is back near the above-average levels seen two weeks ago. Likewise, the % Bears fell to 17.65% from 27.45% the prior week; this is back to below-average levels. I believe sentiment will remain mostly elevated through year-end.

Stocks Higher Mid-day as Long-Term Rates Decline

Indices
S&P 500 1,243.50 +.54%
DJIA 10,693.61 +.53%
NASDAQ 2,195.69 +.43%
Russell 2000 679.45 +.68%
DJ Wilshire 5000 12,404.05 +.56%
S&P Barra Growth 596.73 +.52%
S&P Barra Value 641.99 +.51%
Morgan Stanley Consumer 593.00 +.95%
Morgan Stanley Cyclical 766.37 +.77%
Morgan Stanley Technology 504.54 +.14%
Transports 3,804.11 +1.12%
Utilities 396.65 +.68%
Put/Call .77 -2.53%
NYSE Arms .90 +1.48%
Volatility(VIX) 10.42 +.58%
ISE Sentiment 145.00 -18.54%
US Dollar 89.29 -.49%
CRB 309.72 +.85%

Futures Spot Prices
Crude Oil 59.30 +.32%
Unleaded Gasoline 171.50 -.05%
Natural Gas 7.60 +.17%
Heating Oil 162.30 +.36%
Gold 433.60 +.70%
Base Metals 126.02 +.42%
Copper 164.90 +1.35%
10-year US Treasury Yield 4.19% -1.30%

Leading Sectors
HMOs +3.55%
Gaming +2.35%
Homebuilders +2.13%

Lagging Sectors
Energy -.10%
Gold & Silver -.26%
Oil Service -.35%
BOTTOM LINE: The Portfolio is higher mid-day on gains in my Semiconductor, Medical and Medical Information Systems longs. I added to my RIG short and AUO long this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is about average. Measures of investor anxiety are mostly higher. Today’s overall market action is positive considering the rise in energy prices. The fact that long-term rates are falling ahead of what will likely be a very good GDP report is a big positive and is the main catalyst for today's move higher in stocks.

Today's Headlines

Bloomberg:
- New money placed in hedge funds fell 60% in the second quarter as investment returns lagged the overall stock market, according to Hedge Fund Research.
- Italian Prime Minister Silvio Berlusconi said the euro has been a “ripoff” for consumers, sharpening his criticism of European policymakers.
- DaimlerChrysler AG CEO Schrempp will step down Dec. 31.
- NBC Universal may buy DreamWorks SKG.
- US Treasuries maturing in 10 years or more are rising on speculation yields near the high end of their three-month range are excessive given the outlook for tame inflation.
- The Irish Republican Army today said it will end its 36-year armed campaign and use political means to achieve the goal of a united Ireland.

Wall Street Journal:
- US and other overseas investors are pouring money into China, in the hope of capitalizing on Chinese demand for mobile phone-related and other products.
- The US energy bill nearing approval may spell goods news for the nuclear-power industry, as it contains $1.5 billion in subsidies for construction of nuclear plants.
- An Idaho county filed suit against several companies, claiming their hiring of illegal immigrants burdens the county’s social services system.
- The departure of two of the biggest unions from the AFL-CIO, the largest alliance of US labor unions, has left some members disillusioned with what they say is little difference between the leaders of the contending factions.

NY Post:
- Federated Department Stores may close as many as 65 stores to help win approval of its $11 billion purchase of May Department Stores, citing Banc of America.

Washington Post:
- US environmental regulators will be barred from using information that is gathered by exposing human volunteers to toxic chemicals until they come up with better practices.

Jobless Claims Remain Low

- Initial Jobless Claims for last week rose to 310K versus estimates of 318K and 305K the prior week.
- Continuing Claims rose to 2603K versus estimates of 2591K and 2571K prior.
- The Help Wanted Index for June rose to 38 versus estimates of 38 and a reading of 37 in May.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment rose to 310,000, suggesting employers are adding workers as manufacturing rebounds and retail remains strong. The four-week moving-average of claims fell to 318,250 from 318,500. The insured unemployment rate, which tracks the US jobless rate, stayed at 2.0%. Payroll gains have averaged 181,330 this year versus 183,000 for all of 2004.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- The US government announced it agreed on a "framework" for a partnership to address climate change with China, Australia and three other countries that will help companies find a "profitable way" to cut greenhouse gases.
- US negotiators will today begin drafting principles that may lead to an accord with North Korea over the destruction of the communist state's nuclear weapons, said a senior official.
- The US House of Representatives approved the Central American Free Trade Agreement, overcoming objections by unions, sugar producers and textiles makers in what became the most contentious trade fight in Congress in a decade.

London-based Times:
- A record number of hedge funds were started up in the first six months of 2005, attracting over $13 billion in new capital, citing a survey by data provider Eurohedge.
- Morgan Stanley CEO Mack plans to turn around the bank's Dean Witter brokerage arm by cutting jobs and pursuing wealthier clients.

Financial Times:
- Cnooc Ltd. is considering a pledge to sell all Unocal's US assets, including

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MUR, DO, MCK, MWV, SBUX and WLP.
- Reiterated Underperform on GM and APU.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ATVI/-.02
AET/1.08
AMT/-.08
ABX/.08
BZH/2.05
CELG/.14
DOW/1.22
XOM/1.24
KLAC/.48
MRO/1.57
MFE/.25
MERQ/.33
MGM/.43
NOC/.88
PD/4.25
SYMC/.25
WFMI/.57
XMSR/-.70

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 318K versus 303K the prior week.
- Continuing Claims are estimated to rise to 2591K versus 2577K prior.

10:00 am EST
-The Help Wanted Index for June is estimated to rise to 38 versus a reading of 37 in May.

BOTTOM LINE: Asian indices are higher on more earnings optimism in the region. I expect US equities to open modestly higher on gains in Asia and strong earnings reports. The Portfolio is 100% net long heading into the day.

Wednesday, July 27, 2005

Stocks Finish at Session Highs, Led Again by Tech

Indices
S&P 500 1,236.79 +.46%
DJIA 10,637.09 +.54%
NASDAQ 2,186.22 +.47%
Russell 2000 674.88 +.04%
DJ Wilshire 5000 12,334.91 +.40%
S&P Barra Growth 593.62 +.49%
S&P Barra Value 638.73 +.42%
Morgan Stanley Consumer 587.41 +.48%
Morgan Stanley Cyclical 760.52 +.47%
Morgan Stanley Technology 503.84 +.97%
Transports 3,761.69 +.54%
Utilities 393.94 +.43%
Put/Call .79 -5.95%
NYSE Arms .88 -14.27%
Volatility(VIX) 10.36 -5.73%
ISE Sentiment 178.00 -1.66%
US Dollar 89.73 -.30%
CRB 307.10 +.32%

Futures Spot Prices
Crude Oil 59.04 -.27%
Unleaded Gasoline 170.60 +.60%
Natural Gas 7.65 +2.99%
Heating Oil 161.35 +.61%
Gold 431.30 +.47%
Base Metals 125.49 +1.07%
Copper 162.65 +1.28%
10-year US Treasury Yield 4.25% +.70%

Leading Sectors
Internet +1.57%
Wireless +1.52%
Telecom +1.42%

Lagging Sectors
Disk Drives -1.27%
Restaurants -1.28%
Steel -1.40%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on CL, K, BXP, HOT, AHC and STR.
- Reiterated Underperform on RAI and BA.

Afternoon/Evening Headlines
Bloomberg:
- GM will end on Aug. 1 a program that gives employee discounts to all US buyers as it clears out this year’s models and prepares to offer lower prices on their 2006 replacements.
- Citigroup’s Sanford Weil said he will complete his term as chairman of the biggest US financial-services company, ending his plans to leave early and start a buyout fund.

CNBC:
- Cnooc Ltd., which is competing with Chevron to acquire Unocal, may raise its bid.
BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Medical, Biotechnology, Semiconductor and Retail longs and Oil Tanker shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline line finished modestly higher, most sectors rose and volume was slightly above average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was positive. It appears as though the major averages will penetrate the upper end of their recent trading ranges imminently.

Stocks Higher Mid-day on "Goldilocks" Beige Book Report

Indices
S&P 500 1,237.07 +.40%
DJIA 10,630.16 +.47%
NASDAQ 2,183.91 +.36%
Russell 2000 672.91 -.25%
DJ Wilshire 5000 12,322.11 +.30%
S&P Barra Growth 593.46 +.46%
S&P Barra Value 638.16 +.33%
Morgan Stanley Consumer 587.56 +.50%
Morgan Stanley Cyclical 760.47 +.48%
Morgan Stanley Technology 503.50 +.90%
Transports 3,755.86 +.39%
Utilities 393.51 +.34%
Put/Call .79 -5.95%
NYSE Arms .84 -17.95%
Volatility(VIX) 10.52 -4.28%
ISE Sentiment 188.00 +3.87%
US Dollar 89.73 -.30%
CRB 307.28 +.38%

Futures Spot Prices
Crude Oil 59.40 +.34%
Unleaded Gasoline 172.00 +1.37%
Natural Gas 7.65 +3.03%
Heating Oil 161.70 +.83%
Gold 430.90 +.37%
Base Metals 125.49 +1.07%
Copper 162.45 +1.15%
10-year US Treasury Yield 4.26% +.84%

Leading Sectors
Wireless +1.35%
Telecom +1.35%
Drugs +1.33%

Lagging Sectors
Oil Tankers -1.16%
Steel -1.50%
Disk Drives -1.62%
BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Semiconductor, Medical, Retail longs and Oil Tanker shorts. I added to a few existing longs and added MDRX long today, thus leaving the Portfolio 100% net long. I am using a stop-loss of $16 on this position. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are higher and volume is about average. Measures of investor anxiety are lower. Today’s overall market action is positive considering the rise in long-term rates. It appears as though investors liked the Fed’s Beige Book report that portrayed a “Goldilocks” style US economy. I expect stocks to trade higher into the afternoon on short-covering.

Today's Headlines

Bloomberg:
- US lawmakers may finish an agreement on a $286.5 billion highway bill today, ending a 22-month impasse on legislation that distributes gasoline taxes to states for road construction, House and Senate aides said.

Wall Street Journal:
- The US economy is in a stronger position than a few years ago, because of the economic policies pursued by President Bush, said Ben Bernanke, Alan Greenspan’s likely replacement.
- Investors in June withdrew about $2.3 billion from Standard & Poor’s Depository Receipts.
- Comcast may mount a challenge to Walt Disney’s ESPN.
- Coca-Cola, PepsiCo and other soft-drink companies may voluntarily restrict the sale of their beverages in schools.
- Boeing is doing such a good business that the company helped to reduce the US trade deficit by 6%, mostly on exports of aircraft and aircraft parts.

NY Times:
- The New York City Taxi and Limousine Commission yesterday said it supported a plan to introduce six hybrid taxicabs as early as this fall.

Reuters:
- China’s central bank “intervened” in the final minutes of trading today to push its currency to the lowest since the country revalued the yuan on July 21. The People’s Bank of China was demonstrating to investors that it doesn’t want the currency to rise further for now.

Durable Goods Orders Strong, New Home Sales Hit Another Record, Distillate Inventories Rise Again

- Durable Goods Orders for June rose 1.4% versus estimates of a 1.0% decline and an upwardly revised 6.4% increase in May.
- Durables Ex Transportation for June rose 2.6% versus estimates of a 1.0% gain and an upwardly revised .9% increase in May.
- New Home Sales for June rose to 1374K versus estimates of 1300K and 1321K in May.
- The EIA reported that crude oil inventories fell 2.25 million barrels vs. estimates of a 2.75 million barrel decline. Gasoline inventories fell 2.13 million barrels vs. estimates of a 700K barrel fall. Distillate inventories rose 3.14 million barrels vs. estimates of a 2.0 million barrel rise.

BOTTOM LINE: US durable goods orders rose in June after soaring the most in three years the prior month. Factories received more orders for defense equipment, computers and machinery. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, rose a brisk 3.8% last month, Bloomberg reported. This bodes well for future gauges of manufacturing activity.

Americans bought new homes at a historically strong pace last month as low mortgage rates and job growth made housing affordable. The median price fell 5.5% to $214,000, the lowest since September, reflecting a greater proportion of sales of less expensive homes. The biggest gains were for houses in the $150,000 to $199,999 range and declines for more expensive models. Sales rose 5.1% in the South, 2.8% in the West, 2.1% in the Midwest and 7.2% in the Northeast. The supply of homes for sale at the current pace fell to 4 months in June from 4.1 months the prior month. It is a positive to see more participation by families of lower income levels in the strong housing market.

Crude oil is not-reacting to relatively bearish inventory numbers for the commodity.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Hynix Semiconductor, the world's second-largest maker of memory chips, posted a smaller-than-expected drop in profit in the second quarter and forecast prices will rebound.

Wall Street Journal:
- A group of Hollywood movie studios have agreed on technical standards related to making and showing digital films after more than three years of discussions.

NY Times:
- New York Governor George Pataki, a Republican, told aides last night at the governor's mansion that he won't run for a fourth term.

London-based Times:
- Terror suspects who failed to detonate devices on the London transport system on July 21 may be in possession of more explosives and may attempt another assault, citing Scotland Yard sources.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on ENH, GE, DHR, UDR, LRY, X and HMA.
- Reiterated Underperform on CR, SLG and AKS.

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

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ACL/.94
AGN/.75
AHC/2.95
BUD/.81
BOL/.79
BA/.61
CHIR/.16
CL/.67
CA/.21
COP/2.02
DO/.29
ESRX/.57
HCA/.76
MCK/.53
NEM/.17
PHM/2.09
RCL/.57
FON/.36
SBUX/.30
TK/1.03
ZMH/.75

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for June are estimated to fall 1.0% versus a 5.5% increase in May.
- Durables Ex Transportation for June are estimated to rise 1.0% versus a .3% decline in May.

10:00 am EST
- New Home Sales for June are estimated to rise to 1300K versus 1298K in May.

2:00 pm EST
- Fed's Beige Book

BOTTOM LINE: Asian indices are mostly higher on earnings optimism in the region. I expect US equities to open mixed and move modestly higher later in the day. The Portfolio is 75% net long heading into the day.

Tuesday, July 26, 2005

Stocks Continue Healthy Consolidation, Finish Mixed

Indices
S&P 500 1,231.16 +.17%
DJIA 10,579.77 -.16%
NASDAQ 2,175.99 +.43%
Russell 2000 674.58 +.54%
DJ Wilshire 5000 12,285.63 +.22%
S&P Barra Growth 590.72 +.17%
S&P Barra Value 636.04 +.18%
Morgan Stanley Consumer 584.63 +.04%
Morgan Stanley Cyclical 756.93 +.01%
Morgan Stanley Technology 499.00 +.56%
Transports 3,741.33 +.25%
Utilities 392.24 +.06%
Put/Call .84 +6.33%
NYSE Arms 1.02 -14.18%
Volatility(VIX) 10.99 -.99%
ISE Sentiment 181.00 +7.10%
US Dollar 90.05 +.54%
CRB 306.13 +.28%

Futures Spot Prices
Crude Oil 59.07 +.12%
Unleaded Gasoline 169.58 -.62%
Natural Gas 7.43 +2.13%
Heating Oil 160.37 -.18%
Gold 423.40 -.59%
Base Metals 124.16 -.61%
Copper 160.50 -.80%
10-year US Treasury Yield 4.22 -.46%

Leading Sectors
Steel +2.36%
Networking +2.34%
Airlines +2.13%

Lagging Sectors
Computer Hardware -1.44%
Gold & Silver -1.45%
Oil Tankers -2.82%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on PSSI, X and BAC.
- Reiterated Underperform on ELNK and GM.

Afternoon/Evening Headlines
Bloomberg:
- Take Two Interactive Software said the FTC is examining the company’s advertising for its No. 1-selling video game, “Grand Theft Auto: San Andreas,” which was found last week to have hidden sexual scenes.

AP:
- Hungry North Koreans are scavenging for ferns, acorns, grass and seaweed to eat as their government builds nuclear weapons.

Financial Times Deutshland:
- SAP AG may simplify it pricing system by reducing the number of parameters that determine the price of SAP programs.

Australian:
- Australia, the US, China, India and South Korea formed a regional accord on greenhouse emissions to replace the Kyoto climate protocol.
BOTTOM LINE: The Portfolio finished higher today on gains in my Semiconductor, Networking and Retail longs and Oil Tanker shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline line finished higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was modestly positive. Even though the S&P 500 hasn't budged for about 10 days, the underlying tone of the market remains positive. I believe another upwards push will occur over the next few weeks.

Stocks Quietly Higher Mid-day, Led by Tech

Indices
S&P 500 1,233.07 +.33%
DJIA 10,608.50 +.11%
NASDAQ 2,178.10 +.53%
Russell 2000 675.29 +.64%
DJ Wilshire 5000 12,300.32 +.34%
S&P Barra Growth 591.82 +.36%
S&P Barra Value 636.54 +.26%
Morgan Stanley Consumer 585.79 +.24%
Morgan Stanley Cyclical 757.22 +.05%
Morgan Stanley Technology 499.30 +.61%
Transports 3,745.22 +.35%
Utilities 393.32 +.33%
Put/Call .85 +7.59%
NYSE Arms .88 -26.33%
Volatility(VIX) 11.02 -.63%
ISE Sentiment 155.00 -8.28%
US Dollar 89.98 +.46%
CRB 306.42 +.37%

Futures Spot Prices
Crude Oil 59.65 +1.10%
Unleaded Gasoline 169.80 -.49%
Natural Gas 7.43 +2.0%
Heating Oil 163.00 +1.46%
Gold 423.50 -.56%
Base Metals 124.16 -.61%
Copper 160.60 -.74%
10-year US Treasury Yield 4.23% -.23%

Leading Sectors
Steel +2.74%
Networking +2.37%
Airlines +2.02%

Lagging Sectors
Gold & Silver -1.30%
Computer Hardware -1.30%
Oil Tankers -2.13%
BOTTOM LINE: The Portfolio is higher mid-day on gains in my Semiconductor, Networking and Retail longs and Oil Tanker shorts. I added to my GILD long and OSG short this morning, thus leaving the Portfolio 75% net long. The tone of the market is modestly positive as the advance/decline line is higher, most sectors are higher and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is positive considering the rise in energy prices and disappointing consumer confidence reading. The Johnson Redbook Same-store-sales Index rose 4.3% year-over-year last week vs. a 4.2% rise the prior week. The last time weekly sales exceeded 4.0% for four consecutive weeks was June 2004. This week's gain is also up from a 1.5% increase in late April and the 12th week in a row the index has exceeded 3%. I expect stocks to trade mixed-to-higher into the afternoon on short-covering.

Today's Headlines

Bloomberg:
- North Korea promised to strive to rid the Korean peninsula of nuclear weapons as six-nation talks aimed at dismantling the Stalinist nation’s atomic arms program began in Beijing today.
- The US Congress is set to pass a $10 billion energy bill after House and Senate negotiators approved a compromise version today.
- The US Senate Finance Committee approved legislation that would require companies to fully fund their defined-benefit pension plans and gives airlines 14 years to pay off their obligations.

Wall Street Journal:
- Wal-Mart Stores wants to open 42 stores in China by the end of 2006, nearly doubling its current total in the country.
- The NYC Police Dept. will today start a program to direct intelligence information to and from businesses to help counter possible terrorist attacks.
- Teva Pharmaceutical Industries’ agreement to buy Ivax is an acknowledgement that competition in the generic drugs business is likely to get sharper.

NY Times:
- Plans to build a Chicago skyscraper that would be 115 stories and about 2,000 feet tall, making it the tallest in the US.
- Some of New York’s biggest Democratic donors are backing Republican Mayor Michael Bloomberg’s re-election campaign.
- Crime in NYC’s subways has declined 22.6%, and public reports of suspicious packages have increased 36% since the July 7 terrorist attacks in London’s transit system.
- President Bush persuaded as many as six more Republican House lawmakers to support the Central American Free Trade Agreement with promises of protection for textile companies.

NY Post:
- XM Satellite Radio and Samsung Electronics are expected to announce a partnership today to make the first portable player for both MP3’s and satellite radio.

LA Times:
- US Senator Hillary Clinton has been named by the Democratic Leadership Council to lead a project to define the party’s agenda for the 2006 and 2008 elections.

Consumer Confidence Slips From 3-year High

- Consumer Confidence for July fell to 103.2 versus estimates of 106.3 and a reading of 106.2 in June.

BOTTOM LINE: American were a little less optimistic about the current economy and the future for the next 6 months after energy prices rose near highs. Terrorism fears likely impacted sentiment, as well. However the number of consumers expecting more jobs to become available in the future rose to 15.8%, the highest since January. As well, the number of consumers who say they will buy a car in the next 6 months rose to 7.2% from 6.6%. I expect confidence to make new cycle highs over the coming months.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- China's government said it may restrict its textile exports to the US, similar to caps it put on exports of the products to the European Union last month to help resolve trade friction with the US.
- Confidence about the prospects of the global economy has declined 10%, citing a survey of international company executives by management consulting firm McKinsey.
- The yen weakened against the dollar for a third day in Asia on speculation China will delay any further revaluation of the yuan, restricting the benefit to the competitiveness of Japanese exports.
- Australian Prime Minister John Howard met his nation's troops and Iraqi Prime Minister Ibrahim al-Jaafari in an unannounced seven-hour visit to Iraq.

AP:
- Jane Fonda, the actress who in 1972 posed on a North Vietnamese anti-aircraft gun, plans in March to launch a bus tour across the US to call for an end to US military operations in Iraq.

Financial Times:
- The European Commission will propose that banks register personal details of anyone making money transfers into or out of the European Union as part of an effort to stop funding for terrorism.

Guardian:
- Revenue from sales of computer games to be played on cell phones will increase to $11 billion by 2010, compared with $2.6 billion this year, citing a report by Informa Telecoms & Media.

London-based Times:
- UK Prime Minister Tony Blair's popularity has increased in the wake of the terrorist attacks in London, citing a Populus survey commissioned by the newspaper.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on RE and BLS.
- Reiterated Underperform on ASH, AVB and CR.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.12%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ADP/.44
AFL/.64
AMZN/.10
BIIB/.36
BJS/.60
CTX/1.69
CME/2.38
GLW/.18
ERTS/-.24
IMCL/.33
INSP/.38
LXK/1.06
LMT/.83
MHS/.58
HOT/.65
TDW/.46
VLO/2.95
VZ/.64

Upcoming Splits
None of note

Economic Releases
- Consumer Confidence for July is estimated to rise to 106.3 versus 105.8 in June.

BOTTOM LINE: Asian indices are mostly lower on worries over earnings in the region. I expect US equities to open modestly higher, spurred by tech shares. The Portfolio is 75% net long heading into the day.

Monday, July 25, 2005

Stocks Finish Lower on Energy and Rate Worries

Indices
S&P 500 1,229.03 -.38%
DJIA 10,596.48 -.51%
NASDAQ 2,166.74 -.60%
Russell 2000 670.99 -1.0%
DJ Wilshire 5000 12,258.72 -.42%
S&P Barra Growth 589.72 -.38%
S&P Barra Value 634.92 -.37%
Morgan Stanley Consumer 584.39 -.37%
Morgan Stanley Cyclical 756.85 -.21%
Morgan Stanley Technology 496.22 -.51%
Transports 3,732.08 -1.27%
Utilities 391.99 -.24%
Put/Call .79 -1.25%
NYSE Arms 1.19 +17.29%
Volatility(VIX) 11.10 +5.51%
ISE Sentiment 169.00 +5.63%
US Dollar 89.57 -.08%
CRB 305.29 +.34%

Futures Spot Prices
Crude Oil 57.59.05 +.68%
Unleaded Gasoline 169.93 -1.66%
Natural Gas 7.33 -.66%
Heating Oil 160.90 +1.71%
Gold 425.70 +.16%
Base Metals 124.47 +.13%
Copper 161.30 +.59%
10-year US Treasury Yield 4.24 +.61%

Leading Sectors
Oil Service +.98%
Energy +.86%
Broadcasting +.47%

Lagging Sectors
Biotech -1.41%
Steel -2.12%
Homebuilders -2.56%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY.

Banc of America:
- Downgraded LM to Sell.

Afternoon/Evening Headlines
Bloomberg:
- US Federal research dollars to colleges and universities rose by 13.1% and hit their highest levels since 1985, according to the latest National Science Foundation statistics released last week.
- The Chicago Merc has overtaken Deutsche Boerse as the world’s most valuable financial market following a surge in the US exchange’s shares.
- The SEC is considering civil action against Fidelity Investments for violating rules on accepting gifts from brokers.
- Brazil’s currency had its biggest slide since October 2002 and stocks and bonds tumbled on concern President Luiz Inacio Lula da Silva may be drawn into an investigation of alleged government corruption.
- President Bush may consider bypassing the Senate by appointing John Bolton as UN ambassador on a temporary basis if Democrats continue to hold up a vote on his nomination.

Financial Times:
- Pakistan has destroyed al-Qaeda’s command and control system in the country and captured 700 fighters, citing President Pervez Musharraf.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet, Biotech and Homebuilding longs. I exited my QQQQ long in the afternoon and took profits in a couple of other longs, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was light. Measures of investor anxiety were mixed into the close. Overall, today’s market action was neutral slightly negative. Stocks are responding well to earnings reports after-hours. I expect consumer confidence to modestly exceed expectations tomorrow which could also boost shares.

Stocks Consolidating Recent Gains Mid-day

Indices
S&P 500 1,234.11 +.03%
DJIA 10,645.87 -.06%
NASDAQ 2,175.20 -.21%
Russell 2000 676.39 -.21%
DJ Wilshire 5000 12,312.16 +.01%
S&P Barra Growth 591.85 -.02%
S&P Barra Value 637.95 +.10%
Morgan Stanley Consumer 585.89 -.11%
Morgan Stanley Cyclical 760.58 +.28%
Morgan Stanley Technology 498.30 -.09%
Transports 3,765.39 -.39%
Utilities 394.62 +.44%
Put/Call .69 -13.75%
NYSE Arms .92 -8.98%
Volatility(VIX) 10.97 +4.28%
ISE Sentiment 162.00 +1.25%
US Dollar 89.61 -.03%
CRB 304.91 +.22%

Futures Spot Prices
Crude Oil 58.80 +.17%
Unleaded Gasoline 171.00 -1.04%
Natural Gas 7.25 -1.81%
Heating Oil 160.10 +1.27%
Gold 425.80 +.19
Base Metals 124.92 +.15%
Copper 161.70 +.84%
10-year US Treasury Yield 4.24% +.61%

Leading Sectors
Energy +1.54%
Oil Service +1.48%
Telecom +.51%

Lagging Sectors
Biotech -.98%
Homebuilders -.99%
Steel -1.27%
BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Software and Medical longs are offsetting losses in my Biotechnology longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are lower and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering recent gains and the rise in energy prices and long-term rates from morning lows. In a recent Merrill Lynch survey, energy was the favorite industry among 273 global money managers. Portfolio managers who were "overweight," or held stakes above their benchmarks, outnumbered those "underweight" by 37 percentage points. The energy industry topped health care for the top ranking among all 11 industry groups. I expect stocks to trade mixed into the afternoon as stocks consolidate recent gains.

Today's Headlines

Bloomberg:
- The Service Employees International Union and the International Brotherhood of Teamsters, two of the three largest unions in the AFL-CIO, may leave the labor federation as early as today because of differences over organizing tactics and declining membership.
- The US House of Representatives may urge regulators to investigate whether the maker of video game “Grand Theft Auto: San Andreas,” which has hidden sexual content, deceived a ratings board to avoid an adults-only tag.
- North Korea and the five nations trying to persuade it to dismantle its nuclear weapons program are willing to stay in Beijing as long as needed to reach an agreement, a senior US official said.
- Blackstone Group LP is raising $12.5 billion from investors to start the world’s largest takeover fund as corporate buyouts set a record pace.

Wall Street Journal:
- Security vulnerabilities in computer software are on the rise, citing new security research from the SANS Institute.
- People who want to invest small sums at regular intervals have tended to avoid exchange-traded funds because fees are incurred with every trade, but Nasdaq Global Funds is working on a Web-based program that will change that.
- Low levels of industrial chemicals may be responsible for rising rates of cancer and childhood brain disorders, including autism and learning disabilities.
- XM Satellite Radio Holdings and Sirius Satellite Radio are adding local features including traffic and weather reports in a bid to establish a bigger presence in markets served by traditional broadcasters.

NY Times:
- Teva Pharmaceutical is close to completing the acquisition of Ivax for about $7.5 billion in cash and stock.
- Some US cities such as Seattle and Los Angeles are sending police officers to Israel for training on dealing with suicide bombers.
- Sony is forming manufacturing and technology agreements with Samsung Electronics to boost profit and compete more effectively.

China Economic Times:
- China’s coal stockpile reached 115 million metric tons by the end of June because of rising output.

Existing Home Sales Set Another Record

- Existing Home Sales for June rose to 7.33M versus estimates of 7.15M and 7.14M in May.

BOTTOM LINE: US sales of previously owned homes rose an unexpected 2.7% to an all-time record in June as a strong US economy and low interest rates boosted prices to another high. Sales increased 5.5% in the West, 3.4% in the Northeast, 1.9% in the Midwest and 1.1% in the South. The supply of homes available for sale held at 4.3 months’.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said July sales at its US stores open at least a year are rising within its forecast range as general merchandise outpaced food sales.
- US gas prices slid 1 cent in the past two weeks to an average of $2.30/gallon.
- Lance Armstrong made his final move as a professional cyclist yesterday, stepping onto the winner's podium after his record seventh straight Tour de France victory.
- The death toll in yesterday's homicide bombings in the Egyptian Red Sea resort of Sharm el-Sheikh rose to at least 88 people, two hundred people were wounded.

Wall Street Journal:
- Ford Motor's Hertz, which is planning an IPO, may receive bids from private-equity groups including Carlyle Group and Texas Pacific Group.

New York Times:
- Hewlett-Packard CEO Mark Hurd is under increasing pressure from analysts to academics and others to divide the company in two or sell off units.
- US Democratic Party leaders say that their electoral prospects may be hurt if several labor unions leave the AFL-CIO.

New York Post:
- Cox Communications will meet this week with private equity firms interested in purchasing about $3 billion in subscriber accounts.

Washington Post:
- A highway bill before the US Congress has a potential windfall for data brokers such as Acxiom Corp., ChoicePoint and LexisNexis.
- Medicare often reimburses hospitals and doctors more for poor care and unnecessary tests because it pays for each time a patient is treated.

LA Times:
- President Bush is targeting companies such as Wal-Mart and Microsoft for a coalition to support letting some illegal immigrants already in the US to be legally employed.

San Jose Mercury News:
- California's Silicon Valley added jobs in June for a fifth straight month and may show annual growth by year-end.

Financial Times:
- People's Bank of China Governor Zhou Ziaochuan said the yuan revaluation last week is an "initial" step, fuelling speculation the country will strengthen the currency further.
- Microsoft is using cars and aircraft to travel around US cities and track signals emitted by short-range home and office-based wireless networks to create a ground-based location system and attract more Internet users.
- US retail investors have put more money into international equity funds than in US funds for the first time since 1990, citing Lipper.

Reuters:
- Pakistan pledged more coordination and cooperation with Afghanistan in the war against terrorism.

Daily Telegraph:
- Almost a quarter of British Muslims sympathize with the motives of those who carried out bomb attacks on London this month, citing a survey for the newspaper by YouGov Plc.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on FFH, NTRT, BSX, VRNT, CMVT, MKL and mixed on DNA, AAPL, MSTR.

Forbes on Fox:
- Had guests that were positive on IWM, INTC, DQX and mixed on F, RTSX, STO.

Cashin' In:
- Had guests that were positive on CHU and mixed on SHE.

Cavuto on Business:
- Had guests that were positive on BM, IBM, MEE and mixed on PFE, WMT, HPQ.

Barron's:
- Had positive comments on MOT, FMC, LECO, MIL, SYNA, AMSC, WLP and SIRI.
- Had negative comments on IBM.

Goldman Sachs:
- Reiterated Outperform on GE, SLB and OXY.
- Reiterated Underperform on ALB.

Night Trading
Asian indices are +.50% to +.75% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.22%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
ALTR/.18
AXP/.78
CD/.35
HGSI/-.47
LNCR/.46
FLSH/.17
DGX/.72
TXN/.29

Upcoming Splits
None of note

Economic Releases
10:00 am EST
- Existing Home Sales for June are estimated to rise to 7.15M from 7.13M in May.

BOTTOM LINE: Asian Indices are mostly higher on optimism over recent US economic reports. I expect US stocks to open modestly higher after gains in Asia. The Portfolio is 100% net long heading into the week.