Friday Watch

Late-Night Headlines
Bloomberg:
- Texas Pacific Group and Hellman & Friedman LLC agreed to buy Intergraph Corp.(INGR) for $1.3 billion because of increasing demand for mapping software for homeland security, and oil and gas exploration.
- Chevron Corp.(CVX) is poised to overtake ExxonMobil(XOM) as one of the world’s top five liquefied natural gas producers within a decade when it overcomes environmental objections to a $10.4 billion project in Australia.
- Microsoft Corp.(MSFT) paid out performance bonuses totaling almost $1 billion in stock to 900 of its top employees.
- US Treasury Secretary Henry Paulson, in office seven weeks, is about to ease into the first task of his tenure: persuading China to increase the value of its currency.
- Goldman Sachs Group(GS) cut its forecasts for South Korea’s economic growth this year and next as cooling domestic demand curbs Asia’s third-largest economy.
- Sales of Eli Lilly’s(LLY) Cymbalta antidepressant climbed 92% in the second quarter and CEO Sidney Taurel expects “much more” growth as the drug is sold in more countries and approved to treat a wider range of illnesses.
- Bristol-Myers(BMY) and Sanofi-Aventis SA won a bid to stop generic-drug maker Apotex Inc. from selling its copies of the Plavix heart pill, the world’s second-biggest selling medicine.
- Asahi Tec Corp., a Japanese auto-parts maker controlled by Ripplewood Holdings LLC, may buy US component maker Metaldyne Corp. to help it expand in the world’s biggest auto market.
- Analog Devices(ADI) announced it has collaborated with Legend Silicon Corp., a leading supplier of silicon solutions for broadband wireless broadcasting, to accelerate the development of mobile TV receivers for China with the industry’s first digital TV standard-compliant receiver solution.
- Shares of Aluminum Corp. of China(ACH) fell as much as 4% after the world’s second-biggest alumina producer said it will cut the price of the raw material used to make aluminum for the second time in a month.
- Natural Gas is falling another 3.5% to cycle lows as speculators trim bets on production disruptions.

Wall Street Journal:
- Las Vegas Sands(LVS) plans to spend as much as $15 billion to build an island resort in southern China.
- Electronic Arts(ERTS) said buyers spent $100 million on the video game “Madden NFL 2007” in its first week on the market, an opening-week sales record for the title.

Business Week:
- Technology companies worldwide may see more merger activity as market conditions make the prospect of leveraged buyouts more appealing.

Financial Times:
- China will form industry negotiation groups to secure lower prices for commodities. China will establish the groups to make sure it has a bigger say in price talks for oil, copper and aluminum, citing Wei Jianguo, a vice minister at the Ministry of Commerce.

London-based Times:
- Goldman Sachs Group(GS) will seek to raise $1 billion from its employees to partly finance a $10 billion private equity fund.

Late Buy/Sell Recommendations
Lehman Brothers:
- Investors should reduce bets on how much the yen will gain against the dollar and euro this year on evidence Japan’s economic growth is slowing.

Citigroup:
- Reiterated Buy on (SBUX), target $40.
- After an unusually busy August, we anticipate events in September will provide additional fuel for the rally in semiconductor stocks. Factoring in the benefit of falling oil prices, the potential for a cessation of interest rate hikes, and solid back-to-school results thus far, we reiterate our stance that the SOXX is poised to reach 480-520.

Business Week:
- Shares of AMR Corp.(AMR), parent of American Airlines, could rise 68% in the next 12 months, citing Daniel McKenzie of CSFB.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated unch.
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
- (VIP)/.93

Upcoming Splits
- (CD) 1-for-10
- (CHAP) 2-for-1

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for August is estimated at 125K versus 113K in July.
- The Change in Manufacturing Payrolls for August is estimated at 0K versus -15K in July.
- The Unemployment Rate for August is estimated to fall to 4.7% versus 4.8% in July.
- Average Hourly Earnings for August are estimated to rise .3% versus a .4% gain in July.

9:45 am EST
- The Final Univ. of Mich. Consumer Confidence reading for August is estimated to rise to 79.2 versus a prior estimate of 78.7.

10:00 am EST
- Construction Spending for July is estimated to fall .1% versus a .3% increase in June.
- ISM Manufacturing for August is estimated to fall to 54.5 versus a reading of 54.7 in July.
- Pending Home Sales for July are estimated to fall 1.5% versus a .4% gain in June.

Afternoon:
- Total Vehicle Sales for August are estimated to fall to 16.5M versus 17.2M in July.
- Domestic Vehicle Sales for August are estimated to fall to 12.8M versus 13.2M in July.

BOTTOM LINE: Asian indices are mixed, as gains in technology stocks are being offset by losses in consumer stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Profit-Taking Offsets More Economic Optimism

Indices
S&P 1,303.83 -.03%
DJIA 11,381.15 -.02%
NASDAQ 2,183.75 -.09%
Russell 2000 720.52 -.01%
Wilshire 5000 13,051.45 +.05%
S&P Barra Growth 605.51 -.14%
S&P Barra Value 696.24 +.07%
Morgan Stanley Consumer 642.32 +.24%
Morgan Stanley Cyclical 802.68 +.70%
Morgan Stanley Technology 508.74 -.35%
Transports 4,282.94 +.29%
Utilities 442.55 +1.23%
Put/Call .88 -14.56%
NYSE Arms 1.19 -5.28%
Volatility(VIX) 12.31 +.74%
ISE Sentiment n/a
US Dollar 85.09 +.13%
CRB 329.02 +.59%

Futures Spot Prices
Crude Oil 70.36 +.47%
Unleaded Gasoline 175.04 -2.86%
Natural Gas 5.98 -4.86%
Heating Oil 195.42 +.24%
Gold 634.30 +.02%
Base Metals 229.24 +.99%
Copper 345.40 -.06%
10-year US Treasury Yield 4.73% -.42%

Leading Sectors
Gold & Silver +1.34%
Utilities +1.23%
Homebuilders +.84%

Lagging Sectors
Energy -.62%
Semis -1.02%
HMOs -1.14%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Toyota Motor(TM) will build its first UT center for crash-testing and safety research, enhancing its ability to design vehicles solely for the American market.
- Brazil’s economy grew 1.2% in the second quarter, the smallest gain in nine months, as a strengthening currency prompted exporters to pare their workforces and shelve investment plans.
- Lockheed Martin(LMT) won a NASA contract to build a spacecraft that will return US astronauts to the moon, beating a Northrop Grumman(NOC)-led team.
- Natural gas closed at a six-week low, falling another 4% in NY, as mild weather reduced demand for the fuel and speculators pared bets.

Business Week:
- Apple Computer(AAPL) may announce in mid-September that it will add movies for downloading at its iTunes store.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Semi longs, Medical longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% 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 performance was bullish. The 10-year yield finished near session lows at 4.73%. The NYSE Arms was at above-average levels throughout the day, which is also a positive. I expect investors to respond positively to tomorrow's employment report, barring a significant shortfall, which I do not anticipate.

Stocks Slightly Higher into Final Hour on Economic Optimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Semi longs, Medical longs and Retail longs are being offset by losses in my Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is slightly below average. Bloomberg just reported that commodity hedge funds plunged 11.8% in July. This was the third consecutive monthly loss and the worst monthly loss since tracking began in 2001, according to the Center of International Securities and Derivatives Markets. Commodity funds are now down 13.1% from year-ago levels despite a historical run-up in commodity prices. There are now 500 commodity funds in the U.S. compared to 180 at the start of October 2004. I suspect redemptions from many commodity-related funds over the coming months will further pressure prices for commodities. I continue to believe the unwinding of a speculative mania in commodities does not mean the global economy is slowing substantially. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism and lower long-term rates.

Today's Headlines

Bloomberg:
- Scientists genetically altered cells in the body’s immune system to carry a receptor that recognizes melanoma cancer at the molecular level and marks it for destruction, a study says.
- A late surge in back-to-school spending helped many US retailers post August sales gains that topped analysts’ estimates.
- Downtown Manhattan’s office vacancy rate is poised to fall below 10% for the first time since the 9/11 terrorist attacks, according to a forecast by Jones Lang LaSalle, the largest US commercial real estate broker.
- Federal Reserve Chairman Ben S. Bernanke said “strong” growth in US productivity will probably go on for “some time” as companies and industries make better use of computers to raise workers’ per-hour output.
- Goldcorp Inc., Canada’s third-largest producer of the metal, agreed to buy Glamis Gold for about $8.6 billion as a four-year rally spurs mining companies to consolidate.
- Iran has continued uranium enrichment in the past month, a signal the Islamic Republic will ignore today’s UN Security Council deadline to suspend the nuclear work and trigger a debate on sanctions.

Wall Street Journal:
- Kellogg(K), Tyson Foods(TSN) and scores of other companies are adapting snacks to boost sales of school breakfast foods under federally funded programs for children from low-income families.
- Novatel’s(NVTL) new laptop ExpressCard versions for cellular broadband networks are easy to use and work well though they provide different access to high-speed networks.

NY Times:
- A new US National Park Service policy will emphasize conservation of cultural and natural resources in favor of recreational pursuits.

NY Post:
- NY traffic will be as congested as it is in LA in coming decades, citing a study by the Reason Foundation.

AP:
- BP Plc(BP) may be able to resume full production of oil from Prudhoe Bay, Alaska, sooner than expected by diverting the oil around 16 miles of corroded pipelines, citing an executive.
- The new superintendent of the US Military Academy at West Point says applications for the next school year are rising after several years of decline since September 11.

Facts magazine:
- UBS AG(UBS), Europe’s largest bank by assets, dropped business in Iran and Syria this year due to business risks and “economic considerations.”

Personal Incomes Surge 7.1%, Spending Healthy, Inflation Decelerates, Jobless Claims Still Low, Manufacturing Slows Modestly

- Personal Income for July rose .5% versus estimates of a .5% gain and a .6% increase in June.
- Personal Spending for July rose .8% versus estimates of a .8% gain and a .4% increase in June.
- The PCE Core for July rose .1% versus estimates of a .2% increase and a .2% gain in June.
- Initial Jobless Claims for last week were 316K versus estimates of 315K and 318K the prior week.
- Continuing Claims rose to 2486K versus estimates of 2478K and 2483K prior.
- The Chicago Purchasing Manager for August fell to 57.1 versus estimates of 57.0 and a reading of 57.9 in July.
- Factory Orders for July fell .6% versus estimates of a .9% fall and an upwardly revised 1.5% gain in June.

BOTTOM LINE: US consumer spending rose the most since January and a measure of inflation increased less than expected, suggesting a prolonged economic expansion that will let the Fed keep interest rates steady through year-end, Bloomberg said. The report showed Americans’ incomes rose 7.1%, more than twice most inflation measures. Disposable income, the money consumers have after taxes, rose a healthy 6% from year-ago levels. Spending on long-lasting items such as autos and furniture surged 1.6%, the most since January. The PCE Core, the Fed’s favorite inflation gauge, rose a smaller-than-expected .1% in July. I expect income and spending growth to stay around average long-term rates over the intermediate-term. I continue to believe inflation concerns have peaked for this cycle.

The number of US workers filing first-time applications for state jobless benefits fell last week, Bloomberg reported. The four-week moving-average rose to 317,500 from 316,500 the prior week. The unemployment rate among those able to receive benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing growth in the Chicago area slowed this month as automakers curbed production and some businesses were wary of investing in new equipment and machinery, Bloomberg said. The prices paid index fell to 75.2 from 86.8 the prior month. The new orders component of the index fell to 59.6 from 60.0 the prior month. The employment component of the index rose to 55.1 from 50.5 the prior month. I continue to believe manufacturing will remain around average levels as companies rebuild depleted inventories.

Slower demand for aircraft and automobiles pushed down US factory orders in July for the first time in three months, Bloomberg said. Orders gained 1.1%, excluding volatile transportation equipment orders, spurred by corporate spending on computers and machinery. Bookings for autos fell 7% as carmakers have responded to declining demand for gas-guzzling SUVs. Orders for capital goods excluding aircraft and defense, a gauge of future business spending, rose a healthy 1.6% versus a .9% gain in June. The inventory-to-shipments ratio rose to 1.17 months versus an all-time low of 1.15 months in May. Factory order should remain relatively healthy over the intermediate-term.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
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 yuan may fall for the first day this week after China ordered lenders to hold more foreign currency at the central bank for the first time since 2004, limiting investment and easing pressure on the currency to rise.
- Japan’s industrial production unexpectedly fell .9%.
- A UN deadline for Iran to halt uranium enrichment expires today with the country’s president expressing confidence that the Security Council won’t be able to force it into line.

Economic Daily News:
- Taiwan’s new car sales may drop to a 50-year low in 2006 on rising bad debt levels and oil prices, citing industry officials.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (EBAY).

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.19%.

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
- (BF/A)/.71
- (CAKE)/.28
- (CIEN)/.00
- (DLM)/.04
- (DG)/.15
- (ESL)/.42
- (HRB)/-.29
- (HNZ)/.54
- (JOYG)/.58
- (KWD)/.28
- (NVDA)/.29
- (OVTI)/.40
- (TIF)/.32
- (PAY)/.26
- (WIND)/.05
- (ZLC)/.02

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for July is estimated to rise .5% versus a .6% gain in June.
- Personal Spending for July is estimated to rise .8% versus a .4% increase in June.
- The PCE Core for July is estimated to rise .2% versus a .2% gain in June.
- Initial Jobless Claims for last week are estimated to rise to 315K versus 313K the prior week.
- Continuing Claims are estimated to fall to 2478K versus 2492K prior.

10:00 am EST
- Chicago Purchasing Manager for August is estimated to fall to 57.0 versus 57.9 in July.
- Factory Orders for July are estimated to fall .9% versus a 1.2% increase in June.

BOTTOM LINE: Asian indices are higher, boosted by technology stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Higher on Diminishing Inflation Concerns and Lower Long-term Rates

Indices
S&P 1,304.27 unch.
DJIA 11,382.91 +.11%
NASDAQ 2,185.73 +.62%
Russell 2000 720.58 +.80%
Wilshire 5000 13,044.81 +.09%
S&P Barra Growth 606.37 +.12%
S&P Barra Value 695.74 -.12%
Morgan Stanley Consumer 640.81 +.04%
Morgan Stanley Cyclical 797.09 +.07%
Morgan Stanley Technology 510.51 +1.01%
Transports 4,270.68 -.42%
Utilities 437.17 -1.13%
Put/Call 1.03 +6.19%
NYSE Arms 1.22 +30.91%
Volatility(VIX) 12.22 -.49%
ISE Sentiment 95.00 -34.48%
US Dollar 84.97 +.01%
CRB 327.09 -.20%

Futures Spot Prices
Crude Oil 70.31 +.86%
Unleaded Gasoline 181.50 +1.44%
Natural Gas 6.25 -9.03%
Heating Oil 196.00 +.86%
Gold 626.80 +.11%
Base Metals 227.00 -.52%
Copper 334.00 -.37%
10-year US Treasury Yield 4.75% -.46%

Leading Sectors
Disk Drives +2.14%
Semis +1.80%
Networking +1.36%

Lagging Sectors
Energy -1.62%
Oil Service -2.12%
Oil Tankers -2.17%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Merck(MRK) won the first reversal of a damage award over its Vioxx painkiller when a judge said a $51 million verdict was “grossly excessive.”
- Verizon Communications(VZ) is dropping plans for a high-speed Internet service surcharge after customers complained and US regulators questioned the fee.
- BHP Billiton(BHP) reached a preliminary agreement in Chile with union leaders at its Escondida copper mine, signaling a possible end to a 24-day strike that disrupted production.
- The ozone layer, the atmospheric shield that protects life on Earth from harmful ultraviolet rays, is on the mend after decades of decline tied to pollution, according to a study to be published in the Sept. 9 Journal of Geophysical Research. At current recovery rates, ozone in the stratosphere could return to 1980 levels by mid-century.
- US Treasuries advanced after the government’s sale of $14 billion of five-year notes met the highest demand in nine years. Yields fell to a five-month low.
- Natural gas plunged 8.5% as lower temperatures cut US power-plant demand for the fuel.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Semi longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was below-average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bullish. The 10-year yield finished near session lows at 4.75%. Despite the reversal higher in oil, oil stocks finished about 2.0% lower, which is an interesting development. I suspect oil has one last period of strength during Sept. before an accelerated downward move begins. Tech outperformed again today, with select semis trading especially well. The Morgan Stanley Tech Index has surged 13.4% over the last six weeks. I expect tech stocks to continue to outperform over the intermediate-term. Tomorrow's same-store-sales reports should meet lowered expectations, however forward guidance will likely remain conservative.

Stocks Modestly Higher into Final Hour as Long-term Rates Continue Decline

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Networking longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Steel inventories at US service centers have been increasing, even as commercial construction has been booming at the strongest rate in 12 years. With slower global growth on the horizon, declining U.S. auto production and a winding down of the massive Olympic build out in China, I suspect steel prices have made an important top. The Philadelphia Stock Exchange SIG Steel Producers Index (STQ) will likely break down through its 200-day moving average imminently. My favorite shorts are U.S. Steel (X), Oregon Steel Mills (OS), AK Steel Holding (AKS), Schnitzer Steel Industries (SCHN) and Chaparral Steel (CHAP). I am currently short (SCHN). I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and lower long-term rates.

Today's Headlines

Bloomberg:
- Crude oil fell to a two-month low of $68.65 a barrel after an Energy Department report showed a surge in imports led to an unexpected increase in US inventories.
- China ordered lenders to increase the amount of foreign currency they hold at the central bank for the first time since 2004, limiting cash available for investment and easing pressure on the yuan to strengthen.
- US 10-year Treasuries gained, driving the yield on the benchmark 10-year note to the lowest since March.
- General Motors(GM) is cutting 25% from the renewal price of OnStar’s premium package, which will now include a real-time audio routing service, for 2007 models to retain more subscribers.
- The Federal Reserve signaled it’s in no rush to resume raising interest rates, and may even be done tightening as the slowing economy eases inflation.

Wall Street Journal:
- A dozen major Hollywood film studios such as Walt Disney(DIS) and Twentieth Century Fox are to release 75 films on Blu-ray discs in Japan in the so-called format war with HD DVD technology.
- President Bush plans a series of speeches to highlight the issues and progress of the war in Iraq.
- Dell Inc.(DELL) faces a crisis after it focused on sales of desktop computers to corporations and didn’t build enough capacity to supply demand for laptops.

NY Times:
- The percentage of NYC residents living in poverty is little changed since 2001, when the city was struck by terrorist attacks and had a recession, citing US Census stats.

Washington Post:
- More than 659 million records from more than 50 FBI and other government agencies have been amassed in one database designed to help law enforcement analyze data.
- A computer game company gave its training simulator software free of charge to municipal emergency departments yesterday so employees can train in managing crisis situations.

NY Daily News:
- Nokia Oyj(NOK) is set to open a 1,300-square-foot retail store on East 57th Street off Fifth Avenue in a posh NYC shopping district.

DigiTimes:
- Sony Corp.(SNE) may cut its target shipment of new PlayStation 3 video-game consoles in half by the end of the year to 2 million units because volume production isn’t set yet.

AP:
- An emeritus professor of marketing at the prestigious Wharton School at the University of Pennsylvania has been arrested for the third time in 11 years on child sex charges.

Reuters:
- Ford Motor(F) expects to double its sales of cars in Russia to about 120,000 this year, citing Henrik Nenzen, head of Ford’s Russian unit.

Iran News:
- Iran exports 60% of its crude oil to Asian markets, 32% to Europe and 8% to Africa.

2Q GDP Revised Higher, Salaries and Wages Rise a Strong 7.6%

- Preliminary 2Q GDP rose 2.9% versus estimates of a 3.0% increase and a prior estimate of a 2.5% increase.
- Preliminary 2Q GDP Price Index rose 3.3% versus estimates of a 3.3% gain and a prior estimate of a 3.3% gain.
- Preliminary 2Q Personal Consumption rose 2.6% versus estimates of a 2.5% gain and a prior estimate of a 2.5% gain.
- Preliminary 2Q PCE rose 2.8% versus estimates of a 2.9% increase and a prior estimate of a 2.9% gain.

BOTTOM LINE: The US economy slowed to around long-term average levels in the second quarter, Bloomberg reported. Home construction fell at an annual rate of 9.8% last quarter, the largest drop since 1995. Americans’ salaries and wages rose 7.6%, more than twice the inflation rate and were $100 billion greater than expected. Commercial building investment rose 22.2%, the largest increase since 1994. 2Q GDP grew 6.3% before adjusting for inflation. I still expect US growth to stay around long-term average levels through year-end. There is a 90% correlation between the 10-year yield and core inflation 6 months outs. Moderate US growth and inflation provide the best backdrop for stocks.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
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:
- National Aluminum Co., India’s biggest producer of alumina, expects second-half profit to decline because of falling prices of the raw material used to make the lightweight metal.
- Crude oil traded near a two-month low in NY on signs slowing US demand may take pressure off fuel stockpiles and as energy companies prepare to return workers to the Gulf of Mexico.

Financial Times:
- Private equity companies are attracting senior executives away from public companies, making it more difficult for publicly traded firms to acquire and retain management talent.

Shanghai Securities News:
- China should suspend approvals for development of new coal mines to curb a rise in inventories of the material used to make steel and fuel power plants.

China Securities Journal:
- China may widen the yuan’s trading band to help curb economic growth and damp speculation on the currency after an interest-rate increase this month.

Hindu Business Line:
- Indian steel companies may lower prices of hot-rolled coil starting Sept. 1.

Late Buy/Sell Recommendations
CSFB:
- Downgraded (ROK) to Underperform, target $58.
- Each of the key industry indicators we look to for the future direction of US steel prices continue to suggest there is more downside risk than upside potential in US steel prices in late 2006/early 2007.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.05%.

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
- (BSG)/.15
- (DSW)/.30
- (JDSU)/.00
- (TIVO)/-.14
- (UNFI)/.30

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Preliminary 2Q GDP is estimated to rise 3.0% versus a prior estimate of a 2.5% gain.
- Preliminary 2Q GDP Price Index is estimated to rise 3.3% versus a prior estimate of a 3.3% gain.
- Preliminary 2Q Personal Consumption is estimated to rise 2.5% versus a prior estimate of a 2.5% gain.
- Preliminary 2Q Core PCE is estimated to rise 2.9% versus a prior estimate of a 2.9% gain.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 1,500,000 barrels. Gasoline supplies are expected to fall by 600,000 barrels. Distillate inventories are estimated to rise by 1,300,000 barrels. Finally, Refinery Utilization is expected to rise .2%.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs as Oil Closes Below $70/bbl. and Long-term Rates Fall Again

Indices
S&P 1,304.28 +.19%
DJIA 11,369.94 +.16%
NASDAQ 2,172.30 +.54%
Russell 2000 714.85 +1.16%
Wilshire 5000 13,032.94 +.30%
S&P Barra Growth 605.65 +.31%
S&P Barra Value 696.57 +.08%
Morgan Stanley Consumer 640.56 +.60%
Morgan Stanley Cyclical 796.56 +.43%
Morgan Stanley Technology 505.40 +1.03%
Transports 4,288.73 -.11%
Utilities 442.16 +.03%
Put/Call .97 -1.02%
NYSE Arms .96 -1.10%
Volatility(VIX) 12.28 +.82%
ISE Sentiment 134.00 +20.72%
US Dollar 84.95 -.36%
CRB 327.73 -.59%

Futures Spot Prices
Crude Oil 69.78 -1.18%
Unleaded Gasoline 178.54 +.13%
Natural Gas 6.81 +5.32%
Heating Oil 194.65 -.99%
Gold 622.80 -.18%
Base Metals 228.19 -1.04%
Copper 338.50 -1.90%
10-year US Treasury Yield 4.77% -.29%

Leading Sectors
Networking +1.84%
Semis +1.67%
Disk Drives +1.62%

Lagging Sectors
Energy -.51%
I-Banks -1.22%
Oil Tankers -1.51%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Crude oil closed below $70/bbl. for the first time in two months as energy speculators trimmed bets as the summer driving season winds down with only mild production disruptions.
- Apple(AAPL) today announced that Dr. Eric Schmidt, CEO of Google(GOOG), was elected to Apple’s board of directors at their meeting today.
- Inco Ltd.(N) urged investors to accept a $17.4 billion takeover by Phelps Dodge(PD) to merge their nickel and copper mines, rejecting a higher hostile bid from Brazil’s Cia. Vale do Rio Doce.
- Microsoft(MSFT) is selling its new Windows Vista operating system for $100 to $399 and will make the program available on Jan. 30, according to Amazon.com’s Web site.
- Federal Reserve officials saw their decision to suspend a two-year run of interest rate increases as a “close call” and were unsure whether they would further raise borrowing costs, the minutes showed.
- US 10-year notes gained, pushing yields to the lowest since March, as traders said the minutes of the Fed’s Aug. 8 meeting showed more support than expected for the decision to leave interest rates unchanged.

AP:
- Lawyers for customers of AT&T(T), Verizon Communications(VZ) and BellSouth(BLS) who are suing the companies for violating privacy laws by turning over phone records for terrorism surveillance plan to subpoena the Bush administration.

LA Times:
- Rapid commercial growth and new jobs in Orange County, south of Los Angeles, have attracted workers to the area, which is leading to a reversal in the region’s usual commuting routes.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Semi longs and Biotech longs. I did not trade in the final hour, 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 light. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. The statements from the Fed Minutes were mixed. There was something for the doves and hawks. I still believe there is almost zero chance of a rate hike at the Sept. meeting and very little chance of another hike this year. The Fed almost never hikes the Fed Funds rate above the 10-year T-note yield. Currently, there is a 45-basis-point spread between the two. With most market participants bearish and continuing to look for more significant market weakness, these types of reversal days are usually followed by more strength.

Stocks Mostly Higher into Final Hour on Falling Energy Prices and Long-term Rates

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Networking longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is light. The Johnson Redbook same-store sales index rose 3.3% year over year last week vs. a 3.2% rise the prior week. The long-term average is a gain of around 2.8%. I still see little evidence that a significant decline in consumer spending is beginning, even as investors continue to price this into stocks. I still expect the back-to-school selling season to exceed lowered expectations. Weekly retail sales have averaged a healthy 3.2% during the month of August. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates and declining energy prices.

Today's Headlines

Bloomberg:
- Crude oil dropped below $70 a barrel and natural gas fell as oil companies prepared to send workers back into the Gulf of Mexico and Tropical Storm Ernesto moved away from the region’s oil fields.
- Iranian President Ahmadinejad said it’s “unlikely” the UN Security Council will take action over his country’s nuclear program.
- Germans who left their country last year amid record postwar unemployment pushed emigration to its highest level since 1954, Federal stats show.
- Oil tanker earnings may almost halve by 2008 as a “phenomenal” increase in the delivery of new vessels leads to an oversupply of capacity, Drewry Shipping Consultants Ltd. said.

Wall Street Journal:
- BP Plc(BP) is the subject of investigations by US authorities for possible manipulation of the crude-oil and unleaded gasoline markets.
- Sony Corp.(SNE) and Apple Computer(AAPL) may increase demand for NAND flash-memory chips as they both plan product launches later this year, citing iSuppli.
- L-3 Communications(LLL) may expand faster than its peers.
- Plans to build more doctor-owned specialty hospitals are under review in Texas, California, Pennsylvania and Indiana after the US Centers for Medicare and Medicaid Services decided on Aug. 8 to resume certifying the facilities.
- Hundreds of thousands of seniors are paying monthly premiums to sign up for private Medicare plans.

NY Times:
- Former US President Bill Clinton said he was sorry his administration failed to intervene during the Rwandan genocide in 1994 and the US “blew” its chance to stop the bloodshed.

Washington Post:
- Privacy concerns in the European Union have made collecting intelligence on terrorists before they appear on watch lists harder for the US, Secretary of Homeland Security Chertoff wrote.

NY Daily News:
- Viacom’s(VIA) Paramount Pictures will donate $2.6 million from early ticket sales for its film “World Trade Center” to charities supporting Sept. 11 victims’ families and memorials.

Financial Times:
- EBay Inc.(EBAY) will likely make more money choosing Google(GOOG) over Yahoo!(YHOO) to run advertising outside the US.

Reuters:
- Alcatel SA(ALA) investors were urged by French advisory firm Proxinvest to reject the network equipment maker’s proposed purchase of Lucent Technologies(LU).
- Venezuela’s President Hugo Chavez plans to travel to Syria today.

Gazeta Wyborcza:
- Russia has given up opposition to the construction of a missile defense shield the US may build in Poland or the Czech Republic.

Consumer Confidence Dips, Expect Rebound Next Month

- Consumer Confidence for August fell to 99.6 versus estimates of 102.7 and an upwardly revised reading of 107.0 in July.

BOTTOM LINE: Confidence among US consumers fell in August on worries over a slowing housing market and job prospects, Bloomberg reported. The Conference Board surveys 5,000 households by the middle of the month. The survey was completed prior to the recent fall in oil and gas prices. Optimism about consumers’ present situation fell to 123.4 versus 134.2. The share of people expecting better employment opportunities in the next six months fell to 14% versus 14.3% the prior month. Since the middle of August, the average national gas price has declined .16 to $2.81/gallon, the Nasdaq is up 4% and the average 30-year mortgage rate has fallen another 7 basis points. Finally, the Middle East cease-fire didn't go into effect until the 14th of August, which has taken war off the front pages. I expect confidence to rebound next month.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
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:
- 3M Co.(MMM), the maker of products from Post-it notes to electronic road signs, aims to raise consumer sales in the Greater China region to maintain 20% annual revenue growth as competition to sell industrial goods increases.
- Baoshan Iron & Steel Co., China’s largest steelmaker, had a 27% fall in second-quarter profit as prices dropped due to rising output in the country.

Financial Times:
- The number of rival private equity firms uniting for takeover deals is concerning US public pension funds, who say the trend is increasing risk to investors.

London-based Times:
- Internet retailers in the UK had a 35.4% increase in like-for-like sales in July, citing research by IMRG, the industry body that tracks Internet spending.

Shanghai Securities News:
- China’s pharmaceutical industry profits grew at a slower pace in the first half after almost 30% of companies had losses, citing a National Development and Reform Commission report.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MNST), target $48.

Morgan Stanley:
- For the past several months, excess end demand inventory for NAND, particularly from the flash cards and MP-3 producers, drove prices down rapidly. We believe the current inventory correction is nearing completion and look for a seasonal demand up-tick to either stabilize or increase NAND prices during the next couple of months.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.16%.

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
- (ADCT)/.26
- (DY)/.20
- (FCEL)/-.36
- (MCRS)/.51
- (NOVL).03
- (SAFM)/-.04
- (SMTC)/.20

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for August is estimated to fall to 102.5 versus a reading of 106.5 in July.

2:00 pm EST
- Minutes of Aug. 8 FOMC Meeting

BOTTOM LINE: Asian indices are higher, boosted by technology and automaker stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Higher as Energy Prices Continue to Fall

Indices
S&P 1,301.78 +.52%
DJIA 11,352.01 +.60%
NASDAQ 2,160.70 +.95%
Russell 2000 706.65 +1.06%
Wilshire 5000 12,994.16 +.57%
S&P Barra Growth 603.78 +.55%
S&P Barra Value 696.04 +.48%
Morgan Stanley Consumer 636.74 +.81%
Morgan Stanley Cyclical 793.15 +.63%
Morgan Stanley Technology 500.27 +1.05%
Transports 4,293.38 +1.27%
Utilities 442.03 +.63%
Put/Call .98 +20.99%
NYSE Arms .95 -17.94%
Volatility(VIX) 12.18 -1.06%
ISE Sentiment 104.00 -31.13%
US Dollar 85.23 -.18%
CRB 329.69 -1.95%

Futures Spot Prices
Crude Oil 70.45 -2.84%
Unleaded Gasoline 177.75 -6.21%
Natural Gas 6.38 -10.86%
Heating Oil 196.30 -3.29%
Gold 621.70 -.35%
Base Metals 230.58 -1.24%
Copper 345.05 unch.
10-year US Treasury Yield 4.79% +.25%

Leading Sectors
Airlines +2.68%
Restaurants +1.50%
Homebuilders +1.44%

Lagging Sectors
Energy -1.54%
Gold & Silver -1.97%
Oil Service -2.85%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- The euro climbed to a record against the yen on speculation the European Central Bank will raise interest rates at a faster pace than the Bank of Japan.
- US Steel(X), the biggest US-based steelmaker, was downgraded by Prudential Equity Group amid oversupply concerns.
- Gasoline futures plunged to a five-month low and natural gas dropped 10% after Tropical Storm Ernesto took a course that will keep it away from oil producing and refining regions of the Gulf of Mexico.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Internet longs, Biotech longs and Commodity shorts. I did not trade in the final hour, 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 light. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. Although volume was light, I view that as a positive considering the fact that most are underexposed to U.S. stocks. We are very close to the point in which significant performance anxiety will set in on many market bears and weak bulls. The S&P 500 is only 2.8% off its highs. This is the best performance of any index in the world that I follow since the global correction began. Even so, the mania for international stocks continues while demand for U.S. stocks languishes. I expect this trend to reverse as commodity prices continue to weaken, slowing the growth of many international economies.

Stocks Higher into Final Hour on Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Retail longs, Biotech longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is very light. I continue to believe declining commodity prices, which have been the main source of inflation angst, are a function of a speculative mania ending and not the result of a significant decline in demand. I view the breakdown in the CRB Index as a huge positive for the broad market that will result in P/E multiple expansion. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- Google today will start offering customizable e-mail and calendar software to businesses and universities in a bid to lure more corporate customers and develop new sources of revenue.
- EBay(EBAY) chose Google(GOOG) to run advertising on its Web sites outside the US to tap a larger share of global online advertising market.
- Kinder Morgan(KMI) accepted an increased offer of $15 billion from a group led by Richard Kinder, the former Enron executive.
- Iran’s President Ahmadinejad told German Chancellor Merkel that the Nazi Holocaust may be an “excuse” by the nations that won World War II to keep Germans “ashamed.”
- US Bankruptcy filings fell to the lowest level in five years. Full-year 2006 filings will be the fewest since 1986.
- Crude oil fell more than $2/bbl. and natural gas plunged 10% as Tropical Storm Ernesto veered away from oil- and gas-producing areas in the Gulf of Mexico that were damaged by Hurricane Katrina a year ago.

Wall Street Journal:
- Royal Dutch Shell Plc and Chevron(CVX) are set to begin tests to extract oil from the US Rocky Mountains as high oil prices spur unconventional new methods of oil extraction.
- CBS Corp.(CBS) is to install “glueless” posters, projectors, light boxes and flat-paneled television screens in a $3 billion outdoor advertising contract with the London Underground as the industry adapts to new technology and intense competition.
- Foreign companies selling shares in IPOs on US exchanges have raised $5.85 billion so far this year, the highest year-to-date amount since the tech bubble burst in 2000, citing Dealogic Holdings.
- Terex is benefiting from a shortage in the large tires needed for mining trucks, citing the CEO.
- The NYSE’s plans to lift limits on the amount of stock traded electronically at the exchange may sideline trading floor specialists and brokers and hurt profit.
- UN Security Council Resolution 1701 failed to address the kidnapping of the two Israeli soldiers that caused fighting to break out between Israel and Lebanon, the parents of slain hostage Daniel Pearl wrote.

Washington Post:
- Biometric identification cards, containing information such as fingerprints and retinal scans, will be issued to US government employees in October to increase security.

NY Daily News:
- The recently discovered terrorist plot in London has created opportunities for bargain travel.

Star-Ledger:
- New Jersey taxes under the state’s new budget increased 5% over 2005, the most in the US.

L’Orient le Jour:
- 51% of Lebanese want Hezbollah to lay down its arms, citing an opinion poll by Ipsos SA.

Economic Releases

- None of note

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
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:
- The average US gasoline pump price fell 15.5 cents in the past two weeks to $2.87/gallaon as inventory of the fuel rose, Trilby Lundberg said, citing her survey of about 7,000 filling stations nationwide.
- Two Fox News journalists were freed in the Gaza Strip today after being kidnapped two weeks ago by a Palestinian group that demanded the release of Muslims held in US prisons.
- A Delta Air Lines Comair commuter plane crashed shortly after takeoff at Blue Grass Airport in Lexington, Kentucky, killing 49 and critically injuring one.
- Florida ordered the mandatory evacuation today of visitors in the Florida Keys as Tropical Storm Ernesto tracked toward the state from the Carribean.
- Energy companies have only evacuated some non-essential staff from platforms in the Gulf of Mexico as projections show Tropical Storm Ernesto moving away from the main offshore oil and gas producing regions.
- Hedge funds and other speculators are wagering more than ever on a continuing rally in US Treasuries.
- Gold’s appeal is fading as a slowing global economy and lower oil prices ease inflation concerns.
- FedEx(FDX) and the union for its pilots reached a tentative contract agreement after almost 30 months of talks.
- The dollar gained against the euro and yen this week as traders said bets against the US currency grew excessive.
- Wal-Mart Stores(WMT) said August same-store sales in the US rose about 2.7%, which bettered last month’s 2.4% gain. The company had forecast an increase of 1-3%.

Barron’s:
- Dell(DELL) plans to spend $150 million to improve its customer service.

NY Times:
- Sybase Inc.(SY) CEO Chen wants the company’s wireless business to have as much annual revenue as its database-software unit in three to five years, or about $500 million.
- US schools this year will have about 55 million students, the most in the nation’s history, amid an influx of immigrants similar to the early 20th century.

Business Week:
- Housing: The Roof Won’t Collapse on the US Economy

Detroit News:
- Ford Motor(F) is considering selling a “significant” stake in its Ford Credit finance unit.

InfoWorld:
- SAP’s CEO sees huge overcapacity being generated in China and an economic downturn there in 2008.

Sueddeutsche Zeitung:
- Electronic Arts(ERTS) is seeking to buy German rivals to boost its market share, citing the company’s Germany CEO.

Berliner Zeitung:
- A planned tax increase will act as a “major brake” on Germany’s economic expansion next year, just as the economy shows signs of recovering, citing Gustav Horn, chief economist at the IMK economic research institute.

Emirates Today:
- Monster.com, the job-listing service operated by Monster Worldwide(MNST), expects to increase 500% the number of listings on its new Gulf portal this year.

Al-Ahram:
- Hezbollah and Israel will swap prisoners within two to three weeks in an arrangement orchestrated by Germany.

Handelsblatt:
- Rio Tinto Group(RTP) CEO Clifford expects commodity prices to drop.

Commercial Times:
- AU Optronics(AUO) expects demand for its liquid-crystal displays to rise in the fourth quarter, citing company chairman KY Lee. Production lines at AU are running at capacity on lower inventories and rising orders for LCDs used in televisions.

Weekend Recommendations
Barron's:
- Had positive comments on (WRNC), (CTX), (TOL), (LEN), (KBH), (HOT), (HLT), (CBS), (ANAD) and (PHM).

Night Trading
Asian indices are -.50% to +.25% on average.
S&P 500 indicated -.02%
NASDAQ 100 indicated -.02%.

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
- (CAE)/.80

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are a number of economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note

Tues. - Consumer Confidence, Minutes of Aug. 8 FOMC Meeting

Wed. - ADP Employment Change, Preliminary 2Q GDP, Preliminary 2Q GDP Price Index, Preliminary Personal Consumption, Preliminary Core PCE

Thur. - Personal Income, Personal Spending, PCE Deflator, PCE Core, Initial Jobless Claims, Help Wanted Index, Chicago Purchasing Manager, Factory Orders

Fri. - Change in Non-farm Payrolls, Unemployment Rate, Avg. Hourly Earnings, Univ. of Mich. Consumer Confidence, Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales, Total Vehicle Sales

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

Mon. - BISYS Group(BSG), Cascade(CAE)

Tues. - ADC Telecom(ADCT), Dycom Industries(DY), FuelCell(FCEL), Micros Systems(MCRS), Novell(NOVL), Semtech(SMTC)

Wed. - JDS Uniphase(JDSU), Tivo Inc.(TIVO), United Natural Foods(UNFI)

Thur. - Brown-Forman(BF/A), Cheesecake Factory(CAKE), Ciena Corp.(CIEN), Del Monte(DLM), Dollar General(DG), H&R Block(HRB), HJ Heinz(HNZ), Joy Global(JOYG), Nvidia Corp.(NVDA), Omnivision Tech(OVTI), Tiffany(TIF), Wind River(DRIV), Zale Corp.(ZLC)

Fri. - Corinthian Colleges(COCO), Vimpelcom(VIP)

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

Mon. - None of note

Tue. - Fed’s Fisher speaks

Wed. - Fed’s Fisher speaks

Thur. - Fed’s Bernanke speaks

Fri. - pre-Labor day: Financial & Bond markets early close

BOTTOM LINE: I expect US stocks to finish the week modestly higher on short-covering, lower energy prices and mostly positive economic data. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,295.09 -.55%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance neutral, considering last week’s sharp gains. The advance/decline line fell, sector performance was mixed and volume was light on the week. Measures of investor anxiety were mixed. The AAII % Bulls rose to 39.35% this week from 30.53% the prior week. This reading is now at below-average levels. The AAII % Bears rose to 37.42% from 35.79% the prior week. This reading is still at above-average levels. Moreover, the 10-week moving average of the % Bears is 44.36%. It has been this high during only one other period since record-keeping began in 1987, the significant market bottom during the 1990 recession and Gulf War. It never even reached current levels during one of the greatest stock market collapses in U.S. history from 2000-2003. Many other measures of investor sentiment are still near levels normally associated with meaningful market bottoms. It is quite likely that investor sentiment towards US stocks has never been this poor in history given the positive macro backdrop.

The average 30-year mortgage rate fell 4 basis points to 6.48%, which is 32 basis points below July highs. I still believe housing is in the process of slowing to more healthy sustainable levels. Mortgage rates have likely begun an intermediate-term move lower, which should help stabilize housing over the next few months. The Case-Shiller housing futures are projecting a 5.0% decline in the average home price over the next 9 months. Considering the average house has appreciated over 50% during the last few years, this would be considered a “soft landing.”

The benchmark 10-year T-note yield fell 6 basis points on the week on weaker housing data and diminishing inflation worries. I still believe inflation concerns have peaked for the year as economic growth moderates to around average levels, unit labor costs remain subdued and the mania for commodities continues to reverse course.

The EIA reported this week that gasoline supplies rose more than expectations as refinery utilization increased. Unleaded Gasoline futures fell and are now 34.5% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, some Gulf of Mexico oil production remains shut-in and fears over future production disruptions persist. According to TradeSports.com, the percent chance of a US and/or Israeli strike on Iran this year has fallen to 13.5% from 36% late last year. The elevated level of gas prices related to crude oil production disruption speculation is further dampening fuel demand, which is beginning to send gas prices back to reasonable levels.

US oil inventories are near 7-year highs. Since December 2003, global oil demand is only up .1%, while global supplies have increased 5.3%. Moreover, worldwide inventories are poised to begin increasing at an accelerated rate over the next year. I continue to believe oil is priced at extremely elevated levels on fear and record speculation by investment funds, not fundamentals. Escalating tensions with Iran and a Gulf hurricane will likely lead to a major top in oil over the next 6 weeks as demand destruction further accelerates. As the fear premium in oil dissipates back to more reasonable levels, global growth slows and supplies continue to rise, crude oil should head meaningfully lower over the intermediate-term.

Natural gas inventories rose more than expectations this week. Supplies are now 13.5% above the 5-year average, a high level for this time of year, even as some daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 54.7% since December 2005 highs. Colorado State recently reduced its forecast from five to three major hurricanes for this season versus seven last year. I expect natural gas to make new cycle lows in December or January.

Gold fell on US dollar strength and diminishing inflation fears. The US dollar rose on short-covering and weaker economic data from Europe and Asia. I continue to believe the Fed is done hiking rates for this cycle.

Energy stocks outperformed for the week on short-covering and hurricane disruption speculation. The Retail sector underperformed substantially as investors continue to price in a collapse in consumer spending. I expect Retail to outperform during the fourth quarter as these fears prove unfounded. S&P 500 profit growth for the second quarter is coming in a strong 13.2% versus a long-term historical average of 7%, according to Reuters. This would mark the 16th straight quarter of double-digit profit growth, the best streak since recording keeping began in 1936. Moreover, another double-digit gain is likely in the third quarter. Despite a 74.5% total return for the S&P 500 since the October 2002 bottom, its forward p/e has contracted relentlessly and now stands at a very reasonable 14.9. The 20-year average p/e for the S&P 500 is 24.4. The S&P 500 is up 5.0% and the Russell 2000 Index is up 4.6% year-to-date, notwithstanding the recent correction.

The current pullback is still providing longer-term investors very attractive opportunities in many stocks that have been punished indiscriminately. In my entire investment career, I have never seen the best “growth” companies in the world priced as cheaply as they are now relative to the broad market. By contrast, “value” stocks are quite expensive in many cases. Moreover, the most overvalued economically sensitive and emerging market stocks should continue to underperform over the intermediate-term as the manias for those shares subside. I still believe a chain reaction of events has begun that will eventually result in a substantial increase in demand for US stocks.

In my opinion, the market is still factoring in way too much bad news at current levels. One of the characteristics of the current “negativity bubble” is that most potential positives are undermined or downplayed, while almost every potential negative is exaggerated and promptly priced in to stock prices. Problematic inflation, substantially higher long-term rates, a significant US dollar decline, a “hard-landing” in housing, a plunge in consumer spending and ever higher oil prices appear to be mostly factored into stock prices at this point. I view any one of these as unlikely and the occurrence of all as highly unlikely.

Over the coming months, an end to the Fed rate hikes, lower commodity prices, decelerating inflation readings, lower long-term rates, increased consumer confidence, rising demand for US stocks and the realization that economic growth is only slowing to around average levels should provide the catalysts for another substantial push higher in the major averages through year-end as p/e multiples begin to expand. I still believe the S&P 500 will return a total of around 15% for the year. The ECRI Weekly Leading Index was unchanged this week and is forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,295.09 -.55%
DJIA 11,284.05 -.86%
NASDAQ 2,140.29 -1.09%
Russell 2000 699.24 -1.75%
Wilshire 5000 12,920.88 -.72%
S&P Barra Growth 600.45 -.42%
S&P Barra Value 692.71 -.68%
Morgan Stanley Consumer 631.65 -.06%
Morgan Stanley Cyclical 788.16 -1.62%
Morgan Stanley Technology 495.07 -1.52%
Transports 4,239.51 -3.35%
Utilities 439.35 +.26%
MSCI Emerging Markets 96.06 -2.34%
S&P 500 Cum A/D Line 6,554.0 -6.0%
Bloomberg Oil % Bulls 35.3 +2.91%
CFTC Oil Large Speculative Longs 183,323 -7.0%
Put/Call .81 -10.99%
NYSE Arms 1.16 +38.09%
Volatility(VIX) 12.31 +5.76%
ISE Sentiment 151.00 +96.10%
AAII % Bulls 39.35 +28.89%
AAII % Bears 37.42 +4.55%
US Dollar 85.38 +.34%
CRB 336.26 +1.19%
ECRI Weekly Leading Index 135.20 unch.

Futures Spot Prices
Crude Oil 72.51 +.75%
Unleaded Gasoline 189.51 -3.31%
Natural Gas 7.16 +5.19%
Heating Oil 202.98 +1.92%
Gold 631.60 -.77%
Base Metals 230.58 +1.47%
Copper 342.95 -1.59%
10-year US Treasury Yield 4.78% -1.24%
Average 30-year Mortgage Rate 6.48% -.61%

Leading Sectors
Gold & Silver +3.99%
Energy +1.23%
Oil Service +1.20%
REITs +.81%
HMOs +.56%

Lagging Sectors
Steel -2.90%
Restaurants -3.10%
Gaming -3.13%
I-Banks -3.92%
Retail -5.16%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Mixed into Final Hour on Low Volume

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Networking longs offset losses in my Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is very light. Ben Bernanke's silence on monetary policy this morning implies the market has it right, in my opinion. I continue to believe there is virtually zero chance of a rate hike at the Sept. meeting and little chance of another hike this year. The 10-year continues to maintain recent strong gains. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain hunting and lower long-term rates.

Today's Headlines

Bloomberg:
- Robert Rubin, the former US Treasury secretary who is chairman of Citigroup’s(C) executive committee, resigned as a director at Ford Motor(F) to avoid conflicts as the automaker considers options that would involve investment banks, including asset sales.
- Crude oil is rising slightly on speculation that a tropical depression heading for the Gulf of Mexico may become a storm strong enough to threaten oil platforms and refineries.

Wall Street Journal:
- Moody’s Investors Service will probably publish its first credit rating for a hedge fund in the next few weeks.
- US wine sales are growing as merchants turn to the Internet and retailers including Costco(COST) press for changes to ease the dominance of the industry’s powerful middlemen.

NY Times:
- The growth of hedge funds has fueled an increase in the number of private investigators specializing in probing such investment instruments.

NY Post:
- A test version of a scanner that can detect a so-called dirty bomb has been installed at the NY Container Terminal to inspect as many as 6,000 containers of overseas goods that pass through the site daily.

Philadelphia Inquirer:
- Philadelphia finished fiscal 2006 with a larger-than-expected $202 million surplus.

AP:
- The two top US generals in the Middle East said security efforts in Baghdad were helping reduce violence.

USA Today:
- At least 10 states, including New Jersey, Florida and Idaho, have or plan to cut property tax rates because of the sharp rise in home prices over the last few years.

Financial Times:
- US IPOs are at their lowest level in three years.

Daily Telegraph:
- 53% of Britons said Islam poses a threat in some degree to “western liberal democracy,” citing a YouGov poll.