Stocks Finish Lower on Healthy Profit-taking and Higher Long-term Rates

Indices
S&P 500 1,530.95 -.53%
DJIA 13,595.46 -.59%
NASDAQ 2,611.23 -.27%
Russell 2000 848.27 -.80%
Wilshire 5000 15,443.42 -.55%
Russell 1000 Growth 605.68 -.49%
Russell 1000 Value 879.73 -.60%
Morgan Stanley Consumer 746.60 -.59%
Morgan Stanley Cyclical 1,087.26 -.34%
Morgan Stanley Technology 619.87 +.15%
Transports 5,251.54 -.74%
Utilities 510.56 -1.48%
MSCI Emerging Markets 128.85 -.36%

Sentiment/Internals
Total Put/Call .94 +5.62%
NYSE Arms 1.10 +10.12%
Volatility(VIX) 13.63 +2.56%
ISE Sentiment 154.0 -7.78%

Futures Spot Prices
Crude Oil 65.60 -.92%
Reformulated Gasoline 220.58 -1.44%
Natural Gas 8.03 -1.87%
Heating Oil 196.46 unch.
Gold 675.20 -.16%
Base Metals 269.06 +.46%
Copper 344.0 -.81%

Economy
10-year US Treasury Yield 4.98% +5 basis points
US Dollar 81.89 -.20%
CRB Index 314.64 -.29%

Leading Sectors
Internet +.24%
Gaming +.18%
Networking +.13%

Lagging Sectors
Gold -1.28%
Utilities -1.48%
Coal -1.54%

Evening Review
Market Performance Summary
Market Gauges
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
After-hours Stock Quote
In Play

Afternoon Recommendations
Piper Jaffray:
- Rated (CIEN) Outperform, target $40.

Avian:
- Our contacts indicate that spot DRAM pricing exceeds contract for the first time in several months. We view this as positive and note that when spot exceeds contract, it frequently exerts further upward price pressure.

Afternoon/Evening Headlines
Bloomberg:
- A Guyanese man wanted in the alleged plot to blow up jet-fuel tanks at New York’s JFK International AirportTrinidad. surrendered today in
- The private-equity arm of Tudor Jones, raised $262 million for a new venture-capital fund to invest in technology and media companies.
- Sugar tumbled 4% to a two-year low on speculation that cane harvests in Brazil and India will add to a global glut.
- Gasoline futures fell 1.4% before a report tomorrow from the US Energy Dept. that may show inventories grew for a fifth consecutive week.
- TD Ameritrade Holding Corp.(AMTD) should consider a combination with E*Trade Financial Corp. or Charles Schwab Corp., said hedge funds Jana Partners LLC and SAC Capital Advisors LLC. The stocks is surging 6.7% in after-hours trading.
- Whole Foods Market(WFMI) and Wild Oats(OATS) said the US FTC will file a lawsuit to block their merger.
- Dell Inc.(DELL) will stop making televisions and focus on personal computers.

Wall Street Journal:
- Anheuser-Busch Cos.(BUD) agreed to distribute singer Jimmy Buffett’s Margaritaville Tequila in Massachusetts.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Networking longs and Computer longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was heavy. Measures of investor anxiety were above average into the close. Today's overall market action was mildly bearish. However, I view it as a healthy pullback after recent gains. Underneath the surface, there were some positives. The Morgan Stanley Tech Index finished slightly higher on the day. The MS Tech Index is now 9.2% higher for the year, slightly outperforming the S&P 500. I expect it to perform even better in the second half of the year as many “deadweight” tech companies gain upside traction as inventories come down significantly. As well, many market-leading growth stocks finished with meaningful gains today despite losses in the major averages. The 10-year yield finished 5 basis points higher. I continue to believe it would take a meaningful move above 5%, somewhere around 5.15%, to impact equities in a substantially negative way. I still believe that type of move is unlikely as the recent rise in rates mutes the rebound in housing and thus slows recent strong economic data, to an extent, over the next couple of months. As well, the substantial inventory rebuilding that is currently taking place will likely run its course by then. Several well-known US stock market bears were pointing today to the fact that the 10-year yield just broke out of a 30-year downtrend. However, if you look at that long-term chart and adjust the trendline down to the top in early 2000, you will see that it also broke out of a 23-year downtrend in 2004. Since then, the S&P 500 has rallied about 40%. I continue to believe the secular trend of disinflation remains firmly in tact and that during the next meaningful global economic slowdown, we will experience a mild bout of deflation, which will likely send long-term rates significantly lower from current levels. I still believe the Fed will remain on hold through year-end while making both hawkish and dovish statements, depending on the strength or weakness of the prevailing data at the time. The NYSE Arms traded at above-average levels throughout the day today. I suspect stocks will rise tomorrow.