Tuesday Watch

Late-Night Headlines
Bloomberg:
- Shares of LG.Philips LCD, the world's largest liquid-crystal-display maker, rose in Seoul as an easing screen glut helped the company report higher-than-expected profit and forecast panel prices to rise this quarter.

Wall Street Journal:
- Saudi Aramco, the state-owned Saudi Arabian oil company which is China's biggest foreign oil supplier, is negotiating to take a 25% stake in a second refinery in China's Shandong province.

Financial Times:
- The Internet Corporation for Assigned Names and Numbers, which governs the Internet addressing system, has approved a domain address for Web pages designed to be viewed on mobile phones. The mobile-phone industry can use ".mobi" as a designated domain name.

China Securities Journal:
- China's economy may slow to 8.6% in the third quarter and 8.2% in the last three months of this year, citing a report by a think tank affiliated with the National Development and Reform Commission.

Xinhua News Agency:
- The China Council for the Promotion of International Trade and the US Commerce Department signed an agreement aimed at helping small US businesses break into the China market.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Underperform on DRI.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.16%.

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Earnings of Note
Company/EPS Estimate
AMTD/.17
RECN/.28
AMB/.25
MI/.74

Upcoming Splits
EAC 3-for-2

Economic Releases
None of note

BOTTOM LINE: Asian indices are mostly higher, led by technology stocks in the region. I expect US equities to open mixed and consolidate recent gains throughout the day. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs on Earnings Optimism

Indices
S&P 500 1,219.44 +.63%
DJIA 10,519.72 +.68%
NASDAQ 2,135.43 +1.07%
Russell 2000 671.74 +1.45%
DJ Wilshire 5000 12,177.66 +.71%
S&P Barra Growth 582.84 +.73%
S&P Barra Value 632.36 +.53%
Morgan Stanley Consumer 578.08 +.68%
Morgan Stanley Cyclical 738.46 +1.14%
Morgan Stanley Technology 491.34 +1.38%
Transports 3,622.23 +.93%
Utilities 394.38 +1.02%
Put/Call .79 unch.
NYSE Arms .71 -8.19%
Volatility(VIX) 11.28 -1.48%
ISE Sentiment 179.00 -7.25%
US Dollar 89.46 -.88%
CRB 308.90 -.32%

Futures Spot Prices
Crude Oil 59.33 -.50%
Unleaded Gasoline 173.50 -1.61%
Natural Gas 7.59 +1.58%
Heating Oil 169.10 -1.58%
Gold 426.60 +.66%
Base Metals 124.38 +.89%
Copper 156.10 +.32%
10-year US Treasury Yield 4.09 +.05%

Leading Sectors
Steel +2.84%
Semis +2.0%
Homebuilders +2.0%

Lagging Sectors
Biotech +.18%
Oil Tankers -.36%
HMOs -.46%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DNA, MCK and TAP.

Afternoon/Evening Headlines
Bloomberg:
- The rating on California’s $45 billion of general obligation bonds and related debt was raised one level to A2 by Moody’s Investors Service, which cited in part improvement in the state’s economy.
- An index of US stock-market volatility sank as much as 8% to the lowest in nine and a half years as gains in the S&P 500 cut demand for insurance against stock-market declines.
- Genentech said quarterly profit rose as more doctors prescribed the company’s Avastin cancer drug.
- China agreed to increase criminal prosecutions of pirates of copyrighted movies and music and to delay imposing rules that would make it harder for US software companies to sell to the Chinese government.
- Almost all branches of the US military achieved their recruiting goals for June, according to the Pentagon.

Financial Times:
- Comcast has considered and ruled out buying a mobile telephone operator, citing CEO Brian Roberts.

London-based Times:
- Google, Goldman Sachs and media company Hearst have jointly invested about $100 million in Current Communications Group, a provider of high-speed broadband access through power cables.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail, Semiconductor and Homebuilding 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 advanced and volume was slightly above average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was positive. The dollar has declined over the last three days vs. the euro. Sentiment toward the dollar had become too optimistic. As well, speculation has increased that the ECB will not cut interest rates. Over the coming weeks I expect the dollar to resume its rally against the euro.

Stocks Higher Mid-day, Led Again by Small-Caps

Indices
S&P 500 1,216.04 +.34%
DJIA 10,493.87 +.43%
NASDAQ 2,128.16 +.72%
Russell 2000 670.36 +1.24%
DJ Wilshire 5000 12,146.53 +.46%
S&P Barra Growth 581.50 +.50%
S&P Barra Value 630.59 +.25%
Morgan Stanley Consumer 576.88 +.47%
Morgan Stanley Cyclical 735.73 +.76%
Morgan Stanley Technology 489.25 +.95%
Transports 3,622.11 +.90%
Utilities 393.00 +.66%
Put/Call .78 -1.27%
NYSE Arms .90 +16.16%
Volatility(VIX) 11.28 -1.48%
ISE Sentiment 177.00 -8.29%
US Dollar 89.52 -.83%
CRB 307.80 -.68%

Futures Spot Prices
Crude Oil 58.40 -2.06%
Unleaded Gasoline 171.80 -2.57%
Natural Gas 7.43 -.50%
Heating Oil 166.80 -2.92%
Gold 427.10 +.76%
Base Metals 124.38 +.89%
Copper 156.10 +.32%
10-year US Treasury Yield 4.11% +.66%

Leading Sectors
Gold & Silver +2.20%
Disk Drives +2.12%
Steel +1.88%

Lagging Sectors
HMOs -.20%
Biotech -.31%
Oil Tankers -.48%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Retail, Semiconductor and Homebuilding longs. I exited a base metal short this morning and used the proceeds to add to existing shorts in various sectors, 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 higher and volume is above average. Measures of investor anxiety are mixed. Today’s overall market action is positive. Since the October 11, 2002 lows, the Russell 2000 has returned 98.9% vs. a 52.3% gain for the S&P 500. Just over the last 2 and 1/2 months, the Russell has gained 16.7% vs. a 6.9% return for the S&P. The Russell 2000 is at an all-time high. The S&P 500 is still 21.6% off its all-time high. The Russell 2000 will likely continue to outperform through year-end. I expect US stocks to trade mixed-to-higher into the close on short-covering, bargain hunting and lower energy prices.

Today's Headlines

Bloomberg:
- China’s crude oil imports rose 3.9% in the first half of the year, slowing to one-tenth of the pace in 2004 as refiners bought less oil because of higher prices.
- DreamWorks Animation SKG cut its 2005 profit forecast as sales of DVDs dried up.
- Sprint agreed to buy US Unwired for $1.3 billion after the company objected to Sprint’s planned purchase of Nextel Communications.
- Crude oil is falling for a third day after Hurricane Dennis missed the rigs and platforms concentrated off the Texas and Louisiana coasts and a report showed China’s demand for oil is decelerating dramatically.
- Morgan Stanley said Co-President Stephen Crawford will leave the world’s biggest securities firm.
- The euro rose the most in three weeks against the dollar and gained versus the yen as speculation waned that the European Central Bank will cut interest rates for the first time in more than two years.

Wall Street Journal:
- Europeans are finding that Muslim minority groups aren’t assimilating into the mainstream population, instead seeking to isolate themselves for everything from language to social life.
- Take-Two Interactive and Electronic Arts are fighting a major battle for rights to sports programming.
- Florida residents are resorting to more elaborate and more technologically sophisticated equipment to cope with destructive hurricanes and avoid having to abandon homes.
- Lawyers acting for AIG, the SEC and NY authorities are having discussions about settling charges that AIG polished up its financial results in recent years.
- Cisco Systems and Yahoo! will submit a jointly developed anti-spam technology to an Internet standards body as they seek wider use of their system.
- Pogo Producing plans to acquire Northrock Resources, the western Canada crude-oil and gas producing unit of Unocal for $1.8 billion.

NY Times:
- Restaurant chain-owners, such as Yum! Brands and CKE Restaurants, are trying to attract customers by offering two brands on the same premises.

AP:
- UAL’s United Airlines plans to recall as many as about 1,450 flight attendants as the carriers adds flights because of increasing demand.

Economic Releases

None of note