Mid-day Update

S&P 500 1,136.38 +.27%
NASDAQ 2,031.00 +.55%

Leading Sectors
Broadband +2.0%
Iron/Steel +1.75%
Disk Drives +1.74%

Lagging Sectors
Homebuilders -.51%
Utilities -.69%
Retail -2.17%

Other
Crude Oil 36.01 -.63%
Natural Gas 6.12 -1.14%
Gold 392.60 -2.14%
Base Metals 108.90 -.47%
U.S. Dollar 89.23 +.56%
10-Yr. T-note Yield 4.70% -.63%
VIX 15.63 -2.74%
Put/Call .92 +53.33%
NYSE Arms .82 -25.45%

Market Movers
WM -7.07% after lowering 04 earnings forecast substantially on rising mortgage rates.
TGT -4.2% after saying June sales will be "well below" its estimates.
QCOM +4.2% on technical break-out.
AIRT +16.99% after reporting strong 4Q earnings reports.
TZOO +15.0% after saying that its recently launched Newsflash e-mail alert service has proven to be a resounding success with travel providers.
JEC -13.6% after warning of lower-than-expected third-quarter and full-year profits.


Economic Data
Consumer Confidence for June came in at 101.9 versus estimates of 95.0 and a reading of 93.1 in May.

Recommendations
AJG cut to Underweight at JP Morgan. AHC raised to Buy at Deutsche Bank, target $90. PWAV rated Underperform at CSFB, target $7.50. WFII rated Outperform at CSFB, target $11. ATI raised to Sector Outperform at CIBC, target $22. Nile rated Outperform at Thomas Weisel. Goldman Sachs reiterated Outperform on MER, ACS, IP, CAN, AMT, IGT, PG and WFC. Goldman downgraded WM to Underperform. Goldman reiterated Underperform on F. Goldman reiterated Outperform on AV, saying it should be $18 now after NT news. Citi SmithBarney said it is cautious on AAPL near-term, would be buyers under $30.

Mid-day News
U.S. stocks are higher mid-day on a strong consumer sentiment report, declining interest rates and falling oil prices. Consumer confidence in the U.S. economy surged in June to the highest level in 2 years, spurred by the addition of 1.2 million new jobs this year, rising incomes and falling gasoline prices, Bloomberg reported. Microsoft will offer a streamlined version of its database and developer tools in a bid to attract nonprofessional software developers, the NY Times reported. Repairing botched cosmetic dentistry is a $10 billion industry in the U.S. the Wall Street Journal reported. New York City education officials said they removed 45 school principals for poor performance during the past academic year, the NY Times reported. Frontier Air and Northwest Air are ending intrusions into each other's flight routes, the Rocky Mountain News reported. Democratic Governor McGreevey yesterday signed into law a bill that imposes a 41% tax increase on income exceeding $500,000, affecting about 35,000 residents, the Star-Ledger reported. California Governor Schwarzenegger is expected to announce a contract agreement with the prison guards' union that would save the state $100 million during the next 2 years, the San Jose Mercury News reported. Bonds of Tyson Foods and other U.S. beef processors are weakening after the U.S. said yesterday a mad-cow screening test was positive and may indicate the second case since December, Bloomberg said. Crude oil futures tumbles to a nine-week low in London on indications supplies from OPEC are growing as Iraq takes control of its oil, easing concern pipelines there will be attacked, Bloomberg reported. Iraq's new government said it will get legal custody of Saddam Hussein tomorrow, Bloomberg said. Nortel said Flextronics agreed to buy its factories in Canada and Brazil for about $675 million to $725 million in cash, Bloomberg reported. The U.S. Supreme Court suspended enforcement of a federal criminal law that would bar commercial Web sites from making pornography available to children, Bloomberg reported. Siebel Systems faces a lawsuit by the SEC who says executives violated Red FD, Bloomberg reported.

BOTTOM LINE: The Portfolio is having a good day today as my internet and telecom equipment longs are rising substantially. I added a few new gaming, semi equipment, manufacturing and machinery longs this morning, leaving the Portfolio with 125% net long market exposure. One of my new longs is FLEX and I am using a stop-loss of $15.25 on the position. It is good to see that the very good news on the U.S. economy is finally starting to gain recognition with consumers, notwithstanding the media's intense focus on negativity. As well, it is positive that the Put/Call ratio is rising substantially today ahead of tomorrow's rate-hike. I expect U.S. stocks to rise modestly into the close on short-covering, falling interest rates and quarter-end repositioning.

Tuesday Watch

Earnings of Note
Company/Estimate
AM/.33
ESIO/.19
MKC/.29

Splits
None of note.

Economic Data
Consumer Confidence for June estimated at 95.0 versus 93.2 in May.

Recommendations
Goldman Sachs made positive comments on Lodging sector, saying current trends suggest Europe is beginning to recover and will act as a 'turbocharger' to the incredible strength in the U.S, favorites are HOT, FS and MAR. Goldman reiterated Buy on ITT, GDT, INTC, KO and STZ. Goldman reiterated Underperform on PBG and RKY.

Late-Night News
Asian indices are quietly mixed as strength in Korea is being offset by weakness in Hong Kong. Infineon Technologies AG and Nanya Technology are building the world's largest semiconductor plant that makes chips on 12-inch silicon wafers, the Economic Daily News reported. Grey Global might be an attractive takeover target for France's Publicis Groupe, the Wall Street Journal reported. General Electric is negotiating with Chinese suppliers to build locomotives in the country, China Daily reported. The Bush administration resumed direct diplomatic relations with Libya, ending 24 years of estrangement, Bloomberg said. Softbank, Japan's second-largest provider of high-speed Internet service, is starting a $250 million venture capital fund that will invest in similar companies based in the U.S. Hong Kong had its long-term debt rating outlook raised to stable from negative by S&P's Ratings Services, which cited improved prospects for the city to overcome its budget deficits. Gross revenue at the top 100 U.S. law firms rose 9.5% to $41.7 billion, aided by lawsuits, corporate work, increased billing rates and overhead management, the Wall Street Journal said.

Late-Night Trading
Asian Indices are -.50 to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.17%.

BOTTOM LINE: I expect U.S. stocks to open mixed on falling oil prices and interest rate worries. It is unlikely the market will move substantially tomorrow ahead of events later in the week. The Portfolio is 100% net long heading into tomorrow.

Monday Close

S&P 500 1,133.52 -.08%
NASDAQ 2,019.82 -.28%

Leading Sectors
Broadcasting +1.82%
Fashion +.96%
Airlines +.68%

Lagging Sectors
Oil Service -2.16%
Disk Drives -2.41%
Homebuilders -2.94%

Other
Crude Oil 36.19 -.14%
Natural Gas 6.22 +.39%
Gold 401.60 +.07%
Base Metals 109.41 -.07%
U.S. Dollar 88.70 -.19%
10-Yr. T-note Yield 4.74% +2.10%
VIX 16.07 +5.79%
Put/Call .60 -9.09%
NYSE Arms 1.10 -14.06%

After-hours Movers
NYB +7.07% on speculation over Citigroup takeover.
WM -9.9% after lowering 04 earnings forecast substantially on rising mortgage rates.

Recommendations
Goldman Sachs reiterated Underperform on FRX. Goldman reiterated Outperform on FS and IGT. A recent survey by Bank of America showed spending for business application software will increase over the next 6-12 months.

After-hours News
U.S. stocks finished slightly lower today on profit-taking after an early handover of power to Iraq and rising interest rates. After the close, New York Community Bancorp is close to an agreement to sell itself for around $6 billion, CNBC reported. General Motors said its U.S. sales this month are falling short of its expectations because of lagging customer demand, Bloomberg said. U.S regulators approved leeches for restoring circulation in blocked veins by removing pooled blood, the first FDA sanction for a treatment used for thousands of years, Bloomberg said. T-Mobile has asked mobile operators and handset manufactures to adopt a standard platform for the mobile music market, the Financial Times said. Target says its same-store-sales for June will come in well below its 5-7% forecast, Bloomberg reported.

BOTTOM LINE: The Portfolio finished substantially higher today and I took more profits in the afternoon and added to my oil service shorts, leaving the Portfolio with 100% net long market exposure. I added to my PTEN short and I am maintaining a $33.80 stop-loss on this position. The action in the bond market was disappointing today, however I do not expect a substantial rise in yields for the remainder of the week. I continue to expect a strong finish to the week for U.S. stocks on the Fed rate-hike, declining energy prices, quarter-end repositioning and positive economic reports.

Mid-day Update

S&P 500 1,141.52 +.64%
NASDAQ 2,037.69 +.61%

Leading Sectors
Airlines +3.05%
Broadcasting +1.92%
Internet +1.47%

Lagging Sectors
Homebuilders -1.34%
Disk Drives -1.44%
Oil Service -1.85%

Other
Crude Oil 36.18 -3.65%
Natural Gas 6.20 -2.41%
Gold 400.30 -.74%
Base Metals 109.41 -.07%
U.S. Dollar 88.83 -.05%
10-Yr. T-note Yield 4.71% +1.45%
VIX 15.21 +.13%
Put/Call .53 -19.70%
NYSE Arms .80 -37.50%

Market Movers
TASR +12.2% after saying the Dayton, Ohio Police placed a $436,000 order for the company's stun gun.
WPI -15.3% after cutting second-quarter sales and profit estimates after prices fell and a new birth-control pill was delayed and multiple downgrades.
MO +5.3% after a federal judge cleared the way for major U.S. cigarette makers to file a pre-trial appeal aimed at blocking a $280 billion fraud claim by the U.S. Department of Justice.
CCI -9.7% after saying National Grid Transco, Britain's power grid manager, agreed to buy the U.K. transmission towers of CCI for $2.04 billion.
TZOO +23.2% on short-covering and strength in Internet shares.
ATI +11.9% after saying it will have its first profit in more than two years, helped by a drop in retiree benefit costs and higher demand for flat-rolled stainless steel.

Economic Data
Personal Income rose .6% in May versus estimates of a .5% rise and a .6% increase in April.
Personal Spending rose 1.0% in May versus estimates of a .8% rise and a .2% increase in April.
PCE Deflator (YOY) for May rose 2.5% versus estimates of a 2.2% rise and a 2.0% increase in April.

Recommendations
ELP cut to Underweight at Morgan Stanley. WFMI rated Outperform at Prudential, target $105. TQNT cut to Underweight at Lehman, target $4. GENZ raised to Overweight at Lehman, target $54. FOX raised to Buy at Oppenheimer, target $32. WPI cut to Underweight at JP Morgan. Citi SmithBarney says to Buy JCP today, target $50. Citi also said to Buy IR, target $83. Citi reiterated Buy on CEY, target $44. Citi reiterated Sell on GDT, target $53. Goldman Sachs reiterated Outperform on BIIB, MUR, PXD, AMT and PPL.

Mid-day News
U.S. stocks are higher mid-day as falling oil prices and developments in Iraq boost investor spirits. The U.S.-led coalition formally ended its occupation of Iraq today by handing sovereignty to an interim Iraqi government ahead of schedule, Bloomberg reported. U.S. personal spending rose 1.0% in May, the biggest increase since 2001, as purchases of automobiles and other durable goods accelerated. A measure of prices tied to spending increased the most since 1990, reflecting higher fuel costs, Bloomberg reported. U.S. college students at public universities are spending almost a third less on tuition than they did in 1998, as new federal tax breaks and an increase in state and federal grants help ease education costs, USA Today reported. OAO Lukoil, Russia's biggest oil producer, plans to start crude-oil production in Iraq in 2005, Interfax news service reported. U.S. cable companies are developing new systems that ultimately may enable national television broadcasts to include different commercials aimed at varying audience groups, the NY Times reported. Sun Microsystems will unveil partnerships today meant to bolster the company's position in the mobile Internet business, the NY Times said. AOL won a patent for software that allows people to send instant messages or enter chat rooms while watching TV, the NY Times reported. Governor Schwarzenegger struck a deal with the California State Employees Association that would let the sate borrow almost $1 billion to balance the state's budget, the LA Times reported. Crude oil futures plunged to a two-month low after the U.S.-led coalition handed sovereignty to Iraq ahead of schedule, tempering concern that terrorists would disrupt the country's petroleum operations, Bloomberg reported. Wal-Mart said June sales will increase 2-4%, less than its original forecast, Bloomberg said. United Airlines was turned down for a federal loan guarantee and told it can't reapply, Bloomberg said. Cattle futures plunged the maximum allowed by the CME after the U.S. said a mad-cow screening test was positive, Bloomberg reported.

BOTTOM LINE: The Portfolio is having a very good day today as my security, internet and biotech longs are rising substantially and my oil service shorts are falling. I took profits in a few stocks from various sectors this morning, leaving the Portfolio with 125% net long market exposure. I expect U.S. equities to trade neutral to higher before a more substantial upwards move begins later in the week. Oil should continue to fall throughout the week and interest rates will likely rise modestly on more strong economic reports.

Monday Watch

Earnings of Note
Company/Estimate
SONC/.31
PKE/.23

Splits
MOV 2-for-1

Economic Data
Personal Income for May estimated to rise .5% versus a .6% rise in April.
Personal Spending for May estimated to rise .8% versus a .3% rise in April.
PCE Deflator (YOY) for May estimated to increase 2.2% versus a 1.9% rise in April.

Weekend Recommendations
Forbes on Fox had guests that were positive on MSFT, AMTD, HYSL, ADP, COP and mixed on HB. Bulls and Bears had guests that were positive on DE, MMC and mixed on RYVNX, BA, WMT and CX. Cashin' In had guests that were positive on MMM and mixed on AIB, STRA, MSFT, IHG, HDI and WMT. Louis Rukeyser's Wall Street had guests that were positive on TXN, EOG, SSL, TWP, WPI, PGN and SPLS. Wall St. Week w/Fortune did not have any stock recommendations. Barron's had positive comments on HNZ, TEU, ACTU, BYD, HD, BBBY, STN, CHS, COH, YHOO and WSM. Goldman Sachs reiterated Outperform on HD, ADP, MMP and PAYX. InformationWeek has a positive article on CSCO.

Weekend News
Iraqi militia fighters and clerics who oppose the U.S. presence in their country expressed disgust at the recent wave of violence by foreign insurgents that has killed Iraqis, the Washington Post reported. President Bush said the European Union statement endorsing Iraq's interim government and a pledge to help the country realize democracy represent an important step forward as Iraq prepares for free elections in January, Bloomberg reported. State Farm Mutual Automobile Insurance, United Services Automobile Association and Farmers Group are lowering car insurance premiums in many U.S. states, and may be joined by dozens of other insurers, the NY Times reported. Violence in Iraq may ease in the run up to elections in January as local security forces begin to take over from U.S. and British troops and people feel they can express their feelings democratically rather than through violence, the U.K.'s top representative said. The Green Party chose a California lawyer to be its presidential candidate instead of Ralph Nader, the LA Times reported. Teresa Heinz Kerry, wife of Senator John Kerry, controls a family fortune worth an estimated $1 billion, the LA Times reported. New Jersey next week will become the second state after New York to ban drivers from using hand-held cellular phones, the Newark Star-Ledger reported. Former President Clinton and Senator Ted Kennedy will get prime-time speaking spots next month at the Democratic National Convention, the LA Times reported. Senator John McCain, California Governor Schwarzenegger and former New York City Mayor Rudolph Giuliani will deliver key prime-time speeches at this summer's Republican convention, the NY Times said. Microsoft has teamed up with Sichuan Changhong Electric in southwestern China to develop digital home appliances, said Shanghai Securities News. Crude oil futures fell in New York on expectations the end of a strike in Norway and the restoration of exports from Iraq will add to U.S. supplies that are already higher than year-ago levels, Bloomberg said. The San Francisco Chronicle has an interesting editorial on the U.N. Oil-for-food scandal.

Late-Night Trading
Asian indices are mixed, -1.25% to +.50% on average.
S&P 500 indicated +.29%.
NASDAQ 100 indicated +.07%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher tomorrow on falling oil prices and Middle East violence commensurate with market expectations, before the handover of power to Iraq on Wednesday. The Portfolio is 150% net long heading into tomorrow.

Chart of the Week

Bottom Line: Look for the Morgan Stanley Technology Index to convincingly break out of its recent downtrend and lead the major U.S. indices higher. Technology spending will accelerate is the second-half of this year, earnings estimates are too low and valuations have mostly come down to reasonable levels.