Monday Close

S&P 500 1,084.07 -.20%
NASDAQ 1,839.02 -.54%

Leading Sectors
Telecom +1.94%
Insurance +.83%
HMO's +.44%

Lagging Sectors
Networking -1.79%
Biotechnology -1.92%
Hospitals -2.69%

Other
Crude Oil 41.39 -.12%
Natural Gas 5.95 -.12%
Gold 390.70 +.10%
Base Metals 109.14 +.89%
U.S. Dollar 89.01 -.28%
10-Yr. T-note Yield 4.48% +1.19%
VIX 17.30 +4.85%
Put/Call .82 +5.13%
NYSE Arms 1.16 -33.33%

After-hours Movers
SLAB -4.58% after beating 2Q estimates, but lowering 3Q forecast.
NVTL -7.5% after beating 2Q estimates and raising 3Q guidance.
IPIX +15.6% after announcing it has received an order for the purchase of $3 million of it ComandView video surveillance cameras from its UK distributor.
RTEC +6.7% after beating 2Q estimates and raising 3Q forecast.

Recommendations
TLAB raised to Buy at Merrill Lynch, target $10.60. Goldman Sachs reiterated Outperform on AXP, MET and Underperform on CVH.

After-hours News
U.S. stocks finished modestly lower today, led by healthcare-related companies, ahead of negative political rhetoric, earnings worries and rising interest rates. After the close, stem cells injected into the human brain may help people recover from strokes and regain their ability to speak and move normally, according to a study of rats in the Proceedings of the National Academies of Science, Bloomberg reported. Google's search engine malfunctioned after it was infected by the Mydoom virus that also struck corporate and personal computers, Bloomberg reported. Stanley Works, the biggest U.S. maker of hand tools, said second-quarter profit surged as sales rose 22%, Bloomberg said. Former President Clinton's address before the Democratic Convention will be watched by almost half the registered voters in the country, Bloomberg reported. Kellogg and General Mills are among food manufacturers that may be stuck with too many products aimed at dieters as the number of U.S. consumers on low-carb diets probably has peaked, Bloomberg said. American Express said second-quarter profit rose 15% as an expanding economy prompted more travel than any time sine the terrorist attacks of Sept. 2001, Bloomberg reported. The Fed's benchmark interest rate is still "highly accommodative" and far below a neutral rate, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

BOTTOM LINE: The Portfolio finished unchanged today as my falling technology longs offset my declining retail shorts. I did not trade today and the Portfolio is still 50% net short. I continue to expect the major U.S. indices will make a short-term bottom later this week. Beaten-up tech shares will likely lead for a brief period. My short-term trading indicators are still giving sell signals.

Mid-day Update

S&P 500 1,080.04 -.57%
NASDAQ 1,831.54 -.93%

Leading Sectors
Telecom +1.31%
Insurance +.46%
Computer Services -.12%

Lagging Sectors
Internet -1.99%
Biotech -2.68%
Hospitals -3.20%

Other
Crude Oil 41.40 -.74%
Natural Gas 5.97 -2.59%
Gold 389.80 -.18%
Base Metals 109.14 +.89%
U.S. Dollar 89.02 -.27%
10-Yr. T-note Yield 4.47% +1.01%
VIX 17.63 +6.85%
Put/Call .73 -6.41%
NYSE Arms 1.36 -21.84%

Market Movers
ANDW -26.2% after beating 2Q estimates and lowering 3Q/4Q guidance.
CHKP -13.65% after slightly missing 2Q estimates and lowering 3Q forecast.
MYL -15.5% after agreeing to buy KG for $4 billion in stock to expand into heart treatments and add sales force to call on cardiologists. KG +25.2%.
IMCL -15.0% after Citi downgrade to Neutral, price target cut to $72.
OCR -31.0% after missing 2Q estimates and lowering 04 guidance.
BSX +4.88% after 2Q estimates mostly met expectations after stent recall.
AGYS +18.88% after beating 1Q estimates and raising 05 forecast.
MANT +11.1% after saying it received a four-year contract to provide the federal government with security clearance background investigations.
CTSH +11.8% after beating 2Q estimates and raising 3Q and 04 forecast.
CRS +7.2% after JP Morgan upgrade to Overweight.
BEC -8.4% after missing 2Q estimates and lowering 3Q forecast.
TASR -9.9% on news that CBS News will run a negative story on the company.

Economic Data
Existing Home Sales for June were 6.95M versus estimates of 6.65M and 6.81M in May.

Recommendations
CRS raised to Overweight at JP Morgan. IGT raised to Sector Outperform at CIBC, target $38. HCR raised to Buy at Legg Mason, target $38. UHS raised to Buy at Oppenheimer, target $52. NTLI raised to Overweight at JP Morgan. Goldman Sachs reiterated Outperform on AMT, VZ, XRX, SRE, NEM, PDG, ENH, BSX, AMLN, FS, IGT, GCI, HOT, PG, SLB and ITT. Goldman reiterated Underperform on CYT, SGP, PGL, CR and DJ. Citi SmithBarney reiterated Buy on HAL, target $37. Citi reiterated Sell on MYG, target $15. Citi reiterated Buy on WY, target $72. Citi reiterated Buy on ITT, target $92. Citi reiterated Buy on SSCC, target $23. Citi reiterated Buy on UTX, target $109. Citi thinks banks will outperform in second half, favorite is BAC. Citi said with semi-equipment shipment delays finally beginning, the final phase of the correction in those stocks has begun, Buy on weakness, favorite is LRCX. Citi reiterated Buy on ATH, target $90. Citi reiterated Buy on WLP, target $111.70.

Mid-day News
U.S. stocks are falling mid-day, led lower by healthcare-related companies, on concerns over negative political rhetoric, earnings shortfalls and rising interest rates. Iraqi Defense minister Hazima al-Shalan said Iran has sent spies into Iraq, infiltrated the country's new government and taken positions along Iraq's border, the Washington Post reported. Sun Micro plans to debut two computer system lines with microprocessors from Advanced Micro, the Wall Street Journal reported. Sprint will likely announce today it is offering local telephone service to business customers in 35 markets, the Wall Street Journal said. Shares of AO Yukos Oil, Russia's largest oil exporter, fell after Interfax reported a major shareholder was placed on a wanted list by a Moscow court on murder-related charges. An Alzheimer's drug called donepezil might slow the onset of the disease in high-risk patients by six months, the LA Times reported. Roche Holding and Chiron are competing for the lead in the market for tests that can screen donated blood for the West Nile virus, the LA Times reported. Career Education, which is being probed by the U.S. SEC, is also being investigated by federal law-enforcement officials, the Financial Times reported. Nokia may have its credit rating reduced by S&P on concern the company will continue to lose market share to competitors, Bloomberg reported. HCA, the biggest U.S. hospital chain, said second-quarter profit rose 47% as lower malpractice expenses compensated for an increase in unpaid bills, Bloomberg reported. Google plans to sell 24.6 million shares in its IPO for between $108-$135/share and the symbol will be GOOG, Bloomberg said. U.S. sales of previously owned houses rose more than expected in June to a record annual pace of 6.95 million, the National Assoc. of Realtors said. U.S. Treasuries fell in New York after home sales unexpectedly rose and speculation increased that other economic reports this week will add to evidence growth is accelerating, Bloomberg reported. Medicare proposed rules for its 2006 program to help the elderly pay for prescription drugs, including how the agency will work with pharmacy-benefit managers such as Express Scripts to get discounts on drugs, Bloomberg reported.

BOTTOM LINE: The Portfolio is unchanged today as my longs are falling more than my shorts. I have not traded today and the Portfolio is still 50% net short. It is good to see the VIX continue higher, however the Put/Call and Arms readings are falling. My short-term trading indicators are still giving sell signals. I expect U.S. stocks to fall modestly into the close.

Monday Watch

Earnings of Note
Company/Estimate
AXP/.67
ANDW/.13
BLS/.50
BSX/.45
CTX/1.29
CHKP/.25
CHK/.29
HCA/.65
HUM/.39
IP/.38
PETS/.10
PBI/.61
PVN/.21
PHM/1.43
SWK/.67
SLAB/.38
UNA/.08
VECO/.13

Splits
CWTR 3-for-2

Economic Data
Existing Home Sales for June estimated at 6.66M versus 6.8M in May.

Weekend Recommendations
Forbes on Fox had guests that were positive on SLM and TEVA. Bulls and Bears had guests that were positive on LU, AAPL, MMC, EOG, RTN, F, DCX, TM, ROST and mixed on MSFT. Cashin' In had guests that were positive on JNJ, FLO, PTR, TXN and mixed on MSFT, RHAT. Louis Rukeyser's Wall Street had guests that were positive on UPS, WMT, XMSR, SIRI, JCP and VLO. Wall St. Week w/Fortune had guests that were positive on FO, STZ, PEP, DIS, HDI, GE, SHFL, MGAM, BUD, POOL, MSFT and UTX. Barron's had positive comments on MSFT, DEX, OLN, GTOP, SGR, WG, HGR, MHR, DNR, NR and negative comments on NXTL. Goldman Sachs reiterated Outperform on AGN, DD, AMT, HOT, EBAY, ITT, SLB and Underperform on SIAL, WM, SGP.

Weekend News
North Korea rejected a U.S. proposition to end its nuclear program in exchange for economic aid and improved relations as having "little worthy to be discussed," Agence France-Presse reported. Ford Motor, which accounts for about 80% of all police patrol cars sold in the U.S., may face a challenge from a police version of DaimlerChrysler's Dodge Magnum sports wagon, the LA Times reported. The U.S. Senate gave final approval to a bill that requires states to close loopholes in unemployment insurance laws that allow companies to avoid paying millions of dollars in premiums, the Washington Post reported. A group claiming to be the European arm of al-Qaeda has threatened to attack Australia an Italy with car bombs if their troops aren't withdrawn from Iraq, the Australian Broadcasting Corp. reported. Iraq and Syria agreed to restore diplomatic ties severed in 1982 and control security along their common borders to stop militants from crossing into Iraq, Al-Hayat reported. The campaign of John Edwards will return $44,035 in contributions raised by a LA attorney under scrutiny by California election officials, Newsweek reported. A 312-111 vote last week in the U.S. House favoring the technology industry's position of expensing options shows Silicon Valley's influence in Congress may be reviving, the NY Times said. Consumers fed up with having to pay more costly phone bills have been switching in increasing numbers to phone service over the Internet, the New York Times reported. AT&T will probably be the target of a takeover bid, Newsweek reported. Google may announce the estimated price range for its IPO as early as today, the Financial Times reported. President Bush wants to make decisions within days about enacting some of the recommendations of the commission that investigated the Sept. 11, 2001, terrorist attacks, the Washington Post said. Intel is looking for ways to return some of its $16.7 billion in cash to shareholders, the Financial Times reported. Former President Clinton will play a prominent role in the campaign of Democratic presidential candidate Kerry over the next three months, the Financial Times said. Mylan Labs plans to buy King Pharmaceuticals in a transaction valued at $4 billion, as it seeks to expand its branded-drug business, the Wall Street Journal reported.

Late-Night Trading
Asian indices are mostly lower, -1.0% to -.25% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.29%.

BOTTOM LINE: I expect U.S. stocks to open mixed in the morning ahead of a number of important earnings releases, economic reports and the Democratic convention. The Portfolio is 50% net short heading into the week.

Chart of the Week

Bottom Line: Since the first of the month,the Nasdaq is down almost 10%. It is approaching very oversold levels. A tradeable rally ensued the last two times this index reached these levels.

Weekly Outlook

There are a few important economic reports and a number of significant corporate earnings reports scheduled for release this week. Economic reports this week include Existing Home Sales, Consumer Confidence, New Home Sales, Durable Goods Orders, Employment Cost Index, Initial Jobless Claims, GDP, Personal Consumption, GDP Price Deflator, Univ. of Mich. Consumer Confidence and Chicago Purchasing Manager report.  Home Sales, Consumer Confidence readings, GDP and the Chicago Purchasing Manager report all have market-moving potential.  

Andrew Corp.(ANDW), Boston Scientific(BSX), HCA Inc.(HCA), Intl. Paper(IP), American Express(AXP), Automatic Data Processing(ADP), E.I. du Pont(DD), Lockheed Martin(LMT), Nabors Industries(NBR), Phelps Dodge(PD), Verizon Communications(VZ), Veritas Software(VRTS), Boeing(BA), Comcast(CMCSA), Hilton Hotels(HLT), KLA-Tencor Corp.(KLAC), Gillette(G), Time Warner(TWX), BellSouth(BLS), Bristol-Myers Squibb(BMY), Ingram Micro(IM) and Liz Claiborne(LIZ) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The Fed's Hoening's speech on monetary policy, the Government Security Expo and Bank of America's Specialty Pharmaceutical Conference could also impact trading this week.  

Bottom Line:  I expect U.S. stocks to remain under pressure through mid-week, then to rise through week's end, leaving the major U.S. averages modestly higher for the week.  The Morgan Stanley Technology Index is now down 17.8% from its recent high in January.  Barring any domestic terror attacks, the end of the Democratic Convention should prompt at least a relief rally in many oversold stocks.  My short-term trading indicators are still giving sell signals and the Portfolio is 50% net short heading into the week.

Market Week in Review

S&P 500 1,086.20 -1.38%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line:  Overall, last week was not very good for the Bulls.  The NASDAQ advance/decline line continued to deteriorate, technical damage spread, most good news went unrewarded, the Put/Call and Arms readings fell and energy prices rose.  However, there were a few positives last week.  The Financials rose, AAII % Bulls fell, the VIX increased and most commodities declined in price.  As well, according to Thomson, companies boosted earnings by an estimated 24% in the second quarter, above the 19% estimate heading into earnings season.  Moreover, only 11.0% of companies have missed estimates so far.  Thomson also estimates earnings will increase a robust 15.3% in the second half of the year.  The S&P 500's 04 estimated P/E is now 16.51, down 68.0% from its peak.  This very reasonable valuation is also 24.2% lower than in 1992 and 11.5% lower than in 1987, years proceeding major bulls moves.  Considering interest rates are still near historic lows, inflation is below its long-term average, the high level of U.S. economic and military leadership, economic growth near 20-year highs, record-high American net-worth, one could argue that stocks are actually cheap at current levels.