Monday Close

S&P 500 1,065.22 +.12%
NASDAQ 1,774.64 -.13%

Leading Sectors
Energy +1.56%
Oil Service +1.51%
Commodity +1.05%

Lagging Sectors
Biotech -1.15%
Fashion -1.16%
Airlines -2.26%

Other
Crude Oil 44.90 +.13%
Natural Gas 5.78 +1.62%
Gold 402.20 -.20%
Base Metals 107.94 -.61%
U.S. Dollar 88.45 +.07%
10-Yr. T-note Yield 4.26% +.04%
VIX 18.89 -2.33%
Put/Call .90 -34.78%
NYSE Arms .87 -74.71%

After-hours Movers
DISH +4.73% after beating 2Q estimates.
SNDA +13.7% after strong 2Q report.
ACF +12.4% after beating 4Q estimates and raising 05 forecast.

Recommendations
Goldman Sachs reiterated Underperform on CVH.

After-hours News
U.S. stocks finished quietly mixed today ahead of the Fed rate announcement tomorrow. After the close, U.S. lawmakers have been advised to take underground tunnels when they walk from their offices to the Capitol for votes instead of going outside where they might be vulnerable to a terrorist attack, Time magazine reported. MCI Inc., which filed for bankruptcy protection in 2002 following an $11 billion accounting fraud, said it make $453 million of errors in its reorganization, Bloomberg said. Mylan Labs said its drug-pricing is being investigated in California, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today on weakness in my medical and gaming longs and strength in my steel shorts. I did not trade in the afternoon, thus leaving the Portfolio 25% net long.

Mid-day Update

S&P 500 1,067.54 +.33%
NASDAQ 1,779.61 +.15%

Leading Sectors
Energy +2.13%
Oil Service +1.88%
Commodity +1.42%

Lagging Sectors
Utilities -.52%
Airlines -.94%
Fashion -1.16%

Other
Crude Oil 44.84 +2.03%
Natural Gas 5.67 +.83%
Gold 402.50 +.12%
Base Metals 107.94 -.61%
U.S. Dollar 88.49 +.15%
10-Yr. T-note Yield 4.24% +.45%
VIX 18.90 -2.28%
Put/Call .91 -34.06%
NYSE Arms .81 -76.45%

Market Movers
WPSG +14.1% after beating 2Q estimates and making positive comments on 3Q.
UTEK +10.7% after saying it sees solid 3Q order growth and Adams Harkness upgrade to Strong Buy.
BID +13.8% after reporting better-than-expected 2Q results.
DDS +6.8% after the company said it would sell its credit-card business to GE for $850 million in cash.
IDCC -17.0% after missing 2Q forecast and lowering 04 outlook.
IART -8.65% after Adams Harkness downgrade to Market Perform.

Economic Data
Wholesale Inventories for June rose 1.1% versus estimates of a .6% rise and a 1.4% rise in May.

Recommendations
Goldman Sachs reiterated Outperform on VNO, BSX, KO, STZ, ACS, WMT, HD, IGT, FS, ASN, and AMT. Goldman reiterated Underperform on GFI, PSA, KZL and UNM. Citi SmithBarney upgraded TOY to Buy, target $22. Citi said it was very bullish on brokers, favorite is GS. Citi reiterated Buy on MGA, target $92.00. Citi reiterated Buy on MXIM, target $56.00. CZN raised to Buy at Merrill Lynch, target $14.50. CTL raised to Buy at Merrill, target $34. SIE cut to Sell at Bank of America, target $33. OTEX raised to Strong Buy at Raymond James, target $31.50. NXTP raised to Overweight at Prudential, target $18. ULCM raised to Strong Buy at Raymond James, target $13. PCLN raised to Outperform at CSFB, target $28. LTM rated Outperform at CSFB, target $32. DE raised to Buy at UBS. CHRW raised to Buy at Deutsche Bank, target $48.

Mid-day News
U.S. stocks are slightly higher mid-day on a muted bounce after Friday's steep declines. Nationwide Mutual Insurance said the SEC and New York Attorney General Spitzer's office are probing the company's variable insurance products, Dow Jones News reported. TiVo, which has lost market share since helping to introduce the digital video recorder in 1999, is poised to make major changes in its strategic, marketing and advertising plans, the NY Times said. Senator Kerry has been campaigning for the votes of gun owners in undecided U.S. states by depicting himself as a "lifelong hunter," including an ad that shows him posing with a shotgun, the Washington Post reported. An international team will monitor the U.S. presidential election for the first time ever in November, CNN reported. New Jersey has increased taxes more than any state other than New York since Governor McGreevey took office in 2002, the Star-Ledger reported. Affymetrix won a contract from NY City to help analyze the DNA in body parts recovered from the rubble of the collapsed World Trade Center after the 9/11 attacks, the NY Post reported. Senator Kerry's plan to reduce the number of U.S. troops in Iraq by shifting responsibility to allies faces a lack of international support, the LA Times said. ConAgra Foods will unveil its Ultragrain flour this week, which tastes like white bread and is nutritious, USA Today reported. Washington, DC, officials ruled that a gambling referendum will not be on the Nov. 2 ballot because too few valid signatures were gathered, the Bond Buyer said. Iraq's Southern Oil Co. stopped pumping oil after militia troops threatened to attack oil facilities, Agence France-Presse reported. Puma AG may increase its brand sales to as much $3.1 billion without acquisitions, CEO Zeitz told Handelsblatt. The U.S. economy will probably grow at a 3.9% annual rate from July through September, slower than the 4.2% estimated last month, according to the median of 54 economists surveyed by Bloomberg News. The National Association of Realtors, the U.S. industry's largest trade group, increased its estimate for home sales for the eighth time this year, saying low mortgage rates and an improving economy will spurt the housing market, Bloomberg reported. Copper prices in New York fell for a sixth session, the longest slide in 22 months, Bloomberg reported.

BOTTOM LINE: The Portfolio is slightly lower today as my steel shorts are rising more than my gaming and medical longs. Several longs hit stop-losses this morning and I exited the positions, leaving the Portfolio 25% net long. Today's action is disappointing as I anticipated a better bounce. The advance/decline line is poor and measures of investor anxiety are falling, notwithstanding oil's rise. I expect U.S. stocks to rise modestly into the close as shorts take profits ahead of tomorrow's Fed announcement. I also expect a more vigorous bounce tomorrow on the rate-hike and calming Fed comments.

Monday Watch

Earnings of Note
Company/Estimate
KDE/.29
ADRX/.33
CVC/-.40
CHTR/-.50
DOVP/-.51
PSUN/.23
WMS/.04

Splits
None of note.

Economic Data
Wholesale Inventories for June estimated +.6% versus +1.2% in May.

Weekend Recommendations
Forbes on Fox had guests that were positive on RL, LYO, VSEA, OVTI, AMD and negative on BRCM, XLNX, MU. Bulls and Bears had guests that were positive on DHI, SSL, JNJ, MER, LTD, SPLS, FFH, mixed on WMT, NOK and negative on MSFT, LTD. Cashin' In had guests that were positive on SU, BR, UHCO and WMT. Louis Rukeyser's Wall Street had guests that were positive on SGMS, AZR, GET, LEA and GM. Barron's had positive comments on TRB, GTW, BEN, DANKY and negative comments on GOSHA. Goldman Sachs reiterated Outperform on WFC, EBAY, TU, GDT, CMA, ASN and Underperform on UNM, PSA.

Weekend News
U.S. intelligence officials said Abu Issa al-Hindi, the al-Qaeda terrorist suspect in U.K. custody, visited the U.S. in early 2001 to conduct surveillance of possible targets at the direction of Osama bin Laden, the NY Times reported. Martha Stewart Living Omnimedia plans a show starting in January on public tv stations that stars feature chefs instead of Martha Stewart herself, the NY Times said. More than 4,200 U.S. families who say that mercury used in vaccines caused their children's ailments are suing drug companies for damages, the LA Times reported. U.S. health officials and pharmaceutical makers say there is no proof that small amounts of mercury caused the problems, Bloomberg reported. A consortium of Dubai-based investors is backing a $10 billion offer to avert bankruptcy of OAO Yukos Oil, Russia's biggest oil exporter, the Sunday Times reported. OPEC, which says it produces 28% of the world's oil requirements, exaggerates daily output by as much as 7.5%, helping to push fuel prices higher, the Business newspaper reported. A Pakistani man arrested last month was communicating with al-Qaeda terrorists who are said to be planning an attack to disrupt the U.S. elections, the NY Times said. Charter Communications and EchoStar Communications are considering going private, a move Cox Communications announced last week, the NY Times reported. Workers are now suing their employers more often than during the recession as lawyers find more creative ways to bring their grievances to court, Crain's New York Business reported. Almost half of all private businesses surveyed this year by Chubb Corp. said they expect one of their employees will sue or file a discrimination complaint, Bloomberg reported. China's inflation will probably slow in the second half as government lending curbs help cool the economy, Bloomberg reported. BellSouth reached a tentative five-year agreement last night with the Communications Workers of America on labor contracts for 45,000 employees in nine states, Bloomberg said. Dillard's agreed to sell its private credit-card unit to GE's consumer-finance division for about $1.25 billion.

Late-Night Trading
Asian indices are mixed, -.50% to +.75% on average.
S&P 500 indicated +.23%.
NASDAQ 100 indicated +.46%.

BOTTOM LINE: I expect U.S. stocks to open higher in the morning on declining oil prices and no domestic acts of terror over the weekend. The extreme rise in the Arms and Put/Call readings on Friday also bodes well for the very near-term. I added market exposure into Friday afternoon's carnage, leaving the Portfolio 50% net long. One of my new longs is FCEL and I am using a $7.70 stop-loss on the position.

Chart of the Week

Bottom Line: While most stocks fell substantially last week, homebuilders rose. The Homebuilding Index is now up 5.6% over the last 11 days while the S&P 500 has declined 1.9% during the same period. With Friday's plunge in the yield of the 10-yr T-note, mortgage rates should fall further in the near future. The Homebuilding Index is down 16% from its all-time high set in March and has a P/E on forward 12 month earnings estimates of 7.2. This index will likely test those recent highs by year-end.

Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports this week include Wholesale Inventories, Preliminary Non-farm Productivity/Unit Labor Costs, Monthly Budget Statement, Import Price Index, Advance Retail Sales, Initial Jobless Claims, Business Inventories, Producer Price Index, Trade Balance and the preliminary Univ. of Mich. Consumer Confidence. Advance Retail Sales, Initial Jobless Claims, Producer Price Index and Consumer Confidence all have market-moving potential.

Cablevision Systems(CVC), EchoStar Communications(DISH), May Dept. Stores(MAY), Abercrombie & Fitch(ANF), Cisco Systems(CSCO), Computer Sciences(CSC), Walt Disney Company(DIS), Federated Dept. Stores(FD), Fox Entertainment Group(FOX), Target Corp.(TGT), Wal-Mart Stores(WMT) and Dell Inc.(DELL) are some of the more important companies that release quarterly earnings this week. There are also several other events that have market-moving potential. The Fed rate decision, Pacific Crest Technology Forum, CIBC Enterprise Software Conference and the Schwab Soundview Semiconductor Conference could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week mixed as shares rebound from oversold levels early in the week and see weakness towards week's end ahead of the Olympics. The P/E on the next 12 months expected earnings is 16.09 and falling. The Morgan Stanley Tech Index is down 21.64% since its recent highs in January. The argument that U.S. shares are expensive is getting harder to make by the day. Corporate earnings growth for the first half of the year exceeded 25% and should exceed 15% in the second half. Corporate Balance sheets are cleaner and profitability is at record-high levels, business models are better, managements are less aggressive, interest rates are historically low and there have been no terror acts on U.S. soil since 9/11. It is my contention that stocks will see their lows for the year this month. If terrorists are going to strike the U.S., it will likely happen imminently. In my opinion, the closer we get to the election, the more the chances of an attack diminish. Investor anxiety is finally rising significantly, which is a very good contrary indicator. If all goes relatively well at the Olympics a short-term rally will commence. However, levels of investor anxiety will probably reach their peaks toward the end of this month before the Republican Convention. A successful retest of this month's lows will likely occur in September. The substantial rally I envision for the fourth quarter should begin in earnest in October and accelerate after the election in November. I still expect all the major U.S. indices to show gains for the year. My short-term trading indicators are at very oversold levels and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,063.97 -3.43%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: The U.S. market's main problem in recent months has been a supply/demand issue. A sharp acceleration in the number of IPOs created too much supply ahead of a period of very high anxiety for investors. Fundamentals in most sectors have continued to improve. Thus, investors did not want to sell their stock, but didn't want to commit new capital ahead of possible terrorist acts and the U.S. election. This resulted in the slow deterioration in stock prices witnessed over the last few months. However, real sellers are finally starting to emerge as fundamentals have weakened slightly in some sectors and more so in others. This is very painful, but is actually a positive as it provides the necessary levels of investor angst to propel stocks sharply higher in the fourth quarter. The VIX, Put/Call, Arms and AAII % Bulls readings all showed significant increases in anxiety. Furthermore, natural gas, base metal and unleaded gas futures all declined last week. I continue to believe the CRB Index is on the verge of breaking down through its 200-day moving average, which bodes well for future readings of inflation. Finally, interest rates are plunging. The yield on the 10-year T-note has now declined almost 75 basis points from its recent high set just 2 months ago. With most commodity prices dropping, recent inflation readings decelerating and interest rates plunging, the mainstream press and the bears will likely find other negative issues besides inflation to harp on in the near future.