Mid-day Update

S&P 500 1,096.21 +.05%
NASDAQ 1,836.85 -.16%

Leading Sectors
Airlines +2.31%
Restaurants +1.17%
Transports +.61%

Lagging Sectors
Commodity -.71%
Oil Service -1.03%
Semis -2.11%

Other
Crude Oil 45.20 -1.89%
Natural Gas 5.27 -.66%
Gold 405.70 -1.72%
Base Metals 109.19 +.26%
U.S. Dollar 89.47 +.47%
10-Yr. T-note Yield 4.29% +.32%
VIX 15.54 -2.14%
Put/Call .76 -3.80%
NYSE Arms 1.29 +27.72%

Market Movers
POSS -37.4% after reiterating 4Q outlook, lowering 05 guidance and saying a study showed its AngioJet medical device shouldn't be routinely used to reduce blood vessel clots in heart attack patients.
BRCM -6.4% after CSFB lowered its 3Q/4Q estimates and price target.
PCP +6.7% after Bank of America upgrade to Buy.
DLP +9.8% after saying it will enter a long-term agreement with Syngenta AG to develop and sell new biotechnology products for cotton.
PERY +5.5% after exceeding 2Q estimates.
SAFM -23.2% after missing 3Q estimates and lowering 04 outlook.
AD -13.9% after lowering 04 guidance and multiple downgrades.
TTC -5.6% after exceeding 3Q estimates and lowering 04 guidance.
GOOG -4.4% on profit-taking after IPO run-up.

Economic Data
Existing Home Sales for July were 6.72M versus estimates of 6.81M and 6.92M in June.

Recommendations
OTEX rated Buy at Merrill, target $28. POT raised to Buy at Merrill. CLS raised to Outperform at Thomas Weisel. SANM raised to Outperform at Thomas Weisel. BEC raised to Outperform at Thomas Weisel. PCP raised to Buy at Bank of America, target $64. VSAT rated Buy at Oppenheimer, target $25. Goldman Sachs reiterated Outperform on A, IP, DTC, ALK, CAL and SPP. Goldman raised CAT to Outperform. Citi SmithBarney reiterated Buy on MWD, target $72. Citi reiterated Buy on PTP, target $34. Citi reiterated Buy on MXRE, target $24. Citi reiterated Buy on FLEX, target $22. Citi reiterated Buy on TOY, target $23.

Mid-day News
U.S. stocks are mixed mid-day as falling energy prices offset weaker economic data. Bioenvision expects as much as $300 million in sales from its clofarabine drug, which treats acute and chronic leukemia, CEO Wood told CNBC. The European Commission plans to extend its probe into plans by Microsoft and Time Warner to buy control of ContentGuard, a U.S. maker of anti-piracy software, Reuters said. Osama bin Laden's chauffeur was arraigned today on terrorism charges before a military tribunal at the U.S. naval base at Guantanamo Bay, Cuba, the AP said. California's Senate yesterday passed a bill aimed at keeping companies from moving jobs to other countries, the LA Times reported. The measure was passed even though an unreleased report commissioned by the leadership of the California State Assembly found the measure would cost more jobs than it would save, the newspaper said. Iraqi Vice-President Ibrahim al-Jafari made a surprise visit to neighboring Iran to meet President Mohammad Khatami and other members of the leadership, Agence France-Presse reported. U.S. 10-year Treasury notes declined for a third day, the longest drop in a month, after Federal Reserve Governor Bernanke said oil prices near record highs won't derail growth in the world's largest economy, Bloomberg reported. The U.S. Chamber of Commerce, the nation's largest business organization, said it will help pay for ads suggesting the economic "dangers" associated with having trial lawyers aligned with the White House, Bloomberg reported. Crude oil futures fell for a third session, dropping as low as $44.95 a barrel, on speculation that increased Iraqi shipments will help meet global needs, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly lower mid-day as my shorts are mixed and my technology longs are falling. I took profits in a few longs this morning and added a new short, bringing the Portfolio's market exposure to 25% net long. My new short is ERTS and I am using a $51.25 stop-loss on the position. I now believe oil has seen its highs for the intermediate-term. Another move up to test the highs could occur during September, however I believe it will fail and the price of crude will head relentlessly towards the mid-30's by year's end. This is a very positive development and was necessary for the strong rally I envision during the fourth quarter. Stocks will likely remain mixed into the close, however with oil falling I am not ruling out another leg up.

Tuesday Watch

Earnings of Note
Company/Estimate
APSG/.26
HUG/1.16
HNZ/.55
HRB/-.05
DITC/.22
OVTI/.30
RGS/.59
SAFM/1.93
SEAC/.11
SMTC/.21
TTC/1.28

Splits
BLL 2-for-1

Economic Data
Existing Home Sales for July estimated at 6.81M versus 6.95M in June.

Recommendations
Goldman Sachs reiterated Underperform on PVH. Goldman Sachs reiterated Outperform on JTX.

Late-Night News
Asian indices are mostly higher as oil prices decline for a third day. Nokia, Motorola and other international makers of mobile phones have stopped losing market share in China to local manufacturers, the Financial Times reported. The SEC has ordered a study of off-balance-sheet accounting to determine whether companies are complying with new rules, the Financial Times reported. American International Group will compete with HSBC Holdings and Metlife of the U.S. to buy South Korea's SK Life Insurance, Yonhap News said. Adelphia Communications asked a U.S. bankruptcy court to order the Rigas family, the company's founding family, to repay the bankrupt U.S. cable-tv operator $3.2 billion, the Wall Street Journal said. Afghanistan's voter registration program, which began in December, ended with 10.3 million people enrolled for October's presidential poll and National Assembly elections scheduled for April, Bloomberg reported. Honda Motor said it is developing motorcycles that can run on gasoline-electric engines and fuel cells, extending the so-called hybrid technology for the first time to two-wheeled vehicles, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on better economic data and declining oil prices. However, stocks will likely trade slightly lower later in the day on terrorism fears ahead of the Republican convention and profit-taking. The Portfolio is 50% net long heading into tomorrow.

Monday Close

S&P 500 1,095.68 -.24%
NASDAQ 1,838.70 +.04%

Leading Sectors
Fashion +2.30%
Homebuilders +1.42%
Semis +1.06%

Lagging Sectors
Commodity -1.66%
Broadcasting -1.76%
Iron/Steel -2.18%

Other
Crude Oil 45.96 -.20%
Natural Gas 5.31 unch.
Gold 411.10 -.41%
Base Metals 108.91 -1.66%
U.S. Dollar 89.10 +1.11%
10-Yr. T-note Yield 4.28% +1.19%
VIX 15.88 -.75%
Put/Call .79 -17.71%
NYSE Arms 1.01 +53.03%

After-hours Movers
None of note.

Recommendations
Goldman Sachs reiterated Outperform on DVN and RE.

After-hours News
U.S. stocks finished mixed today as oil fell, interest rates rose and companies reported mixed earnings. After the close, Gap Inc. is exploring ways to expand internationally and may start a fourth brand in the U.S., the Financial Times reported. The benchmark 10-year U.S. Treasury note fell for a third day in four as a decline in oil prices from record highs reduced speculation economic growth will slow, Bloomberg reported. The number of U.S. adults with high blood pressure increased 30% over the past decade, according to a study in the journal Hypertension. Toyota Motor is raising U.S. prices for the Prius, its hybrid car powered by gasoline and electricity, by 2.9% as orders outstrip supply, Bloomberg reported. Iraq, which is trying to rebuild its Olympic sports after decades of decline under one of Saddam Hussein's sons, can clinch its first medal in 44 years by beating Paraguay in a soccer semifinal in Athens, Bloomberg said. Taiwan's financial markets and government offices were closed today as Typhoon Aere approaches the island with torrential rains and winds of up to 102 mph, Bloomberg reported.

BOTTOM LINE: The Portfolio finished substantially higher today as my homebuilding, telecom equip. and Internet longs rose and my steel and Chinese ADR shorts fell. I took profits in a few longs in the afternoon, leaving the Portfolio 50% net long. The tone of the market was pretty good today considering recent gains. However, terrorism fears ahead of the Republican Convention will likely rise over the near-term. Moreover, I expect domestic terrorism fears to peak between the Republican Convention and the 9/11 anniversary. The terror premium in oil should erode, after this time period, through year's end. Finally, I continue to expect homebuilders and tech shares to outperform this week.

Mid-day Update

S&P 500 1,098.26 -.01%
NASDAQ 1,841.82 +.21%

Leading Sectors
Fashion +2.30%
Semis +1.51%
Wireless +.90%

Lagging Sectors
Broadcasting -1.51%
Commodity -1.53%
Iron/Steel -1.95%

Other
Crude Oil 46.60 -.30%
Natural Gas 5.37 -3.19%
Gold 412.70 -.67%
Base Metals 108.91 -1.66%
U.S. Dollar 88.78 +.75%
10-Yr. T-note Yield 4.27% +.92%
VIX 16.02 +.06%
Put/Call .76 -20.83%
NYSE Arms .82 +24.24%

Market Movers
GOOG +3.7% on continuing strong demand for its IPO.
ARTI +15.4% after ARMHY agreed to buy it for about $913 million. ARMHY -18.15%.
MOND +12.3% after it said it would eliminate its class B shares as part of a reincorporation, approving a $30 million stock repurchase plan and Prudential upgrade to Overweight.
FILE +8.4% after KeyBanc upgrade to Buy.
EYET +4.58% on optimism over an upcoming FDA review of Macugen, the company's experimental drug intended to treat an eye disease that is one of the leading causes of blindness.
SCST -26.4% after cutting 3Q outlook.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on A, JTX, WMT and PG. Goldman reiterated Underperform on HRB, TSG and BA. Citi SmithBarney reiterated Buy on UNM, target $20. Citi reiterated Buy on DPZ, target $18. RHI cut to Reduce at UBS, target $21. Bear Stearns raised Hospital stocks to Overweight. PBG cut to Underweight at Prudential, target $25. MOND raised to Overweight at Prudential, target $44. DPZ raised to Outperform at CSFB, target $17. BLS cut to Underperform at Raymond James. SBC raised to Outperform at Raymond James, target $28. MDCC raised to Outperform at Thomas Weisel.

Mid-day News
U.S. stocks are mixed mid-day as interest rates rise, oil stabilizes and earnings reports are mixed. Boeing and IPass are combining services to allow corporate travelers on long-distance flights to connect to the Internet, Reuters said. Comcast plans to offer a digital video recorder service beginning today that will enable viewers to record their shows without a videocassette recorder, the Star-Ledger reported. Sharp Corp. said it has created a microwave oven that can melt some of the fat and oil from steak, chicken, fish and other foods, Reuters reported. Infineon Technologies AG, Europe's second-largest chipmaker, plans to expand in the U.S. by bolstering its business for memory chips there, Die Welt reported. Norway's $140 billion Petroleum Fund hired Fidelity Investments, T. Rowe Price Group, Alliance Capital Management and three other companies to oversee stocks after investments stagnated in the second quarter, Bloomberg reported. Wal-Mart cut its August forecast for sales due to weaker-than-expected back-to-school demand, Bloomberg said. OAO Yukos Oil, Russia's biggest oil exporter, cut its 2004 production target to 1.72 million barrels a day of crude because payments on the company's tax bill forced it to spend less on drilling and maintaining wells, Bloomberg reported. FedEx raised its earnings estimates for a second time this fiscal year because of rising international and ground business, Bloomberg reported. RCN, a provider of cable tv, phone and Internet service, filed a plan to exit bankruptcy that will exchange $1.2 billion in unsecured debt for all of the equity in the company by the end of the year, Bloomberg said. Oil futures fell modestly after Iraq boosted shipments to tankers to normal rates for the first time in two weeks, Bloomberg reported. Merrill Lynch and UBS are among the Wall Street firms which together are losing some of the wealthiest Americans as clients, a group that pays as much as $28 billion in fees for financial advice every year, Bloomberg said.

BOTTOM LINE: The Portfolio is substantially higher mid-day as my homebuilding, internet, alternative energy and telecom equipment longs are rising and my Chinese ADR and steel shorts are falling. I have not traded and the Portfolio is still 125% net long. The market is maintaining its constructive tone today as many market leading stocks are higher. It is also positive to see Natural Gas making another intermediate-term low today and commodity-related stocks continue to weaken, which bodes well for future inflation readings. However, rising interest rates and a rebound in oil off its morning lows will likely result in more mixed trading into the close.

Monday Watch

Earnings of Note
Company/Estimate
PERY/-.30
TOY/-.03
WWE/.06

Splits
HTLD 3-for-2

Economic Data
None of note.

Weekend Recommendations
Cashin' In had guests that were positive on SYMC, ASA, POSS, EK, CHK, UBL and mixed on MCD. Wall Street Week w/Fortune had guests that were positive on AEOS, AAPL, CVX, SII, UTH, PLMO and XMSR. Barron's had positive comments on BSX, GET, MYL and MNST. Goldman Sachs reiterated Outperform on STZ, KO, EBAY, ENH, NKE and Underperform on PBG, EK and GAS.

Weekend News
The price of a barrel of oil will fall to around $30 within "a few months," Cinco Dias reported, citing comments from World Bank chief economist Francois Bourguignon. General Motors may hire Wolfgang Bernhard, who had helped DaimlerChrysler AG by cutting costs and creating new products, the Detroit Free Press reported. Among major Japanese companies, 96% expect the country's economy to expand, signaling optimism has increased the most since the early 1990's, the Sankei newspaper reported. Pakistan's security forces arrested nearly a dozen al-Qaeda-linked terror suspects plotting attacks on key sites, including the country's parliament and the U.S. Embassy in the capital of Islamabad, Agence France-Presse reported. U.S. newspapers are considering cutting some of their comic strips in order to reduce costs, yet risk alienating long-term readers, the NY Times said. Iran will delay the planned start-up of its first nuclear reactor until 2006, a year later than previously scheduled, Agence France-Presse reported. Morgan Stanley has invested $35 million in two Israeli venture capital funds in the last few months for the first time since 2001, Haaretz reported. The U.S. government is taking steps to help farmers and ranchers protect the nation's food supply from possible attacks by terrorists, the LA Times reported. China is making higher quality goods than competitors in Eastern Europe, though the perception is that Chinese products are inferior, the Financial Times reported. Cia. Vale do Rio Doce, Rio Tinto Plc and BHP Billiton plan to spend a combined $5.3 billion over the next four years to increase the output of iron ore, the main commodity used to make steel, by over 50%, the Financial Times said. Sony and Time Warner are nearing final negotiations for separate bids for MGM, valuing the company's debt and equity as much as $4.8 billion, the Financial Times reported. Southwest Air wants to boost revenue by overhauling its schedule in October, the Wall Street Journal reported. Pfizer Inc. faces the possibility of a 25% decline in revenue as at least four of its best-selling drugs lose patent protection in the next three years, the Wall Street Journal reported. The U.S. Department of Justice has started a criminal investigation of the medical-supply industry to determine whether hospitals are overcharging Medicare and other government health programs, the NY Times reported. U.S. warplanes and helicopters attacked followers of al-Sadr in the Iraqi city of Najaf, as negotiations to end the standoff continued, the AP reported.

Late-Night Trading
Asian indices are mixed, -.50% to +.75% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.07%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning after another weekend with no major terrorism and stabilizing oil prices. Volume will likely be light again this week as many on Wall Street vacation. The Portfolio is 125% net long heading into the week.

Chart of the Week

S&P 500 Price Momentum Oscillator



Bottom Line: The S&P 500 Price Momentum Oscillator generated a Buy signal last week. This is one of many technical indicators that point to the possibility that the major U.S. indices have entered an intermediate-term rally phase.