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%

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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

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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart said July sales at its US stores open at least a year are rising within its forecast range as food sales outpaced general merchandise sales for the first time in five weeks.
- White House Deputy Chief of Staff Karl Rove didn't mention Valerie Plame by name as a CIA covert operative when he spoke to a Time Magazine reporter, according to a story to be published in the July 18 issue of Newsweek.
- North Korea agreed to resume talks aimed at halting its nuclear arms program, ending more than a yearlong impasse with the US and four other nations. "It is the ultimate goal of North Korea to denuclearize the Korean Peninsula," the official Korean Central News Agency reported.
- US retailers, including Wal-Mart, Gap and Chico's FAS, are increasing purchases of inexpensive clothing and jewelry from India as they brace for rising costs when China, their biggest overseas supplier, revalues its currency.
- European stock indices may fall on speculation that the region's faltering economic growth is taking a greater toll on corporate profits than analysts anticipated.
- Crude oil is falling for a third day after Hurricane Dennis struck the western Florida coast, missing oil rigs and platforms in the Gulf of Mexico.

Wall Street Journal:
- VNU NV, owner of market researcher ACNielsen, is close to a deal to buy data provider IMS Health for $6.3 billion in cash and stock.

Barron's:
- Biotechnology companies such as Genentech are relocating or expanding in San Francisco, pushing commercial real estate prices higher and vacancies lower.
- Three veteran bulls of the Treasury bond market are having the last laugh over the majority of investment strategists who forecast falling prices and rising yields, and they say long-term yields will hold or fall further.

New York Times:
- The bombs detonated in London were crude devices, suggesting the attack was carried out by a sleeper cell of homegrown extremists rather than highly trained terrorists from overseas, citing investigators it didn't identify.
- The US economy has been helped by the increasing demand for new homes that has helped add 700,000 jobs during the past four years as home prices gained in many areas, citing Economy.com.
- The new imam of London's Finsbury Park mosque called on Muslims at Friday prayers yesterday to show their outrage by helping find those responsible for this week's terrorist bombings.
- The Bush administration yesterday named a commission to seek ways to reduce the costs of the US Medicaid program by $10 billion during the next five years and tapped a former Tennessee governor to head it.
- The number of American farms on which the death tax is owed when the owners die has declined 82% to just 300 farms since Congress more than doubled the threshold at which the tax applies.
- Fund managers with a so-called value style who normally avoid technology stocks with high prices relative to earnings are finding more of these stocks reasonable buys after a five-year decline.

AP:
- Twenty- nine cows test negative for mad now disease after they were taken from the same herd where an infected cow was found, citing the US Dept. of Agriculture.

Time magazine:
- Robert Iger, Walt Disney's soon-to-be chief executive officer, said the media company's goal is to build a theme park in mainland China and use that to sell its programming and movies.

Guardian:
- UK business confidence is at its lowest level since December 2001, citing a Lloyds TSB Group Plc survey.

The Observer:
- Citigroup is considering a possible $1.7 billion bid for Egg Plc, the internet bank majority owned by Prudential Plc.

AFP:
- Al-Qaeda claimed responsibility for attacks on London transport this week, posting an Internet statement today in the name of the Europe division of the network's Abu Hafs al-Masri Brigades.

Xinhua News Agency:
- China's crude oil imports in the first-half of the year gained 3.9% to 63.4 million metric tons, citing customs statistics. The country's oil product imports fell 21% to 15.7 million tons from January through June.
- Imports of steel to China fell 32% in the first five months of the year.

China Securities Journal:
- China will allow qualified foreign institutional investors to buy up to $10 billion of Chinese stock, up from $4 billion now, as part of efforts to bolster markets and speed up the nation's share-structure reform.

Economic Daily News:
- Taiwan's flat-panel display makers used up almost their entire inventories in the second quarter and now face supply shortages of upstream parts and components.

Maeil Business Newspaper:
- LG Electronics may consider bidding for Hynix Semiconductor to expand in electronics and telecom equipment.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on FWRD and mixed on NAT, DIS, COST, NXY, BA, BCS.

Forbes on Fox:
- Had guests that were positive on CB, DOW and mixed on NOC, SBL, INTC, GGB.

Cashin' In:
- Had guests that were positive on TGT, AXP, HAL and mixed on LMT.

Cavuto on Business:
- Had guests that were positive on FLIR, LLL, BA and mixed on SBL.

Barron's:
- Had positive comments on NSC and SFA.

Goldman Sachs:
None of note

Night Trading
Asian indices are +.75% to +1.25% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/Estimate
DNA/.26
BEN/.95
JBHT/.34

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None of note

BOTTOM LINE: Asian Indices are higher on optimism over comments from North Korea, no more terrorist acts and lower energy prices. I expect US stocks to open higher on gains in Asia. The Portfolio is 100% net long heading into the week.