Stocks Reverse Higher on Good Volume

Indices
S&P 500 1,235.20 +.48%
DJIA 10,689.15 +.40%
NASDAQ 2,188.57 +.71%
Russell 2000 677.56 +1.30%
DJ Wilshire 5000 12,327.32 +.54%
S&P Barra Growth 592.89 +.50%
S&P Barra Value 637.89 +.45%
Morgan Stanley Consumer 587.18 +.43%
Morgan Stanley Cyclical 763.25 +1.36%
Morgan Stanley Technology 504.40 -.21%
Transports 3,769.46 +3.64%
Utilities 395.98 +.56%
Put/Call .89 +17.11%
NYSE Arms 1.17 +6.45%
Volatility(VIX) 10.23 -2.11%
ISE Sentiment 152.00 -7.32%
US Dollar 89.35 +.01%
CRB 303.37 -.47%

Futures Spot Prices
Crude Oil 57.85 -.29%
Unleaded Gasoline 167.25 -.21%
Natural Gas 7.55 +.07%
Heating Oil 159.65 -.08%
Gold 423.20 +.26%
Base Metals 124.31 +1.20%
Copper 159.10 -.03%
10-year US Treasury Yield 4.16 -.42%

Leading Sectors
Biotech +4.55%
Steel +4.33%
Airlines +2.50%

Lagging Sectors
Networking -.72%
HMOs -1.07%
Internet -1.23%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on MO, UTX, EBAY, GD, DOX and ALL.
- Reiterated Underperform on TER, HBAN and THC.

Afternoon/Evening Headlines
Bloomberg:
- The president of OPEC said the oil market is well supplied as prices fall below $60/bbl.
- The Federal Trade Commission took action against eight companies it said failed to put required labels warning of sexually explicit content on e-mails.
- India Prime Minister Manmohan Singh is trying to persuade communists in his coalition government to open India’s $200 billion retail market to foreign investment, a move sought by Western companies including Wal-Mart Stores.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet, Biotech, Computer and Medical 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, most sectors rose and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was very positive. I would expect to see more short-covering, especially in tech, tomorrow. The European Commission recently published a report concluding that Europe is becoming a less attractive place to carry out research and development. This is more evidence of growing problems in Europe.

Stocks Continue to Display Resilence, Energy Prices Falling

Indices
S&P 500 1,234.00 +.38%
DJIA 10,669.57 +.24%
NASDAQ 2,180.80 +.35%
Russell 2000 675.21 +.95%
DJ Wilshire 5000 12,315.56 +.44%
S&P Barra Growth 591.67 +.30%
S&P Barra Value 638.40 +.53%
Morgan Stanley Consumer 586.78 +.34%
Morgan Stanley Cyclical 760.32 +.97%
Morgan Stanley Technology 502.49 -.60%
Transports 3,731.01 +2.58%
Utilities 394.25 +.12%
Put/Call .86 +13.16%
NYSE Arms 1.02 -7.33%
Volatility(VIX) 10.02 -4.11%
ISE Sentiment 156.00 -4.88%
US Dollar 89.95 +.12%
CRB 303.62 -.40%

Futures Spot Prices
Crude Oil 56.85 -1.06%
Unleaded Gasoline 169.00 +.99%
Natural Gas 7.56 -.28%
Heating Oil 161.90 -.68%
Gold 422.40 +.52%
Base Metals 124.31 +1.20%
Copper 159.10 +.28%
10-year US Treasury Yield 4.18% +.09%

Leading Sectors
Biotech +4.04%
Steel +3.86%
Homebuilders +1.73%

Lagging Sectors
HMOs -1.09%
Networking -1.29%
Internet -1.57%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet and Networking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is higher, most sectors are rising and volume is above average. Measures of investor anxiety are mostly higher. Today’s overall market action is positive. The fact that Yahoo! (YHOO), Intel (INTC) and Juniper Networks (JNPR) are down on volume and the Nasdaq is slightly higher is a positive. Breadth on the Naz is also positive and is at session highs. Small-caps are outperforming again. The top insider buys remain concentrated in small-caps, as well. I expect stocks to trade modestly higher into the afternoon on short-covering, a pullback in long-term rates from morning highs and declining energy prices.

Today's Headlines

Bloomberg:
- The father of Sept. 11 hijacker Mohammed Atta praised the recent bombings in London and said they are part of a 50-year religious war.
- Boeing may win its first customer for an updated 747 jumbo jet as Luxembourg’s Cargolux Airlines International SA plans to award a contract later today.
- In John G. Roberts Jr., President Bush found a Supreme Court nominee who pleases Republicans yet will probably avoid a divisive fight with Senate Democrats.
- President Bush’s tax advisory panel will recommend repealing the Alternative Minimum Tax, a levy originally intended for the wealthiest Americans that is increasingly affecting middle-income families.
- US Treasury notes are falling after Fed Chairman Greenspan said the US economy is in a “sustained” expansion that will prompt the Fed to continue raising interest rates.
- Crude oil prices are falling to the lowest this month, erasing earlier gains, after a government report said US stockpiles declined less than analysts forecast even with the effects from Hurricane Dennis.
Wall Street Journal:
- Latin American immigrants to the US are closing the educational gap with longtime residents, as children of immigrant families acquire college degrees and better paid jobs.
- The US warned its citizens in Saudi Arabia of a possible terrorist attack in the kingdom.

NY Times:
- US federal prosecutors may be investigating three law firms representing plaintiffs in asbestos cases.

AP:
- China is intent on “developing in a peaceful way,” Foreign Minister Li Zhaoxing said in a meeting with a visiting International Red Cross official.

al-Hayat:
- Iraq plans to export 1.8 million barrels of oil a day next year as the country seeks to boost its main source of revenue.

Tehran Times:
- Iran plans to renovate Iraq’s Najaf airport at the request of the Iraqis.

Greenspan Sees Above-average Growth and Low Inflation, Distillate Inventories Rise Again

- The EIA reported that crude inventories fell 900K barrels versus estimates of a 3.45M barrel decline. Gasoline inventories fell 1.32M barrels versus estimates of a 1.5M barrel fall. Distillate Inventories rose 2.23M barrels versus estimates for rise of 1.65M barrels.

BOTTOM LINE: Here is a summary of Greenspan’s testimony today:

1) Fed must continue to raise interest rates.
2) Inflation pressures likely to be “contained.”
3) Forecasts 3.5% Q4 to Q4 US 2005 economic growth.
4) Sees Q4 to Q$ US growth of 3.25%-3.5% in 2006.
5) Sees “speculative fervor” in some housing markets.
6) National economy not at risk from home prices.
7) Drop in long-term rates is major uncertainty.
8) Long-term rates behavior due to global forces.
9) Terrorism, protectionism and deficits are risks.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Nomura Holdings, Japan's largest securities firm, plans to expand its US investment banking business to win more fees in the world's biggest market after benefiting in Europe from a venture with Rothschild Group.
- President Bush selected John G. Roberts Jr., a Washington federal appeals court judge, to fill the vacancy on the US Supreme Court.
- China, producer of one-third of the world's steel, will force mills to merge and shut small, polluting furnaces to curb expansion of the industry and prevent a glut of the metal on world markets.
- China's economic growth unexpectedly picked up in the second quarter as exports surged and investment in power plants, coal mines and other fixed assets gathered pace.

NY Times:
- Forty-six people in California have been charged with lying to US officials to get their pilots licenses.

Financial Times:
- Japan and China's private equity investments fell in the first half of the year as regulations, tax policies, and increasing domestic competition affected foreign acquirers.

Guardian:
- The US and Europe are at the forefront of a "crazy" global airline industry which encourages governments to prop up failing carriers, citing British Airways Plc Chairman Martin Broughton.

Times of India:
- Starbucks Corp. may soon announce an Indian joint venture partner as part of a plan to start business locally.

China Times:
- China last week test-fired its M-9 short-range missile and is preparing its annual military exercise on and around the southeastern island of Dongshan adjacent to Taiwan.
- China's investment in coal extraction, power facilities and railways increased 81%, 37% and 48% respectively during the first half of the year from the first half.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on YHOO, XTO, BSX, WFC and CAKE.

Night Trading
Asian Indices are +.50% to +.75% on average.
S&P 500 indicated -.35%.
NASDAQ 100 indicated -.66%.

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Earnings of Note
Company/EPS Estimate
ALL/1.51
MO/1.33
AMR/.15
BK/.50
COF/1.75
CAL/.20
EK/.80
EBAY/.18
FFIV/.34
GD/1.62
GM/.03
GDW/1.15
HON/.50
JPM/.64
LRCX/.44
MACR/.21
PFE/.44
QCOM/.25
QLGC/.43
RYL/1.80
STJ/.36
UTX/.85
VRSN/.26
WYE/.70

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BOTTOM LINE: Asian indices are higher, led by commodity stocks in the region. I expect US equities to open lower, spurred by tech shares. However, stocks may rally late in the day on optimism for a stronger second half. The Portfolio is 100% net long heading into the day.