Stocks Lower Mid-day on Terrorism Fears and Higher Long-Term Rates

Indices
S&P 500 1,227.54 -.62%
DJIA 10,632.15 -.53%
NASDAQ 2,180.19 -.38%
Russell 2000 669.69 -1.16%
DJ Wilshire 5000 12,247.56 -.66%
S&P Barra Growth 590.16 -.48%
S&P Barra Value 633.45 -.70%
Morgan Stanley Consumer 584.43 -.47%
Morgan Stanley Cyclical 757.51 -.73%
Morgan Stanley Technology 499.35 -1.0%
Transports 3,786.85 +.46%
Utilities 389.07 -1.74%
Put/Call .96 +7.87%
NYSE Arms 1.24 +1.13%
Volatility(VIX) 10.02 -4.11%
ISE Sentiment 234.00 +53.95%
US Dollar 88.70 -.71%
CRB 300.75 -.85%

Futures Spot Prices
Crude Oil 57.40 -1.07%
Unleaded Gasoline 167.50 +.12%
Natural Gas 7.28 -3.58%
Heating Oil 157.50 -1.42%
Gold 426.00 +.92%
Base Metals 124.47 +.13%
Copper 157.00 -1.35%
10-year US Treasury Yield 4.27% +2.75%

Leading Sectors
Gold & Silver +2.30%
Steel +1.88%
Broadcasting +.78%

Lagging Sectors
Networking -2.06%
Airlines -2.68%
HMOs -6.40%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my and Networking longs. I exited a few longs this morning as they hit stop-losses, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Measures of investor anxiety are mixed so far. Today’s overall market action is neutral considering the rise in long-term rates and more terrorism in London. The decline in commodities today is likely signaling that China's economy, already on thin ice, will further weaken as a result of the yuan revaluation. The potential for a chronic terrorism problem in the U.K. is also weighing on the CRB. As I have said many times before, the CRB has been the main source of inflation worries. The 10-year T-note yield looks higher in the short term; however, I continue to see lower long-term interest rates in the intermediate term. I expect stocks to trade modestly higher into the close on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- Google is likely to report today that profit rose more than fourfold as it lured Web surfers from Yahoo! and attracted advertisers with a popular new online map.
- China loosened its fixed-exchange rate against the dollar for the first time in a decade, letting the yuan fluctuate versus a basket of currencies.
- Alcoholism should be treated with drugs, much like depression, a US scientific institute said for the first time, a suggestion that could help prompt a shift in treatment emphasis from counselors to doctors.
- Treasury notes dropped after China let its currency strengthen, boosting speculation the country will reduce purchases of US government debt.
- Manufacturing in the Philadelphia region rebounded this month after a first-quarter inventory build prompted companies to place few orders.
- Three London subway trains and a bus were targets of attempted bombings today, leaving parts of the Underground network paralyzed, two weeks after the worst attack on the capital since WWII.
- Crude oil is falling for a second day after a government report yesterday showed that US inventories fell less-than-expected last week and traders speculated that China’s demand for the commodity will decline after the yuan revaluation.

Wall Street Journal:
- Dow Jones said it will sell its stake in CNBC’s television channels in Asia and Europe to NBC Universal to cut costs.
- Barclays Global Investors, the biggest provider of exchange-traded funds, will shift all but one of its products now traded on the American Stock Exchange to the NYSE and the electronic market run by Archipelago Holdings, which the NYSE is buying.
- Delta Air Lines senior management is debating whether the carrier might be forced to file for Chapter 11 bankruptcy protection.
- Gemstar-TV Guide International, the publisher of TV Guide, may cut the circulation guarantees it gives advertisers by at least a third.
- Comcast and other cable suppliers including Time Warner and Cox Communications are developing transmissions to give customers a bigger array of channels.
- Nike and Bausch & Lomb plan to introduce a new type of tinted prescription contact lenses next month for athletes who don’t want to wear sunglasses.

NY Times:
- Medicare will begin giving doctors record-keeping computer software for patient records as soon as next month.

AP:
- US cyclist Lance Armstrong’s success has helped boost sales of closely held Trek Bicycle, the nation’s top bike manufacturer.

Globe and Mail:
- Biovail is in talks with investors to have them buy the company and take it private.

Initial Jobless Claims Fall by Most in Almost 3 Years, Leading Indicators Rise More Than Expectations

- Initial Jobless Claims for last week fell to 303K versus estimates of 325K and 337K the prior week.
- Continuing Claims fell to 2577K versus estimates of 2589K and 2618K prior.
- Leading Indicators for June rose .9% versus estimates of a .5% rise and an upwardly revised 0.0% reading in May.

BOTTOM LINE: The number of US workers filing first-time applications for state jobless benefits fell to 303,000 last week, the lowest level since April, as automakers completed factory retooling more quickly than government statisticians expected, Bloomberg reported. The decline was the largest since December 2002. The four-week moving-average of claims fell to 318,000 from 321,250. The insured employment rate, which tracks the US unemployment rate, fell to 2.0% from 2.1%.

The Leading Indicators report shows the first major revision in how the index is compiled since 1996. Higher consumer confidence, building permits and stock prices spurred gains in the index.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- JP Morgan Chase is joining dollar bulls Morgan Stanley and Barclays Plc in predicting a third consecutive quarterly gain in the currency.
- Cnooc Ltd. may abandon its effort to buy Unocal Corp. and instead seek other US oil producers, such as Marathon Oil Corp., Amerada Hess or Murphy Oil, investors and analysts said.
- Crude oil prices are falling tonight in NY for a second day after a US Energy Department report yesterday showed stockpiles declined less than analysts forecast and supplies of heating oil and other distillate fuels rose.
- Liberal groups and their Democratic Senate allies, facing an uphill task to stop the confirmation of John G. Roberts to the US Supreme Court, plan to press hard for information about his views on legal issues as they try to muster opposition to the nomination.

NY Times:
- Sprint and Cingular Wireless were accused in complaints filed with California state regulators of improperly charging cell-phone users.

Financial Times:
- Iran has agreed to extend a $1 billion credit facility to Iraq.

AP:
- Canada today made gay marriages legal, becoming the world's fourth nation to give same-sex couples full legal rights and benefits.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, PFE, AMLN, IDIX, DOX, COF, FORM and CVD.
- Reiterated Underperform on NFB, OMI, UIS, VRTX and KEA.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.19%.

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Earnings of Note
Company/EPS Estimate
ABC/.86
AVID/.42
BAX/.44
BRCM/.25
CAT/1.00
DHI/1.09
EMC/.12
LLY/.66
GOOG/1.21
GDT/.65
IR/1.62
MCD/.42
MRK/.62
MSFT/.31
NXTL/.44
NUE/1.96
ODP/.24
PMCS/.03
RBK/.58
SGP/.05
SFA/.41
SIRI/-.15
UPS/.85
XLNX/.21

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 325K versus 336K the prior week.
- Continuing Claims are estimated to fall to 2589K versus 2617K prior.

10:00 am EST
- Leading Indicators for June are estimated to rise .5% versus a .5% decline in May.

12:00 am EST
- Philadelphia Fed. for July is estimated to rise to 10.0 versus -2.2 in June.

2:00 pm EST
- Minutes of June 30 FOMC Meeting

BOTTOM LINE: Asian indices are mostly higher, led by automaker and technology stocks in the region. I expect US equities to open modestly higher, spurred by tech shares. The Portfolio is 100% net long heading into the day.

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.