Stocks Finish Lower on Energy and Rate Worries

Indices
S&P 500 1,229.03 -.38%
DJIA 10,596.48 -.51%
NASDAQ 2,166.74 -.60%
Russell 2000 670.99 -1.0%
DJ Wilshire 5000 12,258.72 -.42%
S&P Barra Growth 589.72 -.38%
S&P Barra Value 634.92 -.37%
Morgan Stanley Consumer 584.39 -.37%
Morgan Stanley Cyclical 756.85 -.21%
Morgan Stanley Technology 496.22 -.51%
Transports 3,732.08 -1.27%
Utilities 391.99 -.24%
Put/Call .79 -1.25%
NYSE Arms 1.19 +17.29%
Volatility(VIX) 11.10 +5.51%
ISE Sentiment 169.00 +5.63%
US Dollar 89.57 -.08%
CRB 305.29 +.34%

Futures Spot Prices
Crude Oil 57.59.05 +.68%
Unleaded Gasoline 169.93 -1.66%
Natural Gas 7.33 -.66%
Heating Oil 160.90 +1.71%
Gold 425.70 +.16%
Base Metals 124.47 +.13%
Copper 161.30 +.59%
10-year US Treasury Yield 4.24 +.61%

Leading Sectors
Oil Service +.98%
Energy +.86%
Broadcasting +.47%

Lagging Sectors
Biotech -1.41%
Steel -2.12%
Homebuilders -2.56%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY.

Banc of America:
- Downgraded LM to Sell.

Afternoon/Evening Headlines
Bloomberg:
- US Federal research dollars to colleges and universities rose by 13.1% and hit their highest levels since 1985, according to the latest National Science Foundation statistics released last week.
- The Chicago Merc has overtaken Deutsche Boerse as the world’s most valuable financial market following a surge in the US exchange’s shares.
- The SEC is considering civil action against Fidelity Investments for violating rules on accepting gifts from brokers.
- Brazil’s currency had its biggest slide since October 2002 and stocks and bonds tumbled on concern President Luiz Inacio Lula da Silva may be drawn into an investigation of alleged government corruption.
- President Bush may consider bypassing the Senate by appointing John Bolton as UN ambassador on a temporary basis if Democrats continue to hold up a vote on his nomination.

Financial Times:
- Pakistan has destroyed al-Qaeda’s command and control system in the country and captured 700 fighters, citing President Pervez Musharraf.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet, Biotech and Homebuilding longs. I exited my QQQQ long in the afternoon and took profits in a couple of other longs, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was light. Measures of investor anxiety were mixed into the close. Overall, today’s market action was neutral slightly negative. Stocks are responding well to earnings reports after-hours. I expect consumer confidence to modestly exceed expectations tomorrow which could also boost shares.

Stocks Consolidating Recent Gains Mid-day

Indices
S&P 500 1,234.11 +.03%
DJIA 10,645.87 -.06%
NASDAQ 2,175.20 -.21%
Russell 2000 676.39 -.21%
DJ Wilshire 5000 12,312.16 +.01%
S&P Barra Growth 591.85 -.02%
S&P Barra Value 637.95 +.10%
Morgan Stanley Consumer 585.89 -.11%
Morgan Stanley Cyclical 760.58 +.28%
Morgan Stanley Technology 498.30 -.09%
Transports 3,765.39 -.39%
Utilities 394.62 +.44%
Put/Call .69 -13.75%
NYSE Arms .92 -8.98%
Volatility(VIX) 10.97 +4.28%
ISE Sentiment 162.00 +1.25%
US Dollar 89.61 -.03%
CRB 304.91 +.22%

Futures Spot Prices
Crude Oil 58.80 +.17%
Unleaded Gasoline 171.00 -1.04%
Natural Gas 7.25 -1.81%
Heating Oil 160.10 +1.27%
Gold 425.80 +.19
Base Metals 124.92 +.15%
Copper 161.70 +.84%
10-year US Treasury Yield 4.24% +.61%

Leading Sectors
Energy +1.54%
Oil Service +1.48%
Telecom +.51%

Lagging Sectors
Biotech -.98%
Homebuilders -.99%
Steel -1.27%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Software and Medical longs are offsetting losses in my Biotechnology longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are lower and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering recent gains and the rise in energy prices and long-term rates from morning lows. In a recent Merrill Lynch survey, energy was the favorite industry among 273 global money managers. Portfolio managers who were "overweight," or held stakes above their benchmarks, outnumbered those "underweight" by 37 percentage points. The energy industry topped health care for the top ranking among all 11 industry groups. I expect stocks to trade mixed into the afternoon as stocks consolidate recent gains.

Today's Headlines

Bloomberg:
- The Service Employees International Union and the International Brotherhood of Teamsters, two of the three largest unions in the AFL-CIO, may leave the labor federation as early as today because of differences over organizing tactics and declining membership.
- The US House of Representatives may urge regulators to investigate whether the maker of video game “Grand Theft Auto: San Andreas,” which has hidden sexual content, deceived a ratings board to avoid an adults-only tag.
- North Korea and the five nations trying to persuade it to dismantle its nuclear weapons program are willing to stay in Beijing as long as needed to reach an agreement, a senior US official said.
- Blackstone Group LP is raising $12.5 billion from investors to start the world’s largest takeover fund as corporate buyouts set a record pace.

Wall Street Journal:
- Security vulnerabilities in computer software are on the rise, citing new security research from the SANS Institute.
- People who want to invest small sums at regular intervals have tended to avoid exchange-traded funds because fees are incurred with every trade, but Nasdaq Global Funds is working on a Web-based program that will change that.
- Low levels of industrial chemicals may be responsible for rising rates of cancer and childhood brain disorders, including autism and learning disabilities.
- XM Satellite Radio Holdings and Sirius Satellite Radio are adding local features including traffic and weather reports in a bid to establish a bigger presence in markets served by traditional broadcasters.

NY Times:
- Teva Pharmaceutical is close to completing the acquisition of Ivax for about $7.5 billion in cash and stock.
- Some US cities such as Seattle and Los Angeles are sending police officers to Israel for training on dealing with suicide bombers.
- Sony is forming manufacturing and technology agreements with Samsung Electronics to boost profit and compete more effectively.

China Economic Times:
- China’s coal stockpile reached 115 million metric tons by the end of June because of rising output.

Existing Home Sales Set Another Record

- Existing Home Sales for June rose to 7.33M versus estimates of 7.15M and 7.14M in May.

BOTTOM LINE: US sales of previously owned homes rose an unexpected 2.7% to an all-time record in June as a strong US economy and low interest rates boosted prices to another high. Sales increased 5.5% in the West, 3.4% in the Northeast, 1.9% in the Midwest and 1.1% in the South. The supply of homes available for sale held at 4.3 months’.

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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said July sales at its US stores open at least a year are rising within its forecast range as general merchandise outpaced food sales.
- US gas prices slid 1 cent in the past two weeks to an average of $2.30/gallon.
- Lance Armstrong made his final move as a professional cyclist yesterday, stepping onto the winner's podium after his record seventh straight Tour de France victory.
- The death toll in yesterday's homicide bombings in the Egyptian Red Sea resort of Sharm el-Sheikh rose to at least 88 people, two hundred people were wounded.

Wall Street Journal:
- Ford Motor's Hertz, which is planning an IPO, may receive bids from private-equity groups including Carlyle Group and Texas Pacific Group.

New York Times:
- Hewlett-Packard CEO Mark Hurd is under increasing pressure from analysts to academics and others to divide the company in two or sell off units.
- US Democratic Party leaders say that their electoral prospects may be hurt if several labor unions leave the AFL-CIO.

New York Post:
- Cox Communications will meet this week with private equity firms interested in purchasing about $3 billion in subscriber accounts.

Washington Post:
- A highway bill before the US Congress has a potential windfall for data brokers such as Acxiom Corp., ChoicePoint and LexisNexis.
- Medicare often reimburses hospitals and doctors more for poor care and unnecessary tests because it pays for each time a patient is treated.

LA Times:
- President Bush is targeting companies such as Wal-Mart and Microsoft for a coalition to support letting some illegal immigrants already in the US to be legally employed.

San Jose Mercury News:
- California's Silicon Valley added jobs in June for a fifth straight month and may show annual growth by year-end.

Financial Times:
- People's Bank of China Governor Zhou Ziaochuan said the yuan revaluation last week is an "initial" step, fuelling speculation the country will strengthen the currency further.
- Microsoft is using cars and aircraft to travel around US cities and track signals emitted by short-range home and office-based wireless networks to create a ground-based location system and attract more Internet users.
- US retail investors have put more money into international equity funds than in US funds for the first time since 1990, citing Lipper.

Reuters:
- Pakistan pledged more coordination and cooperation with Afghanistan in the war against terrorism.

Daily Telegraph:
- Almost a quarter of British Muslims sympathize with the motives of those who carried out bomb attacks on London this month, citing a survey for the newspaper by YouGov Plc.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on FFH, NTRT, BSX, VRNT, CMVT, MKL and mixed on DNA, AAPL, MSTR.

Forbes on Fox:
- Had guests that were positive on IWM, INTC, DQX and mixed on F, RTSX, STO.

Cashin' In:
- Had guests that were positive on CHU and mixed on SHE.

Cavuto on Business:
- Had guests that were positive on BM, IBM, MEE and mixed on PFE, WMT, HPQ.

Barron's:
- Had positive comments on MOT, FMC, LECO, MIL, SYNA, AMSC, WLP and SIRI.
- Had negative comments on IBM.

Goldman Sachs:
- Reiterated Outperform on GE, SLB and OXY.
- Reiterated Underperform on ALB.

Night Trading
Asian indices are +.50% to +.75% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.22%.

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Earnings of Note
Company/Estimate
ALTR/.18
AXP/.78
CD/.35
HGSI/-.47
LNCR/.46
FLSH/.17
DGX/.72
TXN/.29

Upcoming Splits
None of note

Economic Releases
10:00 am EST
- Existing Home Sales for June are estimated to rise to 7.15M from 7.13M in May.

BOTTOM LINE: Asian Indices are mostly higher on optimism over recent US economic reports. I expect US stocks to open modestly higher after gains in Asia. The Portfolio is 100% net long heading into the week.