Stocks Continue Healthy Consolidation, Finish Mixed

Indices
S&P 500 1,231.16 +.17%
DJIA 10,579.77 -.16%
NASDAQ 2,175.99 +.43%
Russell 2000 674.58 +.54%
DJ Wilshire 5000 12,285.63 +.22%
S&P Barra Growth 590.72 +.17%
S&P Barra Value 636.04 +.18%
Morgan Stanley Consumer 584.63 +.04%
Morgan Stanley Cyclical 756.93 +.01%
Morgan Stanley Technology 499.00 +.56%
Transports 3,741.33 +.25%
Utilities 392.24 +.06%
Put/Call .84 +6.33%
NYSE Arms 1.02 -14.18%
Volatility(VIX) 10.99 -.99%
ISE Sentiment 181.00 +7.10%
US Dollar 90.05 +.54%
CRB 306.13 +.28%

Futures Spot Prices
Crude Oil 59.07 +.12%
Unleaded Gasoline 169.58 -.62%
Natural Gas 7.43 +2.13%
Heating Oil 160.37 -.18%
Gold 423.40 -.59%
Base Metals 124.16 -.61%
Copper 160.50 -.80%
10-year US Treasury Yield 4.22 -.46%

Leading Sectors
Steel +2.36%
Networking +2.34%
Airlines +2.13%

Lagging Sectors
Computer Hardware -1.44%
Gold & Silver -1.45%
Oil Tankers -2.82%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on PSSI, X and BAC.
- Reiterated Underperform on ELNK and GM.

Afternoon/Evening Headlines
Bloomberg:
- Take Two Interactive Software said the FTC is examining the company’s advertising for its No. 1-selling video game, “Grand Theft Auto: San Andreas,” which was found last week to have hidden sexual scenes.

AP:
- Hungry North Koreans are scavenging for ferns, acorns, grass and seaweed to eat as their government builds nuclear weapons.

Financial Times Deutshland:
- SAP AG may simplify it pricing system by reducing the number of parameters that determine the price of SAP programs.

Australian:
- Australia, the US, China, India and South Korea formed a regional accord on greenhouse emissions to replace the Kyoto climate protocol.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semiconductor, Networking and Retail longs and Oil Tanker shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline line finished higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was modestly positive. Even though the S&P 500 hasn't budged for about 10 days, the underlying tone of the market remains positive. I believe another upwards push will occur over the next few weeks.

Stocks Quietly Higher Mid-day, Led by Tech

Indices
S&P 500 1,233.07 +.33%
DJIA 10,608.50 +.11%
NASDAQ 2,178.10 +.53%
Russell 2000 675.29 +.64%
DJ Wilshire 5000 12,300.32 +.34%
S&P Barra Growth 591.82 +.36%
S&P Barra Value 636.54 +.26%
Morgan Stanley Consumer 585.79 +.24%
Morgan Stanley Cyclical 757.22 +.05%
Morgan Stanley Technology 499.30 +.61%
Transports 3,745.22 +.35%
Utilities 393.32 +.33%
Put/Call .85 +7.59%
NYSE Arms .88 -26.33%
Volatility(VIX) 11.02 -.63%
ISE Sentiment 155.00 -8.28%
US Dollar 89.98 +.46%
CRB 306.42 +.37%

Futures Spot Prices
Crude Oil 59.65 +1.10%
Unleaded Gasoline 169.80 -.49%
Natural Gas 7.43 +2.0%
Heating Oil 163.00 +1.46%
Gold 423.50 -.56%
Base Metals 124.16 -.61%
Copper 160.60 -.74%
10-year US Treasury Yield 4.23% -.23%

Leading Sectors
Steel +2.74%
Networking +2.37%
Airlines +2.02%

Lagging Sectors
Gold & Silver -1.30%
Computer Hardware -1.30%
Oil Tankers -2.13%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Semiconductor, Networking and Retail longs and Oil Tanker shorts. I added to my GILD long and OSG short this morning, thus leaving the Portfolio 75% net long. The tone of the market is modestly positive as the advance/decline line is higher, most sectors are higher and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is positive considering the rise in energy prices and disappointing consumer confidence reading. The Johnson Redbook Same-store-sales Index rose 4.3% year-over-year last week vs. a 4.2% rise the prior week. The last time weekly sales exceeded 4.0% for four consecutive weeks was June 2004. This week's gain is also up from a 1.5% increase in late April and the 12th week in a row the index has exceeded 3%. I expect stocks to trade mixed-to-higher into the afternoon on short-covering.

Today's Headlines

Bloomberg:
- North Korea promised to strive to rid the Korean peninsula of nuclear weapons as six-nation talks aimed at dismantling the Stalinist nation’s atomic arms program began in Beijing today.
- The US Congress is set to pass a $10 billion energy bill after House and Senate negotiators approved a compromise version today.
- The US Senate Finance Committee approved legislation that would require companies to fully fund their defined-benefit pension plans and gives airlines 14 years to pay off their obligations.

Wall Street Journal:
- Wal-Mart Stores wants to open 42 stores in China by the end of 2006, nearly doubling its current total in the country.
- The NYC Police Dept. will today start a program to direct intelligence information to and from businesses to help counter possible terrorist attacks.
- Teva Pharmaceutical Industries’ agreement to buy Ivax is an acknowledgement that competition in the generic drugs business is likely to get sharper.

NY Times:
- Plans to build a Chicago skyscraper that would be 115 stories and about 2,000 feet tall, making it the tallest in the US.
- Some of New York’s biggest Democratic donors are backing Republican Mayor Michael Bloomberg’s re-election campaign.
- Crime in NYC’s subways has declined 22.6%, and public reports of suspicious packages have increased 36% since the July 7 terrorist attacks in London’s transit system.
- President Bush persuaded as many as six more Republican House lawmakers to support the Central American Free Trade Agreement with promises of protection for textile companies.

NY Post:
- XM Satellite Radio and Samsung Electronics are expected to announce a partnership today to make the first portable player for both MP3’s and satellite radio.

LA Times:
- US Senator Hillary Clinton has been named by the Democratic Leadership Council to lead a project to define the party’s agenda for the 2006 and 2008 elections.

Consumer Confidence Slips From 3-year High

- Consumer Confidence for July fell to 103.2 versus estimates of 106.3 and a reading of 106.2 in June.

BOTTOM LINE: American were a little less optimistic about the current economy and the future for the next 6 months after energy prices rose near highs. Terrorism fears likely impacted sentiment, as well. However the number of consumers expecting more jobs to become available in the future rose to 15.8%, the highest since January. As well, the number of consumers who say they will buy a car in the next 6 months rose to 7.2% from 6.6%. I expect confidence to make new cycle highs over the coming months.

Links of Interest

Market Snapshot
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Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
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Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- China's government said it may restrict its textile exports to the US, similar to caps it put on exports of the products to the European Union last month to help resolve trade friction with the US.
- Confidence about the prospects of the global economy has declined 10%, citing a survey of international company executives by management consulting firm McKinsey.
- The yen weakened against the dollar for a third day in Asia on speculation China will delay any further revaluation of the yuan, restricting the benefit to the competitiveness of Japanese exports.
- Australian Prime Minister John Howard met his nation's troops and Iraqi Prime Minister Ibrahim al-Jaafari in an unannounced seven-hour visit to Iraq.

AP:
- Jane Fonda, the actress who in 1972 posed on a North Vietnamese anti-aircraft gun, plans in March to launch a bus tour across the US to call for an end to US military operations in Iraq.

Financial Times:
- The European Commission will propose that banks register personal details of anyone making money transfers into or out of the European Union as part of an effort to stop funding for terrorism.

Guardian:
- Revenue from sales of computer games to be played on cell phones will increase to $11 billion by 2010, compared with $2.6 billion this year, citing a report by Informa Telecoms & Media.

London-based Times:
- UK Prime Minister Tony Blair's popularity has increased in the wake of the terrorist attacks in London, citing a Populus survey commissioned by the newspaper.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on RE and BLS.
- Reiterated Underperform on ASH, AVB and CR.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/EPS Estimate
ADP/.44
AFL/.64
AMZN/.10
BIIB/.36
BJS/.60
CTX/1.69
CME/2.38
GLW/.18
ERTS/-.24
IMCL/.33
INSP/.38
LXK/1.06
LMT/.83
MHS/.58
HOT/.65
TDW/.46
VLO/2.95
VZ/.64

Upcoming Splits
None of note

Economic Releases
- Consumer Confidence for July is estimated to rise to 106.3 versus 105.8 in June.

BOTTOM LINE: Asian indices are mostly lower on worries over earnings in the region. I expect US equities to open modestly higher, spurred by tech shares. The Portfolio is 75% net long heading into the day.