Stocks Finish Near Session Lows on Light Volume

Indices
S&P 500 1,235.86 -.74%
DJIA 10,610.10 -.82%
NASDAQ 2,191.32 -1.15%
Russell 2000 671.84 -1.69%
DJ Wilshire 5000 12,338.00 -.82%
S&P Barra Growth 592.12 -.91%
S&P Barra Value 639.36 -.57%
Morgan Stanley Consumer 587.51 -.83%
Morgan Stanley Cyclical 756.57 -.86%
Morgan Stanley Technology 505.06 -.79%
Transports 3,766.27 -.96%
Utilities 402.73 -.63%
Put/Call 1.04 +16.85%
NYSE Arms 1.25 +33.03%
Volatility(VIX) 12.52 +5.83%
ISE Sentiment 205.00 -24.63%
US Dollar 87.80 -.22%
CRB 315.73 +.13%

Futures Spot Prices
Crude Oil 61.70 +.55%
Unleaded Gasoline 181.10 +.48%
Natural Gas 8.49 +.27%
Heating Oil 171.00 +.13%
Gold 442.90 -.18%
Base Metals 127.82 -.40%
Copper 164.80 -.39%
10-year US Treasury Yield 4.31% +.46%

Leading Sectors
Oil Tankers +4.07%
Broadcasting +.61%
Oil Service +.55%

Lagging Sectors
Retail -2.33%
Semis -2.43%
Airlines -3.11%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on LVS.
- Reiterated Underperform on WGR.

Afternoon/Evening Headlines
Bloomberg:
- Microsoft name Wal-Mart Stores’ Kevin Turner, once the retailer’s youngest-ever executive, as chief operating officer to free up Chief Executive Steve Ballmer to spend more time on products.
- Exxon Mobil CEO Raymond will retire at the end of 2005, ending a 12-year reign in which he built a Standard Oil Trust successor into the world’s largest publicly traded company.

BOTTOM LINE: The Portfolio finished modestly lower today on losses in my Semiconductor/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 negative today as the advance/decline line finished substantially lower, sector performance was mostly negative and volume was below average. Measures of investor anxiety remained higher into the close. Overall, today’s market action was negative. I am anticipating that tomorrow's non-farm payrolls exceed estimates of 180,000. This should send the U.S. dollar and long-term rates modestly higher. Based on the market's action today, I suspect this will pressure stocks slightly near-term. However, the belief that better employment prospects mean continuing positive income trends will offset higher gas and interest rates should mute losses.

Stocks Lower Mid-day on Rising Energy Prices and Long-term Rates

Indices
S&P 500 1,236.43 -.69%
DJIA 10,619.40 -.73%
NASDAQ 2,193.46 -1.05%
Russell 2000 673.63 -1.42%
DJ Wilshire 5000 12,345.71 -.75%
S&P Barra Growth 592.66 -.81%
S&P Barra Value 639.35 -.58%
Morgan Stanley Consumer 587.57 -.82%
Morgan Stanley Cyclical 757.19 -.76%
Morgan Stanley Technology 505.93 -.57%
Transports 3,768.23 -.91%
Utilities 402.60 -.66%
Put/Call 1.12 +25.84%
NYSE Arms 1.11 +17.87%
Volatility(VIX) 12.47 +5.41%
ISE Sentiment 196.00 -27.94%
US Dollar 87.78 -.24%
CRB 316.54 +.39%

Futures Spot Prices
Crude Oil 61.85 +1.63%
Unleaded Gasoline 180.50 +1.93%
Natural Gas 8.57 +2.68%
Heating Oil 171.70 +1.72%
Gold 443.70 +.25%
Base Metals 127.82 -.40%
Copper 165.45 -1.02%
10-year US Treasury Yield 4.31% +.46%

Leading Sectors
Oil Tankers +3.69%
Hospitals +.83%
Oil Service +.82%

Lagging Sectors
Semis -2.15%
Retail -2.38%
Airlines -2.81%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Retail/Semiconductor longs and Oil Tanker shorts. I took profits in a few longs and added IWM and QQQQ short this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is below average. Measures of investor anxiety are higher. Today’s overall market action is mildly negative considering recent gains and the rise in oil/rates. The AAII % Bulls fell to 47.83% this week from 57.52% the prior week; this is now back to average levels. Likewise, the % Bears rose to 26.09% from 17.65% the prior week; this is also back to average levels. These readings should help keep any consolidation modest. I expect US stocks to trade modestly higher from current levels into the close on short-covering ahead of tomorrow’s employment report.

Today's Headlines

Bloomberg:
- The New York Civil Liberties Union filed a lawsuit challenging the New York Police Department’s searches of passengers’ bags on city subways.
- Sharp will raise production of liquid crystal displays used in televisions by 20% over the next year at its Kameyama plant, by making additional investments and changing its factory layout to speed up output.
- Dell probably raised second-quarter shipments in China by about 30%.
- Wal-Mart Stores said July sales rose 4.4% as grocery buying and fewer clearance sales helped the gain.
- The Bank of England reduced its benchmark interest rate for the first time in more than two years after the UK economy grew in the second quarter at the slowest pace since 1993.
- Crude oil in NY is approaching the record of $62.50/bbl. as below-normal gas inventories increased speculation that fuel consumption will outpace refinery production.
- US retailers including Neiman Marcus and JC Penney posted 3.6% sales gains in July for stores open at least a year.

Wall Street Journal:
- A prolonged drought in the US Midwest, the worst since 1998, is shrinking anticipated harvest estimates for corn and soybeans and slowing commercial shipping on some of the nation’s busiest waterways.
- Adidas-Salomon AG’s planned $3.8 billion acquisition of Reebok International may help the company realize its goal of broadening the appeal of its footwear to urban consumers.
- Nokia Oyj designer Frank Nuovo has reverted to classic design for the company’s stainless steel 8800 model cell phone to counter growing competition from Motorola.
- The European Union, the world’s second largest clothing importer, agreed to lift emergency quotas set on Chinese-made sweaters and allow millions of products awaiting customs clearance to be delivered.
- Medicare has decided to start paying hospitals for the use of the Genentech drug that dissolves stroke patients’ blood clots.
- Sony is selling PictureStation kiosks to hospitals and craft stores as it, Eastman Kodak and Fuji Photo Film seek to gain from demand for digital picture printing.
- The US government is offering drives of hybrid cars, which run on a combination of electricity and gasoline power, benefits such as tax breaks and free parking.

NY Times:
- Some US companies with no experience in the phone business are selling mobile phone services.
- Yahoo! is testing a search engine that will seek out music for users by looking through 50 million music, voice and other audio files.

LA Times:
- Bain Capital LLC and MacGregor Golf made an offer to buy Callaway Golf for as much as $1.24 billion in cash.

Washington Post:
- The International Association of Chiefs of Police, representing the heads of police departments worldwide, have issued a new recommendation saying that officers facing a suicide bomber should shoot the suspect in the head.

Initial Jobless Claims Bode Well for Tomorrow's Employment Report

- Initial Jobless Claims for last week fell to 312K versus estimates of 315K and 313K the prior week.
- Continuing Claims fell to 2581K versus estimates of 2578K and 2599K the prior week.

BOTTOM LINE: The four-week moving-average of initial claims fell to 316,750, the lowest since February, from 319,000 the prior week, Bloomberg reported. The monthly average of initial claims hasn’t been this low since the economy created 300,000 workers in February. Claims have averaged 325,000 a week this year, down 18,000 year-over-year. The insured employment rate, which tracks the US jobless rate, was unchanged at 2%. I expect the Non-farm Payrolls to exceed the 180,000 estimates tomorrow.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Apple Computer is starting its iTunes online music download store in Japan from today, tapping into the company’s biggest market in Asia.
- China’s Baidu.com, a search engine that models itself on Google, is seeking to raise as much as $101 million in a US IPO today after raising the offer by 30% to meet investor demand.

London-based Times:
- Tupperware Corp. is in advanced talks to buy Sara Lee’s direct selling unit for $700 million.

China Daily:
- Chinese oil refiners increased their crude oil stockpile last year to enough to cover a month’s processing, reducing the need for imports in 2005.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SBUX, ARO, BAC and AMGN.
- Reiterated Underperform on EDS.

Night Trading
Asian Indices are -.50 to unch. on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
AT/.85
AMLN/-.31
CMX/.46
CHK/.46
CSC/.55
G/.46
GSF/.27
GT/.22
HET/.93
PDLI/.05
PIXR/.10
SLE/.31
UVN/.25
WMB/.20

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 315K versus 310K the prior week.
- Continuing Claims are estimated to fall to 2578K versus 2603K prior.

BOTTOM LINE: Asian indices are mostly lower on losses in automaker shares in the region. I expect US equities to open modestly lower and to rally later in the afternoon. The Portfolio is 100% net long heading into the day.