Stocks Finish Modestly Higher as Oil Retreats

Indices
S&P 500 1,233.87 +.28%
DJIA 10,634.38 +.32%
NASDAQ 2,167.04 +.47%
Russell 2000 665.64 +.85%
DJ Wilshire 5000 12,296.21 +.29%
S&P Barra Growth 591.21 +.26%
S&P Barra Value 638.29 +.31%
Morgan Stanley Consumer 591.92 +.58%
Morgan Stanley Cyclical 757.63 +.11%
Morgan Stanley Technology 502.49 +.48%
Transports 3,761.59 +.37%
Utilities 397.14 +.27%
Put/Call .66 -48.44%
NYSE Arms .89 -35.74%
Volatility(VIX) 12.26 -3.77%
ISE Sentiment 224.00 +60.0%
US Dollar 87.33 +.40%
CRB 318.91 -1.25%

Futures Spot Prices
Crude Oil 66.22 -.96%
Unleaded Gasoline 196.90 -1.79%
Natural Gas 9.50 -.87%
Heating Oil 187.07 -1.83%
Gold 447.40 -.04%
Base Metals 130.66 +.35%
Copper 170.75 unch.
10-year US Treasury Yield 4.28% +.91%

Leading Sectors
Disk Drives +2.40%
Computer Hardware +1.75%
Defense +1.10%

Lagging Sectors
Gold & Silver -.92%
Energy -1.00%
Oil Service -1.17%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on S.
- Reiterated Underperform on DJ.

Afternoon/Evening Headlines
Bloomberg:
- Iraq’s parliament set a new deadline of Aug. 22 for drafting the country’s constitution, to give negotiators one week extra to work out their differences.
- Billionaire Carl Icahn reported that his investment partnerships acquired a $78.3 million stake in Morgan Stanley during the second quarter.
- US Treasuries fell after the NY Fed’s August survey showed manufacturing in its region expanded at the second-fastest pace this year.
- News Corp. gave Fox News Channel chairman Roger Ailes control of its television stations.
- Crude oil fell from a record on speculation that increased production will meet demand for gas in the final weeks of summer.

AP:
- Iraq’s leaders reached agreement on a draft constitution except for two key issues that will be left up to parliament to decide.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical, Retail and Computer longs. I added back to my IWM and QQQQ shorts, thus leaving the Portfolio 50% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was very light. Measures of investor anxiety remained lower into the close. Overall, today’s market action was modestly positive. Stocks will likely come under slight pressure tomorrow if the 10-year Treasury note yield moves back above 4.30% on the CPI and industrial production reports.

Stocks Modestly Higher Mid-day on Positive Economic Data

Indices
S&P 500 1,234.90 +.37%
DJIA 10,641.70 +.39%
NASDAQ 2,170.37 +.62%
Russell 2000 665.61 +.85%
DJ Wilshire 5000 12,304.02 +.36%
S&P Barra Growth 591.60 +.32%
S&P Barra Value 638.66 +.36%
Morgan Stanley Consumer 591.39 +.49%
Morgan Stanley Cyclical 758.43 +.22%
Morgan Stanley Technology 503.60 +.72%
Transports 3,762.39 +.39%
Utilities 396.96 +.23%
Put/Call .65 -49.22%
NYSE Arms .96 -31.01%
Volatility(VIX) 12.26 -3.77%
ISE Sentiment 228.00 +62.86%
US Dollar 87.37 +.45%
CRB 318.69 -1.32%

Futures Spot Prices
Crude Oil 65.65 -1.81%
Unleaded Gasoline 195.90 -2.28%
Natural Gas 9.48 -1.02%
Heating Oil 186.40 -2.23%
Gold 447.20 -.93%
Base Metals 130.66 +.35%
Copper 170.50 +1.73%
10-year US Treasury Yield 4.26% +.46%

Leading Sectors
Disk Drives +2.34%
Computer Hardware +1.89%
Semis +1.25%

Lagging Sectors
Energy -.91%
Oil Service -1.18%
Gold & Silver -1.26%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Computer, Medical and Retail longs. I pared my IWM and QQQQ shorts this morning and added NVDA long, thus leaving the Portfolio 75% net long. I am using a $29 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, most sectors are gaining and volume is light. Measures of investor anxiety are lower. Today’s overall market action is modestly positive, considering the fall in energy prices and positive economic data. Insider Buy of Note: John Nelley, an officer and director of Duke Realty (DRE), recently purchased 54,229 shares @ $31.39, bringing his holdings to 259,794. I expect US stocks to trade mixed-to-lower from current levels into the close as stocks consolidate recent gains.

Today's Headlines

Bloomberg:
- US corporate profits rose 14% in the second quarter, double the rate analysts predicted.
- The US budget deficit is estimated to be $331 billion this year as tax receipts from growth in income and corporate revenue soar, the Congressional Budget Office said.
- The US dollar gained the most in three weeks against the euro after a Treasury Department report showed international investors increased their holding of US financial assets by the most since February.
- Crude oil is falling for the first time in four sessions on speculation that increased production will help refineries meet demand for gas and other fuels.

Wall Street Journal:
- Foxhollow Technologies’ products for clearing clogged arteries is being tested by doctors who own shares and options in the company.
- US companies will increasingly be bought by companies in less advanced economies, including Israel, Singapore, Brazil, India and Mexico.
- Citigroup’s Smith Barney unit will stop producing research under that name at the end of this month, adopting instead the name Citigroup Investment Research.
- The unionized car-making factories in DaimlerChrysler AG’s Chrysler Group will have to compete on cost and efficiency with an increasing number of factories owned by rivals that are not unionized.
- US labor unions face increasing resistance from companies and the government, and now workers themselves are turning away from them.
- The failure of leading mosques in London to distance themselves from terrorism has called into question efforts by the British government to encourage political moderates in the Muslim community.

NY Times:
- Agilent Technologies, the world’s biggest maker of scientific-testing equipment, will announce today a reorganization of its business, including the sale of its semiconductor unit.

LA Timest:
- News Corp is in discussions to buy Blinkx, a closely held Internet video search company.

NY Post:
- Younger members of the family that founded Dow Jones are pressing Bancroft family elders to sell their shares in the company.

USA Today:
- People who eat spinach, strawberries and other produce containing the B vitamin folate may lower their risk of developing Alzheimer’s disease.

Financial Times:
- Carl Icahn told Time Warner Chairman and CEO Dick Parsons on Friday that he and three other hedge-fund investors, Franklin Mutual, Jana Partners and SAC Capital, have a $2.2 billion stake in the company.

NY Manufacturing Outlook Solid, International Investors' Demand for US Assets Accelerates

- Empire Manufacturing for August rose to 23.0 versus estimates of 18.5 and a reading of 23.9 in July.
- Net Foreign Security Purchases for June rose to $71.2B versus estimates of $64.5B and $55.8B in May.

BOTTOM LINE: Manufacturing in New York state expanded more than expected in August as new orders surged to a high for the year, Bloomberg reported. The new orders component of the index soared to 33.8 from 19.2 in July. Manufacturers’ optimism about the next six months rose to 53.3 from 47 in July. The current employment gauge within the index rose to 10.2 from 1.4 the prior month. Finally, the prices paid component of the index rose to 29 from 21.57 in July. Bloomberg is now forecasting the US economy will growth at a 4.1% rate this quarter, the most since the first quarter of 2004, according to a recent survey. I continue to believe that manufacturing will add to US GDP growth throughout the remainder of the year.

International investors increased their holdings of US assets in June by the most in four months, led by record purchases of corporate bonds, Bloomberg reported. The US economy grew 3.6% during the second quarter, more than twice the rate in Japan, Germany, the UK and France. Demand for US assets will likely remain strong as the US dollar firms, the budget deficit improves and the gap between US growth and other industrialized nations widens further.

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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said August sales at its US stores open at least a year are rising within its forecast range as food sales outpaced general merchandise for the fifth straight week.
- Delta Air Lines is seeking financing from its lenders that will allow it to keep flying if it declares bankruptcy.
- The US dollar is rising against the euro and yen in Asia on expectations a Treasury Department report today will show international investors increased buying of US assets.
- The role of Islam and how much autonomy to grant various geographical regions remained at issue as Iraqis sought to meet tomorrow’s deadline for drafting a constitution.

Barron’s:
- The number of US residents with diabetes is forecast to rise to more than 30 million in about 20 years from 17 million now, and the cost of treating the disease annually may approach $200 billion by then.
- IPOs of US stocks raised $22 billion, with 113 companies going public through Aug. 9.

New York Times:
- The NHL approved Comcast’s offer to carry two regular-season games per week starting this season.
- The leaders of Iraq’s three main ethnic groups – the Kurds, Shiites and Sunnis – have agreed on a formula to share the country’s oil wealth between the central government and the 18 regional provinces.
- Americans have resorted to more creative ways to get around rising gas prices such as using Web sites that keep track of the cheapest prices or showing up for free gas giveaways.
- Increasing corruption among Russian government officials during Vladimir Putin’s presidency is now seen as part of the cost of doing business in the country.

LA Times:
- Tighter enforcement along the border with Mexico has caused a shortage of farm workers in California’s Central Valley.

Washington Post:
- Travelers will no longer have to pull their shoes off at airport security checkpoints under rule changes being considered by the Homeland Security Department.
- Iraqi Sunni Muslims battled insurgents to defend their Shiite neighbors yesterday in Ramadi, a development that may signal increasing resistance to foreign-born terrorists such as Abu Musab al-Zarqawi.

Time Magazine:
- Iran has forged ties with some militant and insurgent groups in Iraq and is funding Islamic fundamentalist politicians there as it seeks to build influence.

Financial Times:
- Lenovo Group Ltd. will use the Think brand on its high-end products.

The Mail on Sunday:
- Wal-Mart Stores has held talks with Carrefour SA that might lead to a takeover bid for the French supermarket owner.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on SNY, INMD, DELL, mixed on MDT and negative on BIDU.

Forbes on Fox:
- Had guests that were positive on AMR, DIS, OKE and mixed on APA, XOM, SJM.

Cashin' In:
- Had guests that were positive on XMSR, SIRI, AKAM, MNT, TSRA, UTSI, mixed on DYN and negative on BIDU, SBSA.

Cavuto on Business:
- None of note

Barron's:
- Had positive comments on IMAX, VNO, JNJ, BXP, PXD and AVB.

Goldman Sachs:
- Reiterated Outperform on A.
- Reiterated Underperform on PFG.

Night Trading
Asian indices are -.50% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/Estimate
A/.26
LOW/1.02
SNIC/.14

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Empire Manufacturing for August is estimated to fall to 18.5 from 23.9 in July.

9:00 am EST
- Net Foreign Security Purchases for June are estimated to rise to $64.5B versus $60.0B in May.

1:00 pm EST
- The NAHB Housing Market Index for August is estimated at 70 versus a reading of 70 in July.

BOTTOM LINE: Asian Indices are mostly lower as record energy prices pressure exporters in the region. I expect US stocks to open mixed as economic optimism offsets high energy prices. The Portfolio is 50% net long heading into the week.