Today's Headlines

Bloomberg:
- Crude oil rose to $75 a barrel in NY after France said that the Iranian nuclear dispute will be referred back to the UN Security Council and a government report showed that US oil and gas supplies fell last week.
- US regulators said they approved a once-a-day pill from Gilead Sciences(GILD) and Bristol-Myers(BMY) combining three of the most frequently used AIDS drugs, capping a decades-long quest to make treatment simpler for patients with HIV.
- The SEC issued tougher guidelines for the kinds of services money managers can get from brokerages while passing the cots onto their clients.
- China and Russia moved toward acceptance of stronger UN action to stop North Korea’s ballistic missile program, introducing a resolution that the US and Japan said was still too weak to win their support.

Wall Street Journal:
- The SEC will probably propose changes to a rule covering so-called naked short-selling that would reduce the number of open short positions in stocks.
- US executives are stepping up contributions to health causes, adding to a growing movement among wealthy entrepreneurs to donate money to charity.
- US private equity firms are targeting retailers as they seek to extract the best value from their investments.
- Three Wall Street executives are starting a financial advisory boutique today in the latest move by bankers to do business outside the influence of the big banks. The firm, known as Centerview Partners, will initially consist of Stephen Crawford, former co-president at Morgan Stanley, Blair Effron, a former vice chairman at UBS AG, and Robert Pruzan, former CEO at Dresdner Kleinwort Wasserstein North America.
- US states and cities are cracking down on illegal immigration as legislation on the issue remains stuck in Congress.

Chicago Tribune:
- Chicago plans to invest $550 million in tax dollars to upgrade the infrastructure and building in a 49-block area downtown.

Washington Post:
- The US Army Corps of Engineers submitted a plan for protecting Louisiana from hurricanes to Congress that would involve building multiple levees and may cost more than $10 billion.

NY Times:
- Nanjing Automobile Group, which last year purchased the assets of MG Rover, plans to be the first Chinese carmaker to open a factory in the US.
- Biotechnology companies founded in Europe or Australia are moving to the US to draw on the world’s largest investment pool and capitalize on a more lucrative market for their products.

USA Today:
- The number of US schools that tested middle- and high-school students for illegal drugs jumped almost 500% in the past two years as federal funding increased.

AP:
- The four biggest broadcast television networks in the US last week had their lowest viewing figures in recorded history.

al-Hayat:
- Iraq’s Kurdistan parliament approved an investment law, paving the way for direct foreign investment in the northern region.

Trade Deficit Better Than Estimates

- The Trade Deficit for May widened to -$63.8 billion versus estimates of -$64.9 billion and -$63.3 billion in April.

BOTTOM LINE: American companies exported a record amount of goods in May, keeping the trade deficit from widening as much as expected and signaling growing demand from overseas may help the US economy sustain growth, Bloomberg reported. The trade deficit with China rose to $17.7 billion from $17 billion in April. I expect the trade deficit to improve only modestly over the intermediate-term as the US economy continues to outperform those of other industrialized nations.

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- The Senate voted to create a new US emergency preparedness and response agency to better cope with terrorist attacks and natural disasters after the failure last year of FEMA to react to Hurricane Katrina.
- Japan’s Chief Cabinet Secretary Shinzo Abe said China’s negotiators should act quickly in trying to persuade North Korea to abandon its missile tests and return to six-party talks.

China Securities Journal:
- China may increase its benchmark interest rate, as it attempts to reduce liquidity and control investment growth, rather than allow the yuan to rise faster.

Chosun Ilbo:
- South Korea’s Defense Ministry plans to spend $159 billion over the next five years to bolster the country’s defense capabilities.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.10%.

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Earnings of Note
Company/EPS Estimate
- (AIR)/.30
- (CHAP)/1.77
- (CBSH)/.79
- (FAST)/.36
- (FOE)/.25
- (FLS)/.57
- (GCI)/1.31
- (GENZ)/.66
- (MTB)/1.82
- (RECN)/.31
- (VAS)/.25

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for May is estimated to widen to -$64.9B from -$63.4B in April.

10:30 am EST
- Bloomberg consensus estimates for the EIA weekly energy inventory data call for a crude oil drawdown of 1,300,000 barrels. Gasoline supplies are expected to fall 250,000 barrels. Distillate inventories are expected to rise 1,600,000 barrels. Finally, Refinery Utilization is expected to rise .5%.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US equities to open mixed and to rally modestly into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Higher, Boosted by Rebounding Tech Shares

Indices
S&P 500 1,272.52 +.41%
DJIA 11,134.77 +.28%
NASDAQ 2,128.86 +.56%
Russell 2000 714.39 +.75%
Wilshire 5000 12,792.18 +.41%
S&P Barra Growth 586.59 +.34%
S&P Barra Value 684.50 +.47%
Morgan Stanley Consumer 616.50 +.34%
Morgan Stanley Cyclical 817.63 +.17%
Morgan Stanley Technology 478.90 +.68%
Transports 4,858.94 -.05%
Utilities 421.53 +.64%
Put/Call 1.08 +16.13%
NYSE Arms 1.31 +2.67%
Volatility(VIX) 13.14 -6.28%
ISE Sentiment 109.00 -31.88%
US Dollar 85.36 -.16%
CRB 350.28 +1.04%

Futures Spot Prices
Crude Oil 74.04 -.16%
Unleaded Gasoline 218.85 -.18%
Natural Gas 5.66 +.48%
Heating Oil 200.50 -.28%
Gold 642.70 -.06%
Base Metals 233.87 +2.21%
Copper 362.50 -.28%
10-year US Treasury Yield 5.10% -.48%

Leading Sectors
Semis +3.29%
Oil Service +3.0%
Defense +2.54%

Lagging Sectors
Oil Tankers -.71%
Homebuilders -1.21%
Airlines -1.50%

Evening Review
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In Play

Afternoon Recommendations
Raymond James:
- Added (AMMD) to Aggressive Growth category.

Afternoon/Evening Headlines
Bloomberg:
- Dan Rather, the former CBS Corp. news anchor, will produce and host a weekly news program for HDNet, a high-definition television channel co-founded by Mark Cuban.
- Nasdaq Stock Market(NDAQ) made its biggest inroads into trading shares of NYSE listed companies in more than a year.
- Genentech(DNA) said second-quarter net income rose 79% as doctors prescribed more of the company’s medicines for colon and breast cancers.
- KLA-Tencor(KLAC) and Applied Materials(AMAT) indicated demand may be stronger than analysts expected.
- Sears Holdings(SHLD) vice chairman Alan Lacy, the retailer’s former CEO, will leave the largest US dept. store chain as of July 29.
- The House of Representatives approved a measure to stifle online gambling in the US by restricting the flow of money to illegal Internet gaming sites.
- India’s Prime Minister Manmohan Singh pledged to tackle terrorism with “all possible measures” as governments across the world condemned the worst attack in Mumbai in 13 years.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Internet longs, Retail longs and Medical longs. I covered the remainder of my (IWM) and (QQQQ) shorts and added a small long position in (DNA) in the final hour, thus leaving the Portfolio 100% net long. I plan to add to my new (DNA) long on earnings related weakness. The tone of the market was positive today as the advance/decline line finished modestly higher, most sectors gained and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was quite bullish as the major averages and breadth improved dramatically from morning lows. Semis had been one of the worst performing sectors in the market based on the belief that earnings were going to be horrible this quarter. KLA-Tencor (KLAC) beat estimates and raised forward guidance. This will likely lead to further short-covering in the tech space tomorrow.

Stocks Higher into the Final Hour, Led by Reveral in Tech Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Internet longs, Retail longs and Medical longs. I added to my (CYMI) long and covered some of my (IWM)/(QQQQ) shorts today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is slightly higher, most sectors are higher and volume is about average. Bloomberg just interviewed former hedge fund manager Michael Steinhardt. He said there is a pall and sense of doom overhanging the U.S. stock market that isn't justified and that he thinks the market is OK. The economy will continue to expand and interest rates won't rise much further, according to Steinhardt. He said stocks are cheap and commodities are expensive. He called the belief that China produces vast amount of new consumerism each year a myth. Finally, he expects a continuing shakeout among hedge fund managers. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting in tech.