Tuesday Watch

Late-Night Headlines
Bloomberg:
- Target Corp.(TGT) cut is forecast for July same-store sales to growth of 3 to 4 percent from prior estimates of 4-6% growth.
- China’s economy grew at the fastest pace in more than a decade in the second quarter as higher borrowing costs and government lending curbs failed to slow investment in factories and real estate.
- Dell Inc.(DELL) is selling its first color-laser printers in Japan at lower prices than competing products from Canon Inc. and Seiko Epson Corp. to expand market share.
- The yuan fell for a third day as China said there won’t be another “one-off” revaluation of the currency and that speculators betting on faster gains will “not succeed.”

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.50% to unch. on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.35%.

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Earnings of Note
Company/EPS Estimate
- (ASO)/.53
- (BLK)/1.16
- (SCHW)/.20
- (CHKP)/.32
- (KO)/.72
- (CSX)/1.15
- (FRX)/.52
- (FCX)/1.45
- (IBM)/1.29
- (JNJ)/.97
- (KEY)/.70
- (MER)/1.52
- (MTG)/1.73
- (RJF)/.45
- (PCU)/3.20
- (STT)/.83
- (AMTD)/.22
- (TER)/.25
- (UTX)/1.0
- (USB)/.64
- (WDC)/1.24
- (YHOO)/.11

Upcoming Splits
- (RS) 2-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for June is estimated to rise .3% versus a .2% gain in May.
- The PPI Ex Food & Energy for June is estimated to rise .2% versus a .3% increase in May.

9:00 am EST
- Net Foreign Security Purchases for May are estimated to rise to $56.0B versus $46.7B.

1:00 pm EST
- The NAHB Housing Market Index for July is estimated to fall to 41 versus a reading of 42 in June.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Lower on Weakness in Commodity Shares

Indices
S&P 500 1,234.49 -.14%
DJIA 10,747.36 +.07%
NASDAQ 2,037.72 +.02%
Russell 2000 677.69 -.52%
Wilshire 5000 12,373.32 -.24%
S&P Barra Growth 570.36 -.06%
S&P Barra Value 662.56 -.21%
Morgan Stanley Consumer 601.10 -.03%
Morgan Stanley Cyclical 769.35 -.78%
Morgan Stanley Technology 459.13 +.04%
Transports 4,570.83 -.43%
Utilities 419.11 +.24%
Put/Call 1.07 -13.71%
NYSE Arms 1.04 -11.73%
Volatility(VIX) 18.64 +3.27%
ISE Sentiment 131.00 +3.15%
US Dollar 86.98 +1.02%
CRB 347.31 -2.77%

Futures Spot Prices
Crude Oil 75.39 +.12%
Unleaded Gasoline 228.60 +.03%
Natural Gas 5.75 -.57%
Heating Oil 202.72 +.39%
Gold 644.50 -1.14%
Base Metals 229.13 -3.20%
Copper 359.00 -.26%
10-year US Treasury Yield 5.06% -.04%

Leading Sectors
Restaurants +2.40%
Gaming +.95%
Retail +.93%

Lagging Sectors
Energy -3.08%
Gold & Silver -3.41%
Oil Service -4.42%

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Afternoon Recommendations
Bear Stearns:
- Reiterated Outperform on (UTX).

Afternoon/Evening Headlines
Bloomberg:
- Copper fell the most in five weeks leading a decline in metals prices, on concern that escalating violence in the Middle East will slow economic growth and curb demand for raw materials.
- Cocoa plunged 16% in London, the biggest one-day decline since at least 1989, on concern that record buying by speculators had inflated prices to unsustainable levels.
- The US dollar surged to the highest level in almost three months against the yen and strengthened versus the euro as investors sought a safe haven from escalating violence in the Middle East.
- Nymex Holdings, owner of the world’s largest energy marketplace, plans to sell $250 million of stock in an IPO as record oil prices and trading sparks interest in energy exchanges.
- Crude oil fell in NY by the most in five weeks, on speculation that Israel may stop its attack on Lebanon within days.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Networking longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mixed and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bearish. Given the decline in oil, I would have expected a better showing for the broad market. But the sharp declines in commodity stocks, which many perceive as market leaders, didn't do much damage to the broad market, which is a positive. The fact that the 10-year maintained recent gains, despite a somewhat calmer environment, is also a positive. My intraday measures of investor angst were above average throughout the day. I expect a better performance for stocks tomorrow.

Stocks Mostly Lower into Final Hour, Weighed Down by Energy Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Computer longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is below average. Considering the 4%+ losses in energy stocks, the broad market is holding up well. I am starting to wonder if Iran is to oil what Hurricane Katrina was to natural gas. A number of market-leading stocks are posting gains today. I still expect a calming of Middle Eastern tensions, increased Fed "pause" speculation and mostly positive earnings reports to spur a snapback rally over the next few days. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and stable long-term rates.

Today's Headlines

Bloomberg:
- Emerging-market stocks dropped as the conflict between Israel and Lebanon entered its sixth day and traders sought to reduce exposure to the riskiest stocks.
- The dollar surged to the highest in almost three months against the yen and strengthened versus the euro as investors sought a haven from escalating violence in the Middle East.
- Bill Gross, manager of the world’s biggest bond fund, raised holdings of US Treasuries and agency debt in June after cutting the category for seven straight months to a four-year low.
- Natural Gas in NY had its biggest plunge in almost six months as plentiful inventories tempered concern about hot weather in the northern US.
- Crude oil closed floor-trading down almost $2/bbl. as speculators took profits and Middle Eastern tensions eased slightly.

Wall Street Journal:
- Esmark Inc., the closely held steel distributor, plans to start a proxy fight as early as today for control of Wheeling-Pittsburgh(WPSC) as part of a bid to combine the two companies.
- Intel Corp.(INTC) plans to introduce tomorrow the first in its line of Itanium chips containing the equivalent of two electronic brains on a single piece of silicon.
- Federated Dept. Stores(FD) CEO Lundgren is betting that he can turn around a 20-year decline in US department-store sales by creating the industry’s first nationwide chain.

LA Times:
- News Corp.(NWS) Chairman Murdoch may be close to a deal to buy EchoStar Communications(DISH), citing unidentified money managers attending Allen & Co.’s conference in Silicon Valley.

Washington Post:
- Democracy Alliance, a coalition of almost a hundred of the US’s richest donors, has given more than $50 million to liberal think tanks and advocacy groups in the last nine months to compete against conservatives. The group was formed last year with backing from billionaires including George Soros and Colorado software entrepreneur Tim Gill. The donations have made some Democratic groups uncomfortable because the alliance requires that groups agree to protect the identity of donors.

NY Times:
- About $10 billion in US aid is starting to reach people in Mississippi and Louisiana who lost their homes in last year’s hurricanes, an unprecedented level of direct assistance to homeowners.
- CBS Corp.(CBS) will advertise its fall television shows on eggshells.

Financial Times Deutschland:
- Delta Air Lines is under time pressure to buy or lease more planes by the end of this decade to replace aircraft going out of commission, COO Whitehurst said.

Empire Manufacturing Decelerates, Industrial Production Rises, Capacity Utilization Increases

- Empire Manufacturing for July fell to 15.6 versus estimates of 20.0 and a reading of 29.0 in June.
- Industrial Production for June rose .8% versus estimates of a .5% increase and a .1% gain in May.
- Capacity Utilization for June rose to 82.4% versus estimates of 82.0% and 81.8% in May.

BOTTOM LINE: Manufacturing in New York state expanded at a slower pace in July as fewer factories reported increases in orders and sales, Bloomberg reported. The component measuring the outlook for six months from now increased to 44.8 from 33.7 the prior month. The new orders component fell to 10.3 from 25.8 the prior month. The prices paid component fell to 50.5 versus 52.9 in June. I expect manufacturing to continue to slow to more average levels.

Industrial Production in the US rose more than forecast last month as an unseasonably warm June boosted electricity use and factories turned out more communications equipment, Bloomberg reported. Production of consumer durable goods, which includes electronics, automobiles and furniture, rose 2.2% versus a .5% fall the prior month. I expect production and capacity utilization to begin decelerating modestly next month.

Links of Interest

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