Thursday Watch

Late-Night Headlines
Bloomberg:
- China’s oil imports, a driving force behind record prices, have “stabilized” and may decline within three years, Cnooc Ltd. Chairman Fu Chengyu said. China aims to cut the amount of energy used to produce each unit of gross domestic product by 20% in five years, and 4% this year.
- Brazil’s central bank cut the benchmark lending rate to the lowest level in at least 20 years to help speed economic growth, underscoring President Luiz Inacio Lula da Silva’s success in curbing inflation.
- Hynix Semi, Asia’s second-largest maker of memory chips, said second-quarter profit rose 36% after the company increased production faster than industry leader Samsung Electronics.
- Crude oil traded below $73 a barrel in NY after falling for a third day yesterday when a US government report showed the nation’s gasoline supply unexpectedly rose as production increased and demand eased.
- Xstrata Plc increased its hostile bid for Canadian nickel miner Falconbridge Ltd. by 7.2% to $16.3 billion to thwart Phelps Dodge’s(PD) plans for the mining industry’s largest takeover.
- Steel Authority of India, the nation’s biggest steelmaker, may say first-quarter profit fell 12%, for a fourth straight decline, as coal costs rose and competition from China drove down metal prices.
- The House of Representatives failed to override President Bush’s veto of legislation that would have permitted federal funding of research on new embryonic stem cells, ending the issue in Congress this year.
- The US Army Corps of Engineers’ design of flood-control projects, which was criticized after Hurricane Katrina, would be subject to outside oversight under a measure passed by the US Senate today.

Financial Times:
- Citigroup(C), Motorola(MOT) and Altria Group’s(MO) Philip Morris are among US companies concerned over a German tax reform plan that would bar businesses from deducting interest, leasing and rent payments form taxable profits, citing the American Chamber of Commerce.

21st Century Business Herald:
- Best Buy(BBY) is in talks to buy China’s San Lian Commerce Co. for $100 million.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +1.25% to +2.25% on average.
S&P 500 indicated +.15%.
NASDAQ 100 indicated +.65%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (AMD)/.22
- (AMGN)/.94
- (AH)/.89
- (AVID)/.33
- (B)/.37
- (BAX)/.52
- (BRCM)/.35
- (COF)/2.06
- (CERN)/.32
- (CMA)/1.14
- (DPZ)/.37
- (DJ)/.35
- (DHI)/.95
- (FFIV)/.51
- (FCS)/.20
- (FITB)/.66
- (FDC)/.55
- (F)/.12
- (FSL)/.49
- (GILD)/.54
- (GDW)/1.29
- (GOOG)/2.21
- (HON)/.61
- (ITW)/.78
- (IMCL)/.38
- (IGT)/.31
- (JCI)/1.68
- (LEG)/.45
- (MDC)/2.15
- (MEDI)/-.24
- (MCHP)/.36
- (MSFT)/.30
- (NE)/1.31
- (BTU)/.56
- (PFE)/.48
- (SHW)/1.25
- (SLM)/.70
- (SYK)/.51
- (UNP)/1.33
- (UB)/1.27
- (VRSN)/.24
- (WB)/1.15
- (WYE)/.76

Upcoming Splits
- (CX) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 320K versus 332K the prior week.
- Continuing Claims are estimated to fall to 2425K versus 2429K prior.

10:00 am EST
- Leading Indicators for June are estimated to rise .2% versus a .6% decline in May.

12:00 pm EST
- Philly Fed for July is estimated to fall to 12.0 versus a reading of 13.1 in June.

2:00 pm EST
- Minutes of June 29 FOMC Meeting.

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

Stocks Finish Sharply Higher on Positive Earnings, Lower Energy Prices, Lower Rates and Bernanke Comments

Indices
S&P 500 1,259.81 +1.86%
DJIA 11,011.42 +1.96%
NASDAQ 2,080.71 +1.83%
Russell 2000 702.34 +3.04%
Wilshire 5000 12,642.82 +1.97%
S&P Barra Growth 580.52 +1.63%
S&P Barra Value 677.90 +2.07%
Morgan Stanley Consumer 611.55 +1.51%
Morgan Stanley Cyclical 788.02 +2.19%
Morgan Stanley Technology 467.81 +1.42%
Transports 4,695.09 +2.02%
Utilities 426.28 +1.43%
Put/Call .87 -20.18%
NYSE Arms .49 -54.59%
Volatility(VIX) 15.55 -12.34%
ISE Sentiment 119.00 +7.21%
US Dollar 86.45 -.64%
CRB 342.91 +.31%

Futures Spot Prices
Crude Oil 72.84 +.22%
Unleaded Gasoline 223.30 +.14%
Natural Gas 5.89 +.48%
Heating Oil 196.35 -.08%
Gold 643.10 +.05%
Base Metals 226.99 +.11%
Copper 360.10 +.21%
10-year US Treasury Yield 5.04% -1.59%

Leading Sectors
Airlines +5.41%
I-Banks +4.14%
Homebuilders +3.30%

Lagging Sectors
Energy +.85%
Foods +.64%
Internet -.94%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Oppenheimer:
- Rated (SUPX) Buy, target $50.

Afternoon/Evening Headlines
Bloomberg:
- Bill Gross, manager of the world’s biggest bond fund at PIMCO, told CNBC that the US Fed may begin lowering interest rates early next year.
- Apple Computer(AAPL) said third-quarter profit rose 48% after the company sold more Macs than analysts expected.
- Qualcomm(QCOM) said third-quarter profit rose 15% on demand for the latest handsets.
- EBay Inc.(EBAY) said second-quarter profit fell 14% as it expensed stock options. The company reiterated its full-year forecast and announced its first-ever stock buyback.
- Motorola(MOT) reported second-quarter profit that exceeded analyst estimates as demand surged for its new Razr and Q models.
- Intel(INTC) reported its biggest profit drop in more than four years and said it is unlikely to make its full-year forecast after losing sales to AMD.
- US 10-year note yields fell the most in six weeks after Fed Chairman Bernanke said “moderation” is under way in the economy, fueling speculation the bank will pause in lifting interest rates.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs, Retail longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was above average. Measures of investor anxiety were lower into the close. Overall, today's market performance was very bullish. The overall picture that Bernanke painted in today's testimony was one of moderation. He expects U.S. growth to moderate only to around average levels and for inflation to decelerate going forward. I sense very few believe this is likely. While action in the bond market leads me to conclude that investors are beginning to believe the Fed has inflation under control, most believe the economy is slowing too much. I expect earnings over the next few weeks to reinforce Bernanke's Goldilocks(economy not too hot or cold) scenario.

Stocks Sharply Higher into Final Hour on Bernanke Speech, Lower Rates and Declining Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Computer longs, Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Considering how many times Bernanke has mentioned oil as the main source of inflationary fears and oil's extremely elevated state, it must be extremely disturbing for the bears to contemplate the distinct possibility of a sharp drop in oil that isn't accompanied by a substantial economic downturn. I continue to believe that the negative effects oil has had on many aspects of the economy are severely underestimated. The beginning of the mother of all short-covering rallies will likely coincide with a substantial downturn in oil prices. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, lower long-term rates and lower energy prices.

Today's Headlines

Bloomberg:
- Fed Chairman Bernanke, laying the groundwork for a pause in interest-rate increases, said policy makers must be wary of lifting borrowing costs too far.
- US 10-year note yields fell the most in six weeks after Fed Chairman Bernanke said “moderation” is under way in the economy, fueling speculation the bank will pause in lifting interest rates.
- American Airlines(AMR) reported its highest quarterly profit in six years and Southwest Airlines’ earnings more than doubled on increased fares and travel demand.
- Crude oil is falling to a three-week low in NY after a government report showed an unexpected increase in US oil and gas inventories.
- Israeli soldiers fought Hezbollah forces within southern Lebanon for the first time since the conflict began a week ago as the US and Israel resisted diplomatic efforts to halt the hostilities.
- Ethanol prices in the US have fallen 22% from an all-time high two weeks ago as rising production and improved distribution helped meet soaring demand for the gasoline additive.

Wall Street Journal:
- Oil production from Iraq’s southern fields has grown from 1.65 million barrels per day to 2 million bpd in recent months.
- China’s government is stressing the need to reduce water pollution while failing to sanction chemical and petrochemical factories that pollute.
- HCA Inc.(HCA) was in recent days negotiating a leveraged buyout that would have been among the largest in history until the transaction fell apart in the last few days.
- Southwest retailers and investors are focusing on the growing purchasing power of Hispanics.
- US tax-law changes that will raise taxes for many Americans living overseas is forcing companies to reconsider hiring policies and employees to consider returning home.
- Latham & Watkins and other US law firms are pulling in growing business as regulators widen their probe into the backdating of stock options.

CPI Decelerates, Housing Starts Slow Further

- The Consumer Price Index for June rose .2% versus estimates of a .2% increase and a .4% gain in May.
- The CPI Ex Food & Energy for June rose .3% versus estimates of a .2% gain and a .3% rise in May.
- Housing Starts for June fell to 1850K versus estimates of 1900K and 1953K prior.
- Building Permits for June fell to 1862K versus estimates of 1920K and 1946K prior.

BOTTOM LINE: Consumer prices in the US increased for a sixth straight month, Bloomberg reported. Energy prices declined .9% in June versus a 2.4% gain in May. The 10-year yield is falling substantially from morning highs. I continue to believe inflation worries have peaked for the year.

US homebuilders started work on fewer homes in June as higher mortgage rates discouraged buyers, reinforcing expectations of slowing growth, Bloomberg said. Starts fell 12% in the Northeast, 4% in the South and 10% in the West. Starts rose 3% in the Midwest. I continue to believe mortgage rates have peaked for the year and that housing is still in the process of slowing to more healthy sustainable levels.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote