Stocks Finish Sharply Higher on Strong Earnings, Merger Activity, Short-Covering and Bargain Hunting

Indices
S&P 500 1,260.91 +1.66%
DJIA 11,051.05 +1.68%
NASDAQ 2,061.84 +2.05%
Russell 2000 690.75 +2.80%
Wilshire 5000 12,610.85 +1.78%
S&P Barra Growth 581.93 +1.70%
S&P Barra Value 677.46 +1.62%
Morgan Stanley Consumer 616.66 +1.29%
Morgan Stanley Cyclical 772.74 +1.62%
Morgan Stanley Technology 461.01 +2.18%
Transports 4,568.70 +2.52%
Utilities 432.05 +.94%
Put/Call .67 -46.40%
NYSE Arms .52 -71.15%
Volatility(VIX) 14.98 -13.91%
ISE Sentiment 137.00 +9.60%
US Dollar 86.31 +.44%
CRB 342.71 +.91%

Futures Spot Prices
Crude Oil 75.06 +.01%
Unleaded Gasoline 231.50 +.03%
Natural Gas 6.59 -.18%
Heating Oil 197.34 +.18%
Gold 615.50 +.38%
Base Metals 215.80 +1.59%
Copper 337.50 -.21%
10-year US Treasury Yield 5.04% +.04%

Leading Sectors
Disk Drives +3.22%
Computer Hardware +3.07%
Oil Service +3.01%

Lagging Sectors
Utilities +.94%
Banks +.90%
Foods +.36%

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
Citigroup:
- Rated (BEAS) and (TIBX) Buy, targets $15 and $9 respectively.
- Rated (WIND) Sell, target $8.

Afternoon/Evening Headlines
Bloomberg:
- The US pledged $30 million in aid to help war-ravaged Lebanon avert a humanitarian crisis as Secretary of State Condoleezza Rice conferred with Israeli leaders after a surprise visit to Beirut.
- Texas Insturments(TXN) said second-quarter profit rose almost fourfold.
- American Express(AXP) said profit climbed 13% in the second quarter as it signed up new clients and existing customers used their cards for more purchases.
- SanDisk(SNDK) said second-quarter net income climbed 36% as the company attracted customers with cards can hold more data.
- Altera(ALTR) reported a 17% gain in second-quarter revenue because of strong sales of new products.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Biotech longs, Semi longs, Retail longs and Medical longs. I took profits in my (NBR) short and an existing trading long 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, every sector rose and volume was above average. Measures of investor anxiety were lower into the close. Overall, today's market performance was bullish. I think bears have overreached to such a large extent that this rally will have legs. This week's housing data will probably dictate the likelihood of this. The fact that the 10-year is holding recent gains despite the large rally in stocks and a somewhat better situation in the Middle East, leads me to believe that investors' inflation expectations are still going down.

Stocks Sharply Higher into Final Hour on Strong Earnings, Mergers and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs, Biotech longs and Medical longs. I covered my remaining IWM/QQQQ shorts and exited some of my EEM shorts today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is above-average. Bears argue that geopolitical concerns are not fully appreciated by investors and thus not priced into stock prices. In my opinion, geopolitical concerns are more than priced into stock and commodity prices at current levels. The S&P 500 forward P/E is only 14.5, near long-term average levels, notwithstanding the greatest double-digit profit growth streak in U.S. history. Many other aspects of today's macro backdrop would normally dictate much higher valuations for equities. Just look at the 1980s and all the geopolitical concerns that were present. During this decade, stocks rose on average about 18.2% annually. I continue to expect P/E multiple expansion for U.S. stocks to finally begin later this year. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and stable long-rates.

Today's Headlines

Bloomberg:
- The Iraqi government’s acceptance of responsibility for security and law enforcement of the province of Al-Muthanna is an important step towards sovereignty, Prime Minister Nuri al-Maliki said.
- Advanced Micro Devices(AMD) agreed to buy ATI Tech(ATYT) for $5.4 billion, adding computer-graphics chips to its product lineup.
- Bain Capital, Merrill Lynch and Kohlberg, Kravis Roberts will offer to buy HCA Inc.(HCA), the biggest US hospital operator, for about $21 billion.
- Secretary of State Condoleezza Rice made a surprise visit to Beirut to express US concern over what could become a humanitarian crisis as Israel’s jets struck Hezbollah installations in Lebanon and soldiers advanced in the southern part of the country.

Wall Street Journal:
- More US employers are helping rank-and-file workers to advance their careers as unemployment drops.

Advertising Age:
- Amazon.com(AMZN) plans to introduce a digital-video download service next month.

NY Times:
- The US Homeland Security Dept. is revamping many disaster-relief programs, after fraud and abuse involving as much as $1.4 billion in the aftermath of Hurricane Katrina.
- Hollywood directors, producers and cinematographers are resisting movie studios’ long-predicted shift to digital cameras instead of traditional 35-millimeter film.

NY Post:
- Clear Channel Communications(CCU) is expected to receive a one-year contract to place ads on NYC MetroCards.

Xinhua News Agency:
- China’s President Hu Jintao called for more effective economic controls in the second half and a slowing of “blind growth” in high energy-consuming and polluting industries.

Economic Releases

- None of note

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

Monday Watch

Weekend Headlines
Bloomberg:
- Israeli Prime Minister Ehud Olmert said he might accept a multinational force stationed in Lebanon, where a UN force has been stationed since 1978, as a means of ending the conflict, so long as it is manned by European Union troops and monitors Lebanon’s border with Syria.
- Amvescap Plc(AVZ), manager of the Aim and Invesco funds, agreed to buy financier Wilbur Ross’s buyout company for as much as $375 million.
- China’s economic growth, which reached the fastest pace in a decade in the second quarter, may slow as the government takes steps to clamp down on lending.
- Currency traders are losing interest in the Canadian dollar.
- India’s central bank may increase its overnight borrowing rate for the third time this year as higher fuel prices and an expanding economy threaten to stoke inflation.
- Bill Gross, manager of the world’s biggest bond fund at PIMCO, has history on his side when he predicts the “bull market has begun” for US Treasuries.
- Gold in Asian trading declined amid signs cease-fire talks may be near in the 13-day-old conflict in Lebanon between Israeli and Iranian-backed Hezbollah forces, reducing the metal’s appeal as a haven.
- Copper prices in Shanghai and New York fell amid concerns that demand will slow in China and the US, the world’s biggest users of the metal.
- China’s stock indices slid after the central bank restricted the amount of funds available for lending to rein in economic growth.

Wall Street Journal:
- HCA Inc.(HCA) is in advanced talks to be sold to an investor group for about $21 billion, a deal that may be announced as early as tomorrow.

LA Times:
- Denver billionaire Philip Anschutz is pouring billions of dollars into building projects in Los Angeles, forever changing its face.

NY Times:
- Iranians are concerned about the potential risks of the country’s support for the Shiite terrorist group Hezbollah, and resent seeing the money going abroad.

Business Week:
- Experts weigh in on ways to revive growth at Dell Inc.(DELL). Some ideas: rethink retail and bring back Mike.

Washington Post:
- A Bush administration program to cut utility emissions through a “cap-and-trade” system will clean the air as well as a Clinton-era plan to make aging power plants install pollution controls, citing a study by an independent panel.
- Representatives from Iraq’s religious, ethnic and political factions voiced optimism yesterday in the first meeting of the nation’s reconciliation panel.

San Jose Mercury News:
- Businesses in the Silicon Valley area of northern California added 6,100 workers to their payrolls in June, a quarter of them from the hospitality industry as technology companies are spending more money.

Denver Post:
- The number of workers employed in Colorado reached 2.29 million, surpassing the previous record of 2.27 million in December 2000.

AP:
- A US subsidiary of Kawasaki Heavy Industries won a $522 million contract to build 210 railcars for the state of Connecticut.

Financial Times:
- Las Vegas Sands(LVS) plans to invest more than $8 billion in its Macau casino and convention development in the next four-to-six years, citing COO Weidner.
- Large US companies, analysts and fund managers want an end to quarterly earnings guidance, saying it damages shareholders and corporate governance, citing a report by the Business Roundtable Institute of Corporate Ethics.

Reuters:
- Earnings expectations for the second quarter have climbed recently as Reuters Estimates now projects S&P 500 earnings grew 10% in the second quarter, up from an expectation of 9.2% last week.

Frankfurter Allgemeine Zeitung:
- SAP AG(SAP) is on course to boost orders and sales even after the company said second-quarter software license sales missed analyst estimates, CEO Kagermann said.

Nihon Keizai:
- Honda Motor will spend $69 million building a plant to make electric motors and other parts for hybrid cars at is Suzuka factory in Japan by 2008.

Weekend Recommendations
Citigroup:
- Upgraded (DELL) to Buy, target $24.

Barron's:
- Had positive comments on (ASH), (EGN), (DOW), (CVX), (LEH) and (ITC).
- Had negative comments on (STN).

Night Trading
Asian indices are -1.50% to -.50% on average.
S&P 500 indicated -.07%
NASDAQ 100 indicated unch.

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/Estimate
- (ACL)/1.16
- (ALTR)/.21
- (AXP)/.74
- (AMLN)/-.45
- (AV)/.12
- (BLS)/.57
- (BRO)/.29
- (CVD)/.53
- (EXP)/1.16
- (HAS)/.07
- (KFT)/.48
- (MRK)/.65
- (PRE)/2.01
- (PBI)/.68
- (PCL)/.36
- (DGX)/.76
- (SNDK)/.44
- (SGP)/.17
- (SLAB)/.33
- (TXN)/.47

Upcoming Splits
- (MRVL) 2-for-1
- (TNC) 2-for-1

Economic Releases
- None of note

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