Tuesday Watch

Late-Night Headlines
Bloomberg:
- South Korea’s economy grew at its slowest pace in more than a year in the second quarter as consumer spending cooled and construction fell.
- Motorola(MOT) introduced eight models including new versions of its top-selling Razr, in a push to extend market-share gains.

Financial Times:
- Societe Generale SA expects growth in derivatives to slow over the next five years after a boom in the market for products used by investors to hedge risks.

Wall Street Journal:
- Korea National Oil Corp. signed a $270 million agreement to buy Newmont Mining’s(NEM) BlackGold oil sands leases in Canada to get an entry into the Alberta oil sands region.

Xinhua News:
- China’s ruling Communist Party will crack down on corruption and set policies to curb investments to narrow a widening income gap between the nation’s urban population and 750 million farmers.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.75% to +1.50% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.23%.

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Earnings of Note
Company/EPS Estimate
- (MMM)/1.07
- (AFL)/.71
- (ABC)/.53
- (AMZN)/.07
- (MO)/1.37
- (T)/.53
- (AVY)/.98
- (BJS)/.58
- (BYD)/.57
- (BNI)/1.21
- (CME)/3.09
- (CB)/1.16
- (CL)/.72
- (GLW)/.25
- (CFC)/1.13
- (CYMI)/.56
- (DBD)/.34
- (ESV)/1.23
- (FLEX)/.16
- (HMA)/.33
- (JBLU)/.04
- (LM)/1.13
- (LXK)/.84
- (LLTC)/.38
- (LMT)/1.16
- (MCD)/.58
- (MRO)/.92
- (PNRA)/.44
- (QLGC)/.20
- (RBAK)/.07
- (SIRF)/.19
- (SII)/.53
- (SWK)/.86
- (STN)/.63
- (UPS)/1.00
- (WY)/.95
- (WHR)/1.04
- (XLNX)/.26
- (XTO)/.83

Upcoming Splits
- (TNC) 2-for-1

Economic Releases
10:00 am EST
- Consumer Confidence for July is estimated to fall to 104.0 versus a reading of 105.7 in July.
- Existing Home Sales for June are estimated to fall to 6.6M versus 6.67M in May.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity 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 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
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Daily ETF Performance
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Market Wrap CNBC Video(bottom right)
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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
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