Wednesday Watch

Late-Night Headlines
Bloomberg:
- STMicroelectronics NV(STM), Europe’s largest maker of semiconductors, said second-quarter profit rose more than 600% on higher demand for mobile-phone chips and savings from outsourcing jobs and production to Asia.
- China, France, Russia, the UK and US are close to an agreement on a UN resolution giving Iran about 30 days to stop enriching uranium or face economic penalties, US and French envoys said.

Fox News:
- The US has told Israel that it has 10-14 days to complete “a strategic blow,” against Hezbollah, citing an unidentified senior Israeli Foreign Ministry official.

DigiTimes:
- Microsoft Corp.(MSFT) plans to cut the price of its Xbox 360 video-game console by a quarter ahead of the release of Sony’s(SNE) PlayStation 3 consoles.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.07%.

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Earnings of Note
Company/EPS Estimate
- (AMG)/1.29
- (AKAM)/.18
- (ATI)/1.13
- (ABK)/1.74
- (BUD)/.76
- (BIDU)/.18
- (BIIB)/.49
- (BDK)/1.99
- (BA)/-.22
- (BOB)/.14
- (COP)/2.81
- (DO)/1.23
- (ESRX)/.73
- (FAF)/1.09
- (GM)/.55
- (ISRG)/.40
- (JNY)/.41
- (KMB)/.94
- (LIZ)/.45
- (LPX)/.46
- (LU)/.03
- (MSO)/-.16
- (WFR)/.42
- (MNST)/.30
- (MYL)/.28
- (NSC)/.92
- (PFCB)/.30
- (PD)/4.17
- (PX)/.71
- (PHM)/.90
- (RJF)/.45
- (REY)/2.06
- (COL)/.69
- (RUTH)/.19
- (SEE)/.72
- (SYMC)/.21
- (TEX)/1.07
- (TBL)/-.20
- (TSCO)/1.01
- (TRID)/.19
- (UARM)/.02
- (VAR)/.43
- (ZMH)/.82

Upcoming Splits
- (MDU) 3-for-2

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude drawdown of 500,000 barrels. Gasoline supplies are expected to remain unchanged. Distillate inventories are expected to rise 1,500,000 barrels. Finally, Refinery Utilization is expected to rise .5%.

2:00 pm EST
- Fed’s Beige Book

BOTTOM LINE: Asian indices are mixed, as gains in automakers are offsetting losses in financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Lower Energy Prices, Positive Earnings, Short-covering and Bargain Hunting

Indices
S&P 500 1,268.88 +.63%
DJIA 11,103.71 +.48%
NASDAQ 2,073.90 +.58%
Russell 2000 697.44 +.97%
Wilshire 5000 12,704.13 +.74%
S&P Barra Growth 585.17 +.56%
S&P Barra Value 682.24 +.71%
Morgan Stanley Consumer 619.68 +.49%
Morgan Stanley Cyclical 781.40 +1.12%
Morgan Stanley Technology 461.69 +.15%
Transports 4,488.29 -1.76%
Utilities 433.73 +.39%
Put/Call .67 unch.
NYSE Arms .78 +49.14%
Volatility(VIX) 14.85 -.87%
ISE Sentiment 133.00 -2.92%
US Dollar 86.66 +.37%
CRB 340.74 -.57%

Futures Spot Prices
Crude Oil 73.84 +.12%
Unleaded Gasoline 228.55 +.03%
Natural Gas 6.42 +.23%
Heating Oil 195.04 +.33%
Gold 619.00 +.16%
Base Metals 222.01 +2.87%
Copper 346.10 unch.
10-year US Treasury Yield 5.06% +.36%

Leading Sectors
Steel +4.16%
Oil Service +3.37%
Telecom +2.31%

Lagging Sectors
Gaming +.08%
Hospitals -.19%
Broadcasting -.39%

Evening Review
Detailed Market Summary
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In Play

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

Afternoon/Evening Headlines
Bloomberg:
- The US dollar gained the most in more than a week against the euro and yen after a report showed US consumer confidence unexpectedly rose in July.
- Crude oil fell a $1.40/bbl. on speculation that the conflict between Israel and Hezbollah won’t spread in the Middle East.
- Amazon.com(AMZN) said second-quarter profit fell after it increased spending on technology and content and lost a lawsuit filed by former partner Toys “R” Us.
- Hewlett-Packard(HPQ) agreed to buy Mercury Interactive(MERQ) for about $4.5 billion.
- Corning Inc.(GLW) said second-quarter profit more than tripled, however the shares dropped after the company’s forecast fell short.

CNBC:
- Dow Chemical’s(DOW) CEO said the economy is roboust.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Biotech 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 positive today as the advance/decline line finished higher, almost every sector rose and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bullish. The Johnson Redbook same-store sales index rose 2.6% year over year last week vs. a 2.9% rise the prior week. The long-term average is again of around 2.8%. I continue to see little evidence that a significant decline in consumer spending is beginning, even as investors continue to price this into stocks. I still expect retail sales to stabilize around current average levels over the intermediate term.

Stocks Rising into Final Hour on Falling Energy Prices, Positive Earnings and Short-covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Networking longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. I expect more dovish comments from Fed members over the near term to provide the catalyst for another push higher in stocks. A calming of tensions in the Middle East, lower oil prices and positive earnings reports are also potential catalysts. I continue to believe the bears have overreached by a large extent during this correction. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, positive earnings reports and lower energy prices.

Today's Headlines

Bloomberg:
- The US government is intensifying its scrutiny of hedge funds as lawmakers weigh stricter oversight of the industry with $1.2 trillion in assets under management.
- Sharp Corp., the world’s largest maker of liquid-crystal display televisions, said profit rose 23% in its first quarter, buoyed by soccer’s World Cup.
- Crude oil is falling $1.30/bbl. on speculation that the conflict between Israel and Lebanon won’t spread in the Middle East.

Wall Street Journal:
- Genentech Inc.(DNA) agreed to pay Inotek Pharmaceuticals as much as $625 million for the right to produce a new kind of drug for treating cancer and heart ailments.
- Dow Chemical(DOW) will seek to become more environmentally friendly by 2015, putting more effort into water treatment, car-emissions cleanup and other systems.

USA Today:
- More than half of Americans say they blame Hezbollah “a great deal” for the Middle East fighting, compared with 15% that blame Israel, according to a poll of 1,005 adults taken July 21-23.
- The pace of rebuilding in Mississippi is increasing.

NY Times:
- Only a handful of the 33 criminal cases opened by US investigators probing the backdating of stock options are likely to result in criminal charges, citing unidentified lawyers involved in talks with investigators.

Yonhap News Agency:
- South Korea eased its military alert on North Korea as it sees no “immediate” signs of more missile tests by the communist country.

Consumer Confidence Rises, Home Sales Above Estimates

- Consumer Confidence for July rose to 106.5 versus estimates of 104.0 and a reading of 105.4 in June.
- Existing Home Sales for June fell to 6.62M versus estimates of 6.6M and 6.71M in May.

BOTTOM LINE: Confidence among US consumers unexpectedly rose for a second straight month in July, driven by gains in jobs and incomes, Bloomberg reported. Average Hourly Wages rose 3.9% in June, the most in five years and the unemployment rate is a low 4.6%. The expectations component of the index rose to 88.8 from 87.5 prior. The present situation component of the index increased to 133 from 132.2 in June. Those that plan on purchasing a home rose to 3.4% from 3.2% the prior month. Those that saw jobs as plentiful rose to 28.6% from 28.0% the prior month. I continue to expect consumer confidence to make new cycle highs over the intermediate-term as stocks rise, housing stabilizes, inflation decelerates, energy prices fall, long-term rates remain low, the job market remains healthy and irrational pessimism lifts.

Sales of previously owned homes in the US fell in June to the lowest in five months, Bloomberg said. Inventories of unsold homes are at 1997 levels. The median price of an existing home rose .9% in June to $231,000. Purchases fell 3.5% in the Northeast and 2.3% in the South. Sales were unchanged in the Mid-west and West. I continue to believe housing will stabilize to more healthy sustainable levels over the intermediate-term.

Links of Interest

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