Today's Headlines

Bloomberg:
- The Chicago Board Options Exchange will join with four securities firms to establish an exchange to trade equity securities early next year.
- Prime Minister Olmert decided today against widening Israeli military operations in southern Lebanon.
- Time Warner’s(TWX) board may approve as early as today a plan to give away its AOL service to high-speed Internet users in an attempt to revive the ailing unit.

Wall Street Journal:
- Five telecom equipment makers will announce today network technology that will enable service providers to bring in combined telephone, television and Internet features more quickly.
- Friendster, a Web company that brings people together and that’s losing users to competitors such as MySpace.com, may sue its peers for alleged patent violation.
- Shares of Automatic Data Processing(ADP) are considered cheap by some analysts as the company tries to recover form two embarrassments.
- The town of Monroe, Oregon, is getting Internet protocol television delivered over phone lines, a service that uses high speed connections to deliver video programming.
- Vanguard Group said it’s adopting consumer security systems made by RSA Security(RSAS) and popular with banks to protect its customers from fraud.
- US exchange-traded funds, worth $325 billion in May, are confusing investors by multiplying too quickly and becoming excessively specialized.
- The proportion of US employers offering benefits for workers who care for elderly relatives has risen to a quarter.

USA Today:
- The city of Portland, Oregon, is a leading proponent of so-called eco-friendly or “green” construction that seeks to use natural materials and promotes energy efficiency.

Philadelphia Inquirer:
- The Pennsylvania Turnpike Commission will be the first client for Duet, a software program by Microsoft(MSFT) and SAP AG(SAP), which will cost $30 million and take 30 months to implement.

AP:
- Palestinian Authority President Abbas said an “imminent solution” may be found for the release of an Israeli soldier who was kidnapped last month by Hamas.

Financial Times:
- Reuters Plc(RTRSY) could entice investors as a possible recovery story, though it’s far from being a growth stock.

Durable Goods Orders Healthy, Job Market Strong, New Home Sales Fall

- Durable Goods Orders for June rose 3.1% versus estimates of a 2.0% gain and an upwardly revised .3% increase in May.
- Durables Ex Transports for June rose 1.0% versus estimates of a .7% increase and an upwardly revised 1.5% gain in May.
- Initial Jobless Claims for last week fell to 298K versus estimates of 310K and 305K the prior week.
- Continuing Claims fell to 2475K versus estimates of 2458K and 2498K prior.
- New Home Sales for June fell to 1131K versus estimates of 1150K and 1166K in May.

BOTTOM LINE: Orders for US-made durable goods rose more than forecast in June, pointing to momentum in manufacturing that’s likely to keep the economy growing, Bloomberg reported. Orders for computers and electronics rose 3.4% versus a 2.1% decline in May. Communications equipment orders surged 8.3% versus a 6.6% gain the prior month. Bookings for non-defense capital goods excluding aircraft, a gauge of future business spending, rose .4% versus a 1.3% gain the prior month. I continue to believe manufacturing is decelerating, but will remain healthy as companies rebuild record low inventories.

The number of US workers filing first-time applications for state jobless benefits fell unexpectedly to 298,000 last week, a sign the labor market remains strong, Bloomberg said. The four-week moving average fell to 312,750 from 317,000 the prior week. The unemployment rate for those eligible for benefits, which tracks the US unemployment rate, remained at 1.9%. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Americans bought slightly fewer new homes than expected in June, Bloomberg reported. The median price rose 2.3% from a year ago to $231,300. The number of unsold homes increased to a 6.1-month supply at the June sales pace versus 5.9 months in May. Sales fell 11.3% in the Northeast, 7.9% in the Midwest and 6% in the South. They rose 8.2% in the West. I continue to believe housing is slowing to more healthy and sustainable levels and that mortgage rates have peaked for the intermediate-term.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Hezbollah’s expanded arsenal of guided missiles and rockets is drawing Israeli forces into an increasingly deadly ground war in southern Lebanon as they attempt to locate and destroy the hidden weapons.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.02%.

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Earnings of Note
Company/EPS Estimate
- (AET)/.63
- (AYE)/.17
- (AEP)/.54
- (APCC)/.17
- (APC)/1.27
- (APA)/1.99
- (BZH)/2.35
- (AN)/.43
- (BSX)/.17
- (BMY)/.32
- (CA)/.13
- (CELG)/.10
- (CEN)/.22
- (CHK)/.72
- (CMCSA)/.20
- (CNX)/.63
- (CMI)/3.48
- (DECK)/.05
- (DRIV)/.37
- (DOW)/1.13
- (XOM)/1.64
- (FFIV)/.51
- (FO)/1.50
- (GRMN)/.94
- (GNW)/.68
- (HET)/1.02
- (K)/.65
- (KMG)/1.11
- (KLAC)/.58
- (LLL)/1.21
- (MEE)/.45
- (MBI)/1.43
- (MFE)/.31
- (MCK)/.62
- (NEM)/.46
- (NOC)/1.08
- (OMX)/.13
- (RTN)/.62
- (RCL)/.53
- (SOHU)/.18
- (STA)/1.29
- (HOT)/.59
- (TLAB)/.14
- (THQI)/-.20
- (TDW)/1.10
- (WEN)/.53
- (XMSR)/-.67

Upcoming Splits
- (MON) 2-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for June are estimated to rise 2.0% versus a .2% decline in May.
- Durables Ex Transportation for June are estimated to rise .7% versus a .8% increase in May.
- Initial Jobless Claims for last week are estimated to rise to 310K versus 304K the prior week.
- Continuing Claims are estimated to fall to 2458K versus 2505K prior.

10:00 am EST
- New Home Sales for June are estimated to fall to 1150K versus 1234K in May.

BOTTOM LINE: Asian indices are higher, boosted by exporting stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Lower on Afternoon Rebound

Indices
S&P 500 1,268.40 -.04%
DJIA 11,102.51 -.01%
NASDAQ 2,070.46 -.17%
Russell 2000 694.45 -.43%
Wilshire 5000 12,697.41 -.05%
S&P Barra Growth 584.62 -.09%
S&P Barra Value 682.36 +.02%
Morgan Stanley Consumer 617.03 -.43%
Morgan Stanley Cyclical 774.47 -.89%
Morgan Stanley Technology 460.00 -.37%
Transports 4,364.72 -2.75%
Utilities 435.85 +.49%
Put/Call 1.06 +58.21%
NYSE Arms 1.07 +36.48%
Volatility(VIX) 14.62 -1.55%
ISE Sentiment 167.00 +25.56%
US Dollar 85.89 -.87%
CRB 341.95 +.36%

Futures Spot Prices
Crude Oil 73.98 +.05%
Unleaded Gasoline 229.50 -.05%
Natural Gas 6.90 +.26%
Heating Oil 196.25 +.14%
Gold 636.00 +.20%
Base Metals 219.27 -1.23%
Copper 343.50 -.42%
10-year US Treasury Yield 5.02% -.68%

Leading Sectors
Oil Service +2.74%
Energy +1.88%
Telecom +1.46%

Lagging Sectors
Restaurants -1.74%
Retail -1.94%
Gaming -2.79%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Economic growth slowed across the US in the past month, while consumer-price and wage increases were “modest” on balance, the Beige Book showed.
- Lawmakers will finish work on legislation overhauling the private US pension system this afternoon, Senate Majority Leader Frist said.
- Treasuries rose for the first time in four days after the Beige Book showed economic growth slowed in the past month, prompting traders to reduce bets for another interest rate increase next month.

CNBC:
- Raymond James Financial(RJF) CEO James said that money management offers more opportunities for acquisitions.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical longs, Semi longs and Commodity shorts. I added (SII), (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. The Nasdaq reversed 17 points from the morning lows, despite Fed commentary suggesting weaker economic growth. Energy prices reversed all of today's gains into the afternoon. I want to see the market’s reaction to tomorrow’s economic data before further shifting market exposure.

Stocks High into Final Hour on Dovish Fed Beige Book Commentary

BOTTOM LINE: The Portfolio is unchanged into the final hour as gains in my Computer longs, Networking longs and Biotech longs are offsetting losses in my Semi longs and Commodity shorts. I added to my (CYMI) and (UARM) longs and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. The Fed's Beige Book report was dovish. I still believe the Fed is done for this cycle. The 10-year is rallying on the report with the yield falling 4 basis points to 5.02%. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, dovish Fed commentary, lower long-term rates and positive earnings reports.