Stocks Finish Mostly Lower on Profit-taking and Higher Energy Prices

Indices
S&P 500 1,276.66 -.15%
DJIA 11,185.68 -.30%
NASDAQ 2,091.47 -.13%
Russell 2000 700.56 +.08%
Wilshire 5000 12,780.76 -.06%
S&P Barra Growth 587.65 -.21%
S&P Barra Value 687.69 -.09%
Morgan Stanley Consumer 616.98 -.72%
Morgan Stanley Cyclical 781.26 +.23%
Morgan Stanley Technology 467.23 -.28%
Transports 4,381.99 -.75%
Utilities 433.42 -.37%
Put/Call .81 -7.95%
NYSE Arms 1.15 +23.52%
Volatility(VIX) 14.95 +4.33%
ISE Sentiment 99.0 +3.13%
US Dollar 85.28 -.12%
CRB 349.83 +1.75%

Futures Spot Prices
Crude Oil 74.51 +.15%
Unleaded Gasoline 221.85 +.30%
Natural Gas 8.24 +.41%
Heating Oil 204.75 +.49%
Gold 648.80 +.31%
Base Metals 231.15 +3.11%
Copper 358.80 +.50%
10-year US Treasury Yield 4.97% -.20%

Leading Sectors
Coal +3.50%
Oil Service +2.74%
HMOs +1.82%

Lagging Sectors
Wireless -.77%
Homebuilders -.78%
Airlines -2.98%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Prime Minister Olmert said Israel hasn’t called a cease-fire in Lebanon and won’t do so until the threat form the Hezbollah Islamic fundamentalist organization has ended.
- Two Fed officials said the economic outlook may justify a break from two years of consecutive interest-rate increases, signalijng policy makers could leave the main US rate unchanged next week.
- Jon Wood, a former UBS AG trader who helped the Zurich-based bank earn $2.4 billion over a six-year span, raised more than $3 billion for a hedge fund he plans to open in September.
- Whole Foods Market(WFMI) said third-quarter profit rose 33%, lifted by sales of prepared foods. Shares dropped on lower-than-expected same-store sales growth.

Boston Globe:
- Lobster dealers are being encouraged to add identification tags to Maine lobsters to protect consumers from “imposter lobster” caught elsewhere.

San Jose Mercury News:
- Google(GOOG) and Yahoo!(YHOO), along with other Internet firms, have made agreements to compensate US news organizations for their content and help direct more traffic to their Web sites.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline line finished about even, sector performance was mixed and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was neutral given last week's gains, the rise in energy prices and Fed comments. Trading was slow and sloppy throughout the day. It is a big positive, however, that last week's gains in both stocks and bonds held. Cyclicals and small-caps outperformed today on improving sentiment regarding the recent economic slowdown. The consumer non-cyclical industry had the greatest amount of net insider buying last week in the S&P 500. Insiders bought $738,547,767 worth of stock and sold $109,416,113 worth. This is the largest net insider buying I have seen in this industry in a long time.

Stocks Modestly Lower into Final Hour on Healthy Profit-taking and Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, almost every sector is rising and volume is light. As I suspected a few weeks ago, earnings have actually provided an upside catalyst for the major averages. Despite bear calls that second-quarter reports would show an imminent severe economic downturn was on the horizon, earnings have once again exceeded estimates. Moreover, guidance has been relatively strong with expectations of another double-digit profit gain in the third quarter. Recent economic data also show few signs of anything other than a “soft-landing” for U.S. economic growth. I suspect another wave of short-covering will commence in the near term on any pullback in energy prices, the Aug. 8 Fed meeting or improvements in the Middle Eastern situation. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, increased Fed “pause” speculation, lower long-term rates and bargain-hunting.

Today's Headlines

Bloomberg:
- US Secretary of State Condoleezza Rice, wrapping up several days of Middle East mediation, said a cease-fire and political settlement between Israel and Hezbollah is achievable this week.
- Teck Cominco Ltd., the world’s largest zinc miner, revised its unsolicited offer for Inco Ltd. in an attempt to rebuff a competing bid from Phelps Dodge(PD) and create North America’s biggest mining company.
- Federal Reserve Bank of St. Louis President William Poole said he’s undecided on whether the central bank should raise interest rates at its next meeting in eight days.
- US drug regulators are prepared to clear over-the-counter sales of an emergency contractive, Barr Pharmaceuticals’(BRL) Plan B pill.
- Natural Gas rallied to its second biggest gain this year as a heat wave moved from the Midwest to the Northeast, spurring utilities to increase electric power.
- Gasoline futures fell for a third session on expectations demand will decline as the summer driving season winds down.

Wall Street Journal:
- Verizon Wireless(VZ) plans to release a cell-phone with a music player that has a similar design to Apple Computer’s(AAPL) iPod.
- US electricity users will be encouraged to join energy conservation programs as the power network strains under record use levels.
- Wind-power technology is becoming an attractive, low-risk, high-yield investment for pension funds.
- The Fed’s policy rate is “in a vicinity that is roughly appropriate” to temper inflation pressures without choking off economic growth, San Francisco Fed President Janet Yellen said.

NY Times:
- The US Homeland Security Department has tightened enforcement of immigration laws, bringing charges against suspected violators.
- About 13% of US men aged 30-55 aren’t working today, up from 5% in the 1960s. Most of the men not working are former blue-collar workers with a high-school education at most, adding that they’re turning down jobs they think are beneath them. About 73% of women between ages 30-54 have jobs, up from 45% in the mid-60s.
- Former Apple Computer(AAPL) engineer Steve Perlman will introduce today a camera system that adds photorealistic three-dimensional effects to digital entertainment.
- Washington Post and several other daily newspaper companies have hired Inform.com, an online news aggregator, to scan news and blog sites and post links to content related to news stories, even from competitors, on each newspaper’s Web site.
- US Airways Group’s financial success since its merger last year with America West has led some airline executives and investors to discuss the possibility of more mergers.

Economic Information Daily:
- China needs a stronger currency to stop the economy from growing too fast and fueling inflation, citing a researcher at Beijing-based Chinese Academy of Social Sciences.

Gulf News:
- Rising oil prices have increased the six Gulf Cooperation Council member states’ reserves by almost $70 billion, or 93%, in five years, citing a report by the World Bank.

Donya-e-eqtesad:
- Iran signed a contract with China Petroleum & Chemical, known as Sinopec, to increase the capacity of the Islamic republic’s Arak refinery.

Chicago PMI Still Strong, Prices Paid Falls

- The Chicago Purchasing Manager Index for July rose to 57.9 versus estimates of 56.0 and a reading of 56.5 in June.

BOTTOM LINE: Manufacturing in the Chicago area this month unexpectedly accelerated as businesses expanded production to meet demand, Bloomberg said. The prices paid component of the index fell to 86.8 from 89 the prior month. The new orders component of the index rose to 60 from 57.2 the prior month. The employment gauge rose to 50.5 from 50.4 in June. I continue to expect manufacturing to decelerate modestly from current levels over the intermediate-term.

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:
- Israel suspended air strikes in southern Lebanon for 48 ours while it investigates the bombing yesterday of the Lebanese town of Qana that killed at least 54 people.
- The House voted to boost the minimum wage in Republican-backed legislation that also cuts $310 billion in taxes.
- One person was killed and five were wounded by gunfire at the Jewish Federation Building in downtown Seattle. The suspect told building staff members before he began shooting that he was “a Muslim American” who was “angry at Israel.”
- US 10-year Treasuries rose for a fifth straight week, pushing yields below 5%, as reports showing the US economy slowed fueled speculation the Fed will stop raising interest rates next month.
- Wal-Mart Stores(WMT) said July same-store sales in the US rose about 2.4% versus estimates of a 1-3% gain.
- The NY Times endorsed Ned Lamont over three-term US Senator Joe Lieberman in Connecticut’s Aug. 8 Democratic primary, criticizing the incumbent for a “warped version of bipartisanship,” including support of President Bush on national security issues.
- Nanotech is luring bankers and venture capitalists with promise of a $1 trillion market.
- SanDisk(SNDK), the world’s largest maker of memory cards for portable electronics, agreed to buy M-Systems Flash(FLSH) for about $1.3 billion in stock to add storage products for mobile phones.
- Crude oil traded near a one-week low in NY on signs of slowing global growth and as Israel called a temporary halt to air strikes in Lebanon.

Barron’s:
- China’s expanding economy ay stumble amid concerns about an aging population, lax environmental protections and increasing corruption.

NY Times:
- Apple Computer(AAPL) won some intellectual property protections from French judges, who declared unconstitutional a law to force companies to make online music playable on any device.
- A federal grand jury is investigating the leak of classified information about US intelligence programs and subpoenaed a former National Security Agency employee.
- Netgear Inc.(NTGR) and three other manufacturers will begin shipping wireless fidelity, or Wi-Fi, phones in September that are compatible with Skype Technologies SA’s Internet calling service.
- The two major US political parties, Democrats and Republicans, are now more divided over the Iraq War than their members ever were during the Vietnam War, citing pollsters. 75% of Republicans in the latest NY Times/CBS poll supported the war in Iraq, while only 24% of Democrats did.
- Larry Sonsini and his law firm, Wilson Sopnsini Goodrich & Rosati, represented “just under 50%” of the Silicon Valley companies implicated in the probe of backdating stock options.

Time Magazine:
- Senator John McCain’s son has joined the Marine Corps and could be sent to Iraq.

Washington Post:
- The Bush administration is waging a fight against bioterrorism by authorizing realistic tests of some of the pathogens and tactics that might be used in an attack.
- US Senate Majority Leader Frist needs to line up 60 votes to overcome Democrats’ threats of a filibuster over reducing the death tax.

The Economist:
- High-tech entrepreneurs recently unveiled a sporty electric car.

Crain’s Chicago Business:
- US automobile insurers such as Allstate Corp.(ALL) and State Farm Insurance Cos. have seen accident claims drop for four straight years, helping them achieve record profits. Insurance companies are baffled by the decline. The advance several possible reasons: Cars are safer, the baby-boom generation has reached the safest driving age, 45-64, or drivers aren’t filing claims for “fender-benders.”

LA Times Times:
- Viacom’s Paramount Pictures unit told Washington lawmakers this spring that director Oliver Stone’s film on the 9/11 terrorist attacks, “World Trade Center,” doesn’t promote conspiracy theories.

Financial Express:
- Property prices in India may drop 10% over an unspecified period as demand slows, citing officials from three property developers.

Spiegel:
- BASF CEO Hambrecht said the economic outlook for the remainder of the year is “very positive” and business in its markets around the world is “good.” The head of the world’s biggest chemical maker said he’s “fairly certain” the price of oil will decline as investments in the industry start to pay off.

Neue Zuercher Zeitung:
- The situation in Iraq is “not as bad as it’s portrayed,” and the number of car bombings has declined since last year, citing Iraqi President Jalal Talabani. The number of car bombs in Baghdad has gone down from an average of 14/day last year to 2-4/day this year.

The Globe and Mail:
- Grupo Mexico SA may bid for Phelps Dodge(PD), complicating Phelps Dodge’s bid for Inco Ltd.(N).

Kydo News:
- The United States told Japan that North Korea’s long-range Taepodong-2 missile, test-fired on July 5, disintegrated within 1.5 Km of the launch pad, flying far less than Japan had estimated.

AFP:
- The head of Iran’s Revolutionary Guards urged his troops to prepare “to get even” with Israel and the US.

China Securities Journal:
- Short selling and margin trading on the Shanghai Stock Exchange may reach up to $1.5 billion when a trial program starts on Aug. 1.

Weekend Recommendations
Barron's:
- Had positive comments on (EP), (DNR), (RRC), (TTEK) and (COH).

Night Trading
Asian indices are unch. to +1.0% on average.
S&P 500 indicated -.09%
NASDAQ 100 indicated -.12%.

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
- (AG)/.55
- (AVP)/.35
- (CELL)/.16
- (CMG)/.25
- (CMVT)/.19
- (EXC)/.80
- (FRE)/1.17
- (HUM)/.35
- (ISSX)/.22
- (IRBT)/-.20
- (JNPR)/.19
- (MET)/1.14
- (TSN)/-.03
- (VMC)/1.28
- (WFMI)/.34

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Chicago Purchasing Manager for July is estimated to fall to 56.0 versus a reading of 56.5 in June.

BOTTOM LINE: Asian Indices are higher, boosted by technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.