Tuesday Watch

Late-Night Headlines
Bloomberg:
- HSBC Holdings Plc will expand faster in the Americas and Asia than in the lender’s home base of Europe over the coming 10 years.
- Adults ages 18 to 26 spend 12.2 hours a week surfing the Web, compared with 10.6 hours watching TV, according to a survey published today by Forrester, a Cambridge, Mass.-based market researcher.

AP:
- Cingular Wireless, the largest US mobile-phone services provider, plans to charge about 4.7 million subscribers with older phones an extra $5 a month starting in September. The move is part of Cingular’s plan to get users to purchase new handsets and devote its network to one type of signal.

Digitimes:
- Dell Inc.(DELL) will begin selling notebook computers equipped with Advanced Micro Devices(AMD) processor chips as early as October.

Haaretz:
- Israel’s Cabinet approved expanding the army’s land offensive against Hezbollah bases in southern Lebanon.

Xinhua News Agency:
- China ordered online games to include user registration systems by the fourth quarter this year to prevent children from spending too much time on them.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated -.16%.

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Earnings of Note
Company/EPS Estimate
- (ASF)/.34
- (ATK)/1.06
- (MDRX)/.16
- (AQNT)/.11
- (ADM)/.52
- (CKFR)/.41
- (CNA)/.86
- (COH)/.29
- (CSC)/.61
- (EK)/.22
- (EDS)/.16
- (ERTS)/-.24
- (EMR)/1.16
- (EOP)/.17
- (HLT)/.34
- (IACI)/.29
- (IP)/.33
- (LTR)/.79
- (MRO)/3.57
- (MLM)/1.65
- (MAS)/.67
- (GAS)/.40
- (PZZA)/.33
- (PH)/1.50
- (PDE)/.37
- (Q)/.05
- (SIRI)/-.15
- (PCU)/3.09
- (JOE)/.26
- (SBL)/.11
- (TXU)/1.35
- (VLO)/2.95
- (VZ)/.62
- (VNO)/.52
- (WTW)/.59
- (WYNN)/.05
- (XEL)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for June is estimated to rise .6% versus a .4% gain in May.
- Personal Spending for June is estimated to rise .4% versus a .4% gain in May.
- The PCE Core for June is estimated to rise .2% versus a .2% gain in May.

10:00 am EST
- Construction Spending for June is estimated to rise .1% versus a .4% decline in May.
- ISM Manufacturing for July is estimated to fall to 53.5 versus a reading of 53.8 in June.
- ISM Prices Paid for July is estimated to fall to 75.2 versus a reading of 76.5 in June.
- Pending Home Sales for June are estimated to fall .5% versus a 1.3% gain in May.

Afternoon:
- Total Vehicle Sales for July are estimated to rise to 16.7M versus 16.3M in June.
- Domestic Vehicle Sales for July are estimated to rise to 13.0M versus 12.6M in June.

BOTTOM LINE: Asian indices are mostly higher, boosted by pharmaceutical 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 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
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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

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