Thursday Watch

Late-Night Headlines
Bloomberg:
- Lithium use will rise 4% a year through 2010 as more of the metal is used in rechargeable batteries for cell phones and electric cars made by companies such as Toyota Motor(TM).
- Apple Computer(AAPL) will pay Creative Technology $100 million to end a legal dispute over technology for handheld music devices, including Apple’s iPod.
- Billionaire investor Carl Icahn said he wants to be a member of ImClone Systems’(IMCL) board and that the biotechnology company’s chairman, David M. Kies, shouldn’t be re-elected.

Financial Times:
- McGraw Hill’s Standard & Poor’s, Moody’s Corp. and Morningstar Inc. are among ratings companies beginning to develop credit and risk ratings on hedge funds and their managers.
- Las Vegas Sands(LVS) is spending $100 million expanding the capacity of its Macau casino by 50%.

AP:
- George Mason Univ. eliminated the SAT examination and other standardized tests as an admission requirement for some high school seniors.

Late Buy/Sell Recommendations
Smith Barney:
- Reiterated Buy on (DELL), target $25.

Night Trading
Asian Indices are -1.25% to -.50% on average.
S&P 500 indicated -.10%.
NASDAQ 100 indicated -.08%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (FRED)/.09
- (GCO)/.21
- (HRL)/.42
- (JTX)/-.36
- (MCDTA)/.03
- (PDCO)/.32
- (NX)/1.13
- (TTC)/.86
- (WSM)/.23

Upcoming Splits
- (CAJ) 3-for-2

Economic Releases
8:30 am EST
- Durable Goods Orders for July are estimated to fall .5% versus a 2.9% gain in June.
- Durables Ex Transportation for July are estimated to rise .3% versus a 1.1% gain in June.
- Initial Jobless Claims for last week are estimated to rise to 315K versus 312K the prior week.
- Continuing Claims are estimated to fall to 2490K versus 2507K prior.

10:00 am EST
- New Home Sales for July are estimated to fall to 1100K versus 1131K in June.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology stocks in the region. I expect US equities to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish Lower on Housing Concerns, Iran Worries and Terrorism Fears

Indices
S&P 1,292.99 -.45%
DJIA 11,297.90 -.37%
NASDAQ 2,134.66 -.71%
Russell 2000 698.42 -1.32%
Wilshire 5000 12,902.63 -.56%
S&P Barra Growth 598.39 -.47%
S&P Barra Value 692.83 -.43%
Morgan Stanley Consumer 629.90 -.08%
Morgan Stanley Cyclical 789.39 -.64%
Morgan Stanley Technology 493.45 -.87%
Transports 4,270.73 -.73%
Utilities 437.41 -1.02%
Put/Call 1.32 +11.86%
NYSE Arms 1.11 +6.78%
Volatility(VIX) 12.40 +1.72%
ISE Sentiment 120.00 +90.48%
US Dollar 85.13 -.05%
CRB 334.71 -.58%

Futures Spot Prices
Crude Oil 71.68 -1.94%
Unleaded Gasoline 185.55 -4.32%
Natural Gas 6.95 -.76%
Heating Oil 200.00 -1.80%
Gold 631.50 -.24%
Base Metals 230.81 -.84%
Copper 346.05 -.20%
10-year US Treasury Yield 4.80% unch.

Leading Sectors
Papers +.68%
Airlines +.11%
Drugs +.11%

Lagging Sectors
Energy -1.62%
Steel -1.74%
Oil Service -2.19%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Crude oil fell more than $1/bbl. and gasoline plunged after an EIA report showed an unexpected increase in US supplies of the motor fuel.
- DuPont(DD), the world’s biggest producer of materials for solar cells, said it will build a $50 million resin factory in North Carolina to meet growing demand for photovoltaic panels that convert sunlight into electricity.

Drug Store News:
- Rite Aid(RAD) may buy all of Jean Coutu Group’s Brooks and Eckerd drugstores in the US in an all-stock deal to be announced as early as Aug. 25.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Retail longs and Medical longs more than offset gains in my Base Metal shorts and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was below average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bearish. Stocks ground lower throughout the day with most sectors contributing to today's decline. On the positive side, volume was below-average and energy prices fell again. Unleaded gas futures have plunged over 20% in less than a month ahead of Labor Day. My measures of investor angst were elevated throughout the day. Moreover, the bears were unable to gain significant downside traction. I want to see the market's reaction to tomorrow's likely weaker-than-expected New Home Sales report before further shifting exposure.

Stocks Lower into Final Hour on Worries Over Housing, Terrorism and Iran

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Medical and Retail longs are more than offsetting gains in my Base Metal and Energy-related shorts. I added to my (EEM) short and added (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is below average. The grind lower by stocks throughout the afternoon with elevated levels of angst is not a good sign. Bonds have now recouped all of their morning losses. It is interesting to note that gold is lower today despite rumors of Iranian nuclear developments, terrorism fears and a slightly weaker dollar. Due to record speculation by investment funds, I think gold, copper and oil are all much more correlated than most perceive. I expect US stocks to trade mixed into the close from current levels as short-covering offsets worries over developments in Iran.

Today's Headlines

Bloomberg:
- France lacks the military means to be part of an expanded UN force in Lebanon, Jean-Marie Le Pen, president of the nationalist National Front, said.
- Iran’s response to an incentives plan aimed at persuading it to stop enriching uranium “falls short” of the conditions set by the UN Security Council.
- Crude oil is falling more than $1/bbl. and gasoline plunged after an EIA report showed an unexpected increase in US inventories of the motor fuel.
- Dutch airport police detained twelve Northwest Airlines Corp. passengers at Amsterdam’s Schiphol Airport after the plane returned to the Dutch city at the pilot’s request.
- Tropical Storm Debby strengthened as it moved toward the open waters of the central Atlantic Ocean, where it may intensify into the first hurricane of the season.
- IBM(IBM) agreed to buy Internet Security Systems(ISSX) for about $1.3 billion to build its software business as revenue declines at the hardware and services units.

Wall Street Journal:
- PNC Financial(PNC) Bank is expected to say it will start refunding cash machine fees for customers using competitors’ ATMs as banks attempt to attract more customers.
- Oil companies have accumulated huge cash reserves as a result of soaring energy prices and they’ll spend much of the money on infrastructure projects for future extraction and refining.
- Walt Disney’s(DIS) ABC network is to start selling archived television news footage to users of Apple Computer’s(AAPL) iPod MP3 players.

NY Times:
- Jonathan Tasini, who is running against Hillary Rodham Clinton in the Democratic primary for senator, is attempting to use an anti-war stance similar to Connecticut’s Ned Lamont to unseat the former first lady.
- More shipping companies and retailers are turning to ports in Washington state’s Puget Sound area as congestion and labor shortages slow maritime cargo in Southern California.

Existing Home Sales Fall More Than Estimates

- Existing Home Sales for July fell to 6.33M versus estimates of 6.55M and 6.6M in June.

BOTTOM LINE: Sales of previously owned US homes fell in July to a two-year low, a slowdown that may lead the Fed to keep interest rates steady, Bloomberg said. The number of unsold homes on the market rose to 3.86 million, the highest since at least 1999 and 7.3 months’ supply at the current sales pace. The median price of an existing home rose .9% to $230,000. Sales of condos and co-ops rose 2.8%. Overall, sales fell 5.4% in the Northeast, 5.9% in the Mid-west, 1.2% in the South and 6.4% in the West. The Case-Shiller Housing futures are still only projecting a 4.6% decline in the average home price over the next 9 months, which would be considered a “soft-landing” considering the average home has appreciated over 50% over the last few years.

Links of Interest

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