Tuesday Watch

Late-Night Headlines
Bloomberg:
- 3M Co.(MMM), the maker of products from Post-it notes to electronic road signs, aims to raise consumer sales in the Greater China region to maintain 20% annual revenue growth as competition to sell industrial goods increases.
- Baoshan Iron & Steel Co., China’s largest steelmaker, had a 27% fall in second-quarter profit as prices dropped due to rising output in the country.

Financial Times:
- The number of rival private equity firms uniting for takeover deals is concerning US public pension funds, who say the trend is increasing risk to investors.

London-based Times:
- Internet retailers in the UK had a 35.4% increase in like-for-like sales in July, citing research by IMRG, the industry body that tracks Internet spending.

Shanghai Securities News:
- China’s pharmaceutical industry profits grew at a slower pace in the first half after almost 30% of companies had losses, citing a National Development and Reform Commission report.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MNST), target $48.

Morgan Stanley:
- For the past several months, excess end demand inventory for NAND, particularly from the flash cards and MP-3 producers, drove prices down rapidly. We believe the current inventory correction is nearing completion and look for a seasonal demand up-tick to either stabilize or increase NAND prices during the next couple of months.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.16%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (ADCT)/.26
- (DY)/.20
- (FCEL)/-.36
- (MCRS)/.51
- (NOVL).03
- (SAFM)/-.04
- (SMTC)/.20

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for August is estimated to fall to 102.5 versus a reading of 106.5 in July.

2:00 pm EST
- Minutes of Aug. 8 FOMC Meeting

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

Stocks Finish Higher as Energy Prices Continue to Fall

Indices
S&P 1,301.78 +.52%
DJIA 11,352.01 +.60%
NASDAQ 2,160.70 +.95%
Russell 2000 706.65 +1.06%
Wilshire 5000 12,994.16 +.57%
S&P Barra Growth 603.78 +.55%
S&P Barra Value 696.04 +.48%
Morgan Stanley Consumer 636.74 +.81%
Morgan Stanley Cyclical 793.15 +.63%
Morgan Stanley Technology 500.27 +1.05%
Transports 4,293.38 +1.27%
Utilities 442.03 +.63%
Put/Call .98 +20.99%
NYSE Arms .95 -17.94%
Volatility(VIX) 12.18 -1.06%
ISE Sentiment 104.00 -31.13%
US Dollar 85.23 -.18%
CRB 329.69 -1.95%

Futures Spot Prices
Crude Oil 70.45 -2.84%
Unleaded Gasoline 177.75 -6.21%
Natural Gas 6.38 -10.86%
Heating Oil 196.30 -3.29%
Gold 621.70 -.35%
Base Metals 230.58 -1.24%
Copper 345.05 unch.
10-year US Treasury Yield 4.79% +.25%

Leading Sectors
Airlines +2.68%
Restaurants +1.50%
Homebuilders +1.44%

Lagging Sectors
Energy -1.54%
Gold & Silver -1.97%
Oil Service -2.85%

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:
- The euro climbed to a record against the yen on speculation the European Central Bank will raise interest rates at a faster pace than the Bank of Japan.
- US Steel(X), the biggest US-based steelmaker, was downgraded by Prudential Equity Group amid oversupply concerns.
- Gasoline futures plunged to a five-month low and natural gas dropped 10% after Tropical Storm Ernesto took a course that will keep it away from oil producing and refining regions of the Gulf of Mexico.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Internet longs, Biotech 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 positive today as the advance/decline line finished higher, almost every sector rose and volume was light. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. Although volume was light, I view that as a positive considering the fact that most are underexposed to U.S. stocks. We are very close to the point in which significant performance anxiety will set in on many market bears and weak bulls. The S&P 500 is only 2.8% off its highs. This is the best performance of any index in the world that I follow since the global correction began. Even so, the mania for international stocks continues while demand for U.S. stocks languishes. I expect this trend to reverse as commodity prices continue to weaken, slowing the growth of many international economies.

Stocks Higher into Final Hour on Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Retail longs, Biotech longs and Commodity shorts. 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 very light. I continue to believe declining commodity prices, which have been the main source of inflation angst, are a function of a speculative mania ending and not the result of a significant decline in demand. I view the breakdown in the CRB Index as a huge positive for the broad market that will result in P/E multiple expansion. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- Google today will start offering customizable e-mail and calendar software to businesses and universities in a bid to lure more corporate customers and develop new sources of revenue.
- EBay(EBAY) chose Google(GOOG) to run advertising on its Web sites outside the US to tap a larger share of global online advertising market.
- Kinder Morgan(KMI) accepted an increased offer of $15 billion from a group led by Richard Kinder, the former Enron executive.
- Iran’s President Ahmadinejad told German Chancellor Merkel that the Nazi Holocaust may be an “excuse” by the nations that won World War II to keep Germans “ashamed.”
- US Bankruptcy filings fell to the lowest level in five years. Full-year 2006 filings will be the fewest since 1986.
- Crude oil fell more than $2/bbl. and natural gas plunged 10% as Tropical Storm Ernesto veered away from oil- and gas-producing areas in the Gulf of Mexico that were damaged by Hurricane Katrina a year ago.

Wall Street Journal:
- Royal Dutch Shell Plc and Chevron(CVX) are set to begin tests to extract oil from the US Rocky Mountains as high oil prices spur unconventional new methods of oil extraction.
- CBS Corp.(CBS) is to install “glueless” posters, projectors, light boxes and flat-paneled television screens in a $3 billion outdoor advertising contract with the London Underground as the industry adapts to new technology and intense competition.
- Foreign companies selling shares in IPOs on US exchanges have raised $5.85 billion so far this year, the highest year-to-date amount since the tech bubble burst in 2000, citing Dealogic Holdings.
- Terex is benefiting from a shortage in the large tires needed for mining trucks, citing the CEO.
- The NYSE’s plans to lift limits on the amount of stock traded electronically at the exchange may sideline trading floor specialists and brokers and hurt profit.
- UN Security Council Resolution 1701 failed to address the kidnapping of the two Israeli soldiers that caused fighting to break out between Israel and Lebanon, the parents of slain hostage Daniel Pearl wrote.

Washington Post:
- Biometric identification cards, containing information such as fingerprints and retinal scans, will be issued to US government employees in October to increase security.

NY Daily News:
- The recently discovered terrorist plot in London has created opportunities for bargain travel.

Star-Ledger:
- New Jersey taxes under the state’s new budget increased 5% over 2005, the most in the US.

L’Orient le Jour:
- 51% of Lebanese want Hezbollah to lay down its arms, citing an opinion poll by Ipsos SA.

Economic Releases

- None of note

Links of Interest

Market Snapshot
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