Stocks Finish Mildly Higher on Decline in Long-term Rates and Fall in Oil

Indices
S&P 500 1,531.85 +.09%
DJIA 13,649.97 +.28%
NASDAQ 2,670.02 +.13%
Russell 2000 853.24 +.11%
Wilshire 5000 15,471.17 +.10%
Russell 1000 Growth 609.55 +.06%
Russell 1000 Value 872.69 +.13%
Morgan Stanley Consumer 734.60 -.15%
Morgan Stanley Cyclical 1,104.40 +.35%
Morgan Stanley Technology 638.97 +.27%
Transports 5,279.32 +.92%
Utilities 506.46 +.26%
MSCI Emerging Markets 139.20 +1.16%

Sentiment/Internals
Total Put/Call .81 -5.81%
NYSE Arms 1.13 +82.11%
Volatility(VIX) 15.16 +2.99%
ISE Sentiment 171.0 +25.0%

Futures Spot Prices
Crude Oil 72.05 -1.04%
Reformulated Gasoline 234.50 +1.53%
Natural Gas 6.41 -.56%
Heating Oil 209.10 -.20%
Gold 662.30 +1.15%
Base Metals 260.37 +1.01%
Copper 362.40 +.82%

Economy
10-year US Treasury Yield 5.14% -4 basis points
US Dollar 81.45 -.01%
CRB Index 321.23 +.12%

Leading Sectors
Alternative Energy +3.86%
Engineering&Construction +1.47%
Biotech +.70%

Lagging Sectors
Restaurants -.72%
Computer Hardware -.81%
Homebuilders -1.23%

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Afternoon Recommendations
Bank of America:
- Rated (CVA) Buy, target $30.

Oppenheimer:
- Rated (SQNM) Buy, target $8.

BMO Capital:
- Rated (QLGC) Outperform, target $21.

Afternoon/Evening Headlines
Bloomberg:
- Alcoa Inc.(AA), bidding to require rival Alcan(AL) in a hostile takeover, said second-quarter profit fell 3.9% as costs for shutdowns at two US smelters eroded the benefit of rising prices. The shares fell .56 in after-hours trading to $41.79.
- Shares of Akamai Technologies(AKAM) will replace Biomet(BMET) in the S&P 500. The stock rose 4.6% in after-hours trading.
- The Cheesecake Factory(CAKE) reported total revenues increase approximately 15.7% in the second quarter. The stock rose 4.5% in after-hours trading.
- WD-40 Company(WDFC) reported net sales for the third quarter increased 6.2% over the third quarter of last year. The stock fell 10.3% in after-hours trading.

AP:
- The head of the US National Hurricane Center was reassigned after more than 20 of the center’s employees called for his ouster.

Reuters:
- Hedge fund Moore Capital Management LLC has taken a 5.08% stake in US home builder Beazer Home USA(BZH), according to a regulatory filing on Monday.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Biotech longs, Medical longs and Semi longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mixed today as the advance/decline line finished about even, sector performance was mixed and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was mildly bullish. Over the weekend, Barron's had a positive mention on one of my longs, Gilead Sciences (GILD). I think that the recent pullback is over and the stock can be purchased around current levels. It remains my favorite biotech long. I went to the Apple (AAPL) store again over the weekend. It was even more crowded this time. About the same number of people were around the iPhone stand, however, more were looking at the computers. I suspect the "halo effect" is intensifying more than most analysts had expected. Just like last year before oil plunged $28 per barrel in six months, numerous investment managers have come on CNBC of late saying oil service is their favorite sector and has the largest weighting in their portfolios. I still believe this will be one of the worst performing sectors during the second half of the year as oil begins another substantial decline later this quarter. Semis have traded especially well of late. One of my longs, Broadcom (BRCM), has pulled back and in my opinion is providing investors an excellent entry point in the shares for strong outperformance through year-end. As has been the case often of late, many stocks substantially outperformed the major averages today. The 10-year yield finished near session lows, falling 4 basis points ahead of Bernanke's speech on inflation. I suspect the yield will fall further before week's end. One of the interesting things about the current rally is the lack of insider selling. Insider selling remained very muted again last week even as stocks approached highs. This is a big positive.

Today's Headlines

Bloomberg:
- Iranian drivers won’t have the right to buy gasoline at a higher price if they want to consume more than their monthly allowance, President Mahmoud Ahmadinejad said.
- Jerry Speyer, president and CEO of Tishman Speyer Properties LP, the owner of NY’s Rockefeller Center and Frankfurt’s Messeturm, see an “uptick” in new home purchases in the US.
- Google(GOOG) agreed to buy closely held Postini Inc. for $625 million, adding e-mail security services to its programs for small businesses.
- Carl Icahn raised his bid for Lear Corp.(LEA) by 3.5% to $2.9 billion after opposition from stockholders and investor advisory firms.
- Johnson & Johnson(JNJ) will begin a $10 billion share repurchase program, its largest ever.
- Michael Berger, a former US hedge fund manager who fled NY in 2002 after his conviction in a $400 million securities fraud, was captured by Austrian federal police.
- Just when a majority of analysts say Bristol-Myers Squibb(BMY) has done about all it can for shareholders, new medicines for diabetes and cancer, together with takeover speculation, may keep the stock rising.
- Sony Corp.(SNE) cut the price of the PlayStation 3 in the US by $100, or 17%, after sales trailed Nintendo’s Wii and Microsoft’s(MSFT) Xbox 360.
- Shares of First Solar(FSLR) soared as much as 19% after the maker of solar power modules announced five contracts that may be worth $1.28 billion.
- Global fuel markets may see slower gains in prices by next year, as refinery capacity, energy efficiency and use of biofuels grows, increasing the supply of fuel, the IEA said.
- Corn is falling another 2.1% on speculation that cool, wet weather will bolster the US crop.
- Crude oil is falling .52/bbl. as some analysts and traders speculated recent gains were unjustified as inventories of the fuel in the US are near decade highs.

Wall Street Journal:
- Apollo Management LP, a US buyout firm, increased its offer for Utah-based chemical maker Huntsman Corp.(HUN) by 75 cents a share to $28.
- Hundreds of US hedge-fund advisers have ended their registrations with the SEC a year after a US appeals court invalidated a registration requirement.
- US educators say the restraint and seclusion of students with behavioral problems has come under scrutiny as schools are pressured to include such students in normal classes. An administrative-law judge ruled in March that a local school district violated federal law by educating an autistic student prone to aggressive behavior in excessively restrictive settings.
- Maintaining the detention facility at Guantanamo Bay, Cuba, is justifiable and necessary, and there are no feasible alternatives, David Rivkin and Lee Casey wrote. Closing the center also would allow al-Qaeda to further its cause by taking advantage of Western sensibilities, public opinion and legal rules, the two former Justice Dept. officials said.

NY Times:
- NY will have more than 100 cameras monitoring cars in Lower Manhattan by the end of the year as part of an anti-terrorism surveillance program modeled on one in London.
- US voters believe the presidential campaign has ramped up too quickly, as candidates vie for their attention and money, citing dozens of interviews.
- The Wall Street Journal may reduce news staff within a few months if Rupert Murdoch’s $5 billion bid to buy Dow Jones(DJ) fails, citing senior editors and a member of management.

NY Post:
- Streets throughout NY will soon be paved using recycled materials as part of environmental plans announced by the city’s transportation commissioner.

Chronicle of Higher Education:
- The US may face a shortage of 24,000 doctors and almost a million nurses by 2020, as medical schools aren’t turning out enough graduates to balance expected retirements, citing a report by PricewaterhouseCoopers’ Health Research Institute.

Independent:
- Virgin Atlantic Airways will buy eight more Boeing(BA) 787 Dreamliner jets, bringing the total to 23.

Securities Times:
- China should let the yuan trade in a more unpredictable and volatile fashion to fight speculators’ bets that the currency will keep rising, citing a report by government economists.

Xinhua News:
- China’s Internet users may increase spending 32% in 2007 to $48 billion, citing a report by the China Internet Network Information Center.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Australia warned its nationals that there was a “very high” threat of terrorist attacks in Indonesia, including on the popular tourist resort island of Bali, and that attacks could be “imminent.”
- KBR Inc.(KBR) won a $2.85 billion contract to build Algeria’s largest liquefied natural gas plant, according to Sonatrach, the state oil company of the North African state.
- Roger Federer beat Rafael Nadal to become the first player since Bjorn Borg in 1980 to win five straight Wimbledon tennis titles.
- China’s yuan is rising at the fastest pace since the nation’s central bank abandoned its link to the dollar in 2005, and US lawmakers still aren’t satisfied.
- Boeing Co.(BA) today unveils its 787 Dreamliner at an event hosted by former television news anchor Tom Brokaw before 15,000 people and broadcast live by satellite in nine languages.
- There are an estimated 25 billion barrels of oil in the Kurdish-controlled region of Iraq and 10 billion more around the city Kirkuk.
- Japan’s machinery orders, a key indicator of corporate spending plans, rose for a second month in May, supporting the central bank’s case that interest rates need to increase.
- The yen fell to a record low against the euro and a 16-year low against the Australian dollar as signs of stronger global growth gave investors more confidence to buy higher-yielding assets with money borrowed in Japan.
- French President Nicolas Sarkozy has a message for European finance ministers and central bankers criticizing his plans to revive France’s economy: Back off.

Wall Street Journal:
- Washington state drivers now pay 36 cents in taxes for each gallon of gasoline after an increase of about 6% in the tax, the most of any in the nation, citing a survey.
- John Riccitiello, who became CEO of Electronic Arts(ERTS) in April, said video-game makers need to draw an audience beyond hard-core players.
- Intercontinental Exchange(ICE) won’t raise its bid to acquire the Chicago Board of Trade(BOT).
- Clearinghouse Faulted On Short-Selling Abuse; Finding the Naked Truth.
- As negotiations with News Corp.(NWS/A) continue, Dow Jones(DJ) is making one last push to find other possible buyers for itself, according to people familiar with the matter.

NY Times:
- Representative John Dingell, chairman of the US House Energy and Commerce Committee, said he plans to introduce a bill proposing a “carbon tax” to spur change in the use of fossil fuels.
- Sears(SHLD) Responds to Its Critics With a Call for Patience.
- Snack-food makers including PepsiCo’s(PEP) Frito-Lay and Campbell Soup’s(CPB) Pepperidge Farm are rolling out smaller, more profitable packages of chips, cookies and crackers as their popularity balloons.
- Residents on the Massachusetts island of Nantucket are seeking approval to spend at least $25 million of their own money to replenish the beach and help save 300-year-old homes from erosion.

iLounge:
- All Things iPhone: Add-Ons and Third-Party Software.

Washington Post:
- US Senate Majority Leader Harry Reid has assured Democrats who oppose the Iraq war that they will have a chance to vote on anti-war amendments when the Senate debates Defense Department spending legislation next week.
- The Federal Reserve will “probably” cut interest rates by the end of the year as the housing slump weighs on the economy, according to Bill Gross, manager of the world’s biggest bond fund.

MarketWatch.com:
- Gilead Sciences(GILD) is one of those rare companies that appears to be in a position to do some good for the world, while at the same time keep investors happy with high earnings and a strong stock performance.
- Betting on ‘bio-refineries’ to harvest new fuels. Worried that corn can’t fill up gas tanks? Make way for cellulosic ethanol.

Chicago Tribune:
- The vacancy rate for suburban office space around Chicago fell to 18.5% at the end of June from 19.6% six months ago, citing an analyst report.

Crain’s Chicago Business:
- Madison Dearborn Partners LLC CEO John Canning wants to raise $10.5 billion to create the private-equity firm’s largest fund.

Financial Times:
- AT&T(T), the largest US phone company, will offer its first municipal wireless Internet service in Riverside, California.
- Institutional Investor’s list of the top 20 rising hedge fund stars.
- The New York Mercantile Exchange(NMX) on Monday will call for it main rival in energy derivatives trading, the Intercontinental Exchange(ICE), to be brought under the full jurisdiction of federal regulators amid growing concern over light regulation in the rapidly growing over-the-counter markets.
- A Chinese city where residents recently held mass protests against a planned chemicals plant is preparing to tighten controls on the internet and force users to use their real names when posting messages on local websites.
- Hedge funds and private equity have one big thing in common. Both charge whopping fees – typically 2% of assets under management and 20% of investment profits. Otherwise, the differences are huge.
- The UK government will not soften its stance on Iran’s nuclear ambitions and may take steps to toughen sanctions on the country, according to British Foreign Secretary David Miliband.
- News Corp.(NWS/A) has set up a video-gaming league that will debut tomorrow on DIRECTV satellite television in the US, citing Eric Shanks, executive vp of DIRECTV Entertainment.

Financial Mail of Sunday:
- Virgin Media Inc.(VMED), a UK pay-television operator, was offered for sale by bankers to Comcast Corp.(CMCSA), the world’s largest cable television provider, and DirecTV Group(DTV), the largest US satellite-tv provider.

Sunday Telegraph:
- The UK will face a threat from terrorists for as long as 15 years, Admiral Sir Alan West, the minister for security, said in an interview.

Sunday Times:
- Ford Motor(F) set July 19 as a deadline for indicative bids for its Jaguar and Land Rover units in the UK.

AFP:
- The Great Wall of China and India’s Taj Mahal were named as two of the seven new wonders of the world by nearly 100 million voters taking part in a poll.

Focus:
- Volkswagen AG is considering building a US factory, citing an interview with CEO Winterkorn.

National Business Daily:
- Research In Motion(RIMM) received orders for 5,000 Blackberry e-mail phones from foreign companies based in China.

People’s Daily:
- China’s consumer price index may reach 3% in the first six months of 2007 from a year ago.

Shanghai Daily:
- China needs “decisive” measures to rein in excessive demand and control inflation pressures as its M2 growth has understated the speed of monetary expansion, according to the latest report by Goldman Sachs(GS).

Weekend Recommendations
Barron's:
- Made positive comments on (GILD) and (ITW).
- Made negative comments on (SONO).

Citigroup:
- Reiterated Buy on (MU), (SNDK) and (CELG).

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/Estimate
- (AGIL)/.03
- (AA)/.80
- (SCHN)/1.07
- (WDFC)/.46

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Economic Releases
3:00 pm EST
- Consumer Credit for May is estimated to rise to $7.0 billion from $2.6 billion in April.

Other Potential Market Movers
- The (TTWO) conference call could also impact trading on Monday.

BOTTOM LINE: Asian indices are higher, boosted by technology and energy 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.

Weekly Outlook

Click here for The Week Ahead by Reuters.

Click here for Stocks in Focus for Monday by MarketWatch.com.

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Consumer Credit

Tues. – Wholesale Inventories, weekly retail sales reports

Wed. – Weekly EIA energy inventory data, weekly MBA Mortgage Applications report

Thur. – Trade Balance, Initial Jobless Claims, ICSC Chain Store Sales, Monthly Budget Statement

Fri. – Import Price Index, Advance Retail Sales, Univ. of Mich. Consumer Confidence, Business Inventories

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Alcoa Inc.(AA), Schnitzer Steel(SCHN), WD-40(WDFC)

Tues. – Acuity Brands(AYI), Audiovox Corp.(VOXX), Biomet(BMET), Chattem(CHTT), Emmis Communications(EMMS), Greenbrier(GBX), Helen of Troy(HELE), Pepsi Bottling(PBG)

Wed. – AAR Corp.(AIR), Chaparral Steel(CHAP), Genentech(DNA), Resources Connection(RECN), Ruby Tuesday(RT), Wolverine World Wide(WWW), Yum! Brands(YUM)

Thur. – Fastenal(FAST), Fleetwood Enterprices(FLE), M&T Bank(MTB), Marriott(MAR), Progressive Corp.(PGR), Texas Industries(TXI)

Fri. – General Electric(GE)

Other events that have market-moving potential this week include:

Mon. – (TTWO) Conference Call

Tue. – CE Unterberg Towbin Emerging Growth Conference, CIBC Consumer Growth Conference, Roth Capital Semi Conference, Kaufman Defense Technology Conference

Wed. – The Fed’s Plosser speaking, (LIZ) analyst meeting, (MSFT) financial analyst briefing, CE Unterberg Towbin Emerging Growth Conference, CIBC Consumer Growth Conference

Thur. – The Fed’s Yellen speaking, (MU) analyst conference, Pacific Growth Cardiology Conference, CE Unterberg Towbin Emerging Growth Conference, CIBC Consumer Growth Conference, BMO Capital Media/Comm/Tech Conference

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on lower long-term rates, subsiding terrorism fears, diminished sub-prime concerns, lower energy prices, bargain hunting, better-than-expected earnings reports and short-covering. My trading indicators are now giving mostly bullish signals and the Portfolio is 100% net long heading into the week.