Stocks Slightly Lower into Final Hour on Low Volume Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Semi longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is modestly lower, most sectors are declining and volume is light. My intraday gauge of investor angst is still above average levels. Overall, net insider buying remains at levels normally associated with meaningful market bottoms. It is also interesting to note that Bloomberg reported today that insider buying in financial firms is the highest in 12 years. Please read this if you haven't had a chance yet. I continue to believe this is very significant and is being mostly ignored in the current climate of fear. Chinese stocks have been top performers since the beginning of the global correction, despite weakness in other emerging markets. It is also noteworthy that the Chinese ADRs traded here are absolutely exploding higher. Take a look at the iShares FTSE/Xinhua China 25 Index (FXI). It is up a stunning 37% in eight days. This move came with short interest in the security at record levels. As much as I think many Chinese stocks are at bubble valuations, it is hard to envision another meaningful global or U.S. market downturn from current levels while so many China-related stocks are soaring. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Housing Market Crisis May Already Have Passed.
- The world oil market has been affected by defaults in subprime loans and it may be until the end of the year before the demand picture is clear, OPEC’s secretary-general said.
- Treasury three-month bills fell for a fifth straight day on reduced concern the credit crunch related to subprime mortgage losses is spreading.
- Natural gas in NY is falling 2.5% on signs inventories will reach another record high as industrial demand wanes.
- The Farmer’s Almanac, a weather forecaster for almost two centuries, said it will be colder and snowier than normal in the eastern US this winter.
- European Central Bank President Jean-Claude Trichet stepped back from a plan to raise interest rates next week.

Wall Street Journal:
- Yahoo! Inc.(YHOO) plans to upgrade its Web-based e-mail service with features that will enable a user to send messages directly to a mobile phone.
- Crocs Inc.(CROX) plans to sell apparel for men and children, in addition to its trademark plastic clogs.
- Bank of America(BAC) CEO Ken Lewis gained stature in the banking industry he long coveted with the acquisition of $2 billion of preferred stock in Countrywide Financial(CFC).
- US bond insurers such as MBIA Inc.(MBI), Ambac Financial Group(ABK) and Assured Guaranty Ltd. may have been more protected from bond-default damage than investors who punished their shares this year thought.
- Attorney General Gonzales Resigns Amid Pressure Over Prosecutor Firings.

NY Times:
- US schools are struggling to recruit teachers to replace retiring instructors and others who are leaving the profession for different careers.
- Nokia Oyj(NOK) will introduce this week multiplayer gaming software that will be available on its smartphones.
- Thousands of US motorists are accepting up to $800 a month to have their cars wrapped in an advertisement.
- US Airways(LCC) and AirTran(AAI) are among a growing number of airlines that are selling advertising space onboard their planes.

International Herald Tribune:
- France is prepared to act as a mediator in Iraq to help establish a broad-based government of national unity, French Foreign Minister Bernard Kouchner said.

Existing Home Sales Exceed Estimates, Inventories Rise

- Existing Home Sales for July were 5.75M versus estimates of 5.7M and an upwardly revised 5.76M in June.

BOTTOM LINE: Sales of previously owned homes in the US came in above estimates, however inventories rose, Bloomberg reported. The median price of an existing home dropped .6% in July from a year ago to $228,900. The supply of homes for sale at the current sales pace was 9.6 months’ worth, up from 9.1 months’ worth at the end of June. Purchases fell 2.2% in the Midwest and were unchanged in the South. They rose 1% in the Northeast and 1.8% in the West. I continue to believe home sales are in the process of stabilizing at relatively high, by historic standards, levels. However, housing construction will remain weak over the intermediate-term as homebuilders work down inventories.

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Monday Watch

Weekend Headlines
Bloomberg:
- Not since 1995 have so many CEOs of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.
- US stocks posted their biggest advance in five months, boosted by speculation the Fed will stem losses in credit markets and revive this year’s record pace of takeovers.
- The US dollar fell the most against the euro since March on diminished concern that US housing weakness will slow global growth.
- French Foreign Minister Bernard Kouchner said the days of “anti-Americanism” are over for the French government.
- Billionaire investor Carl C. Icahn may increase his stake in Biogen Idec(BIIB) because he says the company is undervalued and a takeover candidate, according to an individual familiar with Icahn’s thinking.
- NY law firms Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae are in merger discussions that would create a 1,300-lawyer firm with revenue of more than $900 million.
- The rally in 30-year Treasury bonds, the most profitable US government securities the past 15 months, may become a casualty of the Fed’s efforts to ease a widening credit crunch.
- Chrysler LLC will begin selling its first Dodge crossover next year as it looks to reach new customers.
- The New Zealand dollar is rising as buoyant US stocks boosted risk appetite and lured investors back to using cheaply borrowed yen to buy higher-yielding fixed income assets such as those in New Zealand.
- US Welcomes Iraqi Pledge to Boost Reconciliation.
- India will fight to “eliminate” terrorism, Home Minister Shivraj Patil said, after bombings in Hyderabad killed 42 people, in the worst incident since 65 people died when a train traveling to Pakistan was attacked in February.

Wall Street Journal:
-Altria Group(MO) will probably announce a spinoff of its Philip Morris International unit following a board meeting Aug. 29.
- Global copper prices have retreated from last year’s records, and demand could fall further because of greater use of substitutes for the metal, industry participants say.
- Pension Managers Rethink Their Love of Hedge Funds.

NY Times:
- McDonald’s(MCD) is upgrading its restaurants in Europe with designer chairs, leather upholstery and an expanded menu to create a more relaxed and sophisticated dining experience.
- Mind Over Matter, With a Machine’s Help.
- Vaccines and Their Promise Are Roaring Back.
- Calisthenics for the Older Mind, on the Home Computer.
- As China Roars, Pollution Reaches Deadly Extremes.
- Home Depot(HD) has reached a tentative deal to sell its contractor-supply unit for $8.5 billion.

Barron’s:
- John W. Rafal of Essex Financial Services, which manages $2 billion, topped the list of the 100 best independent financial advisers compiled by consultant RJ Shook for Barron’s.

MarketWatch.com:
- Sony Corp.(SNE) has developed a prototype battery that runs on sugar, breaking down a glucose solution to generate electricity, media reports say.
- Stemming the inbox influx. The latest strategies and tips for wresting back control of your email.
- Dolby Labs(DLB) has traditionally been a low-profile high-prestige little company tucked into a corner of San Francisco raking in millions of dollars for various licenses for use of its proprietary sound processing system.

IBD:
- Supply Chain Software Once Again Hot Sector.

Reuters:
- Four leading investment banks and securities dealers will report fiscal third-quarter earnings next month, and markets are expecting some gloomy results.

CNNMoney.com:
- Hot 6-figure jobs now.
- Hackers say they’ve unlocked iPhone. A group called iPhoneSIMfree.com says that it has created software that allows you to run the iPhone on rival mobile services, such as T-Mobile.
- How to Unlock an iPhone, Three Different Ways.
- Debunking the Latest gPhone Rumor.

Washington Post:
- The US Democratic National Committee will decide today whether to shut Florida out of the party’s 2008 national convention after the state’s Democrats violated party rules.

Minyanville:
- 21 Bullish Predictions For Tech.

AP:
- The $100 bill’s latest counterfeit protection will be a thread that creates the illusion that Benjamin Franklin’s image moves, citing Crane & Co. Vice President Douglas Crane.

Financial Times:
- Hedge fund strategies, quants and the ‘copycat’ factor.
- Yields on three-month Treasury bills plummeted almost 200 basis points as investors scrambled for government paper. Surely, this dramatic flight to quality should have pushed gold through the roof. Yet the price of gold did not shift from exactly $657 per troy ounce from Friday to Tuesday.
- A US military commander says pulling troops out of Iraq by Christmas would be a “giant step backwards.”
- Wal-Mart is considering acquisitions in its home market for the first time in more than 25 years as it seeks to open smaller stores and cut its reliance on its giant Supercenters for future growth.
- Commercial banks with big balance sheets are poised for a resurgence, with the liquidity crisis having cut off cheap funding to pure capital markets participants and US regulators now easing curbs on banks’ capital deployment.
- VC funding for homeland security up by third.

Sunday Times:
- Temasek Holdings Ltd., an investment unit of Singapore’s government, wants to buy Nasdaq Stock Market’s(NDAQ) 30% stake in London Stock Exchange Plc.

Finanz & Wirtschaft:
- General Motors(GM) Vice Chairman Robert Lutz expects his company to bet the “most profitable” and largest carmaker in 10 years.

Il Sole-24 Ore:
- Blackstone Group LP, a US private-equity fund, may buy as much as 30% of Wind Telecomunicazioni SpA, Italy’s third-largest mobile-phone company.

Yonhap:
- North Korea is building fences along its border with China to halt an exodus of refugees.

Iran Daily:
- Trade between Iran and China will total $18 billion this year, up from $15 billion in 2006, citing Iran’s ambassador to Beijing.

Weekend Recommendations
Barron's:
- Made positive comments on (CLUB), (CHTT) and (CMCSK).

Citigroup:
- Rated (SMTC) Buy, target $23.
- Reiterated Buy on (MO), target $84..

Night Trading
Asian indices are +1.0% to +1.75% on average.
S&P 500 futures -.17%.
NASDAQ 100 futures -.10%.

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Earnings of Note
Company/Estimate
- (SNDA)/.35
- (WINN)/.09

Upcoming Splits
- (NE) 2-for-1
- (SSYS) 2-for-1
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Economic Releases
10:00 am EST
- Existing Home Sales for July are estimated to fall to 5.7M versus 5.75M in June.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are higher, boosted by automaker and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. 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 several economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Existing Home Sales

Tues. – Consumer Confidence, August 7 FOMC Minutes, weekly retail sales

Wed. – Weekly MBA Mortgage Applications, Preliminary 2Q GDP, Preliminary 2Q Personal Consumption, Preliminary 2Q GDP Price Index, Preliminary 2Q Core PCE

Thur. – Initial Jobless Claims, Continuing Claims, House Price Index

Fri. – Personal Income, Personal Spending, PCE Core, Chicago Purchasing Manager, Factory Orders, Univ. of Mich. Consumer Confidence

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

Mon. – Shanda Interactive(SNDA), Winn-Dixie Stores(WINN)

Tues. – Borders Group(BGP), Corinthian Colleges(COCO), Micros Systems(MCRS), Sanderson Farms(SAFM), Tuesday Morning(TUES)

Wed. – Big Lots(BIG), Brown Shoe(BWS), Chico’s FAS(CHS), Coldwater Creek(CWTR), Dollar Tree Stores(DLTR), Energy Conversion Devices(ENER), Fred’s Inc.(FRED), Jo-Ann Stores(JAS), Joy Global(JOYG), Novell Inc.(NOVL), Quanex Corp.(NX), Tivo Inc.(TIVO), Williams-Sonoma Inc.(WSM)

Thur. – Brown-Forman(BF/A), Ciena Corp.(CIEN), Cost Plus(CPWM), Del Monte Foods(DLM), Dell Inc.(DELL), Freddie Mac(FRE), Genesco Inc.(GCO), H&R Block(HRB), Omnivision Technologies(OVTI), Sears Holdings(SHLD), Tiffany & Co.(TIF), United Natural Foods(UNFI), Wind River(WIND), Zale Corp.(ZLC)

Fri. – BearingPoint(BE), Dollar General(DG), Focus Media(FMCN), Shaw Group(SGR)

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

Mon. – None of note

Tue. – None of note

Wed. – None of note

Thur. – Moody’s State of the Credit Markets Weekly Update

Fri. – Fed Chief Bernanke in Jackson Hole

BOTTOM LINE: I expect US stocks to finish the week modestly higher on bargain-hunting, diminishing credit market fears, mostly positive economic data and short-covering. My trading indicators are giving neutral signals and the Portfolio is 100% net long heading into the week.