Tuesday Watch

Late-Night Headlines
Bloomberg:
- Volatility on currency options fell further from the eight-year high touched this month as concern eases that a US housing slump is spreading.
- Billionaire investor Warren Buffett’s Berkshire Hathaway(BRK/A) boosted its stake in Burlington Northern Santa Fe Corp.(BNI), the second-largest US railroad, by 24%.
- Asustek Computer shares rose the most in a month after the Taiwan computer-parts maker more than doubled its second-quarter profit on laptop orders.
- A new international university aims to improve technology education in North Korea as tensions appear to be easing between the reclusive communist country and the rest of the world.

MarketWatch.com:
- This bull’s pawing the ground. Commentary: Band sees market rising as much as 30% by November 2008.

USAToday.com:
- Gas prices hit 5-month low heading into holiday weekend.

NY Times:
- Late to Web Retailing? There’s Still Money There.
- Bigger Than Las Vegas? That’s Macao’s Bet.

UPI:
- End in Sight for US Subprime Crisis?

Financial Times:
- Renaissance Technologies, the $30 billion hedge fund run by billionaire mathematician James Simons, is considering selling a minority stake to a big outside investor or group of investors in coming weeks.
- The number of foreign students accepted by US graduate schools has risen for a third consecutive year, according to a survey to be released on Tuesday.

Times of India:
- Dr. Reddy’s Laboratories Ltd., India’s biggest drugmaker, may buy US-based Bradley Pharmaceuticals(BDY) for as much as $300 million.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SYY), target $39.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 futures -.07%.
NASDAQ 100 futures +.01%.

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Earnings of Note
Company/EPS Estimate
- (ARUN)/.00
- (BGP)/-.33
- (CMED)/.25
- (COCO)/.03
- (DY)/.32
- (MCRS)/.70
- (NX)/1.00
- (SAFM)/1.93
- (SMTC)/.15
- (NCTY)/.36

Upcoming Splits
- SSYS 2-for-1
- TISI 2-for-1
- FTI 2-for-1

Economic Releases
10:00 am EST
- Consumer Confidence for August is estimated to fall to 104.0 versus 112.6 in July.

2:00 pm EST
- Minutes of August 7 FOMC Meeting.

Other Potential Market Movers
- The Case-Shiller 2Q Home Price Index, Richmond Fed Manufacturing Index, weekly retail sales reports and (NLC) Annual Investor Day could also impact trading today.

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

Stocks Finish Mildly Lower on Low Volume

Indices
S&P 500 1,466.79 -.85%
DJIA 13,322.13 -.42%
NASDAQ 2,561.25 -.60%
Russell 2000 789.45 -1.19%
Wilshire 5000 14,726.63 -.87%
Russell 1000 Growth 587.22 -.72%
Russell 1000 Value 824.88 -.99%
Morgan Stanley Consumer 714.60 -.63%
Morgan Stanley Cyclical 1,024.25 -.74%
Morgan Stanley Technology 625.69 -.64%
Transports 4,866.97 -1.0%
Utilities 482.81 -3.21%
MSCI Emerging Markets 130.71 +.85%

Sentiment/Internals
Total Put/Call .95 -11.21%
NYSE Arms 1.37 +120.89%
Volatility(VIX) 22.72 +9.65%
ISE Sentiment 133.0 +15.65%

Futures Spot Prices
Crude Oil 72.05 +1.35%
Reformulated Gasoline 203.93 +2.92%
Natural Gas 5.42 -1.86%
Heating Oil 201.15 +.72%
Gold 676.30 -.18%
Base Metals 233.95 unch.
Copper 337.0 +.60%

Economy
10-year US Treasury Yield 4.57% -5 basis points
US Dollar 80.76 +.12%
CRB Index 305.59 -.02%

Leading Sectors
Defense -.13%
Internet -.14%
Medical Equipment -.25%

Lagging Sectors
Coal -2.30%
Homebuilders -2.90%
Utilities -3.21%

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Afternoon Recommendations
CSFB:
- Rated (CYH) and (UHS) Outperform.
- Rated (HMA) and (THC) Underperform.

William Blair:
- Rated (CELG) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- Tiffany & Co.(TIF) rose the most in six weeks after Goldman(GS) and Bear(BSC) recommended the largest US luxury retailers on an undervalued stock price and expectations of growing demand for luxury goods.
- Mark Amberson, who runs the $5.7 billion Russell Money Market Fund at Russell Investment Group sees the asset-backed commercial paper market is “improving.”
- Chinese stocks trading in the US rallied the most in 3 ½ years on optimism the country’s economic growth with propel earnings.
- Sony Corp.’s(SNE) “Superbad” pushed Hollywood’s US summer box-office sales to a record $4 billion this past weekend, surpassing the industry’s previous high established in 2004.
- Crude oil in NY rose to the highest since Aug. 15 on speculation that US gasoline supplies declined for a fourth week as refiners curtailed production again.
- US options prices rose for the first time in seven days amid reduced speculation that the Fed will lower its benchmark lending rate.

Reuters:
- NYSE Euronext(NYX) and Australia’s ASX Ltd. may be considering purchasing part of Nasdaq Stock Market’s(NDAQ) stake in London Stock Exchange Plc.

BOTTOM LINE: The Portfolio finished lower today on losses in my Retail longs, Computer 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 mildly negative today as the advance/decline line finished modestly lower, most sectors fell and volume was light. Measures of investor anxiety were above-average into the close. Today's overall market action was just slightly bearish. Considering recent gains, financial industry estimate cuts and today's nonstop scary housing rhetoric, today's performance wasn't too bad. The 10-year yield is at session lows at 4.57% and is testing levels seen during the peak of credit fears on Aug. 16. The 10-year is trading as if a break below 4.5% is coming soon, which will greatly increase the odds of a Fed rate cut, in my opinion. The weakness in utilities today was notable, especially considering another drop in interest rates. As well, energy shares were under pressure despite the reversal higher in energy prices. The release of the Case-Shiller Home Price Index and Consumer Confidence reading for August will likely make for more gloomy headlines early tomorrow. I still expect stocks to finish the week on a more positive note.

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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