Stocks Finish at Session Lows, Weighed Down by Commodity and Construction Shares

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Stocks Mostly Higher into Final Hour on Fall in Energy Prices, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Alternative Energy longs, Gaming longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, sector performance is mostly positive and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising 3.02% and is still above-average at 21.85. The ISE Sentiment Index is low at 114.0 and the total put/call is about average at .92. Finally, the NYSE Arms has been running above average most of the day and is currently 1.13. The Euro Financial Sector Credit Default Swap Index is rising 3.2% today to 81.75 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is +.17% today to 130.53 basis points. The TED spread is rising .08% to 1.12. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 3 basis points today to 2.29%, which is the lowest since May 2nd and down 34 basis points in less than 3 weeks. Today’s broad market action is more constructive taking into consideration the morning weakness in financials and recent broad market gains. Growth stocks are especially strong. Small/Mid-cap Biotech/Medical stocks are sharply higher on the (IMCL) takeout news. I expect these stocks to continue to substantially outperform over the intermediate-term. There has been ample opportunity for the many bears to gain downside traction the last few days and they have been unable to capitalize thus far. It is interesting to note that one of my alternative energy longs, heavily-shorted (AMSC), has moved higher 11 out of the last 12 days, despite the decline in oil. The company reports next week. The AAII % Bulls rose to 40.0 this week and the % Bears fell to 41.18. Nikkei futures indicate a -31 open in Japan and DAX futures indicate an +46 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Tumbling prices for natural gas, nickel and corn are turning July into the worst month in 28 years for the Reuters/Jefferies CRB Commodity Index. The CRB Index of 19 commodities has slumped 10 percent since June 30, the biggest decline since a 10.5 percent drop in March 1980. Natural gas plunged 31 percent to lead July's biggest losers. Corn was down 18 percent and nickel sank 16 percent. The dollar's rebound from a record low against the euro eroded the appeal of raw materials as an alternative to stocks and bonds, especially for investors who snapped up commodities earlier this year and sent prices to records. Demand also is easing in China, which expanded at the slowest pace since 2005 in the second quarter, Lehman Brothers Holdings Inc. analyst Edward Morse said in a report on July 23.
- Freddie Mac(FRE), the second-largest U.S. mortgage-finance company, doubled the amount of money it will pay to loan servicers for helping borrowers avoid foreclosures by establishing repayment plans or reworking delinquent loans.
- The cost of borrowing dollars overnight dropped to the lowest this week after the Federal Reserve extended its emergency lending programs to Wall Street firms yesterday to encourage loans between banks. The London interbank offered rate, or Libor, fell 3 basis points to 2.32 percent today, the lowest level since July 28, the British Bankers' Association said. The three-month rate for dollars declined 1 basis point to 2.79 percent. ``The Fed's move is going to help market confidence and push Libor rates lower,'' said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA, France's second-biggest bank.
- Wheat and corn production will be higher than previously expected because of favorable weather in some producing nations, the International Grains Council said.
- Corn fell .6%, heading for the biggest monthly drop in more than a decade, as warm, wet weather helped U.S. crops recover from the worst flooding in 15 years.
- Crude oil declined on speculation that high prices and slowing economic growth will further reduce demand in the U.S., the world's biggest energy user. U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, according to a weekly report by the Energy Department yesterday. Nigeria, the U.S.'s fourth-largest supplier, said production remains close to 2 million barrels a day even after recent pipeline attacks. The price ``is not sustainable,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``We've seen some demand destruction already. Prices will go back to $120, and $110 before the end of the year.'' ``On closer examination the gasoline data should not be regarded as that supportive,'' said Gareth Lewis-Davies, research analyst at Dresdner Kleinwort Group Ltd. ``Deliveries from refineries and terminals into the wholesale market were very large indeed, while other data has shown continuing weak retail gasoline sales.''
- Treasury Secretary Henry Paulson said he expects the government's fiscal stimulus plan will boost economic growth in the second half of the year, offsetting a housing downturn and high energy prices.
- The Federal Reserve Bank of New York expanded efforts to clean up trading in the privately negotiated derivatives markets to include contracts linked to interest rates, commodities and currencies.
- International Paper Co.(IP), the world's largest maker of office paper, gained the most in more than seven years in New York trading after second-quarter profit rose, topping analysts' estimates.
- President George W. Bush scolded Congress for a third straight day for refusing to vote on measures that would expand domestic oil drilling and exploration. ``I'd rather be buying our oil from U.S. producers than sending our money overseas,,'' said Bush in a speech to the West Virginia Coal Association at The Greenbrier resort in White Sulphur Springs.
- General Motors Corp.(GM), Ford Motor Co.(F) and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's over concern that deteriorating U.S. auto sales will reduce cash flow.
- Exxon Mobil Corp.(XOM), the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade, sending its shares lower.
- U.K. house prices declined the most in almost two decades in July and consumer confidence fell to a record low as the economy edged closer to a recession. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, Nationwide Building Society, Britain's fourth-biggest mortgage lender, said today.
- Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, posted a 13 percent gain in second-quarter profit as price increases boosted revenue.
- If cable TV is unfulfilling or the video store too inconvenient, the answer might be a video-on- demand set-top box, a device that plays movies straight to your television at the push of button. Several new and improved devices have finally arrived. The latest contender is from Netflix Inc. The popular DVD- by-mail service teamed up with device maker Roku Inc. to develop the $100 Netflix Player. Meanwhile, Vudu Inc., based in Santa Clara, California, enhanced its Vudu Box in June with the addition of a wireless kit ($349 for the bundle). The third device I checked out is the Apple TV (starts at $229).

Wall Street Journal:
- Google(GOOG) to Extend Reach With Venture-Capital Arm.
- Acorn, a non-profit housing advocacy group that holds voter drives for Democrats, will get funding from the housing bill signed into law yesterday. The legislation, which will provide almost $5 billion for affordable housing, financial counseling and mortgage help for overextended borrowers, will also fund groups like Acorn, whose activities include voter registration drives for low-income minorities.
- In a race supposedly dominated by the economy, both Barack Obama and John McCain have spent a lot of time talking about Iraq. Why? Because both men have Iraq problems that are causing difficulties for their campaigns.
- You Know Gas Prices Are High When Texans Start Driving Golf Carts. Low-Speed Electric Vehicles Catch On; Peters Family Jaunts in the Land of Giants.

NY Times:
- Jeweler Cartier Sets Up Site on MySpace.

San Francisco Chronicle:
- A majority of Californians favor more oil drilling off the coast, according to a statewide survey released Wednesday, for the first time since oil prices spiked nearly three decades ago. The support by 51 percent of residents polled this month by the Public Policy Institute of California represents a shift caused by renewed Republican advocacy for drilling as well as motorists' reaction to soaring pump prices, according to the pollster. With high oil prices and calls from President Bush and Republican presidential aspirant Sen. John McCain to open coastal waters to domestic production, support for drilling has jumped, particularly among Republicans, the poll says. Support increases with age and is slightly higher among men than women. But as the price of oil hovers around $120 per barrel, double the cost a year ago, support for drilling has increased even among Democrats and independents, says the survey of 2,504 adult residents polled across the state July 8-22.

New York Post:
- If the Securities and Exchange Commission expands its clampdown on short-selling, it is widely expected to slam hedge funds like Stephen Cohen's SAC Capital and James Simon's Renaissance Technologies, which profit from fast-and-furious trading, experts predicted. That's because under the long-accepted rules of the short-selling game, these hedge funds, which often trade through sophisticated computer programs, have been able to skip the process of borrowing the shares needed to cap off their short positions. But that luxury is now being challenged by the SEC's mandate requiring investors who short 19 financial stocks, including Fannie Mae and Freddie Mac, to borrow the shares they short before they bet against the stock whose price they predict will fall. "The guys who do the rapid trading stuff, they're shorting without having to borrow because they know they're going to close out by the end of the day," said one hedge fund manager. "Those are the people who are going to be most impacted by this." Under the new rules, "if a prime broker does not have it physically pre-borrowed, those trading opportunities may be gone," said well-known short trader Jim Chanos, speaking on behalf of his organization, which is lobbying against the SEC's rules. Among those most likely to be affected are day-trading shops like SAC, Renaissance and Ken Griffin's Citadel Investment Group, which trade shares so quickly they rarely need the shares to be delivered.

Reuters:
- Pension funds to trim commodities exposure. Many have invested in commodities to diversify their portfolios away from traditional assets such as stocks. "For pension funds already at their desired allocation to passive commodities, they would indeed have to sell commodities to maintain that exposure," said Laura Ambroseno, an executive director at Morgan Stanley Investment Management. Fund managers say many pension funds have a benchmark allocation of between 2 and 5 percent to commodities. But those numbers have gone awry as prices have surged. Research by Barclays Capital shows total commodity assets under management rose to $270 billion in the second quarter, a rise of $43 billion from the first quarter. Barclays estimates that new money inflows into commodities in the second quarter fell by 51 percent from the first quarter to $6.4 billion.

Financial Times:
- AK Steel Holding(AKS) has been in talks with potential buyers and is seeking an all-cash bid. AK Steel’s shareholders may be holding out for an all-cash offer close to the shares’ recent highs above $70.

Business Standard:
- India’s inflation was below 12% in the week ended July 19. However, the rate of inflation will be higher than the 11.89% reported in the previous week.

Sabah:
- Exxon Mobil(XOM) is in talks to explore for oil in Turkey’s eastern Black Sea.

Bear Radar

Style Underperformer:

Large-cap Value -.78%

Sector Underperformers:

Coal irlind (-9.31%), Oil Service (-2.83%) and Construction (-2.83%)

Stocks Falling on Unusual Volume:

CNQR, ENDP, AIZ, UL, UN, BARE, AKAM, SSYS, HOLX, CPLA, RBCN, ZEUS, BT, TSS, DLX, ARJ, CDI, IOSP, MA, OI, DVR and OII

Stocks With Unusual Put Option Activity:

1) HOLX 2) BARE 3) KFT 4) HUN 5) IMCL

2Q GDP Accelerates, Inflation Decelerates, Jobless Claims Rise, Manufacturing Unexpectedly Expands

- Advance 2Q GDP rose 1.9% versus estimates of a 2.3% gain and a downwardly revised .9% increase in 1Q.

- Advance 2Q Personal Consumption rose 1.5% versus estimates of a 1.7% increase and a downwardly revised .9% gain in 1Q.

- Advance 2Q GDP Price Index rose 1.1% versus estimates of a 2.4% gain and a downwardly revised 2.6% increase in 1Q.

- Advance 2Q Core PCE rose 2.1% versus estimates of a 2.0% increase and a 2.3% gain in 1Q.

- The 2Q Employment Cost Index rose .7% versus estimates of a .7% gain and a .7% increase in 1Q.

- Initial Jobless Claims for this week rose to 448K versus estimates of 393K and 404K the prior week.

- Chicago Purchasing Manager for July rose to 50.8 versus estimates of 49.0 and 49.6 in June.

BOTTOM LINE: The US economy accelerated during the second quarter as the effects of the federal tax rebates took hold, Bloomberg reported. The trade deficit shrank to a $395.2 billion annual pace during the quarter, adding 2.4 percentage points to growth, the most since 1980. Residential construction fell at a 15.6% annual rate after dropping 25.1% in the first quarter. The decline subtracted .6 percentage point from growth, the least in more than two years. The GDP Price Index rose 1.1% during 2Q, the smallest increase in 10 years and down from a 2.6% rise in 1Q. The Core PCE, the Fed’s preferred inflation gauge, decelerated to 2.1%, which is close to the Fed’s target of 1-2%. According to Intrade.com, the percentage chance that the US slips into recession this year is 19.5%, down from a 79% chance in Mid-March. I expect 3Q GDP to come in around 1.5% and inflation to decelerate further on the fall in commodities.

The number of Americans filing first-time claims for unemployment benefits unexpectedly rose last week, Bloomberg reported. The four-week moving average of claims rose to 393,000 from 382,000 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.5% from 2.3% the prior week. 13 states and territories reported an increase in new claims, while 40 reported a decline. I expect jobless claims to decelerate next week and still expect non-farm payrolls, released tomorrow, to come in modestly better-than-estimates of -75K.

A measure of US business activity unexpectedly rose in July, led by a gain in orders, and is now indicating expansion, Bloomberg said. The New Orders component rose to 53.5 from 52.0 in June. The Order Backlogs component rose to 45.7 from 42.3. The Employment component fell to 45.9 versus 46.7 the prior month. The Inventories component rose to 54.9 from 50.5. The Prices Paid component rose to 90.7 versus 85.5 the prior month. I suspect July will mark the high point for the prices paid index. The CRB commodities index, the main source of inflation fears, has declined 12.2% since July 2. I expect manufacturing gauges to continue to indicate mild expansion next month. After an initial sell-off, the US Dollar Index is just slightly lower on today’s reports and is at session highs. The 10-year yield is falling 9 basis points. The BankRate.com avg. 30-year fixed mortgage rate is 6.35%, down 16 basis points in a week.

Bull Radar

Style Outperformer:

Small-cap Growth (+.45%)

Sector Outperformers:

Biotech (+4.12%), Airlines (+3.69%) and Papers (+3.49%)

Stocks Rising on Unusual Volume:

CADX, IMCL, FORM, COHR, TYC, SGP, AZN, RIMM, GRMN, TIN, DWSN, CGV, MRO, SWN, IMCL, DRIV, LHCG, ONXX, VISN, PDGI, TTEK, DXPE, ALXN, UTHR, SHPGY, PTRY, RCRC, GTIV, RNOW, LOOP, AMLN, CVC, MTZ, OCR, CRY, TWP and TRN

Stocks With Unusual Call Option Activity:

1) GGP 2) CDE 3) CVH 4) IP 5) IMCL

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting against a default by bond insurers dropped for a second day on speculation that this week's deal between Security Capital Assurance Ltd. and Merrill Lynch & Co. to tear up $3.7 billion in guarantees will lead to more agreements. More tear-ups of credit-default swap contracts guaranteeing payments on mortgage-related securities would eliminate the need for banks such as Merrill to hedge their positions with contracts protecting against bond insurer defaults, Bank of America Corp. strategists led by Jeffrey Rosenberg wrote in a note to clients that was published today.
- Australia may be headed for a housing recession similar to those roiling the U.S. and U.K. The cause is a combination of rising default rates, the biggest drop in home prices in five years, the highest borrowing costs in a decade and slowing economic growth. Prices in the property market -- described by the International Monetary Fund in April as one of the world's most ``overvalued'' -- will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia's major cities last month for the first time since just before the Great Depression.
- Australian retail sales fell by the most in six years in June as the highest borrowing costs since 1991 and rising gasoline prices prompted consumers to rein in spending. Sales dropped 1 percent from May, when they rose a revised 0.9 percent, the Bureau of Statistics said in Sydney today.
- Amanda Kurzendoerfer, an analyst at Summit Energy Services, says oil-supply data is ‘bearish’ for prices. (video)
- Platinum has tumbled 16 percent this month, partly because of slumping car sales, and is headed for the worst one-month plunge in 21 years.
- Asian currencies have yet to feel the full force of the “oil shock” and will decline even if the price of crude falls to $100 per barrel, Morgan Stanley says. Record fuel import costs have sent the current-account balances of South Korea, India and Thailand into deficit, posing “tremendous headwinds” for the economies, said Stephen Jen, chief currency economist at Morgan Stanley in London. The impact on inflation and consumer spending has been limited because of fuel subsidies that aren’t sustainable, he said. “The biggest shock to Asia is not the US housing crisis but the oil shock,” Jen said. Indonesia’s rupiah, the Philippine peso and India’s rupee will be the “first to go” as these countries’ governments are the least able to maintain subsidies.
- U.K. consumer confidence dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated, GfK NOP said. An index of confidence, based on a survey of 2,001 people, fell 5 points to minus 39, the lowest since the data began in 1974, GfK said today in London. The gauge fell to 4 points below the result for March 1990.
- Visa Inc.(V), the world's largest credit-card company, said profit rose 41 percent on gains from U.S. debit-card purchases and faster growth overseas. The stock rose 2.5% in after-hours trading.
- First Solar Inc.(FSLR), the world's biggest maker of thin-film solar power modules, said second-quarter profit rose 57 percent on greater demand for its lighter, lower- cost technology. The stock jumped 6.8% in extended trading.
- Symantec Corp.(SYMC), the world's biggest maker of security software, said first-quarter profit almost doubled and gave a forecast that beat analysts' estimates as international customers added programs to store and protect data. The stock rose 3.7% in after-hours trading.
- Akamai Technologies Inc.(AKAM), the largest supplier of software and services to speed up the delivery of Web pages, dropped 17 percent in extended trading after cutting its full-year earnings forecast.
- THQ Inc.(THQI), the third-largest U.S. video-game publisher, reported a wider first-quarter loss as it spent more to develop games such as ``Saints Row 2,'' and lowered its annual sales and profit forecasts. The stock fell 10.6% in after-hours trading.
- Construction sites in Beijing, closed because of the Olympic Games, may remain shut for two months, curbing demand for steel in the world's biggest consumer, Shougang Corp. said. Beijing has shut factories and barred vehicles and the International Olympic Committee has warned it may postpone events should pollution levels put athletes at risk during the Aug. 8 to Aug. 24 games. ``Steel demand in Beijing is almost zero, transportation has also stopped,'' Wang Sujuan, an analyst at Mysteel, said in Beijing. ``Traders have gone home. Some producers have to build up their stockpiles.''

Wall Street Journal:
- Presidential rivals Barack Obama and John McCain both appear to be seizing the roles in which they have been cast: Sen. Obama as front-runner and Sen. McCain as underdog. The approach carries perils for both men.

MarketWatch.com:
- A bill that would put new limits on speculative trading in energy commodities failed to get the required two-third majority of votes to pass the House on Wednesday. The vote was 276 to 151. The Commodity Markets Transparency and Accountability Act would boost staffing at the Commodity Futures Trading Commission and require the agency to limit the positions of speculators in energy and agricultural commodities.

IBD:
- Software That Tests Airplane Wings Will Go For Gold In Beijing.

Forbes.com:
- Top Colleges For Getting Rich.
- Most Lucrative College Majors.
- Best Cities For Recent College Grads.

CNNMoney.com:
- Energy solutions: You decide. As Americans grapple with record oil and gas prices, politicians facing angry voters have offered up a variety of solutions. Vote here.

USA Today.com:
- Study: US has up to 50% more natural gas than once thought. The report says the U.S. has up to 50% more natural gas reserves than earlier projections because of higher-than-expected yields from 22 shale formations in 20 states. The industry says the findings should prod policymakers to provide incentives to wean the nation from $4 gasoline and move to compressed natural gas as a standard fuel in many cars and trucks. The U.S. has enough natural gas resources to last up to 118 years, or 2,247 trillion cubic feet (Tcf), says the study by Navigant Consulting for the American Clean Skies Foundation. That group is largely funded by natural gas companies.
- Thomson Reuters says earnings are down 17.9% so far in the second quarter. S&P 500 earnings would be up 7.8% if financials are taken out, Thomson says.

AP:
- Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.
- How the housing bill signed into law Wednesday by President Bush affects homeowners:

Reuters:
- International Olympic Committee members agreed to allow China to block Web sites during the Beijing Games after promising the media that there would be unrestricted access. Web sites blocked in the main press center include Amnesty International, which this week said China failed to honor Olympic human rights pledges.
- Energy tycoon T. Boone Pickens said on Wednesday he is creating an "army" of business leaders and mainstream Americans to lobby for his plan to revamp U.S. energy policy in favor of wind power and natural gas over imported oil. Pickens, who made a fortune in the oil industry, now has a $10 billion wind farm under development.

Financial Times:
- For the first time in history, a crisis triggered by US housing finance problems is having global ramifications. Individual companies have drawn lessons from the crisis but common efforts to reform the financial system are the order of the day. The challenge is to extend individual reforms across the financial services industry.
- The Federal Reserve ramped up its liquidity support operations again on Wednesday in an effort to reduce money market strains and pre-empt the possibility of funding crises at the year-end or at other stress points. The US central bank said it would offer three-month cash loans to banks and create a new options auction facility. It also said it would give investment banks and other primary dealers extended access to emergency cash and loans of Treasury securities until January 30.
- Six of the US's independent over-the-counter brokers will on Thursday announce they are uniting to form an interdealer brokerage that will be a leading force in trading North American energy futures. The move comes as energy trading comes under intense pressure from Congress, where speculation and opaque markets have been blamed for high oil prices.

Telegraph:
- Foreign investors have become extremely wary of the Russian stock market after the Kremlin moved yet again to tighten its noose around the country's energy and mining sector, launching anti-trust probes against London-listed Evraz Holding and Raspadsky Coal. The move follows last week's assault on steel and coal giant Mechel for alleged overpricing of raw materials and using off-shore trading to cut its tax bill.

Kyodo News:
- Japan is likely to downgrade its assessment of the economy in a report next week, citing government officials. The world’s second-largest economy will probably be assessed as “worsening” in a report on the coincident index for June to be released on Aug. 6, as opposed to “possibly at a turning point” in May. Japan may already be in a recession, according to a separate report in the Nikkei newspaper based on a survey of 10 economists.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (SYMC), target $24.
- Downgraded (TBL) to Sell, target $13.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -.16%.
NASDAQ 100 futures -.20%.

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Earnings of Note
Company/EPS Estimate
- (NMX)/.81
- (IRM)/.18
- (ADP)/.41
- (CEG)/1.05
- (MA)/2.02
- (D)/.51
- (XOM)/2.53
- (FPL)/.93
- (GT)/.59
- (IP)/.40
- (PH)/1.50
- (MRO)/1.5
- (EXPE)/.39
- (CVC)/.11
- (PTEN)/.50
- (CBS)/.52
- (AET)/.93
- (EK)/.15
- (MO)/.45
- (MOT)/-.03
- (BWA)/.76
- (K)/.81
- (CVS)/.60
- (APA)/4.05
- (CHK)/.88
- (CA)/.34
- (MFE)/.45
- (MEE)/.76
- (MNST)/.36
- (DLB)/.31
- (KLAC)/.57
- (MORN)/.49
- (GMCR)/.21
- (BCO)/.77
- (ZEUS)/1.96

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Advance 2Q GDP is estimated to rise 2.3% versus a 1.0% gain in 1Q.
- Advance 2Q Personal Consumption is estimated to rise 1.7% versus a 1.1% gain in 1Q.
- Advance 2Q GDP Price Index is estimated to rise 2.4% versus a 2.7% gain in 1Q.
- Advance 2Q Core PCE rose 2.0% versus a 2.3% gain in 1Q.
- The 2Q Employment Cost Index is estimated to rise .7% versus a .7% increase in 1Q.
- Initial Jobless Claims for this week are estimated to fall to 393K versus 406K the prior week.
- Continuing Claims are estimated to rise to 3150K versus 3107K prior.

9:45 am EST
- The Chicago Purchasing for July is estimated to fall to 49.0 versus 49.6 in June.

Other Potential Market Movers
- The weekly EIA natural gas inventory report and NAPM-Milwaukee report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and industrial shares 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 at Session Highs, Boosted by Financial, Commodity, Construction and Semi Shares

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In Play

Stocks Mixed into Final Hour as Rising Oil Offsets Less Economic Pessimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Computer longs, Semi longs and Alternative Energy longs offset losses in my Internet longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising .05% and is still above-average at 22.04. The ISE Sentiment Index is low at 110.0 and the total put/call is about average at .87. Finally, the NYSE Arms has been running slightly below average most of the day and is currently .79. The Euro Financial Sector Credit Default Swap Index is rising 2.65% today to 79.42 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -2.15% today to 130.17 basis points. The TED spread is rising 1.12% to 1.10. Today’s action is more constructive taking into consideration yesterday’s advance and today’s $4.60 jump in oil. The fact that the financials etf(XLF), which has a negative -.95 correlation with oil, is maintaining recent gains is especially positive. Merrill(MER) is trading up another 2.4%. Half the financial newsletter writers are bearish, the most since 1995, which also bodes well for an extension of recent gains. The last time stock pessimism was this high was in January 1995, a month before the Dow Jones Industrial Average rose to 4,000 for the first time and began an advance of more than 100 percent over the next five years. The Citi eurozone economic surprise index is now -155.70 versus +29.40 in the US. I still think the US dollar has further upside over the short and intermediate-term. Nikkei futures indicate an +77 open in Japan and DAX futures indicate an +25 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing financial sector pessimism and less economic pessimism.

Today's Headlines

Bloomberg:
- Iraq’s daily oil production is the highest since March 2003. A $34 million security system of ditches, fences and concertina wire has stopped attacks since July 2007 on the pipeline from Kirkuk in the north to a major refinery in Baiji, central Iraq, according to the report. The result has been a substantial rise in crude oil exports from the north, Bowen said. ``Iraq's burgeoning oil windfall, which has yielded more than $33 billion in revenues to date in 2008,'' may result in another $7 billion that could be spent on reconstruction as U.S. spending winds down, Bowen said. Analysts say Iraq has the world's third-largest reservoir of untapped crude oil. Contributing to Iraq's improved security was the so-called surge of almost 30,000 U.S. military personnel that ended this month plus operations of the Iraq Security Forces, who cleared Muslim militias from Basra, Baghdad's Sadr City, Mosul and Amara, said Bowen, who for the third time this year reported increasing improvements in Iraq's security and economy. The Iraqi government plans to build similar protection systems for the pipelines between Baghdad and Karbala and between Baiji and Baghdad, the Pentagon said.
- Spain's economy expanded the least in 15 years in the second quarter as record oil prices and the collapse in homebuilding destroyed jobs and sapped spending, the central bank said.
- Crude oil rose more than $3 after the US Energy Dept. reported the first decline in inventories in five weeks. U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, the department said. The drop in gasoline inventories last week left stockpiles 3 percent higher than the five-year average for the period, the department said. Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.
- Gold traded near a three-week low in Asia as a stronger dollar and falling energy costs eroded demand for bullion as an inflation haven.
- Israeli Prime Minister Ehud Olmert said today he will step down ``with honor'' when the ruling Kadima party chooses a new chief in September, ending 2 1/2 years in power amid a corruption scandal.
- Europeans' confidence in the outlook for the economy dropped the most since the Sept. 11 terrorist attacks as soaring energy costs and the euro's advance against the dollar rattled consumers and executives.
- Nintendo Co., the world's second- largest maker of home video-game players, reported first-quarter profit rose 34 percent as the Wii console extended its lead over Sony Corp.'s PlayStation 3 and Microsoft Corp.'s Xbox 360.

Wall Street Journal:
- Target Corp.(TGT) is offering its Web site customers who buy consumer electronics next-day installation services through a new third-party supplier, Zip Express. It's the first time Target has offered installation services.

Washington Post:
- The House of Representatives issued an apology to black Americans for slavery more than 140 years after its abolition. Senator Tom Harkin, an Iowa Democrat, is considering introducing a similar resolution in the Senate.

VentureBeat:
- Google(GOOG) is the sleeping giant when it comes to advertising in video games. While the company dominates search advertising, it has yet to make a big splash in video games. That could change soon, as the company has been quietly testing its “AdSense for Games” product for months.

Politico:
- Seeking to both elevate and diminish his rival's status, John McCain is up with a new ad featuring images of Paris Hilton and Britney Spears but declaring that they take a back seat to Barack Obama. "He's the biggest celebrity in the world," says the announcer of Obama, set to images from his massive Berlin speech. "But is he ready to lead?" (video)

Boston Globe:
- The House today voted 118 to 35 to repeal a 1913 state law that prevents gay and lesbian couples from most other states from marrying in Massachusetts. The measure, which the Senate passed earlier this month, will head to the desk of Governor Deval Patrick, who is expected to sign it into law. The move will clear the way for out-of-state couples to marry in Massachusetts, making it the second state to allow gay and lesbian couples to marry regardless of their place of residence.

Reuters:
- Pacific Investment Management Co.(PIMCO) plans to offer its first bond exchange-traded fund, citing documents filed with the SEC.

Daily Telegraph:
- The Italian economy is getting so bad that the country may face pressure to withdraw from the European Union’s monetary union, according to a report by Capital Economics. Business confidence has fallen to the lowest since October 2001, following the 9/11 terrorist attacks. The country is disproportionately hit by the high euro because it relies heavily on "mid-tech" exports that compete toe-to-toe with Asian goods.

Independent.ie:
- None of the office space that's earmarked for completion in Dublin's city centre during the second half of this year has been pre-let to clients and less than 18pc of the space built during the second quarter of this year was pre-let. The figures released by estate agent Lisney suggest a sharp reversal is occurring in the fortunes of the country's commercial property developers.

International Herald Tribune:
- Nearly 4.8 billion passengers took to the air last year, with Atlanta's Hartsfield International atop the list of the world's busiest terminals, followed by Chicago's O'Hare and London's Heathrow.

Andina:
- Newmont Mining Corp.’s(NEM) new gold mill may boost output by 11% at its Yanacocha mine in Peru. The $250 million facility could increase annual gold production at Yanacocha to 2 million ounces from 1.8 million ounces this year.

Bear Radar

Style Underperformer:

Small-cap Value -1.07%

Sector Underperformers:

Airlines irlind (-5.22%), Oil Tankers (-3.77%) and REITs (-2.30%)

Stocks Falling on Unusual Volume:

ELN, ULTI, GRMN, ELON, JLL, WYE, ONXX, CTV, ALGN, SPSS, ERTS, HWAY, TTMI, EEFT, LFG, CBG and HBI

Stocks With Unusual Put Option Activity:

1) URI 2) KFT 3) WYE 4) ELN 5) CEPH

ADP Jobs Report Much Better Than Estimates

- The ADP Employment Change for July was +9K versus estimates of -60K and -77K in June.

BOTTOM LINE: Companies in the US unexpectedly added an estimated 9,000 jobs in July, Bloomberg reported. Service providers added 74,000 workers, with financial firms increasing jobs by 4,000. Construction employment fell by 16,000. Large companies cut payrolls by 32,000, while small companies increased payrolls by 50,000. The US Dollar Index is rising another .13% and the 10-year yield is 5 basis points higher on today’s reports. I expect the change in non-farm payrolls to come in better than estimates of -75K this Friday.

Bull Radar

Style Outperformer:

Large-cap Value (+1.41%)

Sector Outperformers:

Semis (+2.64%), Energy (+2.59%) and Steel (+2.42%)

Stocks Rising on Unusual Volume:

TKC, HES, WB, TIN, MBT, RIO, SI, BAC, RTP, MDVN, VPHM, JNPR, AMMD, BWLD, ADVS, PRSC, BBSI, NATI, ACLI, SAIA, RSYS, KEYN, XLTC, HTCH, SVVS, STAR, BECN, LRCX, APEI, SDXC, ALXN, FISV, AVP, LZ, SSD, TWP, JNY, ROC and STE

Stocks With Unusual Call Option Activity:

1) HA 2) KFT 3) ELN 4) CMI 5) ERTS

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Oil Price at $90 Is Enough to Save Global Economy. Oil at a more sustainable $80 to $90 a barrel would suddenly make the economic weather feel a lot sunnier. With inflation under control, central banks could cut interest rates again. Property markets would stabilize, helping banks to begin lending and to reinvigorate the global economy. Cheaper oil wouldn't necessarily be beneficial to everyone. We can be sure that many investment banks and hedge funds have speculated wildly in the oil market, and that some of them will make horrendous losses. Expect some shocks to emerge on the way down, just as they did on the way up. Likewise, a soaring oil price was helping the environment. The world needs to wean itself off its addiction to fossil fuels, and the markets certainly delivered an incentive to do that. Arguably, much of that work has now been done. You don't need $300-a-barrel oil to get people to trade in their gas-guzzling sport-utility vehicles.
- India's 10-year government bonds will tumble this year, boosting yields to the highest since 2001, as the central bank raises interest rates to curb inflation, according to JPMorgan Chase & Co. Yields may climb to 11 percent by the end of December as the central bank boosts rates from a seven-year high to slow the fastest inflation in 13 years, Vikas Agarwal, a strategist in Mumbai at the third-biggest U.S. bank, said. ``We haven't yet seen peaks in inflation, policy rates or bond yields in India,'' Agarwal said in an interview. ``Monetary-policy prospects remain decidedly hawkish.''
- The cost to protect Australian corporate bonds from default fell by the most in a week, credit- default swaps show. The Markit iTraxx Australia Series 9 Index declined 7.5 basis points to 131.5 basis points at 8:49 a.m. in Sydney, according to Citigroup Inc. prices.
- Hong Kong's apartment transactions may fall to a 10-month low in July, then drop further, on concerns that accelerating inflation and a slumping stock market may push prices down, analysts said.
- Wheat fell for a second straight day on speculation the biggest U.S. crop in a decade will overwhelm demand. Domestic growers may harvest 66.97 million metric tons (2.46 billion bushels), up 19 percent from last year and the most since 1998, the U.S. Department of Agriculture said on July 11. The nation's reserves before next year's harvest will soar 76 percent to 14.6 million tons. U.S. exports probably will decline as global production climbs, the agency said.
- Crude oil was little changed below $122 a barrel after closing at its lowest in 12 weeks yesterday because of a strengthening U.S. dollar and signs that gasoline demand may extend declines. Oil has dropped 17 percent since its July record as the rising dollar curbed the appeal of commodities as an inflation hedge. U.S. motorists drove less for a seventh consecutive month in May, as vehicle-miles traveled on all U.S. roads fell 3.7 percent during the month from a year earlier, the Federal Highway Administration said in a report July 28. The seven-month slide is the longest downward streak since 1979. ``This demand thing has some bite,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``I can really see a crude market here that could drop down to $100 by the end of summer or early fall.''
- The U.S. dollar may extend gains to C$1.0865 against the Canadian dollar should it close above so- called resistance at C$1.0340, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London.
- The Australian dollar fell to the lowest in three weeks as prices of commodities the nation exports declined and the U.S. currency rallied in New York.
- Winthrop Smith Jr., the former head of Merrill Lynch & Co.'s international brokerage unit, said he's buying the firm's shares again after Chief Executive Officer John Thain announced plans to shed risky assets and raise capital. Smith, who left the firm in 2001, sold all his shares before Thain took charge of the third-biggest U.S. securities firm last year, he said in a Bloomberg Television interview today.
- Traders who bought Merrill Lynch & Co. options yesterday betting the biggest U.S. brokerage would extend its worst slide in 21 years may have been tipped off, options analysts say. Merrill options rose to the highest in almost two weeks yesterday and traders increased bearish bets hours before the firm said that it would take $5.7 billion in writedowns.
- The International Monetary Fund urged the Bank of Japan to refrain from raising interest rates for now as the world's second-largest economy heads for a ``soft landing.''
- India's central bank put the battle against inflation before economic growth in Governor Yaga Venugopal Reddy's final interest-rate decision, spurring speculation of further increases in borrowing costs. The Reserve Bank of India yesterday raised its benchmark repurchase rate by half a percentage point to 9 percent, more than economists forecast. The rate will climb to between 9.25 percent and 9.5 percent in the next three months.
- Japan's industrial production fell last month after a global slowdown caused overseas shipments to decline for the first time in four years. Factory output dropped 2 percent from May, when it rose 2.8 percent, the Trade Ministry said today in Tokyo.
- An experimental Alzheimer's drug made by Wyeth(WYE) and Elan Corp.(ELN) only helped about half of patients in a study and was linked with a brain-swelling side effect. The company's shares fell 9.9 percent in after-market trading.
- Buffalo Wild Wings Inc.)BWLD), the restaurant chain specializing in multiflavored chicken wings, gained the most in 18 months in Nasdaq trading after saying it will meet its annual profit-growth forecast of 25 percent.
- MetLife Inc.(MET), the biggest U.S. life insurer, cut its full-year earnings forecast and said second- quarter profit declined 19 percent on investment losses, sending the shares down 9.1 percent.

Wall Street Journal:
- The Bush administration's embrace of a flexible timeline for pulling U.S. troops from Iraq has accelerated negotiations between Washington and Baghdad over a long-term security pact, officials from both sides said.

MarketWatch.com:
- Timers’ optimism may bode ill for gold. They don’t seem to be worried; that’s a bad sign to contrarians.
- Tight budgets or not, college students will spend more money on electronics in their back-to-school purchases this year than on apparel and apartment furnishings, underscoring the lofty place PCs, iPhones and other gadgets have taken on students' must-have lists.

NY Times:
- The number of chronically homeless people living in the nation’s streets and shelters has dropped by about 30 percent — from 175,914 to 123,833 — from 2005 to 2007. Researchers who study the issue say they believe the decline is the most significant in years.
- Amazon(AMZN) Offers Other Sites Use of Its Payment Service.
- An Investment Firm That Prospered From Past Crises Turns to Mortgages. John P. Grayken made a fortune buying investments no one else seemed to want during the savings and loan debacle in the early 1990s. Now he is trying to repeat that feat by buying the detritus of today’s mortgage crisis. On Monday night, Mr. Grayken’s private investment company, Lone Star Funds, agreed to pay $6.2 billion for most of the toxic, mortgage-linked investments held by Merrill Lynch.

BusinessWeek.com:
- Federal regulators on Tuesday extended through mid-August a temporary order banning a certain kind of short-selling of the stocks of mortgage finance companies Fannie Mae, Freddie Mac and 17 large investment banks. The Securities and Exchange Commission said the ban on so-called "naked" short selling will be in effect until 11:59 p.m. EDT on Aug. 12 and will not be extended. "In addition to continuing the existing order against naked short selling, the commission will continue exploring other remedies for the broader marketplace to further protect investors from 'distort and short' artists," Cox said in a statement. After ban runs out, regulators will move to draw up formal rules to provide additional protections against abusive naked short selling in the broader market, while allowing legitimate short selling, the SEC said.

LA Times:
- The International Olympic Committee ruled today that Iraq could participate in the Beijing Games, reversing itself after Baghdad pledged to ensure the independence of its national Olympics panel.

USA Today.com:
- An increasing number of top economists say the U.S. economy is likely to narrowly avoid a recession this year, according to a new quarterly survey by USA TODAY.

Washington Post:
- Olympic organizers are backtracking on another promise about coverage of the Beijing Games, keeping in place blocks on Internet sites in the Main Press Center and venues where reporters will work. The blocked sites will make it difficult for journalists to retrieve information, particularly on political and human rights stories the government dislikes.

San Jose Mercury News:
- The American Wind Energy Association is expected to release a survey next month that says the United States has become the world's leading wind producer, and that the industry expects rapid growth to continue in places like Texas, the Great Plains and California. The survey calculates that the U.S. wind industry now tops Germany in terms of how much energy is being produced from wind.

Reuters:
- China has installed Internet-spying equipment in all the major hotel chains serving the 2008 Summer Olympics, a U.S. senator charged on Tuesday. "The Chinese government has put in place a system to spy on and gather information about every guest at hotels where Olympic visitors are staying," said Sen. Sam Brownback. The U.S. senator made a similar charge a few months ago but said that since then, hotels have come forward with detailed information on the monitoring systems that have been required by Beijing. Brownback refused to identify the hotels, but said "several international hotel chains have confirmed the existence of this order."

The Australian:
- US conglomerate GE(GE) says it could sign a deal within months to build a $US3 billion ($3.13 billion) "clean coal" power plant in NSW or Queensland that would store carbon dioxide underground.

Straits Times:
- Rents in Singapore have begun to fall at most apartment projects because of new supply, citing data from the government.

Hong Kong Economic Journal:
- Hong Kong investors bought 29% fewer residential units in China during the first half, the first year-on-year decline since 2003, citing a report by a real estate agency. Shenzhen in the southern province of Guangdong was the worst-performing city, with prices falling 35% in the nine months from June last year.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (TXN), target $36.
- Reiterated Buy on (HS), boosted estimates and raised target to $25.

Night Trading
Asian Indices are +1.0% to +2.0% on average.
S&P 500 futures -.03%.
NASDAQ 100 futures +.11%.

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Earnings of Note
Company/EPS Estimate
- (GLW)/.48
- (CMCSA)/.23
- (IT)/.22
- (IACI)/.31
- (STE)/.25
- (MCO)/.47
- (TIN)/-.05
- (TBL)/-.31
- (AMT)/.12
- (SO)/.56
- (SPW)/1.57
- (DIS)/.60
- (OII)/.90
- (HOLX)/.29
- (THQI)/-.38
- (SPF)/-1.49
- (ESRX)/.72
- (FSLR)/.56
- (OI)/1.22
- (CVD)/.78
- (ITRI)/.82
- (AVB)/1.24
- (GMR)/.56
- (PSYS)/.50
- (SBUX)/.18
- (CLF)/1.99
- (DRIV)/.33
- (V)/.49
- (FLS)/1.49
- (NBL)/2.05
- (ODP)/.00
- (SYMC)/.35
- (NLY)/.61
- (AKAM)/.41
- (AVP)/.45
- (AGN)/.63
- (SEE)/.40
- (CMI)/1.23
- (ENR)/1.27
- (IPG)/.16
- (JNY)/.13
- (MUR)/2.20
- (LVS)/.11
- (HES)/2.74
- (OC)/.21

Upcoming Splits
- None of note

Economic Releases
8:15 am EST
- The ADP Employment Change for July is estimated at -60K versus -79K in June.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -1,300,000 barrels versus a -1,558,000 barrel decline the prior week. Gasoline supplies are expected to rise by 350,000 barrels versus a 2,847,000 barrel increase the prior week. Distillate inventories are estimated to rise by 2,050,000 barrels versus a 2,419,000 barrel increase the prior week. Finally, Refinery Utilization is expected unch. versus a -2.35% decline the prior week.

Other Potential Market Movers
- The weekly MBA mortgage applications report and the Keefe Bruyette Woods Community Bank Conference could also impact trading today.

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