Tuesday Watch

Earnings of Note
Company/Estimate
CMTL/.24
TTWO/-.14
REMC/-.15

Splits
None of note.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Underperform on CL, PNY and Outperform on BAX, FDC.

Late-Night News
Asian indices are modestly higher, led by mobile phone-related companies, after Merrill Lynch raised this year's forecast for global shipments of handsets. MCI ranks lowest among the seven largest U.S. telephone companies in a survey of their ability to serve businesses with at least 500 employees, the Wall Street Journal reported. Car buyers in China defaulted on nearly $12 billion of car loans by the end of 2003, prompting the country's banking regulators to more closely monitor lending for vehicle purchases, the Standard reported. Israel and Egypt may soon agree to have Egypt increase its Gaza Strip security presence in preparation for Palestinian control of the area, the AP said. Venus will pass between the Earth and the Sun today for the first time in 121 years and three-quarters of the globe will be able to view the phenomenon, Bloomberg reported. Saudi Arabia's religious leaders issued an edict condemning terrorist acts and calling on Saudis to provide information about planned attacks, Bloomberg said.

Late-Night Trading
Asian Indices -.25% to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.20%.

BOTTOM LINE: I expect U.S. stocks to open modestly lower and then rally later in the day on short-covering and portfolio managers putting new money to work. A short-term top is likely to occur within the next couple of days as the major averages are reaching overbought levels and complacency is rising. I expect interest rates will begin rising again later in the week, as well. The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,140.42 +1.60%
NASDAQ 2,020.62 +2.12%

Leading Sectors
Homebuilders +4.55%
Gaming +4.14%
Semis +3.68%

Lagging Sectors
Fashion +.57%
Restaurants +.45%
Broadcasting +.14%

Other
Crude Oil 38.89 +.59%
Natural Gas 6.25 +.72%
Gold 394.70 +.05%
Base Metals 108.12 +1.75%
U.S. Dollar 88.22 -.03%
10-Yr. T-note Yield 4.76 -.21%
VIX 15.39 -8.28%
Put/Call .81 -18.18%
NYSE Arms .34 -46.87%

After-hours Movers
ATRM +5.76% after announcing that the Board of Directors has decided to explore various strategic alternatives for the company to maximize shareholder value.
REMC +12.39% after announcing it had received an initial $9.9 million production contract from Raytheon Missle Systems for the TOW upgrade program.
CYMI -4.83% after saying it expects second quarter 04 revenue to increase at the lower half of its prior guidance range and margins to grow at the upper end of the prior range.

Recommendations
Goldman reiterated Outperform on IGT, KO, PFE and HD. Goldman reiterated Underperform on BMY. Jim Cramer, of TheStreet.com, has another positive column on KMRT, saying it still isn't too late to buy.

After-hours News
U.S. stocks finished sharply higher today, sending benchmarks to six-week highs, on optimism over employment growth, stabilizing interest rates and declining energy prices. After the close, Japan's Prime Minister Koizumi said he believes North Korean leader Kim Jong Il is sincere in his aim to dismantle his country's nuclear program, the Financial Times said. Home Depot will set up a business-development office in China to prepare for its entry into the world's most populous market, Bloomberg report. Mandalay Resort Group's stock price rose above MGM Mirage's $68 a share bid for the company, signaling that investors expect MGM majority owner Kirk Kerkorian to increase his offer, Bloomberg said. Two engines from Iraqi surface-to-air missles, including one from an Al Samoud 2 missle banned by the UN, have turned up in a scrap yard in the Netherlands, Bloomberg reported. Texas Instruments narrowed its second-quarter sales forecast and said demand for its products is "slightly exceeding" projections, Bloomberg reported.

BOTTOM LINE: The Portfolio rose today on afternoon strength in my semiconductor and telecom equipment long positions. I exited a few of my biotech longs today as they hit stop-loss points and added a few new industrial, Chinese ADR and telecom equipment longs, leaving the Portfolio with 125% net long market exposure. One of my new longs is NTE and I am using an $18.50 stop-loss on the position. Volume for the major indices continues to disappoint, however advancing volume was 5 times greater than declining volume on the NASDAQ and breadth was very positive. Every sector I follow was up today. As well, the NASDAQ 100 broke convincingly up through its recent downtrend line. It was also very positive that U.S. stocks rose substantially and bonds didn't fall. I expect the revised estimate of Japanese GDP growth to exceed expectations tonight which should boost Asian shares and provide the catalyst for further positive action in U.S. stocks tomorrow.

Mid-day Update

S&P 500 1,132.60 +.91%
NASDAQ 1,999.80 +1.07%

Leading Sectors
Gaming +4.24%
Homebuilders +2.41%
Semis +2.18%

Lagging Sectors
Restaurants +.14%
Broadcasting -.04%
Biotech -.41%

Other
Crude Oil 38.30 -.49%
Natural Gas 6.20 -.97%
Gold 394.20 +.64%
Base Metals 108.12 +1.75%
U.S. Dollar 88.21 -.37%
10-Yr. T-note Yield 4.77% -.04%
VIX 15.85 -5.42%
Put/Call .66 -33.33%
NYSE Arms .51 -20.31%

Market Movers
MBG +17.44% after announcing its $4.85 billion acquisition by MGG.
IMCL +9.66% after a recent study showed that its Erbitux medicine helped patients with head and neck cancers live twice as long.
LACO +14.2% on takeover speculation.
DW +6.58% after saying it had been ranked in IBD's Top 100.
CRDN +8.65% on continuing speculation that it will win new body armor contracts from the U.S. government.
CBI -9.90% after cutting 2Q and 04 forecasts substantially.
WEBX -9.61% after ThinkEquity cut to Sell.

Economic Data
None of note.

Recommendations
XMSR and SIRI rated Overweight at JP Morgan. BA raised to Overweight at Lehman, target $55. KFY raised to Buy at UBS. MCRL cut to Sell at Bank of America, target $9. Goldman reiterated Outperform on PFE, FON, WMT, AMGN, DNA, BIIB, MDT, CLS, EBAY, AMLN.

Mid-day News
U.S. stocks are broadly higher mid-day on merger activity, falling energy prices and stabilizing interest rates. Primus Telecom is selling a $19.95 a month phone service over the Internet that allows consumers to make unlimited calls in the U.S., Canada and Western Europe, the Wall Street Journal reported. California lawmakers want to crack down on insurance companies that support questionable tax shelters and pay fines for taxpayers who use illegal shelters, the LA Times reported. U.S. and state officials investigating abusive trading in the mutual fund industry will look into whether fund companies paid brokers to push investors towards particular funds, the LA Times reported. The sentencing date for Martha Stewart and her former broker Peter Bacanovic was moved to July 8 from June 17 because of a defense request, CNBC reported. The IMF may raise its forecast for global economic growth amid a continuing vigorous recovery in the U.S. and a stronger-than-expected expansion in Japan, the Financial Times said. McDonalds said global same-store-sales climbed a robust 7.4% in May, Bloomberg reported. Continental Air dropped a round-trip fare increase of as much as $40 after some competitors didn't adopt the higher prices in all markets, Bloomberg reported. A UN resolution on the transfer of power in Iraq from a U.S.-led coalition to an interim government of Iraqis should happen within "the next couple of days or so," Condoleezza Rice said. The NYSE will close Friday to mark the funeral of President Ronald Reagan, Bloomberg reported.

BOTTOM LINE: The Portfolio is up modestly today as my tech longs are rising more than my declining biotech longs. Complacency is starting to creep back into the market as the ARMs, VIX and Put/Call readings are all falling. However, lower energy prices and the decline in interest rates over the last hour should allow stocks to maintain good gains today. I have not traded today and the Portfolio is still 125% net long.

Monday Watch

Earnings of Note
Company/Estimate
BOBE/.54
DAB/.23
OLG/.31
UTIW/.32

Splits
RIMM 2-for-1

Economic Data
Consumer Credit for April estimated at $6.0 billion versus $5.7 billion in March.

Weekend Recommendations
Forbes on Fox had guests that were positive on SU, PRU and mixed on HMA. Bulls and Bears had guests that were positive on MWY, CNA, MEE, CNX, ACI, mixed on PFE, JNJ, ACN, VAR, DIS, XOM, EAT and negative on JNPR, AMAT and TMA. Cashin' In had guests that were positive on WWU, DGX, MAR, YHOO and mixed on TOM. Louis Rukeyser's Wall Street had guests that were positive on WYE, VIA, ACI, CECO, SPLS, JEC, PFE, TEVA and AIG. Wall St. Week w/Fortune had guests that were positive on WTW, G, TOL, WCI, PHM, ATH, SGEN, LEA, EADS, BAC, PRU, SUNW and NEM. Barron's had positive columns on KRB, LAB and CEG.

Weekend News
Wipro, India's third-largest software services company, plans to buy a company in the U.S., the Economic Times reported. Alcatel SA, the world's largest maker of broadband Internet equipment, sees the beginning of a rebound and expects its markets to expand faster than the economy, Le Figaro reported. Former U.S. President Ronald Reagan, who championed shrinking government at home and ending communism abroad, died after a lengthy struggle with Alzheimer's disease, ABC news reported. The U.S. agreed to South Korea's proposal on a plan to end North Korea's nuclear weapons program, Yonhap news reported. Militants loyal to al-Sadr started withdrawing yesterday from the Iraqi cities of Najaf and Kufa, where they have been fighting U.S. forces since April, the New York Times reported. Abbott Labs may take in $2 billion in sales from its Norvir AIDS medicine in the next 10 years, the Chicago Tribune reported. U.S. armed forces recruitment hasn't been affected by the conflict in Iraq and the recruiters are close to achieving their annual quotas, the LA Times said. Speculation that General Mills might be taken over by Nestle is probably wrong, the Wall Street Journal reported. MGM Mirage's $7.65 billion bid for rival casino company Mandalay Resort Group is an attempt to gain dominance over the Las Vegas Strip, Bloomberg reported. Experimental medicines from Pfizer, Genentech and Onyx Pharmaceuticals may offer new weapons for kidney-cancer patients who currently have few treatment options, Bloomberg reported. ImClone Systems' Erbitux medicine helped patients with head and neck cancers live twice as long as those who received the standard treatment in a recent study, Bloomberg reported. Texas Instruments won its first order from Samsung Electronics for a chip that runs cameras and video players in mobile phones, Bloomberg said.

Late-Night Trading
Asian indices are sharply higher, +1.0% to +3.0% on average.
S&P 500 indicated +.43%.
NASDAQ indicated +.41%.

BOTTOM LINE: I expect U.S. stocks to open higher in the morning on a delayed positive reaction to Friday's employment report, declining energy prices, strength in Asia, positive news in the fight against cancer, no significant terrorist attacks over the weekend and continuing improvements in Iraq. The Portfolio is 125% net long heading into tomorrow.

Chart of the Week

Bottom Line: A significant decline in jobs growth began in early 2000 as the stock market bubble burst and the economy began to slow dramatically. Job losses hit their worst levels after the September 11th terrorist attacks. As well, it took awhile for the U.S. economy to burn off the excess capacity generated by the financial recklessness of the later part of the 90's. Tax cuts, low interest rates and increased government spending stimulated demand enough to burn off this massive excess capacity in a relatively short period of time. The U.S. economy has now reached a point were it can sustain itself without excessive stimulus. Corporate profits are soaring, allowing companies to hire more people and to spend more on equipment that will make them even more productive. As corporate spending accelerates, the need for more workers is increasing and incomes are growing. More jobs and higher incomes are more than offsetting an increase in interest rates and energy prices, thus allowing consumer demand to remain at very high levels.

Weekly Outlook

There are a few important economic reports and several significant corporate earnings reports scheduled for release this week. Economic reports this week include Consumer Credit, Wholesale Inventories, Import Price Index, Initial Jobless Claims, Monthly Budget Statement, Trade Balance, Producer Price Index and preliminary Univ. of Mich. Consumer Confidence. The Producer Price Index and Consumer Confidence reading both have market-moving potential.

Take-Two Interactive(TWO), Tommy Hilfiger(TOM), H&R Block(HRB), Martek Biosciences(MATK), Omnivision Technology(OVTI) and National Semiconductor(NSM) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The CIBC Communications and Technology Food Chain Conference, Goldman Sachs Healthcare Conference, Deutsche Bank Media Conference, EEII Convention and Expo, the Fed's Kohn speaking to the National Economist Club, Pacific Growth Equities Life Sciences Conference, the Fed's Guynn speaking in Atlanta and Greenspan's testimony to an international monetary conference could all impact trading this week.

Bottom Line: I expect U.S. stocks to rise modestly this week on a continuation of the fall in energy prices and positive news from multiple conferences. As well, the relatively high Put/Call and ARMS readings and another fall in the AAII % Bulls last week also bodes well for stocks. However, any rise will likely be muted by resurfacing inflation fears and rising interest rates as I expect Producer Prices and Consumer Confidence to exceed expectations at the end of the week. My short-term trading indicators are still giving buy signals and the Portfolio is 125% net long heading into the week.