Tuesday Watch

Late-Night Headlines
Bloomberg:
- Lester Crawford won confirmation today as permanent commissioner of the FDA.
- The NY Merc, the world's biggest energy market, may have a second bidder for a stake in the company.
- The US dollar may strengthen in Asia after the interest-rate gap between 10-year US and German bonds widened to the most in five years.
- Hurricane Emily moved into the Gulf of Mexico today after pounding the island of Cozumel and the Yucatan peninsula and forcing the evacuation of thousands of people on the Mexican mainland.

Financial Times:
- Reducing information technology costs may cost companies more money due to increased maintenance and repair expenses, citing an Accenture Ltd. survey.
- China will this week announce its new policy on the steel industry, as it tries to curb overcapacity.
- Colombia will ask President Bush to commit to a long-term extension of a drug eradication program in the country.

Daily Yomiuri:
- Japan wants North Korea to abandon all nuclear development, including reactors used to generate electricity, and will ask the US, China, South Korea, and Russia next week to back a blanket ban.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on BAC, MMM and PKG.
- Reiterated Underperform on BA, FHN and AVB.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated +.18%.
NASDAQ 100 indicated +.19%.

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Earnings of Note
Company/EPS Estimate
ADTN/.25
ASD/.86
AMGN/.72
AVP/.66
BSX/.48
CDWC/.75
F/.33
GILD/.36
FSL/.24
FCX/.87
FRX/.50
INTC/.32
JNJ/.91
JNPR/.17
MER/1.08
MOT/.25
NVLS/.21
RSH/.33
STT/.68
WB/1.05
WFC/1.12
YHOO/.13

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Housing Starts for June are estimated to rise to 2050K versus 2009K in May.
- Building Permits for June are estimated to rise to 2085K versus 2050K in May.

BOTTOM LINE: Asian indices are mostly higher, as Korean shares approach a 10-year high. I expect US equities to open modestly higher, led by tech shares. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Lows on Light Volume

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BOTTOM LINE: The Portfolio finished lower today on losses in my Networking, Semiconductor and Medical longs. I took profits in a long in the afternoon and added SPY short, thus leaving the Portfolio 75% net long. Today's action wasn't too bad considering recent gains, but the move higher in long-rates and earnings releases may cause some turbulence near-term. I am posting an abbreviated version of the closing report due to a scheduling conflict.

Stocks Modestly Lower Mid-day on Earnings Apprehension

Indices
S&P 500 1,222.69 -.41%
DJIA 10,609.78 -.29%
NASDAQ 2,146.20 -.49%
Russell 2000 659.30 -.67%
DJ Wilshire 5000 12,184.81 -.38%
S&P Barra Growth 585.86 -.26%
S&P Barra Value 633.24 -.48%
Morgan Stanley Consumer 585.12 -.10%
Morgan Stanley Cyclical 744.47 +.39%
Morgan Stanley Technology 497.86 -.49%
Transports 3,637.56 -.23%
Utilities 392.53 -.04%
Put/Call 1.03 +51.47%
NYSE Arms 1.11 +3.54%
Volatility(VIX) 10.89 +5.42%
ISE Sentiment 211.00 +24.85%
US Dollar 89.55 -.19%
CRB 306.14 -1.10%

Futures Spot Prices
Crude Oil 56.95 -1.96%
Unleaded Gasoline 163.30 -3.28%
Natural Gas 7.59 -3.24%
Heating Oil 162.70 -2.11%
Gold 422.10 +.19%
Base Metals 123.18 -.38%
Copper 156.70 +.32%
10-year US Treasury Yield 4.18% +.52%

Leading Sectors
Airlines +.98%
HMOs +.67%
Retail +.54%

Lagging Sectors
Banks -.93%
Disk Drives -.98%
Telecom -1.01%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Networking, Semiconductor and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is very light. Measures of investor anxiety are mixed. Today’s overall market action is modestly negative considering recent gains and another decline in energy prices. During the week ended July 15, the Consumer Discretionary industry saw the greatest net insider selling in the S&P 500. Insiders sold $177,248,438 worth of stock and bought $49,490.I expect US stocks to trade mixed-to-higher into the close on short-covering ahead of a number of important earnings reports.

Today's Headlines

Bloomberg:
- Guidant, the heart-device maker Johnson & Johnson is buying, said cardiac pacemakers implanted in 28,000 people worldwide may need to be replaced because a faulty seal can cause them to fail.
- “Harry Potter and the Half-Blood Prince” shattered first-day sales records as merchants including Amazon.com and Barnes & Noble discounted the book to lure shoppers into stores to buy other merchandise.
- Maytag’s stock soared above Whirlpool’s $17 a share offer price, suggesting that investors expect a higher bid in the three way contest to buy the appliance maker.
- Citigroup and Bank of America said second-quarter profits were crimped by declines in fixed-income trading revenue.
- Rupert Murdoch’s News Corp. agreed to buy Intermix Media, an operator of more than 30 marketing and entertainment Web sites, for $580 million, a week after forming a new unit to capture a share of the surge in Internet advertising.
- Crude oil is falling again as OPEC cut demand growth for this year and next and Hurricane Emily lost steam.

Wall Street Journal:
- Apple Computer may sell music videos through a new version of its digital music player, the iPod.
- The prices of NYSE membership seats have changed little recently, after jumping immediately after the exchange announced on April 20 that it was to acquire Archipelago Holdings.
- US realtors have gained an edge fighting competition from discount brokers as state and local authorities approve laws requiring real-estate agents to provide a minimum level of service.

NY Times:
- Hollywood producers, directors and marketers are using religious references in mainstream films to attract more Christians to movie theaters.
- Martha Stewart Living Omnimedia investors are showing a zeal for its shares although the financial condition of the media and housewares company may make it tough to live up to the high expectations.

AP:
- Iraq drafted a tentative plan to start selling off government owned monopolies starting with the cement, brick and pharmaceutical industries.
- Unocal’s board may decide between rival takeover offers from Chevron and China’s CNOOC Ltd. in the next few days.

Corriere della Sera:
- The group that claimed responsibility for last year’s Madrid train bombings in the name of al-Qaeda threatened to attack Italy and other US allies if their troops don’t leave Iraq within a month.

Foreign Demand for US Assets Increases

- Net Foreign Security Purchases for May rose to $60.0B versus estimates of $60.0B and $47.4B in April.

BOTTOM LINE: International investors increased their holdings of US assets in May by the most since February as the world’s largest economy outperformed rivals in Europe and Asia, Bloomberg reported. Caribbean holdings, which analysts link to hedge funds located in the region, only increased by $1.3 billion. I expect foreign demand for US assets to continue increasing as the dollar remains firm, US economic growth remains relatively healthy and global growth slows.

Links of Interest

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IBD New America
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