Tuesday Watch

Late-Night Headlines
Bloomberg:
- Corn fell the maximum permitted by the Chicago Board of Trade and wheat dropped the most in 13 weeks after the government said US farmers planted more of both crops than previously expected.
- Hogs fell to a two-month low after a government report showed the U.S. herd on June 1 was the largest for that date since at least 1964, signaling ample supplies for pork processors.
- Venezuelan President Hugo Chavez was personally involved in covering up his nation's role in an Argentine election scandal, according to an FBI statement by a Venezuelan witness who may testify at a criminal trial in Miami.
- David Bensimon, managing director at Polar Pacific, says oil prices are ‘peaking’. (video)
- Confidence among Japan's largest manufacturers fell to a four-year low and companies expect earnings to decline for the first time since the 2001 recession.
- The Bank of Korea said inflation will accelerate to the fastest pace in a decade this year, propelled by record fuel and food prices that will also hinder household spending and business investment.

Wall Street Journal:
- Banks are increasingly turning to the credit-default “swap” market to price rainy-day loans they offer to big corporate customers.

MarketWatch.com:
- Paying back need-based federal student loans will get easier starting Tuesday as interest rates take their first dip in a series of declines that will eventually cut rates in half.

CNBC.com:
- The dramatic rise in oil prices is a bubble, famous turnaround investor Wilbur Ross told CNBC Monday, noting that there is no apparent supply problem with crude. "Remember when oil went to $70 a barrel in the so-called 'Arab Oil Crisis,' there was a shortage. There were lines at gas stations, talking about rationing. There isn't a line at any gas station anywhere in the world, so there's clearly not a physical shortage," he said. The U.S. Energy Information Administration revised down U.S. April oil demand by 863,000 barrels per day (bpd) to 19.77 million bpd — 3.9 percent below year-ago levels — as surging fuel costs erode demand in the world's top consumer.

BusinessWeek.com:
- Commodities: The Tipping Point? Some players may think the boom in energy, metals and food is rewriting the rules of investing. Don’t bet your portfolio on it. pension funds, hedge funds, and individuals began to pour money into the commodities market, first in a trickle, then in a steady stream, and now in a torrent. One favored vehicle: exchange-traded funds (ETFs) that track a broad array of commodities. According to TrimTabs Investment Research, more than $38 billion is now held in commodity ETFs, up more than 30% in the past five months.
- As appealing as it may be to hipsters, the iPhone 3G was designed with business users in mind as well. Software developers are all too happy to design applications for business. Salesforce.com (CRM) was part of Apple's(AAPL) initial software development kit launch in March. The iPhone and its applications will have "huge ramifications for how people conduct business," says Chuck Dietrich, vice-president of Salesforce Mobile. "The ability to run sophisticated applications on a handheld will change how people conduct life and business." Salesforce will have a version of its customer relationship management software available for the new iPhone, though it hasn't said when or at what price.

IBD:
- Varian Medical(VAR) Cuts Radiation Treatment Time.

USA Today.com:
- Ex-Intel head Grove: Electric transportation ‘has to be done’

EE Times:
- National Semiconductor(NSM) has entered the photovoltaic market with new technology designed to increase the overall energy output of solar electric power generating systems.

Reuters:
- JPMorgan Chase & Co (JPM) reigned supreme across global debt and equity underwriting for the last quarter.
- The Iraqi government sued dozens of companies, including oil giant Chevron Corp.(CVX), for more than $10 billion on Monday, saying they paid kickbacks to former Iraqi leader Saddam Hussein's government under the U.N. oil-for-food program.

China Securities Journal:
- China’s 2008 economic growth may slow to 10.3% from 11.9% in 2007, citing Fan Jianping, chief economist with a government research institute. Inflation is unlikely to be less than 7% this year, citing Fan.

Japan Times:
- The Group of Eight leaders will agree at their summit next week on a new initiative to expand civilian use of atomic power to curb global warming with the principles of ensuring nonproliferation, safety and nuclear security, according to a draft of a postsummit statement.

Late Buy/Sell Recommendations
Morgan Stanley:
- Rated (LEH) Overweight.
- Rated (GS) Overweight.
- Rated (TROW) Underweight.
- Rated (BEN) Overweight.

Keefe, Bruyette and Woods:
- Upgraded (CMA) to Outperform, target $32.

Night Trading
Asian Indices are -1.25% to +.25% on average.
S&P 500 futures +.30%.
NASDAQ 100 futures +.27%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
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Top 25 Stories
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Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
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Earnings of Note
Company/EPS Estimate
- (MSM)/.78
- (STZ)/.32
- (OSK)/1.13
- (SCHN)/1.87
- (SMSC)/.21
- (APOL)/.77

Upcoming Splits
- (PDO) 5-for-4

Economic Releases
10:00 am EST
- ISM Manufacturing for June is estimated to fall to 48.5 from 49.6 the prior month.
- ISM Prices Paid for June is estimated at 87.0 versus 87.0 the prior month.
- Construction Spending for May is estimated to fall .6% versus a .4% decline in April.

Afternoon:
- Total Vehicle Sales for June are estimated to fall to 14.0M versus 14.3M in May.

Other Potential Market Movers
- The weekly retail sales report, (TDG) analyst day and (CPB) analyst presentation could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Lows, Weighed Down by Homebuilding, Insurance, Financial, Technology Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
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GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
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After-hours Stock Chart
In Play

Stocks Mostly Lower into Final Hour on Financial Sector Rumors

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Alternative Energy longs, Biotech longs and Software longs. I covered all of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mostly positive and volume is about average. Investor anxiety is above-average. Today’s overall market action is mildly bearish. The VIX is rising .26% and remains above average at 23.50. The ISE Sentiment Index is low at 92.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running around average most of the day and is currently .94. The Euro Financial Sector Credit Default Swap Index is falling 5.42% today to 91.11 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 falling 1.5% today to 662.97, which is also a positive. The TED spread is falling 7.03% to 1.05. The heavily-shorted (XLF) is attempting to trim losses into the final hour despite more negative rumors regarding Lehman Brothers(LEH). One of my longs, (ILMN), is hitting another new all-time high today. The stock is up 48.4% for the year and is 116.6% higher over the last 12 months. The shares are extended again near-term, but I still see substantial upside over the intermediate-to-long-term from current levels. Nikkei futures indicate an +125 open in Japan and DAX futures indicate an +63 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, better economic data, quarter-end window dressing and bargain-hunting.

Today's Headlines

Bloomberg:
- Wheat plunged the most in 10 weeks after a government report showed US growers seeded more acres with spring crops to take advantage of prices that rallied to a record this year.
- Commodities Signal Bubble Bursting as First-Half Ends.

Wall Street Journal:
- Nearly four years after Merck & Co.(MRK) yanked the painkiller Vioxx off the market, beleaguered pharmaceutical-industry executives say they are facing a tough new regulatory climate that is altering the landscape of drug development. Over the past 16 months, Schering-Plough Corp.(SGP) CEO Fred Hassan and his top scientists have pulled the plug on two drug-development projects – one for obesity and the other for cholesterol – that had the potential to produce big sellers. And they’re considering scrapping a third.
- China’s Export Machine Threatened by Rising Costs. Orders Drop, Shops Idle in Sweater City; Losing Wal-Mart(WMT).
- The US Federal Aviation Administration gave the country’s airlines high marks for complying with maintenance standards, citing a study to be completed today. FAA inspectors found an “exceptionally high” level of compliance with the agency’s standards. Spot checks of maintenance jobs found compliance levels exceeding 99% and there were no cases of carriers deliberately trying to hide information from inspectors.

Lloyd’s List:
- New orders fro capsize commodity carriers fell 55% in the second quarter because of concern that too many vessels are being built, citing Francois Cadiou, a broker at Barry Rogliano Salles. Fifty-three such vessels were ordered in the second quarter compared with 117 a year earlier and 650 for all of last year. Orders will probably drop by half this year.

Reuters:
- Iraq will open six oil fields and two gas fields to international companies for long-term development contracts, citing the country’s Oil Minister Hussain al-Shahristani. Iraq has pre-qualified 41 US, European and Asian companies to participate in the licensing round.

Die Welt:
- The European Union plans to enable patients to seek and reclaim costs for medical treatment outside their home country, citing a confidential paper by Health Commissioner Androulla Vassiliou. Reimbursement rates in the country of residence will apply under the rules set to be approved July 2. Patients are to cover the difference if the cost of treatment is more expensive abroad.

Bear Radar

Style Underperformer:

Small-cap Value -.37%

Sector Underperformers:

Alternative Energy irlind (-1.91%), Insurance (-1.66%) and Homebuilders (-1.62%)

Stocks Falling on Unusual Volume:

MXWL, XL, WB, VLY, OSBC, MYGN, LPHI, PCLN, CRDN and DV

Stocks With Unusual Put Option Activity:

1) HMY 2) TSN 3) LLTC 4) WMB 5) AEO

Chicago Purchasing Manager Report Rises

- The Chicago Purchasing Manager report for June rose to 49.6 versus estimates of 48.0 and a reading of 49.1 in May.

BOTTOM LINE: A measure of US business activity for June unexpectedly rose, Bloomberg reported. Foreign demand for US goods continues to help buffer the manufacturing sector from a more pronounced slowdown. The trade deficit during 1Q was the lowest since 3Q 2002, which contributed .8 percentage point to overall US growth of 1.0%. The New Orders component fell to 52.0 from 56.1 in May. The Employment component of the index rose to 46.7 from 41.2 in May. The Inventory component of the index rose to 50.5 from 42.2 the prior month. The Prices Paid component fell to 85.5 from 87.5 in May. I expect the Chicago PMI to remain around current levels in July. The US dollar is rising .2% and the 10-year yield is gaining 2 basis points to 3.98% on today’s reports. The TED spread is down 11 basis points to 1.02 and the Euro Financial Sector CDS Index is falling 5.4% to 91.11, which are also positives.