Mid-day Update

S&P 500 1,155.99+.61%
NASDAQ 2,079.69+.15%

Leading Sectors
Disk Drives+2.01%
Paper+1.99%
Fashion+1.3%

Lagging Sectors
Software-.63%
Networking-.9%
Telecom-1.19%

Other
Crude Oil 35.80+.99%
Natural Gas 5.21-2.73%
Gold 411.90-.22%
Base Metals 112.92+.3%
U.S. Dollar 85.81-.15%
10-Yr. Long-Bond Yield 4.04%-.24%

Market Movers
ELN+16.4% on continued strength from accelerated ms drug schedule and positive comments from CSFB.
OVTI+20.6% on significantly better-than-expected 3Q report and raised 4Q guidance.
NXTL-2.3% on good 4Q, but mixed guidance.
PIXR+4.4% on talk of distribution contract with MGM.
PNRA-10.4% on 4Q sales below expectations and didn't raise guidance.
INTU-5.9% on beating 2Q expectations, but lowering 3Q guidance.

Recommendations
Morgan Stanley saying steel trade balance is best in 12 years, strengthening domestic steel market with no increase in U.S. consumption. MS also raising BRCM price target to $55. Goldman saying to buy LOW $60 calls ahead of earnings release. DHI cut to "Underperform" at CSFB. CTX raised to "Overweight" at JP Morgan. OVTI raised to "Strong Buy" at Needham. WMT raised to "Buy" at AG Edwards.

Economic Data
Initial jobless claims came in at 344K, better than the 355K estimate.
Continuing claims were 3186K vs. an estimate of 3105K.
Leading indicators met expectations of .5%
Philly Fed of 31.4 was below expectations of 35.

Mid-day News
U.S. stocks rose after companies such as Applied Materials gave forecasts that surpassed analyst estimates, providing reassurance that earnings will increase fast enough to justify further gains in share prices. EMC is saying corporate spending on tech is improving. Sales of homes in the San Francisco bay area reached a 15-year high last month. Former Enron CEO Skilling surrendered to the FBI this morning and will appear in court today. Initial jobless claims are now close to a 3-year low. Freddie Mac say 30-yr. mortgage rate fell to 5.58% this week.

BOTTOM LINE: I am disappointed with the relative weakness in the tech sector today. I am in the process of reducing my exposure in this area. This will take the Portfolio down to about 75% net long. I will then decide later in the day whether or not to add long positions in other sectors or keep my overall market exposure at current levels. AMAT is a prime example of what is going on with the overall market right now. Its P/E on 04 estimates was 35 before its earnings release. It is now around 22 as a result of significantly beating expectations. The current market P/E of 18 on 04 estimates is most likely inaccurate. Analysts have clearly underestimated the leverage in most company's business models. This means the current P/E for 04 estimates is likely below 15, near the market's long-term average. I contend that with interest rates at 46-year lows and corporate profitability near all-time highs the overall market deserves a premium valuation relative to its historical average. This is the main reason why I am very bullish on 04.