Wednesday Close

S&P 500 1,126.21 -.07%
NASDAQ 1,994.22 -.32%

Leading Sectors
Airlines +2.24%
Fashion +1.36%
Hospitals +.80%

Lagging Sectors
Iron/Steel -.88%
Disk Drives -1.05%
Computer Boxmakers -1.28%

Other
Crude Oil 35.75 -.03%
Natural Gas 5.88 -.81%
Gold 427.70 -.14%
Base Metals 113.40 +1.0%
U.S. Dollar 87.61 -.93%
10-Yr. Long-Bond Yield 3.84% -1.52%
VIX 16.74 +2.83%
Put/Call 1.29 +111.48%
NYSE Arms 1.24 +63.16%

After-hours Movers
SUPG -24.7% after it reported disappointing study results on its Dacogen medicine for a bone-marrow disorder.
LSCP +13.50% saying that the Centers for Medicare and Medicaid Services moved its treatment for enlarged prostates to a new classification with double the reimbursement rate.
AEOS +5.75% after significantly raising 1Q estimates.

Recommendations
Cramer, of TheStreet.com says to Buy ADP ahead of the employment report. He thinks 250,000 jobs were created in March. QLTI cut to Underperform at Raymond James, target $22. CTX raised to Buy 1 at UBS. Goldman reiterated Outperform on BSX, BBY and KO. GS reiterated Underperform on TSG.

After-hours News
U.S. stocks finished lower Wednesday on weaker-than-expected economic reports, OPEC's production cut and QLogic's(QLGC) disappointing earnings report. After the close, Martha Stewart has asked for a new trial, alleging that one of the jurors who found her guilty concealed his arrest on assault charges.

BOTTOM LINE: The Portfolio was down slightly today as I cut market exposure to 75% net long on the close. While today wasn't a good day for the bulls, several positive developments occurred. The markets could have dropped a lot more considering the news. Oil prices dropped, notwithstanding the fire in Texas and the OPEC production cut. Best Buy(BBY), a good barometer of consumer spending, reported great earnings and rose almost 7% on huge volume. The Put/Call ratio soared, which is a good short-term contrary indicator. Finally, the market breadth was good on a down day.

Mid-day Update

S&P 500 1,125.98 -.09%
NASDAQ 1,993.51 -.36%

Leading Sectors
Airlines +2.75%
Fashion +1.36%
Hospitals +.72%

Lagging Sectors
Software -.63%
Disk Drives -1.0%
Computer Boxmakers -1.07%

Other
Crude Oil 35.05 -3.31%
Natural Gas 5.75 -.02%
Gold 427.20 +1.04%
Base Metals 113.40 +1.0%
U.S. Dollar 87.62 -.90%
10-Yr. Long-Bond Yield 3.87% -.54%
VIX 16.58 +1.97%
Put/Call .91 +49.18%
NYSE Arms .94 +23.68%

Market Movers
QLGC -21.2% after the company said 4Q sales missed its forecast.
BBY +8.0% after beating 4Q estimates and raising 1Q guidance.
CC +6.0% after meeting 4Q estimates and announcing the acquisition of ITN for $284M and privately held MusicNow.
TSG +18.1% after boosting 1Q and 04 estimates.
REDF +44.8% after announcing an agreement with YHOO to promote online shopping and content across both portals.
PLMO +11.58% after JP Morgan made positive comments.
USNA -8.4% after lowering 1Q estimates.

Economic Data
Chicago Purchasing Manager report for March was 57.6 versus a forecast of 61.0.
Factory Orders for February were +.3% versus a +1.5% estimate.

Recommendations
RDWR raised to Buy 2 at UBS, target $31. WDC raised to Overweight at Thomas Weisel. LLY raised to Buy at Merrill Lynch, target $80. ALKS added to Focus 1 list at Merrill, target $20. Bank of America said investors should sell bonds issued by European telecom companies as intensifying competition and regulation will dent earnings. XTO raised to Overweight at Prudential, target $31. ADSK price target raised to $38 at Pru. BBY raised to Buy at Legg Mason, target $65. TheStreet.com is recommending for-profit education stocks APOL, CECO, COCO, DV, EDMC, STRA, favorites are STRA and DV. TSC also recommending homebuilders DHI, KBH, LEN, PHM and SPF. Goldman Sachs reiterates Underperform on QLGC. Goldman reiterated Outperform on X, CCE, BBY, VZ, SBC and CCU. Citi Smith Barney said to Buy APCC ahead of quarter, $31 target. Citi upgraded LLY to 2M, target $72. Citi reiterated Buy on CCU and DIS.

Mid-day News
U.S. stocks are modestly lower on weaker-than-expected economic reports. At last count, Wall Street firms have contributed $5.5 million to Bush's re-election campaign, compared with $1.2 million to John Kerry's campaign, according to the Center for Responsive Politics, a nonpartisan organization. A recent analysis by the center found that many of Kerry's biggest donors on Wall Street actually have given far more generously to Bush's re-election effort. Goldman Sachs says the number of dividend increases announced this year continues to run ahead of the record levels in 2003. Exelon and Entergy, the biggest U.S. nuclear-power generators, and five other companies will seek government funding for design and licensing of new reactors. The U.S. Homeland Security department's campaign to encourage the public to prepare for terrorism hasn't spurred the majority of Americans to act, USA Today reported. A recent poll by the Council for Excellence shows 21% of Americans believe a major terrorist attack on U.S. soil is likely in the next few months. OPEC agreed to reduce oil production quotas starting tomorrow by 4.1%, threatening to drive gas prices higher and impede world economic growth, reported Bloomberg. Crude Oil fell after the Energy Department reported that U.S. inventories surged to the highest level in 19 months.

BOTTOM LINE: The Portfolio is down slightly today as my longs are mixed and shorts are up. I have not made any trades today and net market exposure is still 100% long. It is positive that violence in Iraq, below-expectations economic reports, confirmation of OPEC production cuts and a fire at America's third largest oil refinery could not send shares significantly lower or oil prices higher. Thus, while it is hard to game the last day of the quarter, I expect a rally later in the day.

Wednesday Watch

Earnings Announcements
Company/Estimate
AM/.64
BBBY/.44
BBY/1.39
CC/.36
MANU/.03
MON/.57
VXGN/-.15

Splits
GGG 3-for-2
IDSA 2-for-1
WRI 3-for-2

Economic Data
Chicago Purchasing Manager for March estimated at 61.0 vs. 63.6 last month.
Factory Orders for February estimated +1.5% vs. -.5% in January.

Recommendations
Goldman Sachs reiterated Outperform on CCU.

Late-Night News
Asian stocks are mixed as strength in China is being offset by weakness in Japan and Hong Kong. Honda filed a lawsuit against Shuanghuan Automobile, alleging the Chinese company infringed its copyright on a sport utility vehicle, the Beijing Times reported. Wal-Mart suppliers will miss the January deadline set by the world's largest retailer for equipping shipments with radio-frequency tags, the Wall Street Journal reported. Aluminum producers in China have shuttered 350,000 tons a year of production capacity as efforts by the government to slow growth in the industry take effect, reported Bloomberg. Chinese steel producers are preparing to set up steel mills in the U.S., Brazil and Australia, from where they will ship the metal back to their home country, the Wall Street Journal reported. Kmart has sued almost 500 U.S. towns, cities and counties because the discount retailer claims its tax bills are too high, the WSJ reported. Crude oil in NY surged as much as 1.2% after reports of a fire in a refinery in Texas raised concern of gasoline shortages ahead of the peak demand season in the third-quarter.

Late-Night Trading
Asian Indices -.25% to +1.00%.
S&P 500 indicated -.18%.
NASDAQ indicated -.35%.

BOTTOM LINE: U.S. stocks will likely open weaker as gasoline in New York climbed to its highest price in 18 years after the explosion at the third largest refinery in the U.S. As of now, it is not clear if this was an act of terrorism or an accident. If the explosion was in fact an accident, U.S. shares will likely rally after early morning weakness. The Portfolio is 100% net long and I will look to trim market exposure into Friday's employment report. If terrorism was responsible, U.S. shares will fall significantly on the open. Under this scenario, I will wait for a bounce to reduce exposure significantly.

Tuesday Close

S&P 500 1,127.00 +.40%
NASDAQ 2,000.63 +.40%

Leading Sectors
Homebuilders +2.47%
Oil Service +2.44%
Energy +1.97%

Lagging Sectors
Drugs -.18%
Gaming -.58%
Airlines -1.28%

Other
Crude Oil 36.17 -.22%
Natural Gas 5.76 +.23%
Gold 422.60 -.05%
Base Metals 112.28 +.02%
U.S. Dollar 88.41 -.24%
10-Yr. Long-Bond Yield 3.89% +.15%
VIX 16.28 -1.33%
Put/Call .61 -6.15%
NYSE Arms .76 +117.14%

After-hours Movers
TKR +10.13% after raising 1Q guidance.
ONNN -5.81% after saying it is going to issue convertible bonds.
USNA -8.62% after lowering 1Q guidance.

Recommendations
TheStreet.com is recommending ASE.

After-hours News
U.S. stocks finished higher Tuesday on strength in energy-related shares and strong earnings reports from Accenture(ACN) and Autodesk(ADSK). Investors are the most bearish on U.S. Treasury notes than they've been in almost 7 years, according to a poll by JP Morgan. The European Union has warned China it must stop restrictions on the export of coking coal designed to protect the Chinese steel industry, the Financial Times reported. Trump Hotels & Casino Resorts' auditor Ernst & Young raised doubts about the ability of Donald Trump's casino company to survive because of increased competition and losses. The NYSE will give federal regulators its detailed plan for automated stock trading within a few weeks in a bid to win status as a "fast" market, NYSE CEO John Thain said.

BOTTOM LINE: The Portfolio finished unchanged on the day as my shorts rose and my longs finished mixed. I did not make any changes in the afternoon as my short-term models gave buy signals. Thus, the Portfolio is 100% net long heading into the last day of the quarter. The above-mentioned JP Morgan poll is significant as rates may not rise as much as I had anticipated on a much better-than expected jobs report. Bond investors extreme bearishness implies that a lot of investors have already sold or are short, thus providing fuel for future bond gains and falling interest rates.

Mid-day Update

S&P 500 1,121.43 -.09%
NASDAQ 1,985.91 -.33%

Leading Sectors
Oil Service +2.59%
Energy +1.85%
Fashion +1.48%

Lagging Sectors
Gaming -1.12%
Airlines -1.22%
Semis -1.50%

Other
Crude Oil 36.25 +2.26%
Natural Gas 5.71 +4.16%
Gold 423.10 +1.17%
Base Metals 112.28 +.02%
U.S. Dollar 88.30 -.37%
10-Yr. Long-Bond Yield 3.87% -.49%
VIX 16.67 +1.09%
Put/Call .54 -16.92%
NYSE Arms 1.08 +211.43%

Market Movers
VASC +53.86% after the maker of products that help doctors control patients' bleeding said a new version of one of its bandages received approval from the FDA.
NPSP +9.68% after saying its main experimental drug, Preos, was effective in a study that may lead to U.S. marketing approval.
INGR +17.31% after INTC said it would pay it $225M to settle a patent-infringement dispute over the Itanium chip.
ALDN +17.84% after raising 1Q guidance.
NSSC +13.88% after announcing a 2-for-1 split.
KVHI -9.72% after downgrade to Market Perform at CE Unterberg Towbin.
MATR -6.02% after lowering 1Q guidance.

Economic Data
Conference Board's Consumer Confidence for March was 88.3 vs. expectations of 86.0.

Recommendations
Goldman Sachs reiterated Outperform on MCH, PEP and ACN. GS cut S to Underperform. GS upgraded FD to Outperform. GS reiterated Underperform on SCS. Citi Smith Barney reiterated Buy on PEP. Citi removed MCH and CALD from focus list and adding EXTR. SWIR price target raised to $40.00 at CIBC. ATRX raised to Sector Outperform at CIBC. EMC rated Buy at Bank of America. MRO raised to Overweight at Lehman, target $40. TheStreet.com recommended ASYT. Cramer, of TheStreet.com, likes ERTS as MSFT left the video sports game biz.

Mid-day News
U.S. stocks are mostly lower mid-day on rising energy prices and profit-taking. Autodesk(ADSK) management said, "We are seeing increased demand across all geographies and industries, particularly in our Design Solutions Group." Russia's oil exports rose 22% from the start of the year to March 29, as the country's producers boosted output, said OAO Transneft. Crude oil futures rose after OPEC ministers said the group should reduce production targets as planned next month to prevent prices from sliding during the second quarter. U.S. House lawmakers proposed legislation to speed installation of airliners defenses against shoulder-fired missiles, saying the devices remain one of the greatest threats to aviation security, Bloomberg reported. Elaine Garzarelli told CNBC her models show that U.S. stocks are the cheapest they have been since before the 90's bull run, taking into account interest rates and profits.

BOTTOM LINE: The Portfolio is down today on weakness in airline and technology positions. I have taken profits in a few longs, bringing market exposure down to 100%. I will likely reduce this further on any strength in the afternoon. I don't want to have too much exposure into Friday's employment report.

Tuesday Watch

Earnings Announcements
Company/Estimate
ACN/.25
KMX/.21

Splits
AMG 3-for-2
APH 2-for-1
XTEX 2-for-1

Economic Data
None of note.

Recommendations
Goldman Sachs says it sees a brighter outlook for IT spending as capital expenditure estimates among tech's 3 key end markets(financials, communications and manufacturing) have been moving higher. GS says EMC, DELL, IBM, BRCD, HPQ, LXK, NTAP and VRTSE will benefit. GS reiterated Outperform on DHR. Lehman Brothers recommended investors lower the duration of U.S. bond portfolios amid "ubiquitous" signs of rising interest rates, including faster inflation and employment growth that is poised to accelerate.

Late-Night News
Asian stocks are mostly higher, led by strength in Hong Kong shares on strong earnings reports. Japan sold about a third less yen in the second half of the past month compared with the previous two weeks because an improving economy made it harder to justify a weaker yen, JP Morgan said. The SEC is investigating whether some businesses have been awarding employees stock options before announcing information that boosts the shares, the Wall Street Journal reported. U.S. companies' politically controversial practice of sending technology industry work outside the country results in the creation of twice as many jobs in the U.S. and some wage increases, the Wall Street Journal said. PepsiCo(PEP) boosted its annual dividend by 44% after saying its quarterly and annual profit will be at the high end of forecasts. AT&T will allow New Jersey and Texas customers to make phone calls over the internet starting today, the WSJ reported. U.S. restaurants are beginning to rebound with the largest chains reporting sales growth of up to 6% in January and February, the WSJ reported.

Late-Night Trading
Asian Indices -.25% to +1.75%.
S&P 500 indicated -.12%.
NASDAQ indicated -.24%.

BOTTOM LINE: The Portfolio is 125% net long and I will use any strength in the next few days to reduce market exposure ahead of Friday's employment report. A rise in the yield of the 10-yr. T-note through 4.21% from its current level of 3.87% would break its short-term downtrend. This will likely happen on a much better-than-expected employment report. However, I expect an in-line to slightly better-than-expected report which shouldn't result in a significant rise in rates.

Monday Close

S&P 500 1,122.47 +1.30%
NASDAQ 1,992.57 +1.66%

Leading Sectors
Biotech +3.11%
Wireless +2.61%
Airlines +2.60%

Lagging Sectors
Energy +.47%
Homebuilders -.16%
Oil Service -.54%

Other
Crude Oil 35.42 -.08%
Natural Gas 5.37 -.56%
Gold 419.00 +.19%
Base Metals 112.26 +.13%
U.S. Dollar 88.54 -.39%
10-Yr. Long-Bond Yield 3.89% +1.54%
VIX 16.50 -4.79%
Put/Call .65 -15.58%
NYSE Arms .35 -60.23%

After-hours Movers
VASC +28.0% after announcing that it had received 510(K) clearance by the FDA for its D-Stat Dry 3x3 hemostatic bandage.
BLTI +6.85% on no news.
ACS +3.65% after saying it would replace Travelers in the S&P 500 index.

Recommendations
Goldman Sachs reiterated Outperform on STN. GS says they expect upwards earnings guidance from a number of retailers given sold same-store sales, tight inventories and low markdowns.

After-hours News
U.S. stocks finished broadly higher Monday on falling energy prices, positive comments from WalMart, multiple takeover announcements and speculation that Friday's employment report will exceed consensus. A recent Australian poll found that 61% of voters thought Australian troops should stay in Iraq, supporting Prime Minister John Howard's stance, the Sydney Morning Herald reported.

BOTTOM LINE: The Portfolio had a very good day today. I rotated out of a few winning longs and into technology stocks that are just beginning to break-out technically, leaving Portfolio market exposure at 125% net long. I believe we have seen the lows for this recent correction. A test will likely occur in the early part of April and succeed. Long-term investors should use any weakness in the coming weeks to add to favorite long positions. In the short-term, the NASDAQ will likely begin a consolidation on a breach of the 2000 level. The employment report on Friday will dictate trading in the near-term, as well.

Mid-day Update

S&P 500 1,123.22 +1.37%
NASDAQ 1,995.49 +1.81%

Leading Sectors
Biotech +3.28%
Wireless +2.72%
Networking +2.49%

Lagging Sectors
Utilities +.33%
Homebuilders +.22%
Oil Service -.41%

Other
Crude Oil 35.32 -1.15%
Natural Gas 5.38 -.19%
Gold 421.20 -.47%
Base Metals 112.26 +.13%
U.S. Dollar 88.64 -.28%
10-Yr. Long-Bond Yield 3.90% +1.84%
VIX 16.35 -5.65%
Put/Call .64 -16.88%
NYSE Arms .32 -63.64%

Market Movers
HLYW +27.6% after saying a management-led group would take it private in an $840M cash deal.
TLRK + 44.2% after announcing AMGN will acquire it for $1.3B in stock.
MCH +25.1% after announcing LYO will acquire it for $1B in stock.
HPQ +4.2% after positive Barron's article.
AWIN +29.8% after announcing MTOH will acquire it for $281.3M in cash and stock. MTOH -8.3%.
GVHR +10.2% after acquiring Epix HR outsourcing portfolio and raising estimates.
NFLX +10.2% after opening new shipping center, saying it expects 5M more members and $1B in revenue by 06 and upgrade to Buy at Roth Capital, target $36.
FMC +10.2% after significantly boosting 1Q forecast.
LWAY -8.1% after reporting disappointing earnings report.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on ATYT ahead of earnings release. GS reiterated Outperform on RCL and AMGN. GS says March same-store sales for retailers will be broadly strong, serving as catalyst for further stock gains due to EPS upside. Citi Smith Barney said to Buy TCB on any earnings related weakness(sees potential $2 downside) after it reports. Citi expects a positive earnings surprise from JPM and trimmed MER estimates $.03 for a one-time insurance adjustment and expects MER to begin expensing options, which would require restatement of prior results. Citi lowering DISH to Hold, target $38, prefers DTV. Citi maintains bullish stance on life insurance stocks, favorites are PRU, PFG, AMH, LNC, UNM and AFC. MXO cut to Underperform at JP Morgan. Qualcomm raised to Outperform at Schwab Soundview, target $75. C raised to Overweight at Prudential. PTEN raised to Buy at Merrill Lynch. STAK rated Buy at Merrill. KO and PEP raised to Outperform at Bear Stearns. TheStreet.com has positive article on MHS, CMX and ESRX, saying they will benefit from prescription drug benefit. State Street's Global Resource Fund says coal is the best place to be in energy, favorite is CNX, reported TheStreet.com. TSC has a positive article on railroad stocks, favorites are NSC and BNI. TSC also positive on CLB.

Mid-day News
U.S. stocks are rising sharply mid-day on multiple takeover announcements, falling energy prices and positive comments from WalMart. Citi Smith Barney said small-medium business demand for software remains solid as customers are using the tax code benefit of accelerated depreciation as a reason to buy. Sarbanes Oxley/other regulatory requirements have emerged as new demand drivers, and value-added-resellers are hiring. Citi is also looking for an above-consensus 200,000 rise in non-farm payrolls and a drop in the unemployment rate to 5.5%. WalMart said March same-store sales are coming in at the high-end of estimates. Federal Forge filed for Chapter 11 bankruptcy after GM refused to pay more for the supplier's steel components, Automotive News reported. The chief of al-Qaeda's intelligence operations was killed in last week's Pakistani raid, Agence France-Presse said. Qualcomm(QCOM) plans to hire 1,000 workers and increase its research budget to develop chips that will induce U.S. consumers to buy a handset as often as every year, Bloomberg reported.

BOTTOM LINE: The Portfolio is having a very good day today as its 125% net long exposure is paying dividends on today's rally. I will likely rotate out of a few of my significant winners on the long-side and into stocks that are just beginning to break-out technically. I may also trim my homebuilding exposure as I am beginning to believe the risk to Friday's jobs report is a blow-out number on the upside which would send interest rates higher. I am shifting my jobs report expectations to an "at-consensus" number to a slightly "above-consensus" number. This should evoke a positive response from the equity market. A jobs report that is significantly below expectations or significantly above expectations will likely result in a sell-off.

Monday Watch

Earnings Announcements
Company/Estimates
JOSB/.83
SCS/-.04

Splits
HOV 2-for-1
MVL 3-for-2

Economic Data
None of note.

Weekend Recommendations
Forbes on Fox had guests that were positive on XOM and PG. Bulls and Bears had guests that were positive on PWI, JNJ, LMT, WMS, SGMS, PLMO and mixed on DLM, CTL, MSFT and CMCSK. Cashin' In had guests that were mixed on BBBY. Wall Street Week had guests that were positive on GE, XOM, AIG, BRK/A, C, IBM, DELL, MDT and negative on FNM, HPQ, GM, VZ, HD, CH, MCK and MO. Goldman Sachs reiterated Outperform on DOW, LIZ, EBAY, AMGN, KO, CCE and PEP. Barron's has positive articles on HPQ, RBK, the oil market and HDI.

Weekend News
Bloomberg has an article saying that companies are spending again on capital equipment and hiring will be next. A Pakistani military offensive against al-Qaeda in a tribal region bordering Afghanistan is almost complete after the terrorists' refuge was destroyed, Agence France-Presse reported. Israeli prosecutors will recommend that Prime Minister Ariel Sharon be indicted for allegedly accepting a bribe from a property developer, Maariv said. Barrick Gold(ABX) may receive a takeover offer from larger rival Newmont Mining(NEM), the Sunday Telegraph reported. Celgene's(CELG) Revlimid drug may triple the company's revenue within two years, the Star-Ledger of Newark reported. Japan's policy of selling yen "has officially come to an end" because the country's economy is gathering strength and no longer needs a weaker currency to bolster exports, the Times of London reported. Dell is ahead of its goal to make $60B in sales for the year ended Jan. 31, 2007, Michael Dell said. Taiwan's stocks are rising significantly amid optimism that the island's political leaders are moving toward resolution of an election crisis that brought a record 500,000 people onto the streets in protest Saturday, Bloomberg reported. Global sales of liquid crystal displays geared for televisions and monitors will increase 56% this year, driven by torrid growth in demand for flat-panel TVs, industry researcher IDC said.

Late-Night Trading
Asian indices are -.25% to +1.25% on average, with Taiwan's TWSE Index the exception, rising 5.06%.
S&P 500 indicated +.30%.
NASDAQ indicated +.42%.

BOTTOM LINE: Political stabilization in Taiwan, more positive news regarding Japan's economy and further declines in crude oil may lead to strength in U.S. shares tomorrow morning. I expect short-covering, quarter-end positioning, strong earnings reports and falling energy prices to mostly boost stock prices through Wednesday. The Portfolio is 125% net long.

Chart of the Week

S&P 500 current earnings(Blue), 200 week exponential moving average(Red) and 30 week rate-of-change(Bottom Green)



BOTTOM LINE: Earnings are improving at the fastest rate in over 40 years as illustrated by the bottom-half of the graph. This may explain the constant talk of bubbles and overvaluation. Analysts and pundits are behind the curve. The S&P's 04 P/E is 17.81(down 64.6% from its recent high) and falling almost daily. With interest rates near 46-year lows, corporate profitability at all-time highs, economic growth the fastest in 20 years, American household net worth at all-time highs, corporate spending improving and consumer spending remaining strong I would argue that the market deserves a premium valuation relative to past history.

Weekly Outlook

Some relatively important economic reports and a few earnings reports are due for release this week. The economic reports are the Conference Board's Consumer Confidence reading, Chicago Purchasing Manager report, Factory Orders, Initial Jobless Claims, ISM Manufacturing/Prices Paid Indices, Unemployment Rate, Change in Non-farm Payrolls and Average Weekly Hours. The Chicago Purchasing Manager, ISM Manufacturing/Prices Paid, Unemployment Rate and Change in Non-farm Payrolls are the most important releases. The Chicago Purchasing Manager report for March is estimated at 61.0 versus 63.6 in February. The ISM Manufacturing Index for March is estimated at 59.5 versus 61.4 in February. The ISM Prices Paid Index for March is estimated at 81.0 versus 81.5 in February. The Unemployment Rate for March is estimated at 5.6% versus 5.6% in February. Finally, the Change in Non-farm Payrolls for March is estimated at 120K versus 21K in February.

Monsanto(MON), Best Buy(BBY), Circuit City(CC), Pier 1(PIR), Bed Bath & Beyond(BBBY), Fisher Scientific(FSH), CarMax(KMX) and Steelcase(SCS) are some of the more important companies that release quarterly earnings this week.

BOTTOM LINE: The Portfolio is 125% net long heading into the week. The late-day sell-off Friday may lead to more weakness Monday morning. However, I expect another decent rally before quarter-end on Wednesday. I will cut market exposure on any significant rallies before the employment report on Friday. Several forecasters raised their change in Non-farm Payroll estimates on Friday as a result of the ending of the California grocer strike. UBS went from estimates of 125K to 160K, Bank 1 raised its estimates from 75K to 150K and Briefing.com went from 90K to 120K. This was one of the main reasons interest rates rose Friday. I believe the report will be slightly lower to right at expectations of 120K. The market should respond favorably to this. However, if the number comes in significantly below expectations or significantly above expectations the market will fall, thus I do not want to have a lot of market exposure heading into the report on Friday.

Market Week in Review

S&P 500 1,108.06 -.15%

U.S. equity markets drifted lower early in the week on more geopolitical concerns. Israel's assassination of the spiritual head of the Palestinian militant group Hamas and Taiwan's increasing turmoil over its recent presidential election both weighed on equities Monday morning. These concerns, multiple terror threats in France and inflation jitters sent Gold up 2.3% for the week. The Volatility Index(VIX), a gauge of investor anxiety, reached 22.67 on Monday, 63.91% above its recent lows set in the first week of the month. The NYSE Arms Index reached 4.52, its highest reading since the market bottomed last March. Finally, the AAII Bullish Sentiment Index fell to 31.48, down 54.71% from its recent high set in late January.

Goldman Sachs(GS) annihilated 1st quarter earnings and revenue estimates after the close on Tuesday, yet the markets shrugged. Seemingly overnight, investors' attitudes towards stocks turned more positive. On Wednesday after the close, Micron Technology(MU) missed sales targets for its second quarter report. However, the semiconductor index, which began to rally on Wednesday in anticipation of a strong report, continued rising on Thursday. The 6.0% rally in the SOX led to gains in the entire tech sector and eventually the broad market. Moreover, the price of crude oil fell over 5% from its recent high, leading some pundits to call a bottom for the recent correction. The unexpected rise in consumer sentiment helped propel equities further early Friday. However, stocks fell late in the afternoon on profit-taking, weekend terror fears and interest rate worries, leaving major indices mixed on the week.

BOTTOM LINE: The spike in the VIX and Arms, the significant fall in the AAII Bullish Sentiment Index, a breakdown in crude oil futures, an unexpected rise in consumer sentiment and outperformance by the semiconductors are all very positive developments for U.S. equities. The fall in energy stocks and underperformance by defensive sectors during the rally are also positive signs. Finally, the two-day 7.6% rally in airline stocks was mainly a result of falling energy prices, but may also signal investors fixation on terrorism is temporarily subsiding.

Economic Week in Review

ECRI Weekly Leading Index 134.10 -.07%

Concerns that inflation will soon accelerate are "premature," meaning the U.S. central bank can afford to wait before boosting interest rates, said Michael Moskow, president of the Federal Reserve Bank of Chicago. However, he also reiterated that the Fed can't maintain its rate stance "indefinitely." Moskow also said that the increase in raw materials costs was being offset by deflationary forces. Finally, he said that he isn't seeing signs that high energy prices are impacting consumers, business output or business production.

U.S. Durable Goods Orders rose 2.5% in February vs. expectations of +1.5% and -2.7% in January. Orders for computers, motor vehicles and aircraft led the way. Unfilled orders for business equipment, which gauges the ability of manufacturing to keep pace with demand, increased .7% in February, the biggest rise since October. Excluding transportation equipment, Durable Goods Orders declined .3% vs. expectations of a 1.5% rise and a .6% gain in January.

New Home Sales were 1163K in February vs. expectations of 1100K and 1099K in January. Purchases rose 12% in the Northeast, the fastest since January 1997. "The very high level of activity really ensures that consumer spending remains golden through the first half of this year," said Ken Mayland, chief economist of Clear View Economics.

The final GDP reading for the 4th quarter was 4.1%. This increase followed a gain of 8.2% in the 3rd quarter, resulting in the fastest six-month growth in almost 20 years. Corporate profits rose for a third consecutive quarter and were up 31% from the same quarter in 02, resulting in rapidly falling valuations for U.S. equities. Economists are now projecting the economy to growth 4.6% for all of 2004, the fastest economic growth since 1984.

The final Univ. of Mich. Consumer Confidence reading for March came in at 95.8 vs. a previous reading of 94.1 and expectations of 93.7. Income-tax rebates are up 5% on average from last year which may be buoying consumers until companies step up the pace of hiring, Bloomberg reported.

Macroeconomic Advisors, a private economic forecaster the Fed pays close attention to, says that for the rest of this year and 2005, the U.S. should see the heady combination of strong economic growth, payroll job gains of 200,000 a month, additional increases in corporate profits, significant gains in stock prices, only moderate rising interest rates and continued very low inflation.

BOTTOM LINE: The Fed, through multiple statements, made it clear last week that they do not see a significant pick-up in inflation, notwithstanding rising energy and base material prices. However, they also made it clear that they are going to raise rates at the first sign of sustainable job growth. I believe it will take two consecutive "above-expectations" jobs reports to prompt the Fed to raise rates. In my opinion, this will occur within the next 4-6 months at most. Ethan Harris, chief U.S. economist at Lehman Brothers said, "There's a legitimate concern that the general hue of news coverage on the economy has been very negative lately, and there's a risk of self-fulfilling expectations here." I agree with this statement and find it amazing that the Univ. of Mich. Consumer Confidence reading increased in the last two weeks. This is a significant development in my opinion. The U.S. consumer saw multiple terror attacks, the NASDAQ correcting almost 12%, record-high gas prices, very negative political campaigning and "slower-than-expected" job growth, yet consumer's confidence rose. Maybe the U.S. consumer is finally seeing through the mainstream media's intense focus on negativity and is realizing their net worth is at all-time highs, U.S. economic growth is at 20-year highs, the housing market is the best in U.S. history, corporate profits are near all-time highs, job creation is inevitable, there has not been a terror attack on U.S. soil since 9/11, inflation is near all-time lows, interest rates are near 46-year lows, unemployment is relatively low and falling, entrepreneurship is climbing, more parents are able to afford to send their children to college/graduate school and our standard of living is the highest in the world and climbing.

Weekly Scoreboard*

Indices
S&P 500 1,108.06 -.15%
Dow 10,212.97 +.26%
NASDAQ 1,960.02 +1.00%
Russell 2000 572.92 +.38%
Wilshire 5000 10,840.18 -.12%
Volatility(VIX) 17.33 -9.50%
AAII Bullish % 31.48 -18.45%
US Dollar 88.89 +.84%
CRB 278.75 -.09%

Futures Spot Prices
Gold 423.20 +2.30%
Crude Oil 35.73 -5.10%
Natural Gas 5.4 -3.42%
Base Metals 112.11 -.85%
10-year US Treasury Yield 3.84% +1.59%
Average 30-year Mortgage Rate 5.40% +.37%

Leading Sectors
Airlines +4.23%
Semis +3.43%
Gaming +3.39%

Lagging Sectors
Broadcasting -2.77%
Energy -3.09%
Oil Service -4.49%

*% Gain or loss for the week

Friday Close

S&P 500 1,108.06 -.10%
NASDAQ 1,960.02 -.36%

Leading Sectors
Airlines +2.42%
Iron/Steel +1.96%
I-Banks +1.37%

Lagging Sectors
Restaurants -1.09%
Wireless -1.19%
Semis -1.25%

Other
Crude Oil 35.73 +.62%
Natural Gas 5.39 +1.11%
Gold 422.20 +1.27%
Base Metals 112.11 +1.52%
U.S. Dollar 88.89 -.01%
10-Yr. Long-Bond Yield 3.83% +2.47%
VIX 17.33 -3.08%
Put/Call .77 +11.59%
NYSE Arms .88 +100.0%

After-hours Movers
RIMM +4.7% after saying it will receive a payment for an undisclosed amount from Good Technology to settle a series of lawsuits between companies.
OSUR +6.6% on a continued rise after winning U.S. approval to sell the first kit for rapid detection of the virus that causes AIDS in saliva.

Recommendations
TheStreet.com has a positive article on gold stocks, guests' favorites are PDG, EGO, CBJ, RIC and GSS.

After-hours News
U.S. stocks finished slightly lower on late-day profit-taking before the weekend, sending the S&P 500 to its third straight weekly loss. U.S. Treasury Notes had their biggest decline in two months after measures of personal income and consumer confidence were better-than-expected.

BOTTOM LINE: The Portfolio had a good day today as several longs rose substantially, offsetting minor losses in my short positions. The late-day sell-off led by semis was to be expected as many stocks had risen 8-12% in a very short period of time. I didn't trade today and the Portfolio is still 125% net long.

Mid-day Update

S&P 500 1,112.37 +.29%
NASDAQ 1,970.44 +.17%

Leading Sectors
Airlines +2.95%
I-Banks +1.46%
Oil Service +1.42%

Lagging Sectors
Restaurants -.45%
Hospitals -.50%
Wireless -.70%

Other
Crude Oil 35.33 -.51%
Natural Gas 5.35 +.07%
Gold 420.80 +.91%
Base Metals 112.11 +1.52%
U.S. Dollar 89.00 +.11%
10-Yr. Long-Bond Yield 3.81% +1.97%
VIX 16.85 -5.76%
Put/Call .77 +11.59%
NYSE Arms .65 +45.45%

Market Movers
GE +3.2% on addition to Focus 1 list by Merrill Lynch.
SWBD +26.9% on $160M acquisition by INSP.
SINT +26.8% after announcing a contract renewal with the U.S. government for as much as $800M.
INSP +14.2% after saying acquisition of SWBD will add $10-14M revenues in 2H.
RECN +14.5% after upgrade to Outperform at JMP Securities.
ATRS +11.1% after Pacific Crest raised it to Strong Buy.
CAH +4.2% after Goldman upgrade to Outperform.
MYOG -39.2% after saying its experimental Enoximone drug failed to meet the main goal of an advanced study. Multiple downgrades.

Economic Data
Personal Income for February +.4% vs. +.3% expectations.
Personal Spending for February +.2% vs. +.4% expectations.
Univ. of Mich. Consumer Confidence final reading for March 95.8 vs. estimates of 93.7.

Recommendations
CAH and MCK upgraded to Outperform at Goldman Sachs. GS reiterates bullish view on newspaper stocks, favorites are GCI and TRB. GS reiterated Outperform on KRB, SPLS, YHOO and AMT. Citi Smith Barney upgraded BBY to Buy, $62 target. Citi reiterated Buy on LPX and EEFT. Citi would Buy SEBL ahead of quarterly report on recent weakness. Citi made positive comments on UTSI and MOT after CTIA conference. Citi would Buy VZ and BLS at current levels. HLT and TV raised to Overweight at Morgan Stanley. MSPD rated Outperform at Thomas Weisel. GE added to Focus 1 list at Merrill Lynch. DRL rated Buy at Merrill. DUK rated Sector Outperform at CIBC. ET, NITE and AMTD raised to Strong Buy at Raymond James. NWL raised to Overweight at JP Morgan. TheStreet.com had a guest that was positive on ADI and TXN. TSC also has a positive column on UTX.

Mid-day News
U.S. stocks are modestly higher mid-day on continued strength in airlines and an upgrade of GE by Merrill Lynch. Russian President Putin said it was unacceptable that terrorists believed their bombings in Madrid defeated Spain's ruling party, and he urged the international community to unite, Interfax reported. Twaiwan's parliament failed to agree on a recount in the disputed presidential election and riot police clashed with protesters trying to block final certification of President Chen Shui-bian's victory. Continental Air raised fares for the second time in a month to help cover rising fuel costs, Bloomberg reported. A stretch of I-95 near Bridgeport, Connecticut may be closed for as long as 2 weeks because of structural damage caused by an oil tanker truck that collided with a car and caught fire last night. El Paso Corp. said it has been notified that the SEC is conducting a formal investigation of the 41% reduction in the company's oil and gas reserves, Bloomberg reported. U.S. personal spending rose .2% in February and consumer confidence unexpectedly climbed this month, suggesting the economy is maintaining strength, Bloomberg reported.

BOTTOM LINE: The Portfolio is up today as strength in my airline and select technology positions offset rising shorts. I have not traded today and the Portfolio is still 125% net long. I expect the market will either maintain current levels or sell-off a bit later in the day on rising interest rates, weekend terror fears and profit-taking. However, I expect the rally to regain momentum early next week.

Friday Watch

Earnings Announcements
Company/Estimate
DLP/.24
DISH/.09
MEDQ/.20
BREL/.42

Splits
SCHN 3-for-2

Economic Data
Personal Income for February estimated +.3% vs. +.2% in January.
Personal Spending for February estimated +.4% vs. +.4% in January.
Final Univ. of Mich. Consumer Confidence for March estimated at 93.7 vs. 94.1 preliminary.

Recommendations
Oppenheimer raised AVP price target to $94. Goldman Sachs said their meetings earlier this week with tower company and carrier executives at the CTIA wireless conference confirm their bullish thesis for tower stocks. ASFI is undervalued compared to its peers according to Business Week. CPD may be bought by India's Sun Pharmaceutical Industries, reported Business Week.

Late-Night News
Asian stocks are mostly higher with Japan's Nikkei leading the way again. Japanese bonds plunged as the Nikkei surged 1.85% to it highest level since June 2002 after a report showed household spending rose twice as fast as expected. The winner of Taiwan's presidential election recount may find his initiatives to revive the economy and change the island's relationship with China thwarted by questions over his legitimacy, according to executives and analysts.

Late-Night Trading
Asian Indices +.25% to +1.75%.
S&P 500 indicated +.07%.
NASDAQ indicated +.04%.

BOTTOM LINE: The Portfolio is 125% net long and I expect a continuation of today's rally for the next several days. Profit-taking will likely emerge tomorrow at some point, but I do not expect it to be significant. The Portfolio is overweight technology, airlines, gaming and homebuilding. Areas of focus on the short-side are oil-service and retail.

Thursday Close

S&P 500 1,109.19 +1.64%
NASDAQ 1,967.17 +3.02%

Leading Sectors
Airlines +5.11%
Networking +4.46%
Internet +4.14%

Lagging Sectors
Tobacco +.41%
Drugs +.32%
Energy -.26%

Other
Crude Oil 35.52 +.03%
Natural Gas 5.33 -.02%
Gold 416.40 -.12%
Base Metals 110.43 -1.23%
U.S. Dollar 88.95 +.06%
10-Yr. Long-Bond Yield 3.73% unch.
VIX 17.88 -9.74%
Put/Call .69 -22.47%
NYSE Arms .44 -64.52%

After-hours Movers
ET +4.72% after announcing it will replace FleetBoston is S&P 500 Index.
OMNI +5.06% after reporting strong 4Q earnings.
ASKJ +5.57% on no news.
UTEK -4.93% after lowering 1Q forecast and maintaining 04 estimates.
MYOG -30.05% after saying its Enoximone heart-failure drug fails to meet study goal.

Recommendations
Goldman Sachs just released its annual survey of slot floor managers, reinforcing their positive view on the slot manufacturers. It indicates that: 1)there is more room to go in cashless 2)mid-size casinos are providing a second leg to the accelerated replacement cycle 3)significant demand for low and multi-denominational exists and 4)IGT still sets the industry's pace. GS said World pulp data for Feb. reflects a tightening pulp market, prices moving higher, positive for WY, IP, TBC.CA, BOW and ARA. Cramer, of TheStreet.com, likes GS at current levels.

After-hours News
U.S. stocks finished substantially higher on Thursday as falling energy prices, strong economic data and better-than-expected earnings reports propelled the S&P 500 to its largest gain in six months. After the close, the Financial Times reported at least 40 U.S. congressman and senators have criticized the European Union's decision to levy a $609M fine on Microsoft. Executives pay packages will probably fall in coming years as compensation committees respond to accounting changes and upset investors, Business Week reported. U.S. House Leader Delay has been talking with colleagues about the possibility he will have to temporarily leave his post if he's indicted for alleged campaign finance abuses, Roll Call reported. Progressive Corp. tops Business Week's eighth annual rankings of best performing members on the S&P 500 because it never stops trying to find ways to do things cheaper and faster for its customers, Business Week reported. AOL could be worth $10.6B in a sale, Business Week reported. Jamie Olis, a former v.p. of finance at Dynegy, was sentenced to 24 years in prison for his role in a $300M accounting fraud at the company. Hewlett-Packard sued Gateway alleging infringement of six patents.

BOTTOM LINE: The Portfolio had a good day today as my shorts were unchanged and my longs rose substantially. I added a few other beaten-up special situation longs in the afternoon, bringing the Portfolio's market exposure to 125% net long. Terror threats and Micron's disappointing earnings report didn't even slow down the rally today. Thus, with falling oil prices and quarter-end positioning in the near-term, I expect further gains for U.S. equities over the next few days.

Mid-day Update

S&P 500 1,106.44 +1.37%
NASDAQ 1,955.34 +2.40%

Leading Sectors
Airlines +4.89%
Networking +3.75%
Software +3.65%

Lagging Sectors
Drugs +.48%
Tobacco +.24%
Energy -.17%

Other
Crude Oil 35.90 -3.0%%
Natural Gas 5.34 -1.64%
Gold 417.20 -.07%
Base Metals 110.43 -1.23%
U.S. Dollar 88.75 -.17%
10-Yr. Long-Bond Yield 3.73% +.66%
VIX 18.13 -8.48%
Put/Call .62 -30.34%
NYSE Arms .42 -66.13%

Market Movers
NANX +19.7% after announcing that it received a $10M investment from Germany's Altana AG to develop paints, plastics and coatings.
GETI +18.6% after selling its phone-gear business for $291M to ADC Telecom.
KVHI +13.9% after Raymond James upgrade to Strong Buy.
VIP +8.0% on strong 4Q earnings report.
AVP +6.7% after raising 1Q guidance substantially.
INFY +4.6% after positive comments from Citi Smith Barney.
ASCA +9.9% after boosting 1Q guidance substantially.
MERX -11.9% after meeting 3Q estimates and lowering 4Q guidance.
IBC -11.6% after lowering 3Q guidance substantially.

Economic Data
Final 4Q GDP was +4.1% vs. expectations of 4.1%.
Initial Jobless Claims last week were 339K vs. expectations of 340K.
Continuing Claims were 3004K vs. 3050K prior.
Existing Home Sales for February were 6.12M vs. expectations of 6.12M.
Help Wanted Index for February was 40 vs. expectations of 39.

Recommendations
Jim Cramer of TheStreet.com is positive on cable stocks, favorites are CMCSA, TWX and CHTR. CTXS raised to Outperform at CSFB. CTB raised to Buy at Deutshe Bank. CTAS raised to Overweight at Morgan Stanley. CIBC positive on AUDC, saying it will likely exceed estimates on strong voice-over-internet-protocol sales. MKC raised to Buy at Merrill. KVHI raised to Strong Buy at Raymond James. Goldman Sachs reiterated Underperform on LSI. Goldman says tone at Society of Toxicology conference in Baltimore was markedly positive for CRO companies. GS reiterated Outperform on AVP, AG and BBY. Citi Smith Barney positive on commodity chemical companies, favorites are EMN, NCX and MCH. Citi would Buy MU on weakness.

Mid-day News
U.S. stocks are rising sharply mid-day, led by airlines and technology shares. A drop in energy prices, strong earnings reports and more positive economic data are the catalysts for the rise. Lucent(LU) will repair and upgrade Iraq's telecom networks under a two-year contract valued at $75M from the U.S. Dept. of Defense, the Star-Ledger reported. Texas oil refineries are possible targets for terrorists, the FBI said today, Reuters reported. Al Jazeera aired a tape of al-Qaeda's Zawahiri calling on Pakistanis to overthrow the government, CNN reported. The number of Americans filing initial claims for jobless benefits remained near a 3-year low, a government report showed. Eli Lilly, maker of the world's top-selling schizophrenia medicine, Zyprexa, said its marketing and promotional practices are being investigated by the U.S. Attorney in Pennsylvania. Oil fell after members of OPEC said the group should postpone production cuts. The U.S. economy expanded at a 4.1% annual rate in the final 3 months of 2003 after a rise of 8.2% in the 3rd quarter, resulting in the fastest six-month economic growth in almost 20 years. The National Association of Manufacturing says 55% of companies surveyed expect to increase hiring in the near future, the most positive results they have seen in a very long time, reported CNBC.

BOTTOM LINE: The Portfolio is having a good day today as I added technology and airline longs on the gap up open in the Morgan Stanley High-tech Index and the gap down in crude oil. The Portfolio is 100% net long. This countertrend rally should have legs into next week on quarter-end positioning. Hedge funds will take profits in their shorts and Mutual funds will use cash to attempt to boost shares at quarter-end. Tech stocks positive reaction to Micron's relatively weak quarter, the fall in crude oil prices and the broad market's strength in the face of another al-Qaeda video tape threat also leads me to believe that this countertrend rally will continue for a few days.

Thursday Watch

Earnings Announcements
Company/Estimate
CKEC/-.15
CAG/.38
SHRP/1.40
SRR/.23

Splits
AMSG 3-for-2
RJF 3-for-2

Economic Data
Final 4Q GDP estimated at 4.1%.
Initial Jobless Claims last week estimated at 340K vs. 336K prior week.
Existing Home Sales for Feb. estimated at 6.12M vs. 6.04M in Jan.
Help Wanted Index estimated at 39 in Feb. vs. 38 in Jan.

Recommendations
Goldman Sachs reiterated Underperform on RNWK and THC. GS reiterated Outperform on KMI, TYC and KMR. JP Morgan cut its estimate for the euro against the U.S. dollar after it reduced its estimate for economic growth in the European Union. JP Morgan said the yen may rally 12% to 95 per dollar by year-end, boosting its forecast from 99, as economic growth in Japan attracts foreign investment.

Late-Night News
Asian stocks are mostly lower with Japan's Nikkei being the lone stand-out on the upside. Japanese stocks rose after a government report showed a widening trade surplus, adding to optimism that the pace of economic growth can be sustained, reported Bloomberg. The European Union may log all airline passengers arriving from the U.S. to allow it to collect similar data to the U.S.' monitoring of travelers from European destinations, the Financial Times reported. Nokia's sales from it Indian operations rose 97% to more than $1.21B in 03, making the country its fastest growing market after the United Arab Emirates, the Business Standard reported. Human Genome Sciences'(HGSI) Chairman and CEO will leave the company later this year once a successor is found, the NY Times reported. Nokia(NOK) executives bought shares worth millions of euros in the past year, the Helsingin Sanomat reported.

Late-Night Trading
Asian Indices -1.25% to +.25%. Japan's Nikkei +1.46%.
S&P 500 indicated +.12%.
NASDAQ indicated +.25%.

BOTTOM LINE: The Nikkei will break a double top on a close above 11,577. The world's 3rd largest economy is finally improving after years of dragging down world economic growth. This is a very positive development and I would not underestimate its consequences. The Semiconductor Index is still hovering right near its 200-day moving average. If the SOX can hold its recent lows, after Micron's relatively disappointing report, or rise tomorrow I would expect the entire tech sector to benefit. This should then lead to broad-market countertrend rally. The Portfolio is 25% net long.

Wednesday Close

S&P 500 1,091.33 -.24%
NASDAQ 1,909.48 +.40%

Leading Sectors
Gaming +3.28%
Semis +2.33%
Software +.53%

Lagging Sectors
Energy -2.11%
Iron/Steel -2.46%
Oil Service -3.05%

Other
Crude Oil 36.82 .51%
Natural Gas 5.42 -.22%
Gold 415.50 -.46%
Base Metals 111.80 +.84%
U.S. Dollar 88.97 +.04%
10-Yr. Long-Bond Yield 3.71% +.50%
VIX 19.81 -4.16%
Put/Call .89 +32.84%
NYSE Arms 1.24 +1.64%

After-hours Movers
THC +5.54% after it said it agreed to pay the government $30.75M to settle 2 investigations into its billing practices.
LSCC +3.33 after better-than-expected 4Q and restating previous 3 quarters downward.
MERX -8.34% after beating 3Q estimates and lowering 4Q guidance.
MU -4.55% after missing sales estimates for 2Q.

Recommendations
Goldman Sachs reiterates Outperform on MDT, PFE, TRW and MSFT.

After-hours News
U.S. stocks finished mixed on Wednesday as strength in gaming and semiconductors was offset by weakness in commodity-related sectors. Continued fears of terrorism hurt economically sensitive groups after French officials discovered a bomb underneath the tracks of a train headed from Paris to Basel. Investors fear that already weak European economies could weaken further, damaging the U.S. economy. After the close, the Financial Times said Microsoft faces further suits over Windows XP. Bush administration officials said they are working to get Saudi Arabia to disrupt funding for terror groups and they are cooperating much more than a year ago. Israeli forces stopped a 14-year old Palestinian boy that was paid $22 to carry an 18 pound bomb and detonate it at a roadblock. The boy said he was tempted by the promise of his dispatchers that he would meet 70 virgins once he entered heaven and that he wanted to be a hero, reported Ha'aretz.

BOTTOM LINE: The Portfolio ended down slightly on the day as the market deteriorated substantially in the afternoon. I sold a few of my commodity-related longs, bringing market exposure for the Portfolio back down to 25%. I will closely monitor the tech sector's reaction to a relatively disappointing quarter from Micron. A break below 456 on the Morgan Stanley High-tech index will lead me to exit some of my longs and a break above 467 will lead me to increase my exposure in tech. Semis led the market correction and it is good to see them stabilizing and showing outperformance. However, tomorrow will be the real test. I am expecting a significant countertrend rally to begin early next week, but it could begin at any time due to the oversold short-term position of the major U.S. indices.

Mid-day Update

S&P 500 1,094.33 +.02%
NASDAQ 1,916.79 +.78%

Leading Sectors
Gaming +2.94%
Semis +2.86%
Software +.97%

Lagging Sectors
I-Banks -1.03%
Oil Service -1.58%
Iron/Steel -2.08%

Other
Crude Oil 37.15 -.80%
Natural Gas 5.44 -1.63%
Gold 417.40 -.62%
Base Metals 111.80 +.84%
U.S. Dollar 88.78 +1.14%
10-Yr. Long-Bond Yield 3.71% +.56%
VIX 19.84 -4.21%
Put/Call .85 +26.87%
NYSE Arms 1.01 -17.21%

Market Movers
NOVL +13.1% after announcing joint agreement with HPQ and multiple upgrades.
SNTO +17.6% after announcing that C. Lloyd Mahaffey joined board.
ENDP +13.6% after the drug-maker won U.S. approval for a generic version of the OxyContin painkiller.
CTB +7.8% after saying it may sell its auto-parts unit to focus on expanding its main business in emerging markets such as China.
PCSA -13.3% after announcing resignation of CFO.
GS -2.18% after negative Heard on the Street column in Wall Street Journal.
Gaming stocks up across the board on positive comments from Deutsche Bank.

Economic Data
Durable Goods Orders for February +2.5% vs. expectations of +1.5%.
Durable Goods Less Transportation for February -.3% vs. expectations of +1.0%.
New Home Sales for February 1163K vs. expectations of 1100K.

Recommendations
TheStreet.com says companies are using coal bed methane to boost natural gas production. Companies that are focusing on this method are APC, BR, DVN, ECA, EVG, KWK and MHR. Cramer of TheStreet.com is saying that the high Put/Call ratio, Investors Intelligence drop in bulls, the oversold oscillator reading and low valuations in many stocks should provide the catalyst for at least a short-term bottom. TMB, TSU, EAGL and HOT raised to Overweight at JP Morgan. BBBY and BBY raised to Outperform at CSFB. TWX raised to Sector Outperform by CIBC. SLB, BNI and NSC raised to Overweight at Morgan Stanley. CSX and UNP cut to Underweight at Morgan Stanley. SPLS raised to Overweight at Prudential. RSAS rated Buy at Citi Smith Barney. NRP raised to Buy at Citi. Citi says to use recent weakness in MAR, HLT and FHR to Buy. Citi says to Buy MSFT, target $34. Citi reiterates 1M on GTK. Citi reiterates 1H on GS, raised target to $127. Goldman Sachs says recreational boat season stronger than expected, reiterates Outperform on BC. GS reiterating Outperform on MSFT.

Mid-day News
U.S. stocks are mostly higher in the afternoon as strength in gaming and semiconductor companies more than offset terrorism fears in Europe. Many U.S. companies and politicians are criticized for exporting jobs outside the U.S., while the fact that foreign companies are creating jobs here almost goes unnoticed, the Wall Street Journal reported. France's embassy in Djibouti said today it received a letter from an Islamic extremist threatening French interests due to its ban on religious clothing in public schools, Agence France-Presse reported. An unexploded bomb with several detonators was found today in France on the rail line linking Paris and the Swiss city of Basel, AFP reported. The U.S. economy is strengthening as business investment picks up and that will force the Fed to raise rates at some point, said Fed Bank of Atlanta President Jack Guynn. U.S. durable goods orders rose a larger-than-expected 2.5% in February on strength in computers, vehicles and aircraft. New Home Sales were the third-fastest on record, reported Bloomberg. Crude oil fell after an Energy Dept. report showed inventories rose to their highest level in 4 months.

BOTTOM LINE: The Portfolio is up today as one of my longs is up substantially and my shorts are unchanged. I added a few beaten up tech long positions this morning, raising market exposure to 50% net long. It is too early to tell if the countertrend rally has begun, but outperformance by semis is a positive development. A move up through 467 on the Morgan Stanley High-tech Index will likely lead me to add another 25% long exposure.

Wednesday Watch

Earnings Announcements
Company/Estimate
LSCC/-.01
MERX/.09
MU/-.07
PERY/1.11

Splits
ASFI 2-for-1
COCO 2-for-1

Economic Data
Durable Goods Orders for February estimated up 1.5% vs. -2.3% prior month.
Durable Goods Less Transportation for February estimated up 1.0% vs. 1.2% prior month.
New Home Sales estimated at 1100K for February vs. 1106K prior month.

Recommendations
Goldman Sachs reiterated Underperform on RKY. TheStreet.com is saying OVTI is about to have a lot of large competition. TSC also says that this still looks a pullback in a primary uptrend.

Late-Night News
Asian stocks are mostly higher on an upgrade of Japan's debt rating and several major stock buyback announcements by leading Taiwanese companies. Richard Branson's Virgin USA low-cost carrier plans to purchase as many as 55 planes and may partner with US Airways as it seeks to take advantage of demand for low cost flights in the U.S. OPEC will discuss a proposal to delay production cuts at a meeting next week, OPEC news agency said. Taiwan Semi announced a 300 million share buyback on its 13% decline since the disputed election. Nokia(NOK) may tell shareholders at an annual general meeting Thursday that demand for handsets is rising, leading to better-than-expected 1Q earnings. Japan's debt outlook was raised by S&P, the first of the rating companies to become more optimistic after 3 years of downgrades.

Late-Night Trading
Asian Indices -.25% to +.75%.
S&P 500 indicated -.05%.
NASDAQ indicated +.11%.

BOTTOM LINE: I expect the U.S. markets to remain weak to flat tomorrow on continuing worries over geopolitical matters, technical deterioration and high commodity prices. The Portfolio is 25% net long and I will look to add market exposure on any signs of a significant countertrend rally.

Tuesday Close

S&P 500 1,093.95 -.13%
NASDAQ 1,901.80 -.42%

Leading Sectors
Iron/Steel +.80%
HMO's +.78%
Airlines +.72%

Lagging Sectors
Telecom -1.02%
Disk Drives -1.03%
Oil Service -1.40%

Other
Crude Oil 37.51 +.16%
Natural Gas 5.53 unch.
Gold 419.90 -.02%
Base Metals 110.87 -1.28%
U.S. Dollar 87.85 +.07%
10-Yr. Long-Bond Yield 3.69% -.61%
VIX 20.67 -4.22%
Put/Call .67 -30.21%
NYSE Arms 1.22 -63.58%

After-hours Movers
RHAT +9.12% after largest developer of Linux software met 4Q estimates and raised 1Q guidance.
NOVL +5.71% as number 2 developer of Linux software benefited from strong RHAT report.

Recommendations
Goldman Sachs reiterated Outperform on AMGN. GS reiterates its view that steel stocks will continue to see earnings driven outperformance. TheStreet.com has a negative column on AWE, saying it is losing subscribers. TheStreet.com has a positive column on gaming stocks, saying estimates are rising as the stocks correct.

After-hours News
U.S. stocks ended slightly lower Tuesday on another disappointing session for the bulls. Equities were higher until the final 30 minutes, dropping on reports that Israeli gunboats opened fired off the shoreline of Gaza City. After the close, Tyson Foods said it won't have to pay $1.28B in damages to thousands of ranchers, according to a ruling by a U.S. judge. Morgan Stanley led companies that sold $7.5B of new notes and bonds today, more than double the daily average this year, as frequent borrowers such as finance companies took advantage of low borrowing costs. Israeli planes hit a squad preparing to fire rockets from Lebanon into Israel, military officials reported.

BOTTOM LINE: The Portfolio was up slightly on the day, as I took profits in a few winning longs and added a new overbought short, bringing market exposure back down to 25% net long. I shorted ANF in the afternoon and will use a tight stop-loss of $33 as the market is very oversold short-term. The action in the final 30 minutes was disheartening for the bulls, as the days gains completely evaporated on some inconsequential news items. I expect a bit more weakness before a real countertrend rally begins on quarter-end mark-ups. Furthermore, I expect weakness to resurface in early April. However, the beginning of earnings season later in the month should provide the catalyst for a resumption of the bull market that began last year.

Mid-day Update

S&P 500 1,098.41 +.27%
NASDAQ 1,912.83 +.15%

Leading Sectors
Iron/Steel +1.29%
Airlines +1.0%
Papers +.50%

Lagging Sectors
Biotech -1.10%
Telecom -1.50%
Oil Service -1.64%

Other
Crude Oil 37.35 +.81%
Natural Gas 5.49 -1.01%
Gold 420.20 +.67%
Base Metals 110.87 -1.28%
U.S. Dollar 87.71 -.11%
10-Yr. Long-Bond Yield 3.71% -.05%
VIX 21.02 -2.60%
Put/Call .68 -29.17%
NYSE Arms 1.29 -61.49%

Market Movers
PLMO +27.6% after significantly beating 3Q estimates and raising 4Q guidance.
ELN +7.7% after saying it will ask European regulators to approve its Antegren multiple sclerosis treatment this year.
SBNY +24.5% on strong demand for IPO.
SKIL +12.2% after better-than-expected 4Q estimates.
AKAM -9.2% after announcing COO will leave company.

Economic Data
None of note.

Recommendations
Goldman Sachs says that key takeaways from CTIA wireless show are 1)2G infrastructure market likely stronger than expected in 04 2)3G ramp continues to look steady in 04 3)3G ramp continues steady in 04. Overall, vendor sentiment remains in-line with recent positive demand comments, favorite is ERICY. GS reiterated Outperform on ACS, PETC and ATYT. GS says EU fine of $610M on MSFT is equivalent to 2 weeks of its cash flow, reiterated Outperform. GS positive on CSCO and NT ahead of their Voice on the Net conference next week. Citi Smith Barney raised RA to Buy 1M. Citi reiterated Buy on CCL, $53 target. Citi says NT oversold and is negotiating with FLEX to divest almost all it remaining optical, wireless and enterprise manufacturing operations. PFGC raised to Overweight at Morgan Stanley, target $41. PFE raised to Buy at Oppenheimer, target $39. SWY cut to Underweight at Lehman. TheStreet.com is positive on BRL.

Mid-day News
U.S. stocks are moving higher mid-day on a bounce from oversold levels and positive earnings news from Goldman Sachs. Jones Apparel Group began a hostile tender offer of about $297M for Maxwell Shoe, Bloomberg reported. The euro fell against the dollar after a European Central Bank report showed investors withdrew more than twice as much money from the euro region in January than in December. Advanced Micro(AMD) expects demand to rise in the second half of the year as companies buy new computers to replace those purchased in 1999. U.S. companies that have resisted making stock options an expense will have to do so starting next year under a rule the Financial Accounting Standards Board will issue this month.

BOTTOM LINE: The Portfolio is up slightly on the day as a few of my tech longs are up and my oil service shorts are down. I added a few new longs this morning on weakness in select securities. The Portfolio is now 50% net long. I will closely monitor the late-afternoon action for any signs that a significant bounce has begun as the major U.S. indices are oversold short-term.

Tuesday Watch

Earnings Announcements
Company/Estimate
FDO/.46
GS/1.66
RHAT/.03

Splits
NIHD 3-for-1

Economic Data
None of note.

Recommendations
CBA raised to Overweight at Morgan Stanley. Goldman Sachs reiterated Underperform on EDS. GS reiterated Outperform on YUM.

Late-Night News
Asian stocks are mixed as strength in Hong Kong, South Korea and India is overshadowed by another significant decline in Taiwan. A statement purportedly from the al-Qaeda terrorist network called for retaliation against the U.S. after Israeli forces killed Hamas leader Sheikh Ahmed Yassin, Agence France-Presse reported. Comcast will leave its bid to buy Disney on the table for no longer than three to six months, the New York Times reported. The U.S. is prepared to consider granting India the status of a non-NATO ally, New Delhi Television reported. General Motors is paying parts suppliers higher prices to cover rising steel costs, while at the same time suing two suppliers that threatened to stop deliveries, the WSJ reported. Anheuser-Busch is under pressure to spend more money on advertising its Bud Light brand because of growing competition from other beers, the WSJ reported. China protested a U.S. resolution prepared for a UN commission that criticizes the Chinese government for "backsliding" on human rights.

Late-Night Trading
Asian Indices -.50% to +1.0% on avg. with Taiwan's TWSE Index declining another 3.0%.
S&P 500 indicated +.27%.
NASDAQ indicated +.47%.

BOTTOM LINE: Asian stocks opened mostly lower and have rallied throughout the day. It is likely that U.S. stocks will attempt to rally in the morning off their oversold short-term condition. I will analyze the strength of the rally in the morning to decide whether or not to add some exposure on any weakness into the afternoon. However, if the indices open lower, I will likely add 25% long exposure in the morning. The Portfolio is 25% net long.

Monday Close

S&P 500 1,095.40 -1.30%
NASDAQ 1,909.90 -1.58%

Leading Sectors
Restaurants +.11%
Defense -.31%
Foods -.68%

Lagging Sectors
Papers -2.72%
Networking -3.20%
Airlines -3.21%

Other
Crude Oil 37.15 +.27%
Natural Gas 5.55 +.07%
Gold 417.20 -.10%
Base Metals 112.31 -.67%
U.S. Dollar 87.81 -.36%
10-Yr. Long-Bond Yield 3.71% -1.55%
VIX 21.58 +12.69%
Put/Call .96 -5.88%
NYSE Arms 3.35 +65.02%

After-hours Movers
PLMO +11.3% after significantly beating 3Q estimates and raising 4Q guidance substantially.
PSRC +5.2% on PLMO earnings report.
SKIL +5.1% on better-than-expected 4Q earnings.

Recommendations
Goldman Sachs reiterated Outperform on AL, sees 31% upside from current levels. GS reiterated Outperform on CCL. Merrill Lynch raised Hong Kong to Overweight and cut Taiwan to Marketweight.

After-hours News
U.S. stocks fell again today as geopolitical concerns weighed heavily on airline and technology shares. Goldman Sachs says pension reform initiatives will have no major impact on equity and fixed income markets. Morgan Stanley and Credit Suisse First Boston Private Equity are the frontrunners to buy eight power plants in the southeastern U.S. from Duke Energy, Power Finance and Risk said. Taiwanese stocks slumped in the U.S., pointing to further declines Tuesday in Taipei, Bloomberg reported.

BOTTOM LINE: The Portfolio was down today as its 100% net long market exposure left it exposed to today's broad-based sell-off. I lowered market exposure to 25% net long in the afternoon. While I think we are getting very close to the bottom of this correction, I am not going to fight the tape. The SOX broke its 200-day moving average, but not convincingly. The NYSE Arms Index reached levels not seen since the bottom last March. However, the Put/Call ratio and VIX, which also spiked today, are still well off levels normally associated with bottoms. Finally, breadth was very bad today on average volume. Thus, I will keep the Portfolio close to market neutral, without adding new shorts, as I believe the major U.S. indices very oversold short-term.

Mid-day Update

S&P 500 1,095.61 -1.28%
NASDAQ 1,907.07 -1.72%

Leading Sectors
Restaurants +.25%
Drugs -.42%
Energy -.64%

Lagging Sectors
I-Banks -2.81%
Networking -3.05%
Airlines -3.17%

Other
Crude Oil 37.15 -2.44%
Natural Gas 5.51 -1.20%
Gold 418.30 +1.36%
Base Metals 112.31 -.67%
U.S. Dollar 87.62 -.58%
10-Yr. Long-Bond Yield 3.74% +.90%
VIX 21.61 +12.85%
Put/Call .82 -19.61%
NYSE Arms 3.18 +56.65%

Market Movers
USON +18.9% on $1.7B buyout by Welsh Carson.
MAGS +26% as investors anticipate increased demand for security systems.
NSSC +21.7% on positive Barron's recommendation.
EWT -11.7% on Taiwan political unrest.
IFF -6.6% after negative "Heard on the Street" column in the WSJ.
SSCC -7.0% after lowering 1Q earnings forecast.

Economic Data
None of note.

Recommendations
Tom Kurlak says in a Street.com editorial that he couldn't disagree more with Wall Street's concern that semiconductors have seen their best earnings growth rates for this cycle. His favorites are INTC, AMAT, TER, MU, BRCM and AVX. Goldman Sachs reiterates Underperform on TE and RKY. GS reiterates Outperform on EBAY, MO, BSX, PAYX, CAKE, WEN, YUM, KO, CCE and PEP. GS raising CBL to Outperform. Goldman becoming more confident in a significant employment pick-up, benefiting SIR, RMK, MLHR and SCS, favorite is KROL. Citi Smith Barney says MU will deliver strong 2Q results and make positive comments on 3Q. HTLD raised to Overweight at Morgan Stanley, $26 target. FON and CCI raised to Overweight at JP Morgan.

Mid-day News
U.S. stocks are falling mid-day on numerous geopolitical concerns, led by weakness in airline and technology shares. WalMart said same-store sales for March are tracking at the high end of the company's plan. Citi Smith Barney Chief North American Economist says that the recent Manpower employment survey is indicative of 700,000 new jobs being created in the second quarter, but that must be seen for investors to be convinced. Makers of antidepressants should better warn doctors and patients about suicide risk for people taking the medicines, the U.S. FDA said. Crude oil futures fell after officials from 2 members of OPEC said the group may postpone a cut in production quotas that was due to start April 1. Concerns that inflation will soon begin increasing are "premature" and it is unlikely inflation will increase significantly said Michael Moskow, president of the Federal Reserve Bank of Chicago. Moskow also said employment will pick-up as the economy continues to expand and that the Fed can be "patient" on policy accommodation.

BOTTOM LINE: The Portfolio is 100% net long and is down today on weakness in almost every sector. The NYSE Arms Index reached 4.52 this morning. The last time it reached such an extreme level was at the lows last March right before the bull market began. I have not traded as of yet. I am waiting to see if the morning lows on the S&P 500 will hold. I will likely cut market exposure significantly in the afternoon on a convincing break of the morning lows.

Monday Watch

Earnings Announcements
Company/Estimates
AMHC/.15
CCL/.22
PLMO/-.33
WAG/.42

Splits
DCI 2-for-1

Economic Data
None of note.

Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on AXP, TRV, SPLS, CMCSK, XOM, FDC, LXK, DEO,MCY,PRV, LPNT and CPWM. Forbes on Fox had guests that were positive on BUD, MDT,HIBB, DKS, NKE and FL. Bulls and Bears had guests that were positive on OMM, ALVR, ING, OSTK, mixed on FAF, NT, AZO and negative on Airlines. Cashin' In had guests that were positive on LLL, PAL and mixed on GS, SIRI and MOT. Wall Street Week had guests that were positive on SYNM, FCEL, PLUG, AES, RRI, DPL, WTR, PNR and CUNO. Goldman Sachs says Airline Index has dropped 25% in six weeks and prices are below 9/11 lows. GS thinks top-line growth will accelerate in spring and any sign of a continuation of the profit recovery could result in dramatic outperformance, favorites are ALK, AMR and CAL. Barron's has positive columns on IDG, NSSC, MDT, BBH and SNE. It has negative pieces on the AAPL, the overall market and the U.S. dollar.

Weekend News
Iraq plans to boost crude oil production by 720,000 barrels a day to 2.6 million barrels a day this month. Some Syrians are openly questioning their government and challenging state oppression after watching the overthrow of Saddam Hussein across the border in Iraq, the NY Times reported. Cholesterol reduction and lowering blood pressure may be more effective at preventing heart attacks than medical procedures, the NY Times reported. Yahoo! Inc.'s revenue from its search engine is expected to exceed $3B this year, up from $400M in 2000, the NY Times reported. Taiwan President Chen Shuibian won election to a second term a day after he was shot. Nationalist Party leader Lien Chan, who lost by a quarter of a percentage point, said he will seek to overturn the poll. Lien said the shooting incident looked suspicious and had affected the outcome. Taiwan protestors demanding a recount in Saturday's election blocked a main Taipei boulevard for a second day, prompting a 6.7% decline in the TWSE Index, its worst decline in eight years. China put its army on alert on concern about the political crisis in nearby Taiwan, the South China Morning Post said. Al-Qaeda bought nuclear suitcase bombs on the black market from disgruntled Russian scientists, reported the Sydney Morning Herald. Pakistan's army halted an offensive against a force of suspected al-Qaeda and Taliban supporters to allow tribal leaders to negotiate a surrender, the military said. Rumors continue to swirl regarding al-Zawahiri, al-Qaeda's number 2 man, without confirmation regarding his whereabouts. 25% of all retail shopping will be done over the internet within five years compared to 4.2% last year, the Financial Times reported.

Late-Night Trading
Asian indices are mostly lower, with Taiwan's TWSE Index falling substantially. Losses range from -1.0% to -2.0%. Taiwan is down 6.7%.
S&P 500 indicated -.10%.
NASDAQ indicated -.14%.

BOTTOM LINE: Weakness in Asia will likely result in morning losses for U.S. stocks. I will closely monitor the breadth and volume readings on any gap down open. I will not sell into any substantial weakness in the morning. However, I will make a decision later in the day on whether or not to cut market exposure substantially. The Portfolio is currently 100% net long.

Charts of the Week

BOTTOM LINE: The above chart(shaded areas are recessions) shows the current unemployment rate of 5.6% is below the average for any ten-year period during the last 30 years. However, many say that this number isn't relevant as the number of people dropping out of the labor force is rising. These people are said to be so discouraged that they have given up on looking for a job. A recent Business Week article suggests that this is not the case. The article says that almost all of the drop in labor participation is in the 16-24 age group, specifically the 20-24 year olds. The above charts verify this analysis. It is my contention that with American's net worth at all-time highs, more and more 20-24 year olds are attending college and graduate school, thus resulting in a lower labor participation rate by this age group.

Weekly Outlook

The coming week is relatively light on market-moving economic reports and earnings releases. Durable Goods Orders, New Home Sales, 4Q Final GDP, Existing Home Sales, Help Wanted Index, Personal Income, Personal Spending and the Final U. of Mich. Confidence reading for March are scheduled for release next week. Durable Goods Orders and Consumer Confidence are the most important releases. Durable Goods Orders are estimated +1.5% versus -2.3% in January. The Final reading from the U. of Mich. Consumer Confidence Index for March is expected to be 93.5 vs. a prior estimate of 94.1.

To date, there have been only 1.7 earnings warnings for the upcoming quarter to every positive preannouncement, significantly lower than the average of 2.5. Walgreen(WAG), Micron(MU), Carnival Corp.(CCL), Goldman Sachs(GS) and EchoStar(DISH) are some of the more important companies that release quarterly earnings this week. PeopleSoft's(PSFT) annual stockholder meeting on Thurs. will be of interest as investors look for comments on Oracle's takeover bid. Several Fed Governors speak throughout the week as well. The CTIA Wireless Conference lasts all week. Amgen's Research and Development Day is Tues. Applied Materials(AMAT) annual meeting is Wed. Finally, Nokia's(NOK) annual meeting is scheduled for Thur.

BOTTOM LINE: The Portfolio is 100% net long heading into the week. I am overweight gaming, base metal and homebuilding stocks on the long-side. I would like to see 466 hold on the Morgan Stanley High-tech Index and 463 hold on the Semiconductor Index. In my opinion, these levels are crucial to the short-term direction of the entire market. I will likely reduce market exposure substantially on a convincing break of these levels. A rally early next week will likely lead me to increase tech exposure. I would like to reiterate that the S&P 500 2004 P/E is 17.9(where it is was in the late 80's and down over 60% from its high set in 02) and falling, the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a bull market that began a year ago.

Market Week in Review

S&P 500 1,109.78 -.96%

U.S. stocks fell last week, sending the S&P 500 to its first back-to-back weekly decline since November. Benchmark indices reached new lows for the year Monday on a possible al-Qaeda link to the March 11 attack in Madrid. Airline and Semiconductor companies led the way on the downside. Stubbornly high energy prices and fears that terrorism would slow travel hurt the Airline Index. Semiconductors were weaker on fears that a significant increase in Chinese production next year will result in overcapacity and price erosion. Base metal and mining stocks were the only consistently positive groups on the week as Nucor, the largest U.S. maker of steel using recycled metal, boosted its profit forecast dramatically and commodity prices continued their rise on insatiable Chinese demand.

Positive comments by the Fed with respect to the timing of a possible rate hike and reports that al-Qaeda's al-Zawahri was surrounded on the Afghan border provided the catalyst for a brief rally mid-week. Very good earnings reports from 3M, GE, Bear Stearns, Lehman Brothers and Morgan Stanley also contributed to the short-lived rally. By Friday, the bears had regained control as rumors surfaced that al-Zawahri had escaped the Pakistani-led assault. Reports that Microsoft failed to reach an agreement in settlement talks with the EU and extreme weakness in semiconductors on negative comments by Taiwan Semi also contributed to Friday's sell-off.

BOTTOM LINE: The Semiconductor Index(SOX) is trading right on its 200 day moving average at 463. If the recent correction is nearing an end I would expect to see this level hold. However, if the SOX breaks 463 convincingly I will anticipate further down-side in the NASDAQ which will in turn lead to further overall market erosion and a continuation of the recent correction. I doubt that China will be able to produce enough high-quality semiconductors next year to significantly hurt global pricing. This will likely become a problem at some point in the future, but not next year. While foreign travel may be hurt as a result of terrorism, I believe that domestic travel will be exceptionally strong this season on American's record-high net-worth, tax-cut stimulus and historically low interest rates. However, a continuation of the recent increases in crude oil prices will seriously damage the financial health of some U.S. airlines in the future. I view Microsoft's problems as mostly temporary and would recommend long-term conservative investors seeking tech exposure to begin buying at current levels. Overall, last week saw quite a bit of fundamentally positive news. Earnings at major U.S. corporations continue to surprise analysts on the up-side, leading to rapidly falling price/earnings ratios. With interest rates remaining near 46-year lows, the strongest economic growth since the mid-80's and record-high corporate profitability I continue to believe that the recent decline is just a healthy correction within the confines of a bull market that began a year ago.

Economic Week in Review

ECRI Weekly Leading Index 134.40 -.15%

The Empire State Factory Index, a gauge of manufacturing in New York state, fell to 25.3 this month from a record high reading of 42.1 in February. This failed to meet expectations of 38.0. Anthony Chan, chief economist at Banc One said, "...we are likely to see the manufacturing sector continue to take 2 steps forward followed by a singe step back."

U.S. Industrial Production rose .7% in February versus expectations of a .4% rise. February's strong number followed a .8% rise in January, resulting in the largest 2-month gain since October-November 1999 during the final blow-off stage of the bubble. Strong demand, a lower dollar and the need to replenish inventories all suggest industrial production will remain strong.

U.S. employers plan to boost hiring during the second quarter, at the fastest pace in over 3 years, because demand for products and services is beyond the capacity of their current workforce, according to the latest Manpower Inc. survey.

U.S. housing starts fell to 1855K in February versus 1903K in January and expectations of 1930K. The 5th wettest February on record contributed to a 1.6% drop in the South, where about half of all new homes are built. Toll Brothers, the largest U.S. builder of high-end homes, said backlogs of houses ordered and awaiting construction totaled 5,094 homes at the end of January, larger than their entire delivery for last year.

The Federal Reserve policy makers reiterated they will be "patient" in holding down borrowing costs to help boost job growth, voting to leave the benchmark U.S. interest rate at a 45-year low of 1%. In their economic outlook, the Fed maintained their view that the risk of deflation equals that of inflation.

The Consumer Price Index rose .3% in February, meeting expectations, and lower than January's .5% rise. Core prices were 1.2% higher in the 12 months ended in February, the smallest rise since 1966. U.S. producer prices rose .6% in January versus expectations of a .4% rise and a .2% increase in December. This increase was mainly attributed to higher costs for gasoline and heating oil. Core prices were up .9% in the 12 months ended in January.

The Leading Indicators Index was unchanged in February versus expectations of a .1% rise and a .4% rise in January. The index is still 3.3% higher than the previous peak reached in May of 2002.

The Fed Bank of Philadelphia's general economic index registered a reading of 24.4 in March versus expectations of 29.0 and a reading of 31.4 in February. In a special question by the Philly Fed, 73.2% of the participants said they've had job openings in the last 3 months and 89.2% said problems filling those positions were due to a lack of "qualified applicants." Almost 77% said they anticipate job openings in the next 6 months.

BOTTOM LINE: Overall, the reports were mixed. Industrial production is still at very high levels. The fall in the Philly Fed and Empire State manufacturing reports was likely a result of exceptionally high readings the prior month, indicating just a pause. There are the initial signs of a pick-up in inflation, however the current readings are not high enough to be of concern. Based on the Fed's statements, I continue to believe that a rate hike will not occur until a couple of really strong monthly employment reports are released. Last week's reports also suggest that companies are having trouble meeting demand with their current labor force, implying a pick-up in hiring will occur very soon.

Weekly Scoreboard*

Indices
S&P 500 1,109.78 -.96%
Dow 10,186.60 -.52%
NASDAQ 1,940.47 -2.23%
Russell 2000 570.74 -2.08%
Wilshire 5000 10,852.98 -1.05%
Volatility(VIX) 19.15 +4.65%
AAII Bullish % 38.30 -6.51%
US Dollar 88.13 +.56%
CRB 279.70 +3.02%

Futures Spot Prices
Gold 412.70 +4.32%
Crude Oil 38.08 +5.14%
Natural Gas 5.58 +.04%
Base Metals 113.07 +4.13%
10-year US Treasury Yield 3.78% unch.
Average 30-year Mortgage Rate 5.38% -.55%

Leading Sectors
Iron/Steel +3.80%
Commodity +1.76%
Oil Service +1.26%

Lagging Sectors
Networking -4.42%
Semis -4.48%
Airlines -7.92%

*% Gain or loss for the week

Friday Close

S&P 500 1,109.78 -1.12%
NASDAQ 1,940.47 -1.12%

Leading Sectors
Iron/Steel +3.97%
Broadcasting +.15%
Computer Service +.01%

Lagging Sectors
Disk Drive -1.97%
Oil Service -2.29%
Semis -3.60%

Other
Crude Oil 38.08 +.40%
Natural Gas 5.58 -.87%
Gold 412.70 +.34%
Base Metals 113.07 +.31%
U.S. Dollar 88.13 +.56%
10-Yr. Long-Bond Yield 3.77% +.45%
VIX 19.15 +3.35%
Put/Call .80 1.02 +24.39%
NYSE Arms 2.03 +93.33%

After-hours Movers
None of note.

Recommendations
Goldman Sachs reiterated Outperform on PAYX. GS reiterates Outperform on X. GS reiterates Outperform on CSCO on recent pullback saying 3 recent data points suggest business is tracking at or above estimates and they see upside later in the year as the IT buying cycle continues to strengthen.

After-hours News
U.S. stocks fell today as morning weakness in Semis spread to the rest of the market by later afternoon. Terrorism fears ahead of the weekend also contributed to the drop. Metal and mining stocks advanced after Nucor Corp.(NUE), the largest U.S. maker of steel using recycled metal, boosted its profit forecast as it passed on to customers the higher cost of scrap, which has soared in the past year on demand from China. Profit for Nucor's fiscal first quarter will be .80-1.00 a share, higher than its previous forecast of .40-.60 cents.

BOTTOM LINE: The Portfolio was up today, notwithstanding its 100% net long exposure, as a few of my longs were up substantially and my shorts declined. I rotated out of some tech on the afternoon breakdown in the Morgan Stanley High-tech Index and into a few new cyclical longs, leaving the Portfolio 100% net long. I am anticipating at least a short-term bounce early next week barring any major weekend terror acts.

Mid-day Update

S&P 500 1,118.93 -.31%
NASDAQ 1,962.52 unch.

Leading Sectors
Iron/Steel +4.39%
Software +.83%
Papers +.60%

Lagging Sectors
Networking -.89%
Airlines -1.12%
Semis -1.35%

Other
Crude Oil 38.00 +.18%
Natural Gas 5.61 -.37%
Gold 410.10 -.29%
Base Metals 113.07 +.31%
U.S. Dollar 88.28 +.73%
10-Yr. Long-Bond Yield 3.78% +.70%
VIX 18.50 -.16%
Put/Call .95 +15.85%
NYSE Arms 1.30 +23.81%

Market Movers
ADBE +9.6% after significantly beating 1Q estimates and raising 2Q guidance.
STTX +18.9% after boosting 2Q forecast substantially.
CACS +11.6% after Cingular selected it for wireless backhaul solutions.
QCBC +17% after takeover by BPOP.
NUE +6.89% after boosting 1Q guidance substantially.
PSRC -16.4% after meeting 3Q estimates and lowering 4Q guidance.
ACVI -17% after lowering 1Q guidance.

Economic Data
None of note.

Recommendations
ADBE raised to Buy at Citi Smith Barney, target $47. Citi saying to buy MOT on weakness ahead of next week's CTIA Conference. VRTS raised to Buy 2 at UBS, target $35. SFD raised to Outperform at CSFB, target $32. SAP raised to Sector Outperform at CIBC, target $45. BAC, FBF raised to Outperform at Bear Stearns. HBAN, ASO cut to Sell at Merrill. PGR raised to Overweight at Lehman, target $105. ROK raised to Overweight at Lehman, target $38. MGA raised to Overweight at J.P. Morgan. SOHU raised to Overweight at Pacific Growth. Cramer of TheStreet.com thinks BDK could pre-announce to the upside. Morgan Stanley says semi demand will stay strong in 04 and recommends overweighting the sector following the recent 20-25% pullback. Goldman Sachs reiterates Outperform on AMGN. GS sees improved newspaper stock performance in 04 led by surging help-wanted ad sales, favorites are TRB and GCI. GS says PFE is favorite pharma stock and does not believe drug re-importation will occur this year.

Mid-day News
Stocks are mixed mid-day on stength in commodity-related stocks and weakness in semis. Merrill Lynch increased its forecast for mobile-phone shipment this year to 20 percent from a previous 16 percent due to growing markets in China, India and Russia. Demand for semis was the highest in 3 years in February, reported TheStreet.com. Saddam Hussein took $10.1 billion, $3.5 billion more than previously estimated, in smuggled oil revenue from the UN Oil for Food Program, the Washington Post reported. San Francisco home prices surged 14% in February to record highs, the San Francisco Chronicle reported. Oracle expects to soon agree to sell its financial-management software to 100 customers in Asia, Dow Jones reported. Cramer says on CNBC that high oil prices affect 10% of S&P positively and 20% negatively. Pakistani forces continue to battle as many as 400 fighters along the Afghan border who appear to be protecting a "high-value" target. Adobe’s CFO said that he is excited about economic growth and that they are hiring worldwide.

BOTTOM LINE: The Portfolio is having a good day as a few of my longs are up substantially. I expect the recent weakness in the last hour will not persist throughout the day. I haven't executed any trades today, however I may add a few longs on any significant weakness. Goldman Sachs is estimating S&P 500 operating EPS to grow 10% in 04 and 8% in 05, down from 29% in 03. I view this as a positive for the market as companies should exceed these low expectations by a wide margin. The Portfolio is 100% net long.