Wednesday, November 17, 2004

Mid-day Update

S&P 500 1,187.25 +1.0%
NASDAQ 2,109.52 1.49%


Leading Sectors
Semis +4.14%
Disk Drives +3.82%
Boxmakers +3.0%

Lagging Sectors
Hospitals +.41%
Airlines +.20%
Utilities -.55%

Other
Crude Oil 46.08 -.02%
Natural Gas 7.14 +.22%
Gold 445.00 +1.02%
Base Metals 118.62 +1.27%
U.S. Dollar 83.37 -.51%
10-Yr. T-note Yield 4.14% -1.55%
VIX 13.00 -1.59%
Put/Call .63 -8.70%
NYSE Arms .52 -68.64%

Market Movers
S +22.5% after Kmart agreed to buy the company for $11 billion to create the third-biggest U.S. retailer. KMRT +17.6%.
HPQ +5.1% after beating 4Q estimates and raising 1Q/2Q 05 guidance.
NTAP +16.6% after beating 2Q estimates and raising 3Q outlook.
MO +4.6% after cigarette makers asked a federal appeals court to block the Justice Department from using an organized crime statute to get $280 billion from the industry in a civil court lawsuit now on trial in Washington.
MSO +17.0% on optimism over greater sales due to S/KMRT merger.
INSP -9.1% on Merriman Curhan downgrade to Neutral.

Economic Data
Consumer Price Index for October rose .6% versus estimates of a .4% rise and a .2% gain in September.
CPI Ex Food & Energy for October rose .2% versus estimates of a .1% increase and a .3% rise in September.
Housing Starts for October were 2027K versus estimates of 1960K and 1905K in September.
Building Permits for October were 1984K versus estimates of 2000K and 1998K in September.
Industrial Production for October rose .7% versus estimates of a .4% gain and a .1% rise in September.
Capacity Utilization for October was 77.7% versus estimates of 77.4% and 77.3% in September.

Recommendations
-Goldman Sachs reiterated Outperform on MERQ and BAX.
-Citi Smith Barney said to switch from RSAS to VRSN, target $38. Citi reiterated Buy on KMB, target $72. Citi reiterated Buy on MAR, target $63. Citi reiterated Buy on WTS, target $35. Citi reiterated Buy on HD, target $48. Citi reiterated Buy on SPLS, target $37. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on JCP, target $50.
-JP Morgan raised RSG to Overweight. JP Morgan rated HGR Underweight.
-Prudential Equity downgraded WMT to Underweight, target $57.
-Bear Stearns raised CTMI to Outperform, target $18.
-Merrill Lynch raised DOW to Buy, target $65.
-Morgan Stanley raised UTSI to Overweight, target $28.70.
-Raymond James raised TSRA to Outperform, target $40.

Mid-day News
U.S. stocks are higher mid-day on optimism over the prospects for technology shares and better economic growth. Microsoft will buy a stake in Vintela, which makes software to connect Windows operating system computers with those running other systems such as Linux or Unix, the Wall Street Journal reported. About 205,000 nurses have been hired by U.S. hospitals and medical facilities since 2001, lured by higher wages and better benefits, and more are needed to ease a shortage, the Wall Street Journal reported. SBC Communications plans immediately to charge a fee for Internet phone calls connected through its local phone network, and may have the fee in place by tomorrow, the Wall Street Journal reported. Trump Hotels & Casino Resorts will file for Chapter 11 bankruptcy protection as early as Monday, the Philadelphia Inquirer reported. Iran is producing enriched uranium at a secret facility in Tehran that United Nations inspectors haven't been told about, according to an Iranian opposition group, the NY Times reported. Motorola expects sales of new cell phones to more than quadruple in 2005, Reuters reported. A Walt Disney promotion of its ABC show "Desperate Housewives" that featured partial nudity during a Monday Night Football broadcast will be reviewed by the U.S. FCC, CNBC reported. SBC Communications selected Microsoft to provide the software for a tv-over-Internet service, Bloomberg said. U.S. housing starts rose 6.4% in October to the highest level of the year, suggesting home construction is helping drive economic growth, Bloomberg reported. U.S. industrial production increased by the most in three months in October, helped by a jump in manufacturing of automobiles and home electronics, Bloomberg said. Kmart, the retailer controlled by billionaire Edward Lampert, agreed to buy Sears for $11 billion to create the third-biggest U.S. retailer, Bloomberg said. JetBlue Airways may accelerate plans to begin flights to Chicago by bidding on Midway Airport gates leased by bankrupt ATA Holdings, Bloomberg said. U.S. Treasury notes rose after the CPI failed to increase as much as some traders expected, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day on strength in my retail, semi, wireless and steel longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is very strong today as volume very healthy and many more stocks are advancing than declining. Interest rates are falling again, notwithstanding the Bears and pundits attempts to paint inflation as a serious problem. It is very good to see the outperformance by semis and this should continue through year-end as accelerating demand eliminates most of the inventory issues plaguing these stocks. I expect U.S. equities to trade mixed into the close as positive news is offset by low levels of investor anxiety.

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