Wednesday Watch

Late-Night Headlines
Bloomberg:
- President Bush, in his State of the Union address, asked Americans to support the war on terrorism abroad and his plans at home for improving health care and breaking an “addiction” to foreign sources of energy.
- Federal appeals courts in California and New York said today a federal law banning “partial birth” abortions is illegal.
- Oil is falling for a second day after Iran said it won’t halt exports because of a dispute over its nuclear program, reducing concerns about possible supply shortages.
- Left-wing antiwar protester Cindy Sheehan, who was invited by Democrats to the Capitol to attend President Bush’s State of the Union address this evening, was arrested after she unfurled an anti-war banner in the gallery.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (ALL), (VLO) and (X).
- Reiterated Underperform on (ISE) and (SIE).

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.35%.
NASDAQ 100 indicated -1.05%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(ADS)/.61
(AEP)/.25
(BUD)/.27
(BA)/.44
(BOBJ)/.31
(CBG)/1.11
(DVN)/2.29
(DUK)/.36
(HCA)/.69
(JDSU).00
(LM)/1.03
(MBI)/1.38
(MGM)/.32
(MNST)/.28
(MUR)/.79
(OI)/.11
(PBI)/.74
(PHM)/1.97
(SBUX)/.20
(SUN)/2.15
(TWX)/.22
(TRB)/.56
(XEL)/.25

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Construction Spending for December is estimated to rise .2% versus a .2% increase in November.
- Pending Home Sales for December are estimated to fall .5% versus a 3.2% decline in November.
- ISM Manufacturing for January is estimated to rise to 55.8 versus a reading of 55.6 in December.
- ISM Prices Paid for January is estimated to rise to 64.0 versus a reading of 63.0 in December.

Afternoon
- Total Vehicle Sales for January are estimated to fall to 16.4M versus 17.2M in December.
- Domestic Vehicle Sales for January are estimated to fall to 13.1M versus 13.5M in December.

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

Stocks Finish Modestly Lower after Fed Rate Hike

Indices
S&P 500 1,280.08 -.40%
DJIA 10,864.86 -.32%
NASDAQ 2,305.82 -.04%
Russell 2000 733.20 +.32%
S&P Barra Growth 610.08 -.44%
S&P Barra Value 665.89 -.35%
Morgan Stanley Consumer 592.50 -.79%
Morgan Stanley Cyclical 793.05 -.73%
Morgan Stanley Technology 541.11 -.60%
Transports 4,367.54 +.30%
Utilities 413.84 +.03%
Put/Call .77 +18.46%
NYSE Arms 1.51 +79.77%
Volatility(VIX) 12.95 +4.52%
ISE Sentiment 148.00 -36.21%
US Dollar 88.92 -.56%
CRB 348.66 -.40%

Futures Spot Prices
Crude Oil 67.68 -.35%
Unleaded Gasoline 179.50 -.56%
Natural Gas 9.34 +.27%
Heating Oil 183.90 -.48%
Gold 573.10 -.42%
Base Metals 169.87 +.15%
Copper 222.20 -.29%
10-year US Treasury Yield 4.51% -.22%

Leading Sectors
Gold & Silver +3.01%
Airlines +1.95%
HMOs +1.92%

Lagging Sectors
Homebuilders -.94%
Insurance -1.0%
Semis -1.44%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (GOOG), expects tax rate that caused shortfall to go back to 30% for 06, 06/07 EPS estimates and $500 implied value in tact.
- Reiterated Outperform on (STN), (SEPR), (SYMC) and (BXP).
- Reiterated Underperform on (KFT), (MRK) and (PFGC).

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve policy makers, meeting for the final time under Chairman Alan Greenspan, raised the main US interest rate to 4.5% and suggested the run of increases is still not finished.
- Robert McTeer, the former president of the Federal Reserve Bank of Dallas, told CNBC that Federal Reserve policy makers should “stop right now and hold” to give the economy a chance to catch up with recent rate increases.
- Google(GOOG) posted fourth-quarter net income growth of 82% and revenue growth of 86%, but missed profit estimates due to a higher-than-expected tax rate.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical Information Systems longs, Retail longs, Internet longs, Biotech longs and Computer longs. I added to my Google(GOOG) long down 70 after-hours and took profits in an existing long, thus leaving the Portfolio 100% net long. The tone of the market was mixed today as the advance/decline line finished neutral, sector performance was mixed and volume was above average. Measures of investor anxiety were higher into the close. Overall, today’s performance was mixed. After recouping all its earlier morning losses, Gilead Sciences (GILD), one of my biotech longs, traded 5.1% higher to an all-time high. Gilead remains my favorite biotech stock.

Stocks Modestly Lower into Final Hour after Fed Hikes Rates 25 Basis Points

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical Information Systems longs, Internet longs, Biotech longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is above average. Measures of investor anxiety are higher. The Johnson Redbook same-store sales index rose 3.5% year-over-year last week vs. a 3.3% rise the prior week. This week's gain is up from a 1.5% increase in late April 2005, and it's the 39th week in a row that the index has risen 3% or more. The long-term average is a gain of around 2.5%. Retail sales remain healthy, despite higher oil prices. I continue to believe a healthy labor market, low long-term interest rates, falling energy prices, improving sentiment and rising stock prices will cushion any weakness this year related to a slowing housing market. My two favorite retailers remain Abercrombie & Fitch (ANF) and Best Buy (BBY). I expect US stocks to trade higher into the close from current levels on lower energy prices, positive economic data, more dovish Fed comments and stable long-term rates.

Today's Headlines

Bloomberg:
- Coretta Scott King, the widow of civil rights leader the Reverend Martin Luther King Jr. who took up his fight for racial equality after his assassination, has died at the age of 78.
- Iran won’t halt oil exports because of the dispute over its nuclear program, which may be referred to the UN for sanctions, the country’s oil minister said.
- “Brokeback Mountain” led Academy Award nominations with eight nods, including best picture and best director.

Wall Street Journal:
- Huntsman Corp.(HUN), the fourth largest US chemical maker, is in talks to be acquired by an unidentified buyer.
- American Electric Power(AEP) will build a $3 billion electricity line from West Virginia to New Jersey, the first big venture to use a new US law that promotes the building of projects needed to alleviate a congested power grid.
- Liberty Media(L) and EchoStar Communications(DIS) are investing in a company with a product that lets people watch television on their computers while away from home.
- Shares of Diebold(DBD) have dropped 30% in 12 months, a period that’s seen the departure of the CEO, the finance chief and the COO, but investors who stick with the company could reap rewards.
- General Motors(GM), Anheuser-Busch(AB) and Nintendo are developing ways to attach ads to video files downloaded from the Internet.

NY Times:
- Many US states have passed laws that inch toward regulation of the drug industry.
- The number of US and other foreign troops in Iraq probably will drop to below 100,000 by the end of the year and a majority could be out in two years.

USA Today:
- Indian tribes, which can make unlimited political contributions, get that status through treaties negotiated with the US in the 1700s.
- FEMA may provide displaced New Orleans residents free apartments for as long as 18 months while they recover from last year’s hurricane.

NY Post:
- Pier 1 Imports may be looking for a successor to Chairman and CEO Girouard, and has hired an executive search firm to seek candidates.
- NY’s Metropolitan Transportation Authority plans to run a six-month program to test “smart cards” on the 4, 5 and 6 subway lines in Manhattan to speed up passenger entry.

Atlanta Business Chronicle:
- Coca-Cola has been looking into ways, over the past two years, to offer hot coffee, espresso and tea quickly in individual servings, citing patent and trademark applications.

Nihon Keizai:
- Sanyo Electric and Volkswagen AG will jointly develop rechargeable batteries for gasoline-electric hybrid vehicles.

Arab News:
- Saudi Arabia urged western countries to respect the decision of the Palestinian people to elect Hamas, classified by many as a terrorist organization.

Tehran Times:
- Iran plans to invest $14 billion to expand its refining capacity by more than 50%.

Reuters:
- Google(GOOG) denied a report in today’s NY Post that the company is in talks with Napster(NAPS) to form an alliance that may lead to Google acquiring the Internet music service.

Inflation Measures Decelerate, Consumer Confidence Rises, Chicago Manufacturing Decelerates

- The 4Q Employment Cost Index rose .8% versus estimates of a .9% increase and a .8% gain in 3Q.
- Consumer Confidence rose to 106.3 in January versus estimates of 105.0 and a reading of 103.8 in December.
- The Chicago Purchasing Manager Index for January fell to 58.5 versus estimates of 59.9 and a reading of 60.8 in December.

BOTTOM LINE: US labor costs rose less than expected in the fourth quarter, suggesting tame inflation, Bloomberg reported. Employment costs rose 3.1% for all of 2005, slowing for a second straight year. Unit labor costs account for two-thirds of inflation. Core US consumer prices gained 2.2% last year, right at the average of the last decade. I continue to believe employment costs will remain relatively low over the intermediate-term, thus helping to keep inflation in check.

US consumer confidence rose more than expected in January to the highest since June 2002 as employers accelerated hiring, Bloomberg reported. Employers added 2 million new jobs in 2005, the second best number since before the stock market bubble burst in 1999. The component of the index measuring optimism about consumer’s present situation surged to 128.4, the highest since 2001, versus 120.7 the prior month. The percentage of consumers that saw jobs as plentiful rose to 26.9%, the highest since September 2001. I expect consumer confidence readings to make new cycle highs later this year as stocks rise further, the job market remains healthy, housing stabilizes at relatively high levels, long-term interest rates remain low, inflation decelerates and energy prices fall.

Chicago-area manufacturing expanded at a slower pace this month as automakers cut capacity to reduce costs and restore profits, Bloomberg said. The prices paid component of the index fell to 75.3 from 81.1 the prior month. The new orders component of the index fell to 63.7 versus 65.7 in December. I continue to believe manufacturing nationwide will add to economic growth this quarter as inventories are rebuilt, confidence improves and hurricane rebuilding takes hold.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- International donors are meeting in London today to agree to a five-year plan to develop Afghanistan’s security, government and rule of law, cementing its moves toward democracy since the Taliban regime was ousted in 2001.
- Billionaire investor Carl Icahn recruited former Viacom(VIA) CEO Frank Biondi to lead a fight for control of Time Warner(TWX).
- Merck(MRK) won a lawsuit over its Vioxx painkiller, after a state judge in New Jersey said a Texas man failed to prove the drug caused his stomach pain and internal bleeding.
- The US, European Union, United Nations and Russia put Hamas on notice that once it forms a new Palestinian government there will be financial consequences unless the Islamic movement abandons violence, accepts Israel’s existence and abides by existing peace agreements.
- US Supreme Court nominee Samuel A. Alito Jr. moved closer to confirmation as the Senate agreed to end four days of debate on his selection to replace retiring Justice Sandra Day O’Connor.
- Russia and China agreed to back the referral of Iran’s nuclear program to the UN Security Council at a Feb.2 meeting of the International Atomic Energy Agency, joining the US, UK, France and Germany.
- Google(GOOG) expects “high growth” in Brazil as more people in Latin America’s largest economy gain access to computers, the company’s co-founder Sergey Brin said.

Financial Times:
- OAO Lukoil, Russia’s largest oil company, will restart talks with Iraq’s government to develop oil fields in the country, citing Lukoil Vice President Leonid Fedun.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (EBAY), (BXP), (X), (XOM), (HEP) and (MYL).
- Reiterated Underperform on (GBL) and (UHS).

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(MDRX)/.09
(ALL)/1.52
(MO)/1.17
(ADM)/.42
(ASD)/.46
(AX)/.24
(AH)/1.00
(ATYT)/.04
(CME)/2.10
(CHIR)/.51
(CB)/2.14
(CIN)/.69
(CEG)/1.00
(CAM)/.45
(CFC)/1.05
(DBD)/.64
(ETR)/.54
(FLEX)/.19
(GOOG)/1.76
(HLT)/.19
(ITW)/1.39
(JBLU)/-.14
(K)/.46
(KRI)/1.22
(LLL)/1.21
(MRK).62
(MSTR)/1.34
(NAV)/3.06
(PD)/3.96
(SYMC)/.25
(VLO)/1.94
(VMC)/.82
(WYE)/.60

Upcoming Splits
(FIF) 3-for-2

Economic Releases
8:30 am EST
- 4Q Employment Cost Index is estimated to rise .9% versus a .8% gain in 3Q.

10:00 am EST
- Consumer Confidence for January is estimated to rise to 105.0 versus a reading of 103.6 in December.
- Chicago Purchasing Manager for January is estimated to fall to 59.8 versus a reading of 60.8 in December.

2:15 pm EST
- The Fed is expected to raise the benchmark interest rate by 25 basis points to 4.5%.

BOTTOM LINE: Asian indices are higher, led by technology companies and automakers in the region. The Fed will likely raise the benchmark interest rate 25 basis points, remove the word "measured" from the policy statement describing the future pace of rate hikes and make more dovish comments than most expect. I expect US equities to open modestly lower and to rally later in the afternoon, fishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Close Mixed as Rising Energy Prices Offset Positive Economic Data Ahead of Fed Meeting

Indices
S&P 500 1,285.20 +.12%
DJIA 10,899.92 -.07%
NASDAQ 2,306.78 +.11%
Russell 2000 730.87 -.18%
S&P Barra Growth 612.77 +.15%
S&P Barra Value 668.26 +.08%
Morgan Stanley Consumer 597.19 -.30%
Morgan Stanley Cyclical 798.87 +.02%
Morgan Stanley Technology 544.38 +.28%
Transports 4,354.49 +1.04%
Utilities 413.71 -.57%
Put/Call .65 -16.67%
NYSE Arms .78 -14.00%
Volatility(VIX) 12.39 +3.51%
ISE Sentiment 238.00 +20.20%
US Dollar 89.43 +.12%
CRB 350.06 +.89%

Futures Spot Prices
Crude Oil 68.54 +.28%
Unleaded Gasoline 177.49 +.01%
Natural Gas 9.38 -.10%
Heating Oil 183.38 +1.49%
Gold 568.10 +.41%
Base Metals 169.61 +.45%
Copper 222.80 -.07%
10-year US Treasury Yield 4.53% +.49%

Leading Sectors
Oil Service +2.93%
Energy +2.30%
Airlines +2.94%

Lagging Sectors
Semis -.71%
Tobacco -.90%
Hospitals -1.53%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on (SGP).

Afternoon/Evening Headlines
Bloomberg:
- President Bush will nominate Stanford University economist Ed Lazear to be chairman of his Council of Economic Advisers.
- OPEC agreed to keep production near a 26-year high in the second quarter after most members said prices were too high to warrant an output cut, Saudi Arabia’s oil minister said.

San Francisco Chronicle:
- California builders plan to construct tens of thousands of homes on flood-prone delta lands to meet demand for housing from Sacramento to the Bay Area.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical Information Systems longs, Semi longs and Computer longs. I exited my VLO short and took profits in a few longs in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s performance was neutral ahead of a number of market-moving catalysts. The Airline Index (XAL) was up almost 3% today, even as oil remains near $70/bbl. The recent correction in the group looks like it has run its course. (AMR) and (SKYW) are my two favorites in this despised group.

Stocks Mixed Mid-day Ahead of Fed Meeting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical Information Systems longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are rising and volume is around average. Measures of investor anxiety are mostly lower. The energy sector saw the most insider selling of any group in the S&P 500 last week. Insider sales totaled $144,191,838 while buys totaled $24,776. This is the largest weekly net insider selling for energy this cycle. I expect US stocks to trade mixed into the close from current levels as higher energy prices and apprehension ahead of the Fed meeting offsets positive economic data and stable long-term rates.

Today's Headlines

Bloomberg:
- Google(GOOG) is releasing a custom toolbar for Web browsers as part of efforts to attract more visitors to its sites.
- People should drink less alcohol because it contributes to several types of cancer, according to a review published in the medical journal Lancet Oncology today.
- Saudi Prince Alwaleed bin Talal and Colony Capital LLC agreed to buy Fairmont Hotels & Resorts for $3.24 billion, adding 87 luxury hotels to Colony’s Raffles chain.
- GM(GM) bonds and shares rose as a Citigroup(C) unit joined negotiations to buy a majority stake in the automaker’s auto-loan and mortgage business.

Wall Street Journal:
- Time Warner(TWX) will probably announce today that it’s teaming up with Bertelsmann AG to start an online service that will sell films and television shows in Germany.
- US Congress has boosted foreign aid to help fight diseases to $4 billion, almost triple what the US spent in 2001 in inflation-adjusted terms.
- US publishers say fact-checking books they produce has become too expensive for them to handle, prompting concern that many works, especially non-fiction, may contain inaccurate information.
- EarthLink(ELNK) plans to start offering this week high-speed Internet and online-calling services in partnership with Covad Communications(DVW).
- Warner Music and Skype Technologies SA may today announce an agreement to make ringtones available over Internet phones.
- The Federal Aviation Administration’s head of air traffic control is struggling to cope with high costs and chronic delays.
- The NY Merc’s grip on global energy and metals markets may be weakening, just as the exchange is preparing to sell a minority stake and become a public company.

NY Times:
- News Corp.’s(NWS) Fox network may overtake CBS and ABC to win the highest viewership in the 18-to-49 category this season because of the high ratings of its “American Idol” show.
- Microsoft Corp.(MSFT) is developing a mobile phone that could be connected to a television and a keyboard to function as a computer to be used in the developing world.

NY Post:
- Some Walt Disney Co.(DIS) shareholders may try to oust Chairman George Mitchell.

LA Times:
- California recreational boat sales increased about 8% last year, fueled in part by a real estate market boom.

Sabah:
- Turkey won’t back referring Iran to the UN over its nuclear program, putting the nation at odds with the EU.

Personal Incomes Remain Healthy, Spending Accelerates, Inflation Decelerates

- Personal Income for December rose .4% versus estimates of a .4% increase and a .4% gain in November.
- Personal Spending for December rose .9% versus estimates of a .7% gain and a .5% increase in November.
- PCE Core(M-o-M) for December rose .1% versus estimates of a .2% increase and a .2% gain in November.

BOTTOM LINE: US personal spending increased more than expected in December as incomes grew, suggesting a pickup in demand at the end of 2005 that may help boost first-quarter growth, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose a less-than-expected .1%. Inflation-adjusted spending on big-ticket items such as cars and furniture rose 5.0% in December, the largest gain since July. For all of 2005 the PCE Core gained 1.9% versus a 2.3% increase in 2004. Incomes rose 5.4% for all of 2005, almost double most measures of inflation. I continue to expect consumer spending to remain relatively healthy and measures of inflation to decelerate over the intermediate-term.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart(WMT) said January same-store sales rose about 4.7%, the biggest January gain in two years.
- Former President Clinton called on Hamas to renounce violence as it prepares to form a government after winning Palestinian parliamentary elections.
- President Bush called on Congress to hold a confirmation vote on US Supreme Court nominee Samuel A. Alito Jr., and lashed out at Democrats for their handling of the judge’s nomination.
- The NFL said it will show eight regular-season games on its cable-tv channel on Thursday and Saturday nights starting next season.
- Morgan Stanley’s(MWD) international chairman Jonathan Chenevix-Trench downplayed the recent departure of four senior investment bankers, saying the firm is in “great shape.”
- Israel said it will cut off contact with the Palestinian Authority unless Hamas, which won last week’s legislative elections, meets four conditions, including acceptance of prior Israeli-Palestinian peace agreements.
- Saudi Arabia’s oil minister said OPEC shouldn’t cut production when the group meets in two days.
- OPEC should leave oil production unchanged, Algeria’s energy minister said.
- Japan’s industrial production rose for a fifth month in December, the longest expansion since 1999, as robust overseas and domestic demand encourages companies to increase output of electronics and motor vehicles.
- US Secretary of State Condoleezza Rice will press US allies today in London to deprive the incoming Hamas-led Palestinian government of financial support unless it abandons terrorism and accepts the existence of Israel.
- Arcelor SA, the world’s second-largest steelmaker, said its board unanimously rejected a $22.5 billion hostile takeover bid by rival Mittal Steel Co., the largest producer of the metal.

Wall Street Journal:
- Citigroup Inc.(C) may bid for General Motors’(GM) finance unit, GMAC.

Washington Post:
- China’s Communist Party introduced economic, educational and medical reform to “help” farmers since their protests have become increasingly violent.
- Some Democrats are using blogs and mass e-mails to denounce members of their own political party for trying to appeal to a broad spectrum of US voters.
- Target Corp.(TGT) operates one of the most advanced crime labs in the US at its headquarters in Minneapolis as part of its efforts to aid local and national law-enforcement agencies.
- The White House may be reluctant to pay for 19 planned NASA shuttle flights and may delay deploying a new generation of manned spacecraft until 2014.

LA Times:
- Sales of new home rose 4.4% in 2005, the highest percentage increase since market researcher DataQuick Information Systems began taking data in 1988.

Seattle Times:
- Microsoft(MSFT) is acquiring Seadragon Software, a Seattle-based company developing technologies that could be used across several of the software giant’s businesses.

Financial Times:
- Microsoft(MSFT) may face new antitrust action from the European Commission which could force it to disclose more information about its Windows operating program.
- The SEC plans to randomly inspect hedge fund managers of businesses it regards as high risk, citing Gene Gohlke, associate director of the SEC’s compliance office.

Independent on Sunday:
- John Lasseter, the creative chief of Pixar Animation Studios(PIXR) told Walt Disney(DIS) that production on “Toy Story 3” will be scrapped.

AFP:
- Ex-Iraqi dictator Saddam Hussein walked out of his trial in Baghdad after his half-brother was thrown out by the judge.
- Kuwaiti Oil Minister al-Sabah urged OPEC to maintain oil supplies close to a 25-year high when it meets Jan. 31.

Focus:
- German authorities uncovered clues that Iran is expanding an arsenal of weapons of mass destruction, increasing concern that the country may have a secret nuclear-weapons program.

Nihon Keizai:
- Hitachi Ltd. may invest $852 million to build a new flat-screen plasma TV panel factory and expand capacity to keep up with rivals.

El Mundo:
- Mexico and the US may be close to an agreement on immigration, Mexican President Vicente Fox said.

Tehran Times:
- Iran will begin drilling for oil and gas in the Caspian Sea by June, citing an Iranian oil official.
- Iran will export 2.6 million barrels of crude oil a day in 2006, citing figures in the latest government budget plan.

Weekend Recommendations
Barron's:
- Had positive comments on (MHP).
- Had negative comments on (PCL) and (AMLN).

Goldman Sachs:
- Reiterated Outperform on (PFE).

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
(AFL)/.63
(CHKP)/.35
(CMI)/3.11
(EK)/.39
(XOM)/1.44
(GILD)/.53
(KFT)/.53
(MAT)/.48
(PCL)/.34
(SGP)/.08
(SEE)/.74
(SII)/.43
(SYY)/.35
(TSN)/.16
(ZMH)/.83

Upcoming Splits
- (MRBK) 3-for-2
- (CTHR) 5-for-4

Economic Releases
8:30 am EST
- Personal Income for December is estimated to rise .4% versus a .3% increase in November.
- Personal Spending for December is estimated to rise .7% versus a .3% increase in November.
- PCE Core(M-o-M) for December is estimated to rise .2% versus a .1% gain in November.

BOTTOM LINE: Asian Indices are higher, led by financial, material and technology shares in the region. I expect US stocks to open mixed and to rise into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Personal Income, Personal Spending, PCE Deflator
Tues. - 4Q Employment Cost Index, Consumer Confidence, Chicago Purchasing Manager, FOMC Rate Decision
Wed. - Construction Spending, Pending Home Sales, ISM Manufacturing, ISM Prices Paid, Total Vehicle Sales
Thur. - Non-farm Productivity, 4Q Unit Labor Costs, Initial Jobless Claims
Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Univ. of Mich. Confidence, Factory Orders, ISM Non-Manufacturing

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Aflac Inc.(AFL), Checkpoint Software(CHKP), Cummins Inc.(CMI), Eastman Kodak(EK), Exxon Mobil(XOM), Gilead Sciences(GILD), Kraft Foods(KFT), Mattel Inc.(MAT), Schering-Plough(SGP), Sysco Corp.(SYY), Tyson Foods(TSN), Zimmer Holdings(ZMH)
Tues. - Allstate(ALL), Altria Group(MO), Archer-Daniels-Midland(ADM), Chicago Merc(CME), Chiron Corp.(CHIR), Chubb Corp.(CB), Constellation Energy(CEG), Cooper Cameron(CAM), Diebold(DBD), Flextronics(FLEX), Google Inc.(GOOG), Hilton Hotels(HLT), Illinois Tool Works(ITW), JetBlue Airlines(JBLU), Kellogg(K), Knight Ridder(KRI), L-3 Communications(LLL), Merck & Co.(MRK), Phelps Dodge(PD), Symantec(SYMC), United States Steel(X), Valero Energy(VLO), Wythe(WYE)
Wed. - Anheuser-Busch(BUD), Boeing(BA), Boston Scientific(BSX), Duke Energy(DUK), HCA Inc.(HCA), JDS Uniphase(JDSU), MBIA Inc.(MBI), MGM Mirage(MGM), Monster Worldwide(MNST), Pitney Bowes(PBI), Pulte Homes(PHM), Starbucks(SBUX), Time Warner(TWX), Tribune(TRB)
Thur. - Allergan(AGN), Amazon.com(AMZN), Avon Products(AVP), Cerner Corp.(CERN), Clorox(CLX), Comcast Corp.(CMCSA), CVS Corp.(CVS), Electronic Arts(ERTS), International Paper(IP), Intuitive Surgical(ISRG), Linens ‘n Things(LIN), Ratheon(RTN), Royal Caribbean(RCL), Sara Lee(SLE), Starwood Hotels(HOT), Tyco International(TYC), Maytag Corp.(MYG), Moody’s(MCO)
Fri. - THQ Inc.(THQI), Wendy’s International(WEN), Weyerhaeuser(WY), Whirlpool(WHR)

Other events that have market-moving potential this week include:

Mon. - CSFB Energy Summit
Tue. - Citigroup Financial Services Conference, CSFB Energy Summit, OPEC Meeting
Wed. - Citigroup Financial Services Conference, Merrill Lynch IT Services & Software Conference, CSFB Energy Summit
Thur. - CSFB Energy Summit, Merrill Lynch IT Services & Software Conference
Fri. - Merrill Lynch IT Services & Software Conference, CSFB Energy Summit

BOTTOM LINE: I expect US stocks to finish the week modestly higher on more dovish Fed comments, diminishing inflation worries, a healthy job market, less irrational pessimism over earnings, more general optimism, lower energy prices, short-covering and “catch-up” buying. My trading indicators are now giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,283.72 +1.76%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very positive as US stocks posted meaningful gains even as worries over Iran’s nuclear program remained, oil stayed elevated, economic data was mixed, earnings were about at expectations and long-term rates increased. The advance/decline line rose, most sectors gained and volume was above average on the week. Measures of investor anxiety were mostly lower. However, the AAII % Bulls plunged to 30.77%, which is approaching depressed levels. This is a big positive for stocks. The average 30-year mortgage rate rose slightly to 6.12% which is only 91 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield increased 16 basis points on the week as fears over the previous Friday’s stock sell-off dissipated, new home sales bounced, the labor market strengthened further and signs of increased corporate spending were evident.

Unleaded Gasoline futures fell even as oil remained elevated on Iran fears and are now 40% below September highs even as refinery utilization remains below normal as a result of the hurricanes. Natural gas inventories fell slightly more than expected this week. However, supplies are now 22.0% above the 5-year average, approaching an all-time record high for this time of year, even as over 18% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged around 46% in 6 weeks. Gold was about unchanged on the week as geopolitical concerns were offset by a rising US dollar.

I still believe prices for many commodities are being driven by fear and record capital inflows into commodity funds, rather than fundamentals. I continue to expect global energy demand destruction, decelerating economic growth and a significant increase in supplies into 2006 to push oil prices substantially lower from current levels. Elevated prices related to Iran only make this outcome more likely. Any temporary spike in energy price due to an attack on Iran or Iranian halt in oil production would likely be less severe and more temporary than most expect as speculators are already factoring in a substantial OPEC production disruption. This scenario would also likely lead to a Fed rate cut.

Small-caps outperformed again as the Russell 2000 made another all-time high on Thursday and is already up 9% for the year. In my opinion, US small-caps now offer similar return potential to that of most emerging international markets with much less risk. S&P 500 earnings growth for the fourth quarter is still on pace to rise 13% year-over-year, almost double the long-term average. This would be the 15th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. Moreover, companies have sufficiently lowered the bar as to allow for better-than-expected 1Q results. The ECRI Weekly Leading Index made another cycle high and is forecasting continued healthy US economic activity. While volatility will likely increase going forward, I still expect the S&P 500 to return 15% this year, notwithstanding any temporary weakness related to issues with Iran. High single-digit earnings growth, average economic growth of around 3%, an end to Fed rate hikes, low long-term interest rates, lower energy prices, a healthy labor market, a more sustainable housing market, p/e multiple expansion, a stable US dollar, decelerating inflation, increased corporate spending, rising demand for US assets and a lifting of irrational pessimism should provide the catalysts for strong gains this year.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,283.72 +1.76%
DJIA 10,907.21 +2.25%
NASDAQ 2,304.23 +2.51%
Russell 2000 732.22 +3.92%
S&P Equity Long/Short Index 1,144.75 +.82%
S&P Barra Growth 611.84 +1.30%
S&P Barra Value 667.74 +2.25%
Morgan Stanley Consumer 599.00 +.60%
Morgan Stanley Cyclical 798.74 +4.30%
Morgan Stanley Technology 542.84 +1.94%
Transports 4,309.71 +3.64%
Utilities 416.07 -1.24%
S&P 500 Cum A/D Line 8,416 +7.0%
Bloomberg Crude Oil % Bulls 58.0 -2.55%
Put/Call .78 -26.42%
NYSE Arms .91 -56.67%
Volatility(VIX) 11.97 -17.79%
ISE Sentiment 198.00 +11.86%
AAII % Bulls 30.77 -38.46%
AAII % Bears 33.33 +29.04%
US Dollar 89.32 +.43%
CRB 346.96 +.52%
ECRI Weekly Leading Index 138.30 +.36%

Futures Spot Prices
Crude Oil 67.76 -1.30%
Unleaded Gasoline 173.64 -4.67%
Natural Gas 8.51 -10.87%
Heating Oil 180.69 -3.37%
Gold 558.90 +.02%
Base Metals 168.86 +5.15%
Copper 223.20 +5.23%
10-year US Treasury Yield 4.51% +3.68%
Average 30-year Mortgage Rate 6.12% +.33%

Leading Sectors
Steel +19.56%
Semis +7.48%
I-Banks +4.92%
Gold & Silver +4.75%
Telecom +3.92%

Lagging Sectors
Foods -.05%
Disk Drives -.58%
Broadcasting -.85%
Utilities -1.24%
Networking -1.41%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Higher Heading into Final Hour on Decline in Long-term Rates and Short-covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs, Software longs and Biotech longs. I added to my AAPL long and VLO short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. Measures of investor anxiety are mixed. As far as I can tell George Soros has been bearish on the global economy, specifically the U.S., for some time. However, according to Gurufocus.com, his two largest sector weightings at the beginning of the fourth quarter of last year were Consumer Services at 20.3% and Technology at 17.3%. Moreover, a long QQQQ position is his third largest individual long position. This doesn't seem to correspond with his very bearish statements. I expect US stocks to trade modestly higher into the close from current levels on short-covering, “catch-up buying” and lower long-term rates.

Today's Headlines

Bloomberg:
- OPEC may maintain output near a 25-year high as attacks against Nigeria’s oil industry and concern about a dispute with Iran keep prices high.
- Google(GOOG) co-founder Sergey Brin said his Internet company will fight the US government for as long as it takes to avoid handing over information on user searches.
- Iran said the UN was being “manipulated for political purposes” in its first official observance today of the memory of the Holocaust.
- The US dollar is rising against the euro ad yen after new home sales exceeded expectations.
- Crude oil is rising for a second day on fears that a standoff over Iran’s nuclear research may cause disruptions to supply.

CNBC:
- The FDA has approved Pfizer’s(PFE) Exubera inhaled insulin drug for sale, Pfizer CEO McKinnell said.

Wall Street Journal:
- Television networks are mixing advertising with entertainment in children’s shows in a way that it’s hard to distinguish one from the other.
- US companies may soon be moving to restate earnings to avoid problems with accounting for financial instruments that they use to minimize risk.
- Intel Corp.(INTC), Hewlett-Packard(HPQ) and seven other computer makers said they pledged to keep investing in the Itanium computer chip, which is far outsold by x86-design chips.
- The potentially deadly “blackworm” computer virus may activate Feb.3 and start destroying data on computers it has reached.
- President Bush plans to nominate Kevin Warsh, an adviser on domestic finance and capital markets, and may name Randall Kroszner, of the Univeristy of Chicago’s Graduate School of Business, to the board of the Federal Reserve.

NY Times:
- US banks, credit unions and money management firms are seeking to benefit by offering health savings accounts, the centerpiece of President Bush’s plans for healthcare.
- Atlantic Sea Island Group proposed building a $1 billion liquefied natural gas terminal on a 53-acre man-made island between Long Island and New Jersey.
- Most US airlines may begin to see a return to profitability during the next two years as a smaller number of available seats has enabled them to raise ticket prices and fly more full planes.
- NYC taxes on co-op and condo buildings with four to 10 apartments fell by an average of $1,800 per unit.

AFP:
- Iran promised to allow UN nuclear inspectors access to the former Lavizan military site in the capital Tehran, citing unidentified diplomats. The pledge, a key concession to investigators studying Iran’s nuclear program, was made in a letter faxed to Ollie Heinonen, deputy director for safeguards at the UN’s IAEA in Vienna.

Reuters:
- Mittal Steel is poised to bid for Arcelor SA.

Middle East Economic Survey:
- Kuwait said the emirate’s crude production capacity will climb 67% by 2020, citing unidentified senior Kuwaiti oil officials.

GDP Slows on Hurricane Effects, Inflation Decelerates, New Home Sales Improve

- Advance 4Q GDP rose 1.1% versus estimates of a 2.8% increase and a 4.1% rise in 3Q.
- Advance 4Q Personal Consumption rose 1.1% versus estimates of a .4% increase and a 4.1% rise in 3Q.
- Advance 4Q GDP Price Index rose 3.0% versus estimates of a 2.7% gain and a 3.3% rise in 3Q.
- New Home Sales for December rose to 1269K versus estimates of 1225K and 1233K in November.

BOTTOM LINE: The US economy grew at a slower-than-expected 1.1% pace in the fourth quarter as consumers spent less and corporations limited equipment purchases, Bloomberg reported. This snapped the string of 10 straight quarters exceeding 3% growth, the best stretch since 1986. A drop in October car sales weighed on consumer spending during the quarter. The US economy expanded 3.5% for all of 2005, above the long-term average of 3.1% growth. Government spending declined last quarter at a 2.4% annual rate, the biggest drop in 5 years. The core pce, the Fed’s favorite inflation measure, rose 2.2% during the quarter. GDP was weighed down in the fourth quarter by the effects of the hurricanes. I expect GDP to bounce back above 3% this quarter as hurricane rebuilding takes hold, corporate spending accelerates, the job market remains healthy, housing improves, consumer spending bounces back and the Fed stops raising interest rates.

Sales of new US homes unexpectedly increased in December, capping a fifth straight record year for the industry and suggesting job and income growth are keeping the housing market from withering, Bloomberg reported. The median selling price was $221,800, down 3.4% from a year earlier. The supply of new homes on the market remained at 4.9 months’ worth. For the year, the median price of a new home rose 7.4% to $237,300. I expect home sales to continue to improve in January as overall growth slows to more healthy sustainable levels.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- Sony Corp.(SNE) shares headed for their biggest gain in 15 years, raising the company’s market value by $5 billion, as higher sales of Bravia TVs and Playstation game players helped generate record profit in its third quarter.
- US Senate Republican leaders said they have enough support to end debate on Supreme Court nominee Samuel A. Alito Jr. and confirm him next week as some Democrats staged a last-ditch filibuster to try to derail his confirmation.

Financial Times:
- EMC Corp.(EMC) may raise its full-year growth targets and plans acquisitions in 2006, citing an interview with Chairman and CEO Tucci.

Wall Street Journal:
- North Korea has become one of the leading international producers of counterfeit cigarettes, providing a source of financing for its nuclear weapons program.

Business Week:
- Microsoft(MSFT) is working on plans to develop its own portable digital media device that will challenge the iPod.

London-based Times:
- The “long-term chances of survival of the euro should be questioned,” citing Frits Bolkestein, the former EU Internal Market Commissioner.

Electronic Times:
- Research in Motion Ltd. may start offering its BlackBerry e-mail in South Korea in May through KT Powertel.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (MSFT), (DHR), (T), (MEH), (MCK), (KLAC), (GNW) and (PFE).
- Reiterated Underperform on (FLWS), (UST), (BOW) and (MRO).

Night Trading
Asian Indices are +1.0% to +2.0% on average.
S&P 500 indicated +.27%.
NASDAQ 100 indicated +.74%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(BOL)/1.20
(BDK)/1.90
(CVX)/1.89
(GCI)/1.41
(GDT)/.34
(ITT)/1.41
(MSTR)/1.34
(NUE)/1.88
(OSTK)/-.05
(PG)/.69
(RBK)/.58
(TROW)/.83

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Advance 4Q GDP is estimated to rise 2.8% versus a 4.1% increase in 3Q.
- Advance 4Q Personal Consumption is estimated to rise .4% versus a 4.1% gain in 3Q.
- Advance 4Q GDP Price Index is estimated to rise 2.7% versus a 3.3% gain in 3Q.

10:000 am EST
- New Home Sales for December are estimated to fall to 1225K versus 1245K in November.

BOTTOM LINE: Asian indices are sharply higher on gains in US shares and reports of strong economic growth in the region. I expect US equities to open higher and build on gains throughout the day. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher on Strong Economic Data, Falling Natural Gas Prices and Less Irrational Earnings Pessimism

Indices
S&P 500 1,273.83 +.72%
DJIA 10,809.47 +.93%
NASDAQ 2,283.00 +.99%
Russell 2000 728.48 +1.68%
S&P Barra Growth 605.99 +.49%
S&P Barra Value 663.88 +.96%
Morgan Stanley Consumer 596.35 -.03%
Morgan Stanley Cyclical 790.90 +.65%
Morgan Stanley Technology 536.70 +.62%
Transports 4,306.53 +1.55%
Utilities 414.77 -.92%
Put/Call .69 -17.86%
NYSE Arms .82 -19.13%
Volatility(VIX) 12.42 -3.50%
ISE Sentiment 194.00 +1.57%
US Dollar 88.63 +.34%
CRB 343.46 +.27%

Futures Spot Prices
Crude Oil 66.45 +.29%
Unleaded Gasoline 169.00 +.31%
Natural Gas 8.25 +.32%
Heating Oil 178.40 +.34%
Gold 560.70 +.14%
Base Metals 167.35 -.98%
Copper 220.05 -.05%
10-year US Treasury Yield 4.50% +.67%

Leading Sectors
Semis +2.88%
Defense +2.28%
I-Banks +2.45%

Lagging Sectors
Computer Hardware -.82%
Utilities -.92%
Networking -1.26%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (ALK), (EL) and (HD).
- Reiterated Underperform on (UIS) and (MKL).

Afternoon/Evening Headlines
Bloomberg:
- Hamas, the radical Islamic movement that has attacked Israelis thousands of times with suicide bombers, wrested control of the Palestinian legislature from Fatah, winning 76 seats in yesterday’s voting, election officials said.
- Broadcom Corp.(BRCM) said fourth-quarter profit almost tripled as sales grew for consumer gadgets such as wireless headsets and Apple Computer’s video iPod.
- Microsoft(MSFT) said second-quarter profit rose 5.5%, buoyed by new server software. Revenue missed forecasts after shortages of its Xbox 360 console.

Wall Street Journal:
- Goldman Sachs(GS) will pay $2.58 billion for a stake in Industrial & Commercial Bank of China.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Semi long, Semi-equip. longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, most sectors gained and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's performance was very bullish as the major averages and breadth finished near session highs on heavy volume, notwithstanding higher long-term rates, rising oil prices, a big political win for Hamas, jitters over tomorrow's GDP report and earnings worries. I have the feeling that tomorrow's GDP report will be viewed positively by the market. We have heard for weeks how "bad" it is going to be. I expect it to exceed estimates of a 2.8% increase, which should calm fears that the economy is slowing too much. However, if I am wrong and GDP comes in below estimates, the recent rise in long-term rates should cease and traders will factor in an even greater chance that the Fed will "pause." Either way, I suspect stocks will build on today's gains tomorrow.

Stocks Sharply Higher as Natural Gas Plunges, Economic Data Exceeds Expectations and Earnings Remain Strong

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Semi Equipment longs, Medical longs and Biotech longs. I exited my IWM and QQQQ shorts and added to my AAPL and RACK longs, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Measures of investor anxiety are mostly lower. As pundits continue to bash the best earnings streak since record keeping began in 1936, I am becoming more bullish. Earnings so far for this quarter are rising about 13%, almost double the long-term average. The S&P 500 will be even cheaper relative to earnings after all the reports are in. Moreover, the bar has been sufficiently lowered for next quarter without too much damage to the major averages. The S&P 500 is still up 2.0% this month and the Russell 2000 is up 7.5%. These are very good performances to start the year and come amid a decline in bullish sentiment, escalating fears over Iran, perceived "poor" earnings, weaker housing data, elevated oil prices, talk of an impending recession and rising long-term rates. This bodes very well for another push higher in U.S. stocks over the coming weeks. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more optimism over US economic growth and collapsing natural gas prices.

Today's Headlines

Bloomberg:
- Google Inc.(GOOG), co-founder Sergey Brin said the World Economic Forum taking place this week in Davos, Switzerland, is a “remarkably efficient” way to seek out potential business partners.
- Sony Corp.(SNE) posted a record quarterly profit on sales of electronics such as flat-screen TVs, allowing it to drop a forecast for the first annual loss in 11 years.
- Caterpillar(CAT) said fourth-quarter profit rose 54%, helped by higher prices and mining-equipment sales and the company raised its earnings forecast for this year.
- First Data(FDC) said it plans to spin off Western Union, the world’s largest money-transfer business, in a transaction that may be valued at more than $20 billion.
- About 420 Iraqi detainees will be released by the US Army today and tomorrow.
- The US budget deficit will come in at $337 billion this year versus prior estimates of $400 billion. This would be 2.6% of GDP, right around the long-term average of 2.5%.
- Palestinian Prime Minister Ahmed Qureia resigned to clear the way for Hamas, an Islamic group that has thwarted Middle East peace efforts with squads of suicide bombers, to form the Palestinian Authority’s next government.
- Shares of Chipotle Mexican Grill(CMG) surged 104% in their first day of trading after the company raised $173 million in an IPO.
- US 10-year Treasuries are falling for the fourth straight day, the longest slump since the start of November, after the strong Durable Goods report.
- Natural gas dropped below $8, down 50% in six weeks, in NY for the first time in almost half a year as mild winter weather leaves supplies near record highs.

Wall Street Journal:
- The NYSE is increasingly losing new-company listings to exchanges in London and Luxembourg, partly because tougher US accounting and disclosure requirements are raising costs for the foreign companies.
- US identity-theft complaints to the FTC are rising more slowly, which may be an indication that antifraud measures are starting to work.
- Medtronic(MDT) and Johnson & Johnson(JNJ) have been approached by the holder of a patent for coronary stents seeking to find a company to but it or license rights to the invention.
- A Maryland law that requires employers with more than 10,000 workers to contribute 8% of payroll to employees’ health care will only hurt the state by driving Wal-Mart Stores away, two professors wrote.

NY Times:
- Some US school districts, strapped for cash, are seeking private money with sponsorships and naming rights.

Financial Times:
- Hedge funds specializing in currency trading probably had their “roughest year” in more than a decade in 2005 on bad bets against the US dollar.

AFP:
- Ali Larijani, the secretary of Iran’s Supreme National Security Council, arrived in China today as part of Iran’s diplomatic efforts to avoid a referral to the UN Security Council.

Interfax:
- China welcomed Russia’s offer to process uranium from Iran’s nuclear program on its territory, citing Chinese Foreign Ministry spokesman.

Corporate Spending Rising, Labor Market Remains Strong

- Durable Goods Orders for December rose 1.3% versus estimates of a 1.0% rise and an upwardly revised 5.4% gain in November.
- Durables Ex Transportation for December rose .9% versus estimates of a 1.0% increase and an upwardly revised .6% gain in November.
- Initial Jobless Claims for last week were 283K versus estimates of 300K and 272K the prior week.
- Continuing Claims fell to 2581K versus estimates of 2600K and 2528K prior.

BOTTOM LINE: US durable goods orders rose more than forecast last month, led by the biggest increase in business equipment demand since August and suggesting corporate spending will spur the economy early this year, Bloomberg reported. Corporate spending is accelerating as record corporate profits allow increased spending on factories and machines to keep productivity high. Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, gained 3.5% in December, the best in 4 months. As well, unfilled orders rose .6% last month. Finally, a recent survey by the National Association for Business Economics showed 50% of companies plan to increase capital spending over the next 12 months. I continue to believe corporate spending will exceed expectations this year, helping to keep US economic growth healthy.

The number of Americans filing first-time claims for unemployment benefits rose less-than-expected last week, a signal of more strength in the labor market, Bloomberg reported. The four-week moving average fell to its lowest since July 2000. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at 2.0%. The economy likely gained 235,000 new jobs in January, according to the median forecast by Bloomberg. I continue to believe the labor market will remain healthy without generating substantial inflationary pressures.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- VeriSign Inc.(VRSN) and Harman International(HAR) will join the S&P 500 Index.
- Barclays Global Investors, the fund management unit of Barclays Plc, overtook rivals GLG Partners LP and Vega Asset Management as the largest European manager of hedge funds, according to Institutional Investor’s Alpha magazine.

USA Today:
- A widening split between Sunni insurgents in Iraq and foreign al-Qaeda fighters may help the US effort to persuade local rebels to join in the political process.

Financial Times:
- American Express(AXP), Converse Inc., the Gap Inc.(GPS) and Giorgio Armani SpA have agreed to sell products under a common brand to raise funds to combat the spread of Aids in Africa.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (PSSI), (GNW), (GD), (BLS), (MDT), (MXIM), (COH), (AC), (QCOM), (SSCC) and (CL).
- Reiterated Underperform on (MKL).

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.10%.
NASDAQ 100 indicated -.03%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(ACS)/.80
(AFFX)/.30
(AMGN)/.75
(T)/.45
(AVID)/.72
(BEBE)/.26
(BDX)/.76
(BOW)/-.13
(BRCM)/.44
(CAH)/.73
(CAT)/1.10
(CELG)/.05
(CPWR)/.09
(CNX)/.82
(ED)/.53
(DLB)/.09
(D)/.73
(DOW)/1.04
(LLY)/.78
(EMLX).29
(EL).56
(FDC)/.65
(BEN)/1.12
(GM)/-.16
(HON)/.62
(IR)/.77
(KLAC)/.47
(LM)/1.15
(MRO)3.02
(MCK)/.52
(MSFT)/.33
(BTU)/1.05
(PLAY)/.48
(DGX)/.62
(SNDK)/.62
(SIRI)/-.21
(SYK)/.48
(SY)/.37
(UPS)/.95
(VRSN)/.25
(VZ)/.64

Upcoming Splits
(CVBF) 5-for-4

Economic Releases
8:30 am EST
- Durable Goods Orders for December are estimated to rise 1.0% versus a 4.4% increase in November
- Durables Ex Transportation for December are estimated to rise 1.0% versus a .6% decline in November.
- Initial Jobless Claims for last week are estimated to rise to 300K versus 271K the prior week.
- Continuing Claims are estimated to rise 2600K versus 2543K prior.

BOTTOM LINE: Asian indices are higher on falling energy prices and reports of strong economic growth in the region. I expect US equities to open modestly lower and trade that way most of the day. The Portfolio is 50% net long heading into the day.

Stocks Finish Slightly Lower as Energy Prices Fall and Long-term Rates Rise

Indices
S&P 500 1,264.68 -.17%
DJIA 10,709.74 -.02%
NASDAQ 2,260.65 -.20%
Russell 2000 716.45 -.22%
S&P Barra Growth 603.04 -.35%
S&P Barra Value 657.54 +.01%
Morgan Stanley Consumer 596.54 -.03%
Morgan Stanley Cyclical 788.79 +.33%
Morgan Stanley Technology 533.41 +.15%
Transports 4,240.81 -.80%
Utilities 418.62 -1.51%
Put/Call .84 +58.49%
NYSE Arms 1.02 -9.85%
Volatility(VIX) 12.87 -3.31%
ISE Sentiment 191.00 +1.06%
US Dollar 88.43 +.02%
CRB 342.52 -.35%

Futures Spot Prices
Crude Oil 65.47 -.58%
Unleaded Gasoline 165.70 -.46%
Natural Gas 8.45 -.06%
Heating Oil 178.50 -.31%
Gold 562.50 unch.
Base Metals 169.01 +2.39%
Copper 220.10 -.11%
10-year US Treasury Yield 4.47% +1.93%

Leading Sectors
Gold & Silver +1.93%
Telecom +1.47%
Steel +1.0%

Lagging Sectors
Energy -1.95%
Disk Drives -2.41%
Oil Service -2.81%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (QCOM) and (ADP).
- Reiterated Underperform on (MESA).

Afternoon/Evening Headlines
Bloomberg:
- Juniper Networks(JNPR) said fourth-quarter profit rose 60% as sales increased at the slowest pace in two years.
- Buyout firm General Atlantic LLC increased by 26% its bid for a stake in the NY Merc, the world’s biggest energy market.
- Kirk Kerkorian, General Motor’s(GM) fourth-largest investor, increased his stake in the automaker back to 9.9% as he pressures the company to halve its $1.1 billion dividend and reduce executive pay.
- Novellus Systems(NVLS) said fourth-quarter sales and profit beat estimates and raised its first-quarter guidance.
- Qualcomm Inc.(QCOM) said profit rose 21% as it collected more licensing fees for its technology and sales in Europe and Asia increased.
- US Treasuries fell the most since November after the government’s $22 billion two-year note sale drew the weakest demand in nine months as investors shunned yields that may be below the Fed’ benchmark interest rate in a week.
- Crude oil fell and gasoline had its largest drop in three months after an Energy Department report showed US fuel supplies increased for a fourth straight week.

Wall Street Journal:
- President Bush said the US won’t deal with the militant Islamic group Hamas, which won more than a third of the vote in elections for the Palestinian Legislative Council, unless it recognizes Israel’s right to exist.

CNBC:
- The US will announce a trade agreement with South Korea in the next week and a half which will be the largest since the North American Free Trade Agreement.

Financial Times:
- Johnson & Johnson(JNJ) may consider making an offer for Serono SA after failing to acquire Guidant Corp.(GDT).

AP:
- Richard Hatch, who won $1 million in the first season of CBS’s “Survivor” television series, was convicted of tax evasion and faces up to 13 years in prison.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Energy-related shorts and Retail longs. I added to my IWM and QQQQ shorts in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's action was slightly bearish considering all the crosswinds. However, I doubt many bulls or bears are too pleased with today's performance. The semis finished near session highs after (MXIM) raised 3Q guidance on their conference call. As well, retail, telecom, networking and financials held up throughout the day even as long-term rates moved higher.

Stocks Lower into Final Hour on Weakness in Energy and Homebuilding Shares

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Measures of investor anxiety are mixed. According to Hedge Fund Research, investors took a net $824 million out of hedge funds in the fourth quarter of last year. This is the first quarterly net withdrawal in over 10 years. Moreover, fund of funds had outflows of $2.1 billion, the second consecutive quarter of withdrawals. Fund of funds account for about 36% of total hedge fund assets. For the year, hedge fund inflows were $47 billion, down 36.1% from 2004. Fund of funds inflows were $9.5 billion for 2005, down 71.2% from the prior year. During the first three quarters of 2005, 484 or 5.7% of the total number of funds shut down, the largest number since HFR began tracking closings since 1996. Industry assets have still doubled since the stock market bubble burst in 2000 to $1.1 trillion. I expect US stocks to trade mixed into the close from current levels as rising long-term rates offsets lower energy prices.

Today's Headlines

Bloomberg:
- SAP AG(SAP) forecast software license sales will rise as much as 17% this year, beating analyst estimates.
- Women will now be able to determine how many eggs they have left in their ovaries, allowing them to assess whether they can wait before trying to get pregnant or should get to work immediately.
- Boston Scientific(BSX) won bidding for Guidant(GDT) with its $27 billion bid, beating out Johnson & Johnson(JNJ), which declined to raise its offer.
- Investors pulled more money out of hedge funds in the fourth quarter than they put in, the first quarterly withdrawals in more than 10 years, as returns fell below their long-term average for the second straight year, according to Hedge Fund Research.
- Crude oil is falling after an Energy Department report showed that US supplies of gasoline and distillate fuel increased for a fourth straight week.

Wall Street Journal:
- Oxford University Press and other religious textbook publishing companies have come under increasing pressure from Hindu, Jewish and other religious groups to modify passages in textbooks they produce.
- A group of US utilities is trying to persuade automakers to produce plug-in electric hybrid cars in a bid to gain more business.
- US start-up companies are finding it harder to maker IPOs because of regulatory and other stock-market changes.
- Aetna(AET), Wellpoint(WLP), Humana(HUM) and other private insurers in the US are hiring aggressively to help cope with an unexpected level of problems as new Medicare drug-benefit plans are rolled out.
- Google(GOOG), Sun Microsystems(SUNW) and Lenovo Group Ltd. have supplied at least $1 million to finance a new program to identify malicious software producers.
- The US Congress plans to prevent troubled companies from funding lavish pension payouts to executives.

NY Times:
- Ford Motor(F) plans to begin airing a television commercial today explaining the automaker’s financial difficulties and restructuring plans to consumers.

Washington Post:
- President Bush plans to propose tax breaks for individuals’ personal health spending

Gulf News:
- Iraq more than doubled the flow of oil to 500,000 barrels a day through its northern export pipeline to the Ceyhan terminal in Turkey.

Interfax:
- Iran regards “positively” a proposal to set up a joint venture on Russian soil to enrich uranium for the Iranian nuclear industry, citing Ali Larijani, the secretary of Iran’s Supreme National Security Council.

World Gas Intelligence:
- Global liquefied natural gas output capacity may rise 18% this year as four new export plants come online.