Thursday Watch

Earnings of Note
Company/Estimate
T/.58
BJS/.54
BEBE/.40
CKFR/.31
C/1.01
DAL/-5.51
DHI/.93
ELX/.19
F/.27
HDI/.69
KLAC/.59
LRCX/.53
IGT/.33
KRB/.58
SFA/.37
PGR/1.66
STI/1.27
UNH/1.08
XLNX/.18

Splits
None of note.

Economic Data
Leading Indicators for December estimated up .2% versus a .2% increase in November.
Philadelphia Fed. for January estimated at 25.0 versus 25.4 in December.

Recommendations
Goldman Sachs reiterated Outperform on PFE, A and Underperform on HRB. Citi SmithBarney cut NOK to Sell.

Late-Night News
Asian indices are lower on declines in technology stocks in the region. The US lowered Taiwan's status on its watch list of countries that aren't adequately protecting intellectual property rights, the Taiwan News reported. China's government will begin relaxing controls on fees charged by China Telecom, China Mobile Communications and other telecom service providers this year, as part of efforts to reform the industry, the China Daily said. MCI Inc. plans to acquire closely held NetSec Inc., a network security company, for more than $100 million, the Wall Street Journal reported. Ukraine's Supreme Court rejected a final appeal against the result of last month's presidential election, confirming Viktor Yushchenko as the winner, Agence France-Presse reported. The US dollar is trading near a two-month high against the euro in Asia after French Finance Minister Herve Gaymard said the US currency's drop "must not continue," Bloomberg reported. Pfizer is nearing an agreement to buy closely held eye-treatment maker Angiosyn for about $527 million, the Wall Street Journal reported. After more than three years pruning insurance and other businesses GE acquired under Jack Welch and making $60 billion of acquisitions in such faster-growing businesses as health care, security and consumer finance, CEO Immelt aims to boost sales from existing operations, Bloomberg reported. A coalition representing companies including Boeing, Pfizer and Fidelity Investments will spend "significantly more" than $5 million to promote President Bush's plan for Social Security. The companies, concerned the government will otherwise raise the 12.4% payroll tax to plug a funding gap, plan a campaign of direct mail and tv ads across the nation to back Bush's proposal, Bloomberg reported.

Late-Night Trading
Asian Indices are -1.0%. to -.50% on average.
S&P 500 indicated -.34%.
NASDAQ 100 indicated -.65%.

BOTTOM LINE: I expect US equities to open lower in the morning on declines in technology shares, worries over slowing global growth and weakness in Asia. Stocks may recoup some of their losses later in the day on declining energy prices, falling interest rates and short-covering. The Portfolio is 25% net long heading into tomorrow.

Wednesday Close

S&P 500 1,184.63 -.95%
NASDAQ 2,073.59 -1.54%

Leading Sectors
Hospitals +.29%
Oil Service +.23%
Homebuilders +.05%

Lagging Sectors
Wireless -2.55%
Airlines -3.24%
Networking -3.64%

Other
Crude Oil 46.86 -1.49%
Natural Gas 6.20 -1.40%
Gold 423.20 -.02%
Base Metals 120.36 +1.31%
U.S. Dollar 83.57 -.04%
10-Yr. T-note Yield 4.17% +.09%.
VIX 13.18 +5.69%
Put/Call .83 -1.19%
NYSE Arms 1.98 +200.00%
ISE Sentiment 163.00 +12.41%

After-hours Movers
MACR +5.23% after meeting 3Q estimates and raising 4Q outlook.
FFIV +4.74% after substantially beating 1Q estimates and raising 2Q guidance.
RDN +4.72% after beating 4Q estimates.
EBAY -11.68% after slightly missing 4Q estimates, lowering 05 guidance and announcing 2-for-1 split.
SHOP -7.29% on EBAY news.
NVEC -7.11% on profit-taking after beating 3Q estimates.
OSTK -7.05% on EBAY news.
QCOM -6.50% after beating 1Q estimates and lowering 2Q outlook.
AMZN -4.23% on EBAY news.

Recommendations
Goldman Sachs reiterated Outperform on CAT and IR. Goldman reiterated Underperform on NAV, ATI and FHN.

After-hours News
U.S. stocks finished lower today on substantial weakness in the technology sector. After the close, Bank of America may try to form an alliance of Parmalat Finanziaria SpA investors to push for changed in litigation against their role in the company’s collapse and press for a broad settlement rather than individual lawsuits, the Financial Times reported. GE’s finance unit may buy as much as 40% of Hyundai Card to become the second-biggest shareholder in the South Korea credit card company, Yonhap News said. European Union failure to understand the scale of US opposition to the lifting of the EU arms embargo on China will result in “major problems,” the Financial Times reported, citing an unidentified US official. Liberty Media may be divided into two as part of a “simplification” plan, the Financial Times said. Qualcomm said first-quarter profit rose 46% as sales climbed on rising demand for handsets that play games and take photos, Bloomberg said. EBay said fourth-quarter profit rose 44%, helped by more holiday shoppers using its US site and increased international listings, Bloomberg reported. EBay shares fell as much as 12% after the company said profit next year may be less than analysts expected, Bloomberg said. Johnson & Johnson said it will return about $11 billion in foreign profit to the US and record tax costs of about $800 million in the fourth quarter, Bloomberg said. The FBI said it’s looking into reports that terrorists may be in Boston, or traveling to the city, with nuclear materials, Bloomberg reported. Crude oil in NY is declining after a government report showed US inventories rose more than expected last week, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today on declines in my semiconductor and internet longs. I added a few new technology and commodity-related shorts in the afternoon, thus bringing the Portfolio to 25% net long. One of my new shorts is NE and I am using a $54 stop-loss on this position. The tone of the market worsened markedly into the afternoon as volume accelerated, tech underperformed, almost all sectors declined and the advance/decline line finished at its daily lows. Measures of investor anxiety remained mixed throughout the day. Declines in the Internet sector and worries over terrorism will likely push the major indices lower again tomorrow morning.

Mid-day Report

S&P 500 1,189.76 -.52%
NASDAQ 2,087.99 -.85%

Leading Sectors
Oil Service +.94%
Hospitals +.39%
Restaurants +.30%

Lagging Sectors
Wireless -1.79%
Airlines -2.45%
Networking -2.95%

Other
Crude Oil 48.10 -.58%
Natural Gas 6.29 +2.49%
Gold 422.80 -.17%
Base Metals 120.36 +1.31%
U.S. Dollar 83.57 +.26%
10-Yr. T-note Yield 4.19% +.05%
VIX 12.65 +1.60%
Put/Call .80 -4.76%
NYSE Arms 1.54 +133.33%
ISE Sentiment 171.00 +17.93%

Market Movers
MOT -7.11% on profit-taking after beating 4Q estimates, raising 1Q outlook and multiple downgrades.
TASR -9.11% on the announcement of several class action lawsuits against the company.
HUBG +9.74% on Raymond James upgrade to Strong Buy.
OSTK +6.2% after saying auction listings are up 50% in 5 days after EBAY price increases.
EDO +7.3% on Friedman, Billings, Ramsey upgrade to Outperform.
CLF +4.03% after Morgan Stanley raised 05/06 estimates.
APH +5.24% after beating 4Q estimates and raising 05 guidance.
DRL -10.45% after missing 4Q estimates.
RMBS -11.64% after missing 4Q estimates and lowering 1Q outlook.
PLT -6.0% after beating 3Q estimates and lowering 4Q outlook.
SNDA -5.98% on continuing sell-off over worries over slowing growth in China.

Economic Data
-The Consumer Price Index for December fell .1% versus estimates of unch. and a .2% rise in November.
-CPI Ex Food & Energy for December rose .2% versus estimates of a .2% gain and a .2% increase in November.
-Housing Starts for December rose to 2004K versus estimates of 1903K and an upwardly revised 1807K.
-Building Permits for December rose to 2021K versus estimates of 1985K and an upwardly revised 2028K in November.
-Initial Jobless Claims for last week fell to 319K versus estimates of 345K and 367K the prior week.
-Continuing Claims rose to 2694K versus estimates of 2675K and 2647K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on IBM, KMR, MUR, EBAY, YHOO, PFE, RIO, MMM, USB, WAG and JNPR. Reiterated Underperform on GAP, WIN and MARSA. Rated BBG Outperform, target $46.
-Bank of America: Downgraded WEN to Sell, target $34. Downgraded OSI to Sell, target $39. Rated YRK Buy, target $45.
-CSFB: Reiterated Outperform on STX.
-UBS: Raised PBG to Buy, target $31.
-JP Morgan: Raised ACXM to Overweight.
-Deutsche Bank: Raised MTSN to Buy, target $12. Cut FCX to Sell.
-Thomas Weisel: Raised CSTR to Outperform.
-Merrill Lynch: Reiterated Buy on RIO, target $35.
-Legg Mason: Rated YSI Buy, target $19.
-Morgan Stanley: Raised SBC to Overweight, target $26.
-Prudential: Rated DTV Overweight, target $19. Rated DISH Underweight, target $35.
-Raymond James: Raised HUBG to Strong Buy, target $64.

Mid-day News
U.S. stocks are lower mid-day on losses in the technology sector. Choice Hotels International plans to introduce a higher-priced brand called Cambria Suites to compete with Hilton Hotels’ Hilton Garden Inn and other chains, the Wall Street Journal said. A group of health and technology organizations gave the Bush administration recommendations yesterday on how to begin creating a national health information network to digitize medical records, the NY Times reported. Exchange-traded funds have been growing more popular with US individuals, as brokerage firms push services that allow investors’ goals to be matched by corresponding portfolios, the Wall Street Journal said. Cablevision Systems’ board decided to oppose the wishes of Chairman Dolan and sell its Voom satellite-television unit, the NY Times reported. Triarc Cos., which operated Arby’s fast-food restaurants, may make an IPO of shares of the sandwich chain, the NY Post said. Donald Trump formed a company called Trump Gold Management to create a golf brand, the Star-Ledger reported. President Bush may host a meeting with the leaders of Canada and Mexico later this year to discuss expanding NAFTA, the Globe and Mail reported. Harvard University President, and former US Treasury Secretary in the Clinton administration, Lawrence Summers issued a written apology yesterday for remarks he made last week at a conference that men have more aptitude for math and science than women, the Boston Globe reported. Venetian Group met with Detroit officials to discuss adding a casino to the city’s Cobo Center, the Detroit Free Press reported. Envoys from Iraqi political parties said last night that corruption in the UN/Iraqi oil-for-food program has damaged the world body’s legitimacy, with one envoy envisioning a “zero” role for the UN in his country’s future, Bloomberg reported. Carl Icahn has fallen short of his $3 billion target for a new hedge fund that would back the type of corporate raids carried out by the financier at RJR Nabisco and Trans World Airlines, Bloomberg said. Bonds of DaimlerChrysler AG are outperforming the debt of its larger US competitors as the company’s Chrysler unit benefits from rising commercial vehicle sales in North America, Bloomberg said. Soybean prices are likely to plunge to a three-year low as importers delay purchases just as farmers in Brazil, the world’s second-largest grower, are about to harvest a record crop, said The Linn Group, a Chicago futures broker. US Chief Justice Rehnquist rejected a California atheist’s bid to block clergy-led prayer at tomorrow’s inauguration ceremony for President Bush, Bloomberg said. US home construction rebounded in December to cap the best year since 1978 as cheap mortgages and increased employment buoyed demand, Bloomberg said. Initial Jobless Claims dropped by 48,000 last week, the biggest decline in three years, Bloomberg reported. Prices paid by US consumers fell in December, restrained by lower gasoline costs, Bloomberg said. Best Buy said it will stop selling Maytag Corp.’s line of washers, dryers and ranges because of growing demand for other brands, Bloomberg reported.

Bottom Line: The Portfolio is lower mid-day on losses in my internet and semiconductor longs. I exited a number of longs this morning as they hit stop-losses, thus leaving the Portfolio 50% net long. The tone of the market is weaker today as decliners outpace advancers, most sectors are lower, technology shares are underperforming and volume is decent. It is also a negative that very good economic reports and mostly positive earnings reports are resulting in losses for the major indices. Measures of investor anxiety are mixed. I expect US stocks to trade mixed-to-higher into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
BK/.43
COF/.99
EBAY/.34
FFIV/.21
FAST/.40
GM/.91
JPM/.68
LU/.04
MACR/.21
PFE/.59
QLGC/.47
QCOM/.27
LUV/.08
RDC/.18
SYMC/.22
WM/.75
WB/.98

Splits
AGP 2-for-1
CRDN 3-for-2

Economic Data
Consumer Price Index for December estimated unch. versus a .2% increase in November.
CPI Ex Food & Energy for December estimated up .2% versus a .2% increase in November.
Housing Starts for December estimated at 1905K versus 1771K in November.
Building Permits for December estimated at 1985K versus 2028K in November.
Initial Jobless Claims for last week estimated at 345K versus 367K the prior week.
Continuing Claims estimated at 2675K versus 2631K prior.
Fed's Beige Book.

Recommendations
Goldman Sachs reiterated Outperform on MMM and YHOO.

Late-Night News
Asian indices are mostly lowers on continuing fears over slowing growth in the region. Singapore Airlines hopes that Australia may grant it unlimited access to routes to the US sooner than 12 to 18 months, the Business Times reported. China's Huawei Technologies is tipped to win a contract over Motorola and Ericsson for the construction of CAT Telecom's $332 million mobile-phone network in Thailand, the Nation reported. Kraft Foods plans to double its purchases of certified green coffee from Latin American nations this year, Reuters reported. India's inflation, which slowed to the least in seven months, continues to ease, CNBC reported. Fannie Mae today cut its quarterly dividend to 26 cents a share from 52 cents to conserve capital after making accounting errors, Bloomberg reported. IBM and Yahoo! posted profit and sales that beat analysts' estimates, spurring optimism that other US technology companies reporting this month will follow suit, Bloomberg reported. A Harvard University committee condemned university President, and former US Treasury Secretary during the Clinton administration, Lawrence H. Summers' recent remarks implying women were inferior to men in math and science, the NY Times reported. Texas Instruments won its first order from Samsung Electronics for a processor to run digital cameras in handsets after a two-year effort to get the business, Bloomberg reported.

Late-Night Trading
Asian Indices are -.50%. to unch. on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strong earnings reports, decelerating inflation and better economic reports. The Portfolio is 100% net long heading into tomorrow.

Tuesday Close

S&P 500 1,195.98 +.97%
NASDAQ 2,106.04 +.87%

Leading Sectors
Disk Drives +2.30%
Insurance +1.89%
I-Banks +1.82%

Lagging Sectors
Broadcasting -.02%
Iron/Steel -.52%
Papers -1.15%

Other
Crude Oil 48.36 -.04%
Natural Gas 6.17 +.62%
Gold 423.20 -.07%
Base Metals 118.80 -.29%
U.S. Dollar 83.40 +.19%
10-Yr. T-note Yield 4.18% -.56%.
VIX 12.47 +.32%
Put/Call .84 +15.07%
NYSE Arms .66 -16.46%
ISE Sentiment 145.00 -7.64%

After-hours Movers
CHKP +4.74% after beating 4Q estimates.
RMBS -4.50% after missing 4Q estimates and lowering 1Q outlook.
ALXN -4.04% after announcing that it intends to sell approximately $125 million principal amount of its Convertible Senior Notes.
MOT -3.21% on profit-taking after beating 4Q estimates and raising 1Q outlook.
CNCT +4.28% after saying it will replace Waypoint Financial in the S&P 600 SmallCap 600.

Recommendations
Goldman Sachs reiterated Outperform on PG, WFC, USB and KRB.

After-hours News
U.S. stocks finished higher today on strong earnings reports, declining energy prices, a stable US dollar and falling interest rates. After the close, Amazon.com and Otto GmbH had fewer online shoppers in Germany during the holiday season than in 2003, Financial Times Deutschland said. Viacom’s CBS television unit may replace CBS Evening News anchorman Dan Rather with a group of anchors reporting from different cities, the AP reported. Argentina’s most-traded bond had its biggest drop in six months on concern more investors than expected will reject the government’s offer to restructure $104 billion of defaulted debt, Bloomberg said. US interest rates are likely to rise further this year to keep inflation in check as labor market strength fuels income growth, Fed officials said. International Business Machines said fourth-quarter profit climbed 12%, Bloomberg said. Juniper Networks said fourth-quarter net income rose to $66 million as revenue doubled, Bloomberg reported. United Airlines reached a new contract agreement with its pilots union after a bankruptcy judge rejected an earlier accord Jan. 7, Bloomberg reported. Yahoo! said fourth-quarter profit jumped almost fivefold as it sold more advertising and recoded a gain from the sale of an investment, Bloomberg said. Motorola said fourth-quarter net income rose to $654 million as demand surged for higher priced handsets, including the $499 Razr model, Bloomberg reported.

BOTTOM LINE: The Portfolio finished substantially higher today as my alternative energy, semiconductor, internet and computer service longs rose and my auto parts and software shorts fell. I added a few new longs in the afternoon, bringing the Portfolio’s market exposure to 100% net long. One of my new longs is VRSN and I am using a $28.50 stop-loss on this new position. The tone of the market was good today as the advance/decline line finished at its daily highs, volume was decent, most sectors rose, small-caps and financials outperformed and good news was rewarded. Earnings after the close are generally good and I look for tech to outperform tomorrow.

Mid-day Report

S&P 500 1,193.26 +.74%
NASDAQ 2,100.85 +.62%

Leading Sectors
I-Banks +1.78%
Tobacco +1.68
Insurance +1.49%

Lagging Sectors
HMOs +.08%
Iron/Steel -.89%
Papers -1.17%

Other
Crude Oil 48.00 -.79%
Natural Gas 6.18 -3.28%
Gold 423.50 +.05%
Base Metals 118.80 -.29%
U.S. Dollar 83.34 +.11%
10-Yr. T-note Yield 4.21% +.05%
VIX 12.39 -.32%
Put/Call .87 +19.18%
NYSE Arms .76 -3.80%
ISE Sentiment 152.00 -3.18%

Market Movers
MAY +17.0% after CEO Kahn resigned and multiple upgrades.
KKD +13.3% after saying its replacing CEO Livengood with Stephen Cooper, a turnaround specialist who led Enron and Laidlaw out of bankruptcy.
NCR +5.0% after substantially raising 4Q estimates and slightly boosting 05 guidance.
ATW +6.15% on CSFB upgrade to Neutral and raising target to $66.
OSTK +7.6% short-covering and optimism over upcoming earnings report.
IMPC +19.69% after Elekta AB, the world’s largest maker of radiation surgery equipment, agreed to buy it for about $250 million in cash.
JOBS -36.5% after lowering 4Q estimates substantially.
HNR -32.9% after saying it suspended drilling in Venezuela after the company’s 05 business plan was rejected by state oil company Petroleos de Venezuela.
FLE -15.65% after cutting 3Q estimates substantially.
PH -8.66% after missing 2Q estimates and widening 3Q guidance.
AL -5.1% on disappointing 4Q.
PETM -6.19% after cutting 4Q and 05 forecast.
GP -4.95% after lowering 4Q estimates.

Economic Data
Empire Manufacturing for January fell to 20.08 versus estimates of 25.0 and a reading of 27.07 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on ADP, KRB, JTX, YHOO, AL, GE, DKS and ACS. Reiterated Underperform on FRX. Upgraded AWA and SYK to Outperform.
-Bank of America: Upgraded MAY to Buy, target $37. Rated SMA Buy, target $22. Upgraded PSA to Buy, target $59. Cut EXR to Sell, target $11.
-JP Morgan: Reiterated Buy on YHOO, target $50. Raised DOX, MAY, BLX to Overweight. Cut BCH, WBSN, TIBX and VRST to Underweight.
-Citi SmithBarney: Raised DOX to Buy, target $34. Rated PII Buy, target $75. Raised LUV to Buy, target $19.
-UBS: Raised GLG and MDG to Buy. Rated FCL Buy, target $27. Cut SCT to Reduce.
-CSFB: Reiterated Outperform on RIG.
-Legg Mason: Raised BRCM to Buy, target $39.
-Oppenheimer: Raised MAY to Buy.

Mid-day News
U.S. stocks are higher mid-day on a continuation of Friday’s bounce and strong earnings reports. Ntelos Inc., a telecom service provider that services customers in Virginia, West Virginia, Kentucky and North Carolina, will likely be bought for about $750 million by investors headed by Quadrangle Capital Partners and Citigroup Venture Capital, the Wall Street Journal reported. TD Waterhouse, Fidelity and E*Trade are seeking customers by offering new online trading tools, the Wall Street Journal reported. New government regulations, such as the Sarbanes-Oxley Act, are driving demand for accountants and lawyers at US corporations, USA Today reported. A government advisory panel of economists, and health-care experts and providers recommended that the US Congress make lower Medicare payments than promised next year to hospitals and keep payments to nursing homes unchanged, the NY Times reported. Kimberly-Clark and Procter & Gamble plan to introduce new toiletries for babies and toddlers, the NY Times said. Archipelago Holdings, which operates the Archipelago Exchange stock-trading network, plans to open for trading by 4am NY time as soon as March to lure business from Europe, the Financial Times reported. An Internet virus is embedded in a bogus e-mail soliciting aid for victims of last month’s tsunami, Reuters reported. National City Corp. CFO Daberko told CNBC it will consider expanding this year through smaller acquisitions, as it did last year. Teva Pharmaceuticals said a study linking its Copaxone multiple sclerosis drug to breast cancer is flawed and that its own research shows no such connection, Bloomberg said. Bank of America said quarterly profit rose 41% as consumer banking fees climbed and the company arranged more loans for both individuals and companies, Bloomberg reported. International investors increased their net holding of US assets in November by the most since June, driven by the biggest stock purchases in more than three years, the Treasury Department said. 3M Co. said fourth-quarter profit increased 16%, helped by higher sales in its security and health businesses, Bloomberg said. Charter Communications said CEO Vogel resigned, becoming the third top executive to leave in the last six months, Bloomberg said. MeadWestvaco Corp., the second-largest US maker of coated paper for magazines, agreed to sell its papers unit and forest assets for $2.3 billion to Cerberus Capital Management to pay debt and focus on packaging, Bloomberg reported. The US dollar approached a two-month high against the euro and gained versus the yen after a Treasury Department report showed international investors increased purchases of US assets by 67.7% in November from October, Bloomberg said. Crude oil is falling on speculation that stronger demand for heating fuel during a cold wave in the US Northeast doesn’t justify the recent surge in prices, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day as my computer service, semiconductor and alternative energy longs are rising and my software and auto parts shorts are falling. I added to a few of my current tech longs this morning, thus bringing the Portfolio to 75% net long. I increased my long position in DRIV and I am using a $32.25 stop-loss on this position. The tone of the market is good today on continuing improvement in the advance/decline line and decent volume. Financials and small-caps are outperforming, which is also a positive. The fact the international investors added to US stock holdings by the most in 3 1/2 years is also a big positive considering the weaker US dollar. Measures of investor anxiety are mixed. I expect US stocks to trade modestly higher into the close on short-covering and bargain-hunting.