Mid-day Report

S&P 500 1,183.54 +.54%
NASDAQ 2,129.62 +.70%

Leading Sectors
Disk Drives +2.17%
Biotech +1.93%
HMOs +1.92%

Lagging Sectors
Defense -.94%
Semis -1.07%
Iron/Steel -1.06%

Other
Crude Oil 41.70 +.58%
Natural Gas 6.61 -.17%
Gold 438.70 -3.33%
Base Metals 114.10 -3.29%
U.S. Dollar 82.06 +1.02%
10-Yr. T-note Yield 4.14% -1.92%
VIX 13.34 -2.49%
Put/Call .91 ++24.66%
NYSE Arms 1.19 -23.03%

Market Movers
SIRI -15.3% on multiple downgrades to Sell.
VIP -26.9% after saying it received a claim of $157 million for back taxes, penalties and fines from 2001.
STX +6.4% after boosting 2Q estimates substantially and multiple upgrades.
GMR +13.6% after Frontline(FRO) indicated it bought at least 5% of the company and expressed interest in a business combination.
HITK +10.7% after beating 2Q estimates.
TTC +6.4% beating 4Q estimates, raising 1Q guidance and raising dividend.
MTL -20.5% after accusing the Russian police of raiding its Moscow offices to keep it from bidding for a stake in Russia's no. 2 steelmaker.
PIXR -6.0% after saying it and Disney are delaying the release of their movie "Cars" by six months and multiple downgrades.
DECK -5.8% on Piper Jaffray downgrade to Market Perform.
AVP -4.9% after lowering 4Q estimates.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Outperform on IBM, CSCO. Goldman reiterated Underperform on UIS. Goldman lowered AAI to Underperform.
-Citigroup SmithBarney rated ERTS Top Pick, target $62. Citi rated ATVI Buy, target $22. Citi reiterated Buy on MSFT, target $32. Citi reiterated Buy on TXN, target $27. Citi reiterated Buy on CSCO, target $30. Citi reiterated Buy on HOV, target $73.
-UBS raised NRP to Buy, target $60. UBS raised PVR to Buy, target $56. UBS raised USS to Buy, target $27.
-Deutsche Bank raised STX to Buy, target $22.
-Lehman Brothers raised GE to Overweight.
-CSFB rated SHOP Outperform, target $33. CSFB rated MRK Underperform, target $23. CSFB rated LLY Outperform, target $70. CSFB raised FDX to Outperform, target $130.
-Morgan Stanley raised AFL to Overweight, target $45.
-Banc of America downgraded Semis to Sell.

Mid-day News
U.S. stocks are modestly higher mid-day on optimism over falling interest rates and a rebound in the US dollar. Gap's Old Navy retail chain may suffer this holiday shopping season because it doesn't have many new apparel offerings, the NY Times reported. United Airlines may charge a $2/bag fee for curbside baggage check-in beginning in January, the NY Times said. Saudi Arabian Oil Minister Al-Naimi said today no action may be needed from OPEC to prevent oil prices from falling further, Platts reported. Construction contractors and equipment distributors are more confident about the industry and the economy than they have been in a decade, the Wall Street Journal reported today, citing a new survey. Nucor, the biggest U.S. maker of steel from recycled metal, yesterday lowered its prices on some products by $30/ton to compete with imports, American Metal Market reported. 99 Cents Only Stores' 65 union truck drivers voted to authorize a strike after contract negotiations fell through, the LA Times reported. Merck, already hurting from the withdrawal of Vioxx, said 2005 earnings will fall lower than expected as sales of its Zocor cholesterol medication decline, Bloomberg reported. Gold fell the most in 10 months as a rebound in the US dollar eroded the appeal of the precious metal as an alternative to stocks and bonds, Bloomberg said. Pfizer CEO McKinnell said sales of Lipitor may rise 15% in each of the next five or six years, Bloomberg reported. Nortel will file restated financial results on Jan. 10, the last day of a self-imposed deadline, Bloomberg said. The ACLU wants a federal judge to overturn a California law that requires anyone convicted of a felony to submit a DNA sample to law enforcement databases, the San Francisco Chronicle reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my retail longs are offsetting losses in my semi and semi-equipment longs. I have not traded today and the Portfolio is still 50% net long. The tone of the market is mildly positive today with measures of investor anxiety mixed. It is good to see interest rates falling, gold dropping, the dollar rebounding and the CRB declining near critical technical support. I continue to believe the CRB will fall next year which bodes well for future inflation readings. As well, commodity-related stocks will likely underperform in the intermediate-term. I expect U.S. stocks to trade mixed-to-higher into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
AZO/1.44
DWA/.16
KFY/.18

Splits
VCP 5-for-2

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on XRX, WFC, AVP and BAC.

Late-Night News
Asian indices are mixed as optimism over a bounce in the US Dollar is being offset by weakness in commodity-related stocks in the region. The euro zone's growth slowdown in the past three months was a "one-off, temporary nature," the Financial Times said, citing an interview with European Central Bank Chief Economist Issing. Israel and the Palestinian leadership denied a report from Egypt that an agreement is close that could serve as the basis for a peace settlement between them, Haaretz reported. New York lawmakers voted today to reduce the state's mandatory prison sentences for drug crimes, the NY Times reported. Lenovo Group Ltd., China's biggest personal computer maker, agreed to pay $1.25 billion for control of IBM's PC business, Bloomberg reported. Ukraine's opposition leader Yushchenko was the target of a plot to poison him during the country's recent election campaign, the London-based Times said. The BBC may start a worldwide children's tv channel, to capitalize on its success with characters such as the "Teletubbies," the Wall Street Journal reported.

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

BOTTOM LINE: I expect U.S. equities to open modestly higher on a bounce in the US dollar and bargain-hunting. However, stocks may fall modestly later in the day on continuing worries over slowing global growth. The Portfolio is 50% net long heading into tomorrow.

Tuesday Close

S&P 500 1,177.07 -1.11%
NASDAQ 2,114.66 -1.70%

Leading Sectors
Hospitals +.31%
Drugs -.57%
I-Banks -.58%

Lagging Sectors
Software -2.24%
Iron/Steel -2.84%
Disk Drives -3.14%

Other
Crude Oil 41.53 +.17%
Natural Gas 6.65 +.44%
Gold 452.40 -.29%
Base Metals 117.98 +.62%
U.S. Dollar 81.24 -.05%
10-Yr. T-note Yield 4.22% unch.
VIX 13.67 +3.64%
Put/Call .73 -3.95%
NYSE Arms 1.52 +53.54%

After-hours Movers
STX +10.6% after boosting 2Q estimates substantially.

Recommendations
Goldman Sachs reiterated Outperform on INTC, PFE and HOT.

After-hours News
U.S. stocks finished lower today on profit-taking and worries over global growth. Crude oil fell to the lowest in more than four months on speculation that warm weather and increased refinery production bolstered U.S. heating-oil stockpiles last week, Bloomberg said. The California Public Employees' Retirement System, the largest U.S. pension fund, agreed to disclose the fees it pays to venture capital and hedge fund managers as part of a legal settlement, Bloomberg reported. Texas Instruments narrowed its fourth-quarter sales forecast because industrial customers for its chips continue to reduce inventory, Bloomberg said. Axa SA, Manulife Financial and other global life insurers are preparing for rule changes in China this week that will give them greater access to a $50 billion market that is growth at more than 20% a year, Bloomberg said. General Motors will add rebates on many models starting Dec. 10 to attract buyers after U.S. sales fell 16% in November, Bloomberg reported. Global aluminum prices may rise after China said it will curb output to try to prevent a repeat of power shortages next year, Bloomberg reported. U.S. Representative Allen Boyd became the leading Democrat to endorse President Bush's plan to create private Social Security accounts, Bloomberg reported. The U.S. House of Representatives approved legislation reorganizing the nation's intelligence agencies and creating the job of national intelligence director to oversee efforts to thwart terrorist attacks, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today and I pared a number of long positions in various sectors, thus lowering market exposure to 50% net long. The tone of the market was poor today as volume increased and the advance/decline line was very weak, finishing at it lows for the day. As well, measures of investor complacency remained elevated. U.S. stocks will likely weaken further in the near-term. However, I do not anticipate a substantial pullback from current levels. As well, I foresee a resumption of the recent rally closer to year-end. Thus, I will look to rebuild long exposure into any near-term weakness.

***Alert***

There will not be a Mid-day Report today as I have a scheduling conflict. The Tuesday Close will be posted at its regular time. Sorry for the inconvenience. I have exited a number of long positions in various sectors as they hit my stops, thus leaving the Portfolio 50% net long. Today's action is negative and I expect further near-term weakness before another rally commences into year-end.

Tuesday Watch

Earnings of Note
Company/Estimate
HOV/2.07
UTIW/.56
SAFM/.22

Splits
None of note.

Economic Data
Final 3Q Non-farm Productivity estimated to increase 2.0% versus a 1.9% prior estimate.
Final 3Q Unit Labor Costs estimated to rise 1.6% versus a 1.6% prior estimate.
Consumer Credit for October estimated at $6.0B versus $9.9B in September.

Recommendations
Goldman Sachs reiterated Outperform on BBY. Goldman reiterated Underperform on PBG, NFB and SLG.

Late-Night News
Asian indices are mostly lower on worries over slowing Chinese growth and a bounce in oil prices. Johnson & Johnson is in advanced talks to buy Guidant Corp. for more than $24 billion, the NY Times reported. China shut 16,400 mining companies after a government investigation uncovered widespread violations of environmental regulations, the China Daily reported. OAO Gazprom, the world's biggest natural gas producer, has received about $4 billion in investment from hedge funds in anticipation that Russian barriers to international investment are about to be eased, the Financial Times said. Lenovo Group Ltd., China's largest computer maker, may say this week it will pay $2.0 billion in cash and stock for IBM's personal-computer business, the Financial Times said. Central bank governor Xiaochuan says China is facing a financial crisis if non-performing loans continue to build up, the China Securities Journal reported. The US is against moves by Taiwan to drop references to China in its official name, saying it would disrupt the status quo in cross-Strait relations, Agence France-Presse reported. Ukraine's President Kuchma said he agreed that a new election law aimed at ending voting fraud must be in effect before the Dec. 26 re-run of the disputed presidential election, Bloomberg reported. Japan will probably extend its troop deployment in Iraq beyond Dec. 14 when authorization for the current mission expires, Chief Cabinet Secretary Hosoda told a news conference in Tokyo.

Late-Night Trading
Asian Indices are -.75%. to unch. on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strength in technology and medical-related shares. The Portfolio is 125% net long heading into tomorrow.