Tuesday Watch

Late-Night News
Asian indices are mixed as shares of exporters are rising and healthcare stocks are declining in the region. Altria Group, parent of Philip Morris and Kraft Foods, may separate into two or three units "sooner rather than later," the Financial Times said. The Athens Exchange may set up a freight futures clearing house to settle bets on the direction of shipping rates, shipping daily Lloyd's List said. Almost one-fifth of the world's shipping fleet is Greek owned, Bloomberg said. News Corp.'s Fox network coverage of yesterday's Super Bowl drew 1 percent lower television audience ratings than last year's game, Bloomberg reported. Israeli Prime Minister Ariel Sharon and Palestinian Authority President Mahmoud Abbas will declare their intent to halt violence at a summit today in Egypt, Bloomberg reported. Fujitsu Ltd. will increase investment in semiconductors by about 80% next business year to meet demand for its smaller and low-power chips used in digital cameras, computer servers and other electronics, Bloomberg said. The falling unemployment rate is approaching a level that could cause an acceleration of inflation and pressure central bankers to keep raising the benchmark interest rate, said Bruce Kasman, head of economic research at JP Morgan. The US dollar is rising against the yen after Federal Reserve Governor Bies said the US is attracting "a tremendous amount" of overseas investment to help offset deficits, Bloomberg reported. Iran's rejection of a $2.25 billion cell-phone project led by Turkey's Turkcell Iletisim Hizmetleri AS signals a growing hostility to foreign investment that may undermine European efforts to avoid a confrontation over the country's nuclear ambitions, the Wall Street Journal reported.

Late Recommendations
-Goldman Sachs: Reiterated Outperform on AGN, MSFT, SYK, DELL and FSL.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated unch.

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

Earnings of Note
Company/Estimate
AL/.52
CAKE/.24
CSCO/.22
CSC/.80
MAR/.75
TASR/.10
TOL/1.08

Splits
None of note.

Economic Data
None of note.

BOTTOM LINE: I expect US equities to open modestly lower in the morning on continuing worries over future earnings growth. However, stocks may rise later in the afternoon on lower energy prices and interest rates. I am looking to add to my GOOG long in the $187-$192 area before the widely publicized lock-up expiration on Feb. 14. The Portfolio is 125% net long heading into tomorrow.

Monday Close

Indices
S&P 500 1,201.72 -.11%
Dow 10,715.76 unch.
NASDAQ 2,082.03 -.22%
Russell 2000 636.62 -.13%
DJ Wilshire 5000 11,839.19 -.12%
S&P Barra Growth 577.09 -.19%
S&P Barra Value 620.33 -.03%
Morgan Stanley Consumer 591.37 -.11%
Morgan Stanley Cyclical 761.-.15%
Morgan Stanley Technology 475.84 +.01%
Transports 3,602.13 +.12%
Utilities 351.81 -.28%
Put/Call .72 -1.37%
NYSE Arms 1.23 +25.51%
Volatility(VIX) 11.73 +4.64%
ISE Sentiment 199.00 +48.51%
US Dollar 85.12 +.87%
CRB 281.21 -.02%

Futures Spot Prices
Crude Oil 45.26 -.04%
Unleaded Gasoline 121.29 +.06%
Natural Gas 5.98 +.27%
Heating Oil 123.10 +.03%
Gold 414.60 -.19%
Base Metals 120.17 -.02%
Copper 138.80 -.04%
10-year US Treasury Yield 4.05% -.62%

Leading Sectors
Airlines +2.13%
Defense +.93%
Gaming +.78%

Lagging Sectors
Wireless -.97%
Oil Service -1.82%
HMOs -1.91%

After-hours Movers
SINA -21.0% after beating 4Q estimates and lowering 1Q guidance.
CUTR +12.37% after substantially beating 4Q estimates and raising 1Q outlook.
BOBJ +11.64% after beating 4Q estimates and raising 1Q outlook.
PDLI -6.02% after disappointing 05 guidance.
SNDA -5.79% on SINA report.
EDS -6.42% after beating 4Q estimates and lowering 1Q/05 guidance.
NTES -7.58% on SINA report.

Detailed Market Summary
Market Wrap CNBC Video(bottom right)
Futures Recap
NASDAQ 100 After-hours Indicator
Real-time/After-hours Stock Quote

Afternoon Recommendations
-Goldman Sachs: Reiterated Outperform on HOT, AMLN, PFE and AAP.

After-hours News
US stocks finished slightly lower today as worries over future earnings growth more than offset falling interest rates and energy prices. After the close, Skype Technologies SA, which offers free software for making Internet voice calls, will join with Hutchinson Global Communications to promote Internet telephone services in Hong Kong, Bloomberg reported. US consumer borrowing increased less than expected in December after the Fed raised interest rates five times in the last half of 2004, Bloomberg reported. IBM, Sony and Toshiba released the details of a new chip that’s faster than Intel’s personal-computer processors and seeks to capture sales in the home entertainment market, Bloomberg reported. Sprint Corp. may sell some cellular phone towers to Global Signal for about $1.2 billion to raise cash that could be used for network upgrades, Bloomberg said. Ex-WorldCom finance chief Scott Sullivan implicated his old boss, Bernard Ebbers, in the $11 billion fraud that drove the company into bankruptcy, testifying that they and other officials falsified financial statements, Bloomberg said. President Bush’s job approval rating rose to its highest level in 13 months, following his second inauguration, the State of the Union address and elections in Iraq, according to a poll by CNN, USA Today and the Gallup Organization. Primedia, a specialist magazine publisher, is seeking to sell the Web site About.com, the Daily Deal reported.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my alternative energy, entertainment, telecom longs and oil service shorts. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market improved modestly into the afternoon. However, volume was light and measures of investor anxiety were mixed. Today’s action appeared to be a healthy consolidation after recent gains. I continue to expect crude oil to head to around the $35-$40/bbl. level over the next few months and energy-related stocks to underperform over the near-term. However, I do not expect a collapse in oil prices and expect these stocks to become better intermediate-term investments later this year.

Mid-day Report

Indices
S&P 500 1,200.81 -.19%
Dow 10,710.38 -.05%
NASDAQ 2,079.95 -.32%
Russell 2000 637.12 -.05%
DJ Wilshire 5000 11,831.03 -.19%
S&P Barra Growth 567.47 -.30%
S&P Barra Value 619.96 -.09%
Morgan Stanley Consumer 591.53 -.09%
Morgan Stanley Cyclical 764.02 -.10%
Morgan Stanley Technology 475.21 -.12%
Transports 3,604.62 +.18%
Utilities 351.44 -.39%
Put/Call .72 -1.37%
NYSE Arms 1.16 +18.37%
Volatility(VIX) 11.49 +2.50%
ISE Sentiment 207.00 +54.48%
US Dollar 85.10 +.84%
CRB 280.91 -.12%

Futures Spot Prices
Crude Oil 45.20 -2.75%
Unleaded Gasoline 121.10 -3.93%
Natural Gas 5.98 -1.90%
Heating Oil 123.10 -3.39%
Gold 415.20 -.24%
Base Metals 120.17 -.02%
Copper 138.80 +1.24%
10-year US Treasury Yield 4.05% -.62%

Leading Sectors
Airlines +1.81%
Gaming +.85%
Broadcasting +.81%

Lagging Sectors
Disk Drives -1.40%
HMOs -1.70%
Oil Service -2.45%

Market Movers
RNWK +19.8% on positive comments in Barron’s.
ORCT +15.33% on continuing optimism over recent 4Q report.
GOSHA +14.6% on a report that it put itself up for sale.
ANTP +16.11% after announcing a subsidiary was recently awarded a $3.7M contract from BAE for the production of 270 Low Band Antenna Matching Unit Assemblies.
MATK +4.2% after Citi SmithBarney reiterated Buy.
WPSC +8.99% after positive comments on Barron’s.
LZ +7.72% after beating 4Q estimates and raising 1Q guidance.
IMCL +5.53% after saying in a SEC filing that billionaire financier Icahn boosted his stake in the company to 6.1%.
DIOD +7.85% after beating 4Q estimates.
RSTI -17.03% on disappointing 1Q results.
SYNA -11.96% on comments from Bear Stearns that Apple Computer has begun using some of its own products in one of its notebook computers, replacing those made by Synaptics.
SOHU -10.8% after meeting 4Q estimates and lowering 1Q guidance.
AGN -5.94% after beating 4Q estimates and lowering 1Q/05 guidance.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
None of note.

Recommendations
-Goldman Sachs: Reiterated Outperform on EBAY, CAT, AGN, INTC, WLP,GD and KO.
-Citi SmithBarney: Raised their WTI Oil estimate to $40/bbl. for 2005 from $36/bbl. Raised AHC to Buy, target $109. Reiterated Buy on MRO, target $47. Reiterated Buy on MCD, target $37. Reiterated Buy on MXRE, target $24. Reiterated Buy on MATK, target $90. Reiterated Buy on SCH, target $14.50. Reiterated Buy on BWA, target $61. Reiterated Buy on TWX, target $22. Reiterated Buy on WMT, target $65. Reiterated Buy on EMC, target $16.50. Reiterated Buy on UNM, target $20. Reiterated Buy on PCG, target $38.50. Reiterated Sell on SNDK, target $22. Reiterated Buy on PRU, target $60.
-UBS: Raised PAYX to Buy, target $37.
-Bear Stearns: Raised SM to Outperform, target $58. Raised CAH to Outperform, target $75.
-Thomas Weisel: Rated DNEX Outperform.
-Legg Mason: Raised SWBT to Buy, target $22.
-Prudential: Downgraded AG to Underweight, target $20.
-Oppenheimer: Raised CHUX to Buy, target $25.
-Morgan Stanley: Raised MDT to Overweight, target $60.

Mid-day News
US stocks are modestly lower mid-day on earnings worries due to slowing US government spending and a rising US dollar. China’s central bank governor Zhou Ziaochuan said the yuan is not undervalued, state-run Xinhua News said. Webroot Software, a closely held software company, received $1008 million in venture capital to help expand its anti-spyware technology, the Wall Street Journal said. The Bush administration today will ask for a 4.8% increase in defense spending to $419.3 billion for 2006 that will little change the Army’s budget, the Wall Street Journal reported. Morningstar increased the number of mutual funds it grades on how well they govern themselves and today it will issue revised ratings, the Wall Street Journal reported. Activision and Electronic Arts are among video-game makers that may be acquisition targets of big media companies, the NY Times reported. Frontline, the world’s biggest oil-tanker company, may bid for the US-based dry-cargo shipowner Navios, the shipping weekly TradeWinds reported. Walt Disney’s ABC Television has ordered a reality-tv program called “Miracle Workers,” which will seek to provide medical care to people who can’t afford it, the NY Times reported. Nokia Oyj is working to develop advanced mobile phones with computer-like functions that are simple to use in order to boost demand for the devices, CEO Ollila said. The UN suspended the former head of its Iraq oil-for-food program and another senior official after an interim report by an independent commission criticized the conduct of both mean, the NY Times reported. Time Warner would likely control most of Los Angeles’s cable-television market if it wins the bidding for Adelphia Communications, the LA Times reported. Walt Disney has told its ABC television unit to come up with possible alternatives for the long-running “Nightline,” possibly signaling the late-night news program’s end, the LA Times reported. Internet radio, considered a commercial failure in the past several years following initial excitement by big media companies, may be making a comeback, the LA Times reported. US Secretary of State Rice praised Palestinian efforts to crack down on attacks against Israel and said the US will provide $40 million during the next three months in aid for the West Bank and Gaza Strip, Bloomberg reported. President Bush invited the leaders of Israel and the Palestinian Authority for separate meetings at the White House and appointed a US general to help Palestinians stop attacks against Israel, Bloomberg reported. Wal-Mart Stores and Target are likely to refinance $2 billion in bonds this month because the cost to borrow for US retailers is at a seven-year low, Bloomberg said. Merrill Lynch and UBS AG vaulted into the top three among merger advisers, joining perennial leader Goldman Sachs, in the hottest US takeover market since 2000, Bloomberg reported. Crude oil is falling to the lowest level in almost four weeks as mild weather reduced demand for heating fuel in the US and refineries increased gasoline stockpiles, Bloomberg said. Military contractors including Boeing, General Dynamics, United Defense Industries and Alliant TechSystems would benefit from President Bush’s proposal to spend $419.3 billion on defense next year, Bloomberg reported.

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my alternative energy, entertainment and telecom longs and oil service shorts. I have not traded today and the Portfolio remains 125% net long. The tone of the market is mildly negative today as the advance/decline line weakens. However, volume is lighter and a number of sectors are in positive territory. As I forecasted a couple of months ago, the US dollar continues to stabilize, energy prices are weakening and long-term interest rates are falling. Today’s weakness is likely a result of worries over the impact of decelerating government spending and a rising US dollar on corporate earnings. I expect US stocks to trade mixed-to-higher into the close as falling energy prices, increasing fund flows, more speculation over merger activity and lower interest rates mostly offset worries over slowing earnings growth.

Monday Watch

Weekend News
Japan's Fair Trade Commission suspects Intel's local unit violated the country's Antimonopoly Law and plans to issue the company a warning, the Asahi newspaper reported. Canada may send about 40 soldiers to a NATO force of 300 to help train Iraqi troops in Baghdad, reversing its current opposition to join a US-led coalition that ousted Saddam Hussein, the Toronto Star reported. The NYSE has set up a taskforce to explore a possible IPO and conversion into a for-profit organization, the Financial Times reported. Qwest Communications International's negotiations to acquire MCI lost momentum Friday, the NY Times reported. Iraq may reopen an oil pipeline that's been shut for 57 years to Israel's Haifa port, Maariv said. New York's restaurants and bars are experiencing increases in business amid the citywide smoking ban that many predicted would hurt the industry, the NY Times reported. More than 4,000 US pilots are allowed to carry guns, and they are flying armed on more flights each day than air marshals, Time magazine reported. Canada's health minister may adopt restrictions later this year aimed at cutting drug sales from Canadian pharmacies to US customers to ensure a sufficient supply for Canadians, the Star-Ledger reported. IBM, Toshiba and Sony may on Monday announce details of a new chip designed for consumer electronics, the Financial Times reported. EBay will lower some fees and improve customer service in response to criticism of increases planned for other fees, the Wall Street Journal reported. China's finance ministry has approved the introduction of a $6.4 billion state fund to support the country's stock markets, China Business reported. Universal Music and Apple Computer may start selling Chinese-language pop music on the Internet in North America and Europe, the Financial Times reported. Support for the insurgency among the population of Iraq is declining as a new sense of national pride develops, the Washington Post reported. Giuliani Partners, an investment company run by former NY mayor Giuliani, will invest $479 million in a Japanese wind-power company, the Nihon Keizai reported. The US attorney's office is investigating 10-20 traders on the floor of the NYSE for suspected illegal trading practices, the NY Times said. Carlyle Group is one of four bidders competing to buy Connecticut-based ship-owner Navios Corp. for about $500 million, Lloyd's List reported. The Group of Seven industrial nations said the outlook for global growth remains "robust," while promising individual steps to sustain the level of expansion, Bloomberg reported. The US is concerned with "internal developments" in Russia and would like the nation to strengthen the rule of law and other "basics of democracy," Secretary of State Rice said. Gold prices may fall for a second week on concern the International Monetary Fund, the owner of 2.1% of the world's bullion, will sell the metal to finance a reduction of poor countries' debt, a Bloomberg survey showed. The Paris Court of Appeals will hear Billionaire hedge fund investor George Soros's arguments Feb. 10 and make a decision a few weeks late on whether to uphold or overturn his original insider trading conviction, Bloomberg reported. Tom Brady threw two touchdown passes and the New England defense forced four turnovers as the Patriots beat the Eagles 24-21 for their third Super Bowl title in four years, Bloomberg reported. The US dollar is rising to a three-month high against the euro tonight on positive comments from Alan Greenspan on Friday, Bloomberg said. GM, Ford and DaimlerChrysler resumed offering 0%, five-year financing deals for sport-utility vehicles to help clear out unsold models, the Wall Street Journal said.

Weekend Recommendations
-Bulls and Bears: Had guests that were positive on EXC, MO and mixed on CIN, BSC, DRS, IRM, CI, MSO, PNC, PEP, INTU.
-Forbes on Fox: Had guests that were positive on CKP, HPQ, SY, BSC and mixed on VIAB.
-Cashin' In: Had guests that were positive on BYD, ABV, WBSN, EBAY, PFE and mixed on SFD, LZB, ARBA.
-Barron's: Had positive comments on RNWK, WPSC, NEM, PDG, GFI and KMG. Had negative comments on MSO.
-Goldman Sachs: Reiterated Outperform on AGN, EBAY and PFE. Reiterated Underperform on UIS.

Night Trading
Asian Indices are higher, +.50% to +1.50% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.26%.

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

Earnings of Note
Company/Estimate
ATVI/.56
AGN/.83
BIIB/.36
CD/.32
CLX/.52
EDS/.22
ENER/-.28
HUM/.27
OSIP/-.71
SINA/.31
SOHU/.17
UNA/.12

Splits
FDS 3-for-2
MATR 3-for-2

Economic Data
Consumer Credit for December is estimated to rise $8.0B versus an 8.7B decline in November.

BOTTOM LINE: I expect US stocks to open higher in the morning on gains in Asia, lower energy prices, a stabilizing US dollar, short-covering and bargain hunting. The Portfolio is 125% net long heading into the week.

Weekly Outlook

There are a few important economic reports and many significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Consumer Credit (Wed.)-Wholesale Inventories (Thur.)-Trade Balance, Initial Jobless Claims, Continuing Claims and Monthly Budget Statement. The Trade Balance and Monthly Budget Statement have market-moving potential.

Some of the more important companies that release quarterly earnings this week are: Mon. - Allergan(AGN), Biogen Idec(BIIB), Cendant(CD), Clorox(CLX), Electronic Data(EDS), Humana(HUM) Tues. - Cisco Systems(CSCO), Computer Sciences(CSC), Marriott International(MAR), Toll Brothers(TOL), Adolph Coors(RKY) Wed. – American International Group(AIG), Cigna Corp.(CI), Whole Foods Market(WFMI) Thur. – Aetna(AET), Caesar's Entertainment(CZR), Dell Inc.(DELL), May Department Stores(MAY), Office Depot(ODP), XM Satellite Radio(XMSR) Fri. - Marsh & McLennan(MMC). There are also a few other events that have market-moving potential. The Thomas Weisel Tech Conference(Mon.-Wed.), CSFB Financial Services Conference(Tues.-Thur.), Merrill Lynch Global Pharmaceutical/Biotech/Medical Device Conference(Tues.-Thur.), Merrill Lynch Computer Services & Software Conference(Tues.-Thur.), Fed's Stern speaking(Thur.), the Fed's Bernanke speaking(Fri.) and Fed's Yellen speaking(Fri.) could also impact trading this week.

Bottom Line: I expect US stocks to finish the week higher on declining energy prices, more optimism, rebounding tech shares, a stabilizing US dollar, low long-term interest rates, short-covering, better fund inflows, strong earnings reports and more constructive Fed comments. While a test of January's lows will likely come at some point during the first half of the year, stocks should continue working higher over the near-term. The S&P 500's p/e on '05 estimates is 16.91. This is reasonable, in my opinion, considering the current fundamentals. My short-term trading indicators are giving mixed signals and the Portfolio is 125% net long heading into the week.