Wednesday Watch

Late-Night News
Asian indices are mixed as gains in India are being offset by losses in Australia. KPMG Intl., Ernst & Young Intl., PricewaterhouseCoopers LLP and Deloitte & Touche LLP have doubled their audit fees with US clients due to the requirements of Sarbanes-Oxley legislation, the Financial Times said. The outlook for the US economy this quarter improved on signs of faster income growth and more corporate investment in equipment, according to results form a monthly survey by Bloomberg. The economy is projected to expand at a 3.6% annual pace from January through March, according to the median estimate of 74 economists surveyed. Profits at US companies, including ConocoPhillips and US Steel, climbed 18% in the fourth quarter, capping the biggest annual rise in a decade, Bloomberg reported. Earnings increased about 19.5% in all of 2004, based on results from the 384 member companies of the S&P 500 that have reported so far, Bloomberg said. DaimlerChrysler AG is finding that growth at the company's Chrysler unit is being set back by a slump in profit in sales by Mercedes, the Wall Street Journal reported. ING Groep NV is promoting its Internet-only bank, ING Direct, as the best way of expanding in a fragmented European banking market without mergers and acquisitions, the Wall Street Journal reported. Israeli Defense Minister Shaul Mofaz approved an easing of restrictions on Palestinians after a truce was declared by the two parties in a summit held in an Egyptian resort, Haaretz reported.

Late Recommendations
-Goldman Sachs: Reiterated Outperform on GNW and HEW. Reiterated Underperform on NFS, PPS and TCO.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.10%.

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
RKY/1.13
AIG/1.11
BYD/.37
CI/1.61
CAM/.53
DO/.13
ERES/.12
TKLC/.16
ZBRA/.44

Splits
None of note.

Economic Data
Wholesale Inventories for December are estimated to rise .9% versus a 1.1% increase in November.

BOTTOM LINE: I expect US equities to open slightly lower in the morning on mild weakness in technology shares. However, stocks may rise later in the day on optimism over declining energy prices, low interest rates, increasing fund flows and short-covering. The Portfolio is 125% net long heading into tomorrow.

Tuesday Close

Indices
S&P 500 1,202.30 +.05%
Dow 10,724.63 +.08%
NASDAQ 2,086.68 +.22%
Russell 2000 638.72 +.33%
DJ Wilshire 5000 11,848.39 +.08%
S&P Barra Growth 577.52 +.07%
S&P Barra Value 620.46 +.02%
Morgan Stanley Consumer 591.59 +.04%
Morgan Stanley Cyclical 763.98 +.05%
Morgan Stanley Technology 474.84 -.21%
Transports 3,609.87 +.21%
Utilities 353.19 +.39%
Put/Call .78 +8.33%
NYSE Arms 1.12 -8.94%
Volatility(VIX) 11.60 -1.11%
ISE Sentiment 154.00 -22.61%
US Dollar 85.15 +.05%
CRB 281.46 +.09%

Futures Spot Prices
Crude Oil 45.45 +.38%
Unleaded Gasoline 121.62 +.33%
Natural Gas 6.18 +3.62%
Heating Oil 124.60 +1.25%
Gold 414.10 -.31%
Base Metals 119.66 -.42%
Copper 139.00 +.11%
10-year US Treasury Yield 4.02% -.77%

Leading Sectors
Semis +2.19%
Homebuilders +1.49%
Networking +1.47%

Lagging Sectors
Hospitals -.76%
Software -1.12%
Airlines -1.28%

After-hours Movers
VSTA +14.9% after substantially beating 1Q estimates and raising 05 guidance.
ISRG +13.7% after substantially beating 4Q estimates.
UTSI +6.5% after meeting 4Q estimates and raising 1Q guidance.
NFI -10.0% on continuing weakness from 4Q report.
SNIC -9.99% after beating 3Q estimates and lowering 4Q outlook.
BOBE -8.33% after cutting 3Q estimates.

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 K and MSFT.

After-hours News
US stocks finished modestly higher today as long-term interest rates declined again, spurring further gains in homebuilding stocks. Semiconductors also outperformed ahead of Cisco’s report. After the close, Deutsche Telekom, Siemens and IBM have missed a deadline for submission of offer proposals for the Herkules project, Germany’s biggest public-private venture, Financial Times Deutschland said. Huawei Technologies, China’s top phone-equipment maker, posted a 22% gain in full-year profit as orders surged 46%, the Financial Times reported. Cisco Systems said second-quarter profit almost doubled amid demand for devices that help consumers connect home offices to the Internet, Bloomberg said. The scientist who cloned “Dolly” the sheep in 1996 today was granted the second British license to clone human embryos for medical research, Bloomberg reported. Boeing CEO Stonecipher said the second-biggest US defense contractor may use its growing cash reserves to buy “small” military intelligence businesses, increase its dividend or buy back stock, Bloomberg reported. Pfizer said it is considering job cuts as it faces the loss of patent protection on several key drugs, Bloomberg said.

BOTTOM LINE: The Portfolio finished higher today on gains in my homebuilding, semiconductor, networking and software longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market remained mildly positive into the close as volume rose and the advance/decline line stayed slightly higher. As well, long-term interest rates finished at their lows for the day. Measures of investor anxiety were mixed. Overall, today’s action appeared to be another healthy consolidation from recent gains. The market’s after-hours reaction to Cisco’s mildly disappointing report looks muted so far, which is a positive.

Mid-day Report

Indices
S&P 500 1,201.91 +.01%
Dow 10,722.41 +.06%
NASDAQ 2,085.64 +.17%
Russell 2000 636.89 +.04%
DJ Wilshire 5000 11,842.07 +.02%
S&P Barra Growth 577.32 +.04%
S&P Barra Value 620.39 +.01%
Morgan Stanley Consumer 591.24 -.02%
Morgan Stanley Cyclical 762.58 -.13%
Morgan Stanley Technology 475.60 -.05%
Transports 3,590.69 -.32%
Utilities 353.57 +.50%
Put/Call .80 +11.11%
NYSE Arms .96 -21.95%
Volatility(VIX) 11.57 -1.36%
ISE Sentiment 166.00 -16.58%
US Dollar 85.00 -.14%
CRB 281.40 +.07%

Futures Spot Prices
Crude Oil 45.15 -.29%
Unleaded Gasoline 121.50 +.23%
Natural Gas 6.07 +1.78%
Heating Oil 123.50 +.36%
Gold 414.90 -.12%
Base Metals 119.66 -.42%
Copper 138.70 -.11%
10-year US Treasury Yield 4.03% -.43%

Leading Sectors
Semis +1.91%
Networking +1.34%
Homebuilders +.81%

Lagging Sectors
Gaming -.97%
Software -.99%
Airlines -1.54%

Market Movers
SINA -15.6% after beating 4Q estimates, lowering 1Q guidance and multiple downgrades.
TASR -11.80% after missing 4Q estimates, declining to give forward guidance and Morgan Keegan downgrade to Underperform.
ABCO +17.7% after beating 3Q estimates and raising 4Q guidance.
CUTR +16.6% after substantially beating 4Q estimates and raising 1Q outlook.
BMHC +14.97% on strong 4Q results.
IVGN +5.48% after agreeing to acquire closely held Dynal Biotech for about $379M to gain technology for cell research.
BOBJ +12.36% after beating 4Q estimates, raising 1Q outlook and multiple upgrades.
RSTI +6.15% on strong 1Q report.
DIOD +7.70% after beating 4Q estimates and raising 1Q guidance.
GRU -11.34% on profit-taking.
HANS -9.75% on profit-taking.
NFI -6.91% after missing 4Q forecast.
SLM -5.3% on Friedman, Billings, Ramsey downgrade to Market Perform.
ELNK -10.49% after missing 4Q estimates and lowering 1Q 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 DELL, SYK and PFE. Reiterated Underperform on LVLT.
-Citi SmithBarney: Reiterated Buy on PFCB, target $69. Reiterated Sell on EAT, target $36. Reiterated Buy on CEY, target $43. Reiterated Buy on EEFT, target $33. Reiterated Buy on EFD, target $26. Reiterated Buy on EOG, target $92. Lowered CSK to Sell, target $21. Reiterated Buy on JNPR, target $36. Reiterated Buy on JBL, target $33. Reiterated Buy on MXRE, target $24. Reiterated Buy on HAS, target $24. Reiterated Buy on LZ, target $48. Reiterated Buy on PRE, target $71. Reiterated Buy on NPSP, target $25. Reiterated Buy on PFG, target $45. Reiterated Buy on INTC, target $26.50. Reiterated Sell on EDS, target $17. Reiterated Buy on ATVI, target $29. Reiterated Buy on LPX, target $33.
-Bear Stearns: Raised TS to Outperform, target $61.50. Raised BIIB to Outperform, target $79.
-Deutsche Bank: Rated DELL Buy, target $48. Rated IBM Buy, target $110.
-CSFB: Raised QLGC to Outperform, target $48. Downgraded HYDL to Underperform, target $54.
-Oppenheimer: Rated DIIB Buy, target $45.00. Raised VYYO to Buy.
-Prudential: Raised TIN to Overweight, target $71.
-Raymond James: Raised ATW to Strong Buy, target $75.

Mid-day News
US stocks are mostly unchanged mid-day as worries over slowing earnings growth are being offset by declining interest rates. The US dollar may strengthen to 110 yen, the strongest since October, in the coming two months as Japanese investors are lured by the higher yields offered on US Treasury securities, according to Morgan Stanley. Kenneth Langone, a Wall Street investment banker, is to quit as a director of GE to defend his actions when he was head of the NYSE’s compensation committee, the Wall Street Journal reported. BNP Paribas SA, France’s second biggest bank by assets, was struck off the list of financial companies recommended by the state of Missouri to investors in its pension fund because of concern over its involvement in the UN/Iraq oil-for-food scandal, La Tribune reported. The sales growth of large pickup trucks in 2004 outpaced sport utility vehicles for the first time in a decade, the NY Times reported. China’s coal production rose 13% to 1.96 billion tons in 2004 compared with a year ago, the Tex Report said. Timothy Roemer, the only remaining challenger to Howard Dean’s bid to become chairman of the Democratic National Committee, dropped out of the race, paving the way for the former Vermont governor to take the post, the NY Times reported. Microsoft will release the first full trial version of its big Windows computer software by the end of June, CNet News reported. Acting New Jersey Democratic Governor Codey is considering a tax on 401K retirement plans to help close the state’s budget deficit, the Star-Ledger reported. Pennsylvania reached an agreement with the state’s four Blue Cross and Blue Shield health plans to pay about $1 billion for six years to cover cost for the uninsured, the Philadelphia Inquirer reported. President Bush’s $2.57 trillion budget is an attempt to send a message to supporters in the US, on Wall Street and to overseas investors that the administration is committed to reducing the nation’s budget deficit, the NY Times said. A Japanese food safety panel accepted US data assuring that a specific grade and age of beef would be free of mad cow disease, moving Japan one step closer to lifting a 13-month ban on US imports, the AP reported. SAP AG said it doesn’t plan larger acquisitions and will instead focus on smaller purchases this year to enhance its product offering, Sueddeutsche Zeitung reported. EBay said it will now pay only cash for Rent.com instead of a combination of cash and stock after its shares fell since announcing the deal, Bloomberg reported. Microsoft said it will buy Sybari Software, a provider of anti-virus programs, Bloomberg reported. Saudi Arabia will keep pumping 9M barrels a day to help maintain stable oil prices and meet world demand for crude, Bloomberg said. Gold prices in NY fell to the lowest in almost four months as a gain in the value of the US dollar eroded the appeal of the metal as an alternative against US stocks and bonds, Bloomberg reported. Sears, Roebuck, which agreed to be bought by Kmart Holding, will open a new type of store called Sears Essentials to compete with Target and Kohl’s, Bloomberg said. US 10-year T-notes are rising in NY trading as proposed pension plan reform and speculation inflation will remain in check is boosting demand for longer-maturity debt securities, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my homebuilding, semiconductor and networking longs. I have not traded today, thus the Portfolio remains 125% net long. The tone of the market is mildly positive as sector performance is mixed, volume is increasing and the advance/decline line is slightly positive. The strength in semis is also a positive. I will closely monitor the market’s reaction to Cisco’s report after the close before shifting the Portfolio’s composition. I anticipate a positive reaction. I also expect US stocks to rise modestly into the close on short-covering, lower interest rates, a stabilizing US dollar and weaker energy prices.

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.