Factory Orders Rise on Transportation Orders

- Factory Orders for November rose 2.5% versus estimates of a 2.4% increase and a 1.7% gain in October.

BOTTOM LINE: US factory orders increased for a second consecutive month in November as airlines ordered more planes, while other businesses recovered from the Gulf Coast hurricanes and rebuilt inventories, Bloomberg reported. Bookings rose for oil equipment, commercial aircraft and computers. An indicator of future business spending, orders for capital goods excluding aircraft, fell 2.1%. The inventory-to-shipments ratio remained at a low 1.18 months. Unfilled orders rose 3% to $621.4 billion, the highest in history. I continue to expect manufacturing to add to US growth over the intermediate-term as businesses gain confidence in the durability of the expansion and inventory/hurricane rebuilding takes hold.

Links of Interest

Market Snapshot
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Market Internals
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IBD New America
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I-Watch Sector Overview
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Real-time Intraday Chart/Quote

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil in NY is falling from a two-month high amid expectations mild US temperatures will help bolster winter heating fuel supplies.
- Samsung Electronics topped $100 billion in market value today, joining Vodafone Group Plc(VOD) as the only technology stocks outside the US to pass the milestone.
- The dollar fell to a two-month low against the euro and dropped versus the yen in Asia after minutes from the Fed’s last meeting suggesting it is closer to halting an 18-month policy of raising interest rates.

AP:
- Lynn Swann, a member of the Pro Football Hall of Fame and veteran television football analyst, is expected to announce tomorrow that he’s running for the Republican nomination for governor of Pennsylvania.

Bangkok Post:
- Crude oil prices are likely to trade in a range of $40 to $55 a barrel this year amid steady growth in the energy industry, citing the president of PTT Pcl, Thailand’s biggest energy company.

Economic Daily News:
- China Steel has cut export prices for its hot-rolled and cold-rolled steel by an average of $80 to $100 a metric ton due to weak demand.

Commercial Times:
- AU Optronics(AUO) plans to invest as much as $1.1 billion to expand its so-called fifth-generation production lines to cope with strong demand, citing unidentified equipment suppliers.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Underperform on SMP.

Night Trading
Asian Indices are +.50% to +1.25% 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)
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Earnings of Note
Company/EPS Estimate
(AYI).42
(BCF)1.01
(DCN)-.02
(SONC).27

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for November are estimated to rise 2.4% versus a 2.2% increase in October.

Afternoon
- Total Vehicle Sales for December are estimated to rise to 16.8M versus 15.7M in November.

BOTTOM LINE: Asian indices are higher, led by technology shares in the region, on optimism the US fed will soon end interest rate hikes. I expect US equities to open mixed and to rally modestly into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Dovish Fed Comments, Bargain Hunting and Short-Covering

Indices
S&P 500 1,268.80 +1.64%
DJIA 10,847.41 +1.21%
NASDAQ 2,243.74 +1.74%
Russell 2000 684.05 +1.61%
DJ Wilshire 5000 n/a
S&P Barra Growth 606.65 +1.70%
S&P Barra Value 657.81 +1.58%
Morgan Stanley Consumer 595.91 +.75%
Morgan Stanley Cyclical 792.44 +.94%
Morgan Stanley Technology 531.30 +1.74%
Transports 4,199.16 +.07%
Utilities 413.55 +2.08%
Put/Call .72 -5.26%
NYSE Arms .74 -55.14%
Volatility(VIX) 11.14 -7.71%
ISE Sentiment 152.00 -6.17%
US Dollar 89.85 -1.34%
CRB 336.37 +1.37%

Futures Spot Prices
Crude Oil 62.92 -.35%
Unleaded Gasoline 174.50 -.31%
Natural Gas 10.47 -1.46%
Heating Oil 179.25 -.22%
Gold 535.10 +.49%
Base Metals 153.83 +.93%
Copper 204.65 -.10%
10-year US Treasury Yield 4.36% -.58%

Leading Sectors
Gold & Silver +6.3%
Oil Service +5.69%
Energy +4.68%

Lagging Sectors
Papers -.05%
Airlines -1.18%
Broadcasting -1.35%

Evening Review
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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 (WAG) and (MSNT).
- Reiterated Underperform on (DJ).

Afternoon/Evening Headlines
Bloomberg:
- US stocks began the year with their biggest rally since October, sparked by a signal that the Fed may soon stop raising interest rates.
- Citigroup Inc.(C), the biggest US bank, may buy Goldman Sachs Group(GS) this year, Wall Street commentator James Cramer wrote in a NY magazine column.
- CBS Corp.(CBS) plans to drive growth with its Internet sites and the sale of television shows on handheld, Chief Executive Officer Leslie Moonves said.
- US Treasury notes rose after the Federal Reserve said in the minutes of its Dec. 13 meeting that the amount of additional interest rate increases needed to control inflation “probably would not be large.”
- Shares of Google(GOOG) had their biggest gain in more than two months after Piper Jaffray analyst Safa Rashtchy said the stock may jump to $600 this year.
- Estee Lauder(EL) will replace Mercury Interactive(MERQE) in the S&P 500.

AP:
- Rhode Island legalized medical marijuana use after the legislature overrode a veto by Republican Governor Don Carcieri.
- Republican Governor George Pataki said New York state will end the fiscal year with a $2 billion surplus.

BOTTOM LINE: The Portfolio finished substantially higher today. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, Today's action was very good for the bulls as the major averages finished near session highs on above-average volume. As I speculated last week, it does appear many funds sold in advance of January. Today's gains are the type that will likely result in further gains into week's end as shorts scramble to stay in the ballgame.

Stocks Soaring Mid-day on Release of Fed Minutes

Indices
S&P 500 1,267.13 +1.51%
DJIA 10,835.89 +1.10%
NASDAQ 2,243.90 +1.75%
Russell 2000 683.55 +1.54%
DJ Wilshire 5000 n/a
S&P Barra Growth 606.18 +1.63%
S&P Barra Value 656.96 +1.46%
Morgan Stanley Consumer 595.74 +.71%
Morgan Stanley Cyclical 792.32 +.91%
Morgan Stanley Technology 531.98 +1.87%
Transports 4,196.21 unch.
Utilities 411.83 +1.66%
Put/Call .79 +3.95%
NYSE Arms .77 -53.51%
Volatility(VIX) 11.12 -7.87%
ISE Sentiment 152.00 -6.74%
US Dollar 89.80 -1.39%
CRB 336.33 +1.36%

Futures Spot Prices
Crude Oil 63.14 +3.44%
Unleaded Gasoline 175.05 +1.34%
Natural Gas 10.62%
Heating Oil 179.64 +1.50%
Gold 533.80 +.24%
Base Metals 153.83 +.93%
Copper 204.75 -.05%
10-year US Treasury Yield 4.36% -.58%

Leading Sectors
Gold & Silver +5.69%
Oil Service +5.22%
Energy +4.38%

Lagging Sectors
Papers -.10%
Broadcasting -1.0%
Airlines -1.49%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet longs, Semi longs, Computer longs and Biotech longs. I exited the remainder of my (IWM) and (QQQQ) shorts and added (GILD), (RACK) and (ITRN) long, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is above average. Measures of investor anxiety are mixed. Overall, today’s market action is positive considering recent losses, the rise in oil and weaker-than expected economic data. A record $20.3 billion flowed into funds investing in emerging market equities last year, up 500% from the prior year. Argentina and Brazil were two of the largest recipients of these flows. As growth in the U.S. and China slows, emerging market economies will suffer disproportionately. I believe the mania for emerging market investments will end in 2006. I expect US stocks to trade modestly higher into the close on short-covering, bargain hunting and optimism over dovish Fed comments.