Monday Close

S&P 500 1,140.99 -.27%
NASDAQ 2,007.52 -1.49%

Leading Sectors
Fashion +.78%
Energy +.6%
Restaurants +.58%

Lagging Sectors
Broadcasting -2.23%
Semis -2.74%
Disk Drives -3.27%

Other
Crude Oil 34.40 +.15%
Natural Gas 5.14 +.16%
Gold 399.00 -.08%
Base Metals 110.16 -1.66%
U.S. Dollar 86.94 -.34%
10-Yr. Long-Bond Yield 4.03% -1.51%
VIX 16.29 +1.56%
Put/Call .61 -29.07%
NYSE Arms 1.22 -18.12%

After-hours Movers
NOVL +3.48% after reporting in-line 1Q and slight revenue shortfall.
ZRAN +5.6% after missing 4Q estimates and lowering 1Q guidance.
SNPS -10.1% after beating 1Q estimates, but lowering 04 guidance and announcing 2 acquisitions.
ODSY -13.0% after meeting 4Q estimates, but lowering 04 guidance.

After-hours News
U.S. stocks fell for the 4th straight day on light volume, led by computer related companies as investors shifted out of last year's best performers and into consumer cyclicals. After the bell, Libya said it is dismantling its weapons program and helping experts determine if more technology and expertise has been trafficked, the AP reported. Atlanta-based Delta said it created 1,000 call-center jobs last year in India, saving $25M in 03, thus allowing it to hire 1,200 more U.S. employees in reservations and sales. Moody's said it lowered its rating on $350M of debt of LaBranche & Co., the biggest specialist on the NYSE, to junk status to reflect the costs of its pending $63.5M settlement with regulators. Deutshe Bank is hiring 10 senior investment bankers from CSFB to beef up its technology i-banking practice. Goldman Sachs is saying DELL remains positive on overall IT spending and its growth opportunities. James Cramer of TheStreet.com is saying it is too late to sell tech and is slowly starting to make some selective buys.

BOTTOM LINE: It was a bad day for the NASDAQ and technology shares, however volume was light and areas such as retail, restaurants, financials and energy showed relative strength. In the later part of the day, I increased the Portfolio's market exposure to 20% net long by covering a few of my winning semi shorts. My short-term indicators are still giving sell-signals, however overbought/oversold readings are leading me to anticipate an oversold bounce in tech. Moreover, the MSH index is down 6.2% from its high and right around the 50-day moving avg. where it has found support 3 other times in the last year.

Mid-day Update

S&P 500 1,140.08 -.35%
NASDAQ 2,012.51 -1.25%

Leading Sectors
Fashion +.78%
Restaurants +.57%
Energy +.51%

Lagging Sectors
Defense -1.95%
Disk Drives -2.49%
Semis -2.56%

Other
Crude Oil 34.40 +.44%
Natural Gas 5.12 -1.41%
Gold 399.50 +.38%
Base Metals 110.16 -1.66%
U.S. Dollar 86.85 -.45%
10-Yr. Long-Bond Yield 4.07% -.66%
VIX 16.52 +2.99%
Put/Call .58 -32.5%
NYSE Arms 1.27 -14.77%

Market Movers
QCOM +5.64% on boosting 2Q forecast significantly.
LOW -2.7% on profit-taking as 4Q beat expectations and raised 1Q guidance.
CMOS -12.4% on $660M offer to buy NPTest, a 29.3% premium.
VRTX +12.6% after saying an experimental drug reduced the growth of pancreatic and colon tumors in animal studies.
INTC -2.3% after saying that 2003 profit would have been 18% less if they had accounted for options as an compensation expense.
TXU +6.73% after hiring the former CFO of Entergy as CEO.

Recommendations
Morgan Stanley thinks the oil service sector is getting ready for another leg up. MS sees flatish vehicle sales in the next 6-9 months. MS also raised price target for TK to $70 from $62. Goldman Sachs is bullish on IGT, HET, CZR and STN. Citigroup Smith Barney says INTC and TXN generate less profit per sales dollar now than in the past, while NSM, AGR/A, LLTC and MXIM appear more efficient this cycle. Citi still likes vertically integrated semi companies with margin leverage that can drive EPS meaningfully higher, INTC, FCS, CY and MU. Citi is also positive on HMO's, favorites are ATH, WLP and UNH. Finally, Citi is positive on consumer cyclicals due to easy comps, tax benefits, lack of war, no SARS and improved hiring prospects. COMS was cut to "Equal Weight/Neutral" at Lehman. EDS was cut to "Sell" at Deutsche Bank.

Economic Data
None of Note. Greenspan said consumers' ability to handle debt is in good shape, with debt service levels flat over the last 2 years. Greenspan said the ratio of net worth to income is currently somewhat higher than its long-term average. He also said rising credit card use isn't a financial weakness. Finally, he said a rise in renter's debt may be of concern.

Mid-day News
U.S. stocks are falling mid-day, led by weakness in technology shares. Intel said 04 gross margins will be about 62%, five percentage points wider than in 03. Wal-Mart Stores said February sales at stores open at least a year are rising near the high end of its expectations. The U.S. is sending 50 marines to guard the Haiti embassy, according to Sky News. The U.S. Army plans to cancel the Boeing/United Technologies Comanche helicopter program. There is significant insider buying in TYC and CVG in the latest report from Bloomberg. Soybeans are hitting a 15-yr. high on concern for crops in Brazil. U.S. 4Q Online commerce rose 25% to $17.2B, 4 times as fast as all retail sales.

BOTTOM LINE: The Portfolio, positioned market neutral, is having a good day as my shorts are dropping more than my longs. The weakness in tech is broad-based. I may close a couple of profitable shorts later in the day as my indicators are showing tech is getting oversold near-term.

Monday Watch

Earnings Announcements
Company/Estimates
CPB/.57
CHK/.35
CE/.20
LOW/.50
NOVL/.03
SNPS/.31
WIND/-.03
ZRAN/.08

Splits
MSCC 2-for1, MICC 4-for-1

Economic Data
None of note. Greenspan is speaking at 9:30 EST at the Credit Union National Association Government Affairs Office in Washington.

Weekend News
The U.K. government will recruit 1,000 new staff members for the MI5 intelligence agency to fight terrorism, taking its numbers back to Cold War levels. DaimlerChrysler and Volkswagen plan to renew efforts to sell diesel-engine cars in the U.S., the Washington Post reported. Yahoo! CEO Semel says the company's future is almost exclusively on the Internet and not in partnerships with movie studios, record label or t.v. networks, the NY Times said. Kodak will launch an online photo service for camera phones, the AP said. Nokia has made the first mobile-phone handset that can access the Internet using short range wireless technology, called Wi-Fi, rather than rely on a cellular network, the Wall Street Journal said. Nokia also says sales of its N-Gage products are below expectations, the Financial Times reports. Russia's government said it wants state-run OAO Transneft to build a crude oil pipeline to the Pacific coast so that sales can be opened to all buyers, including the U.S. and Japan. Tokyo-Mitsubishi says the U.S. dollar's drop versus the Yen may have ended. Prices of U.S. hot-rolled steel are up 66% since June, Meps Intl. said. Pakistan is planning a military offensive in the coming weeks to expel al-Qaeda and Taliban forces along its Afghan border, the NY Times reported. According to Tradesports.com, there is now a 62% chance of catching Bin Laden this year, up 16 percentage points today.

Weekend Recommendations
Guests on "Forbes on Fox" made positive comments on KFT and CVS. They also speculated that PCS, BEAS and VRTS could all be takeover targets. On "Cashin' In", PNX, SPI, ADM and UTX were talked up, while TASR was panned. Barron's had positive comments on MSFT and the possibility of it announcing a large dividend/buyback. TGT was also mentioned positively. It had negative analysis on TIVO, NFLX, AMAT, GTW and the NASDAQ. Merrill Lynch is recommending investors increase their exposure to Japanese stocks, Bloomberg reported.

Late-Night Trading
Asian indices are down modestly with the exception of the Nikkei, which is up 1.4%.
S&P 500 indicated +.16%.
NASDAQ indicated +.24%.

BOTTOM LINE: I am not sure how much the capture of Bin Laden would help U.S. stocks. My gut feeling is that a rally of 1-2% on the news would occur, followed by profit-taking, leaving the indices up modestly.

Weekly Outlook

Investors will focus on another round of economic data and earnings reports from many retailers next week. In addition to these reports, Fed Chairman Alan Greenspan will be speaking on Mon. and Fri. The Sunday Express is reporting that Bin Laden is cornered in a mountainous area in northwest Pakistan, near the Afghan border. Quoting a U.S. intelligence source, it said Bin Laden and 50 fanatical henchmen were inside an area 16 kilometers wide and deep. Tradesports.com is showing the chances of catching Bin Laden this year are now 55.0%. This would likely result in a mildly positive response from the markets. As well, Tradesports.com is showing President Bush's chances of re-election increased to 65.0% after Ralph Nader announced his candidacy over the weekend.

BOTTOM LINE: Major U.S. indices will likely fall or remain in a trading range through next week. Most of the short-term indicators I follow are giving negative readings. The Portfolio is now market neutral. I will most likely sell into any substantial rallies next week. I will closely watch the market's reaction to what should be very positive news from the economic front and the retailing sector. I am still very bullish for the year, but I am not going to fight the tape. Right now we are in a correction/consolidation phase and the Portfolio is positioned accordingly.

Market Week in Review

S&P 500 1,144.11 -.69%

U.S. stocks declined last week, led by technology shares amid concerns about valuations, a rising dollar and rising interest rates. Without so much as a 5% correction in over a year, U.S. stocks will likely decline or consolidate in the short-term. As well, the NASDAQ is up 90% over the last 15 months, its 4th best cyclical showing ever and is due for a correction. Small-cap growth stocks bore the brunt of the selling as investors became more risk adverse on inflation fears.

Merger and acquisition activity continues to accelerate in 04. Cingular's $41B takeover of AT&T wireless and National City's buy of Provident Financial for $2.1B highlighted the week in M&A.

On the earnings front, bell-weather U.S. market leaders Deere & Co., Broadcom and Applied Materials all significantly beat expectations. Analysts boosted 04 estimates for all 3 substantially, lowering their valuation on 04 estimates. Wal-Mart, the world's largest retailer, also reported good 4th quarter profits up 8.5% and raised 1st quarter guidance. Intuit and Hewlett Packard met expectations, but were conservative in their guidance, leading to their shares' decline.

BOTTOM LINE: I think the market's decline last week was mainly a result of profit-taking after an exceptional run. Investor concerns over inflation seem pre-mature considering interest rates barely moved last week, hovering near 46-yr. lows. The rise in the dollar was not significant considering the size of its decline over the last year. Energy prices, while a concern longer term, will likely fall or move sideways into the spring, as weather improves. Corporate profitability growth is near historic highs, resulting in rapidly falling valuations for U.S. stocks. For these reasons, I view the current consolidation/correction as only temporary.

Economic Week in Review

ECRI Weekly Leading Index 132.90+.99%

The holiday-shortened week began on Tues. with the Empire Manufacturing, Industrial Production and Capacity Utilization reports. The Empire Manufacturing report rose in February to a record 41.1 vs. expectations of 37.0. The report showed 52.5% of the company's surveyed said business improved from January, while 10.5% saw deterioration. The survey's hiring index for the next 6 months jumped to 36.2, the highest since the report began in 01. U.S. industrial production rose .8% in January, meeting expectations, while capacity utilization increased to 76.2 vs. expectations of 76.4. Record-low inventories relative to sales have prompted factories to speed up assembly lines to meet demand.

Housing starts retreated from their highest level in 20 years to a 1.9M-unit annual rate last month vs. expectations of 2M, on record cold temperatures in many parts of the country. The average temperature in the Northeast was almost 8 degrees colder than normal. As well, building permits declined to 1.9M vs. expectations of 1.91M.

The number of Americans filing initial unemployment claims fell last week to 344K, better than expectations of 355K and close to a 3-yr. low. The number of people continuing to collect jobless benefits rose to 3.19M vs. expectations of 3.11M. The index of leading U.S. economic indicators rose .5% in January meeting expectations. Jose Rasco, a senior economist at Merrill Lynch, said the rise could be attributed to the rise in the avg. work week, consumer sentiment, soaring stocks and falling jobless claims. The Philly Fed Index fell to 31.4 this month vs. expectations of 35.0. However, this was the first time since 1984 that the index came in above 30 for 3 consecutive months and the survey's measure of the length of the work week was the highest since record-keeping began in 1968.

The Consumer Price Index climbed .5% in January vs. expectations of a .3% rise. Ex food and energy, the index climbed .2% vs. expectations of .1%. The energy component of the index increased 4.7%, the most since the Iraq war began, on cold weather and increased demand from the U.S. and China. However, the core CPI only gained 1.1% for all of 03, the smallest annual rise in inflation in 43 years.

Federal Reserve Governors were unusually vocal last week. Their statements all seemed to focus on a few main themes. On the positive side, they said a substantial increase in hiring is on the horizon, tax cuts and interest rates at 46-yr. lows are boosting GDP growth significantly, they can remain "patient" with respect to raising rates and that overseas outsourcing has been going on for a long time and that it is good for the U.S. in the long-run. On the negative side, they said that U.S. workers were under-educated, persistently high energy prices were becoming a major concern and that inflation may become a problem in the future.

BOTTOM LINE: The avg. work week is increasing, productivity is declining and GDP growth is accelerating which should result in an accelerated rate of hiring. Tax cuts of $37B more than last year at this time are about to hit U.S. consumers' pockets. Interest rates are at 46-yr. lows and show no sign of moving up significantly. A recent survey of Global Economic Confidence by the Intl. Chamber of Commerce is at a 10-yr. high and their Overall Global Economic Climate index is at its best level since 1984. These findings were based on the responses of 1,114 "economic experts" in 92 countries. Fed Fund Futures are predicting the Fed to stay on hold until October. Finally, foreign governments and investors added 23% to their net holdings of U.S. securities in 03 even with a declining U.S. dollar, interest rates at historic lows and rising deficits. These are all reasons to be very positive for the direction of the U.S. economy in 04.