Mid-day Update

S&P 500 1,145.34 +.15%
NASDAQ 2,032.69 +.48%

Leading Sectors
Homebuilding +2.05%
Networking +1.78%
Gaming +1.24%

Lagging Sectors
Drugs -.14%
Papers -.47%
Defense -.73%

Other
Crude Oil 35.27 -1.15%
Natural Gas 5.32 +1.99%
Gold 395.00 -.28%
Base Metals 112.90 +.13%
U.S. Dollar 87.63 +.44%
10-Yr. Long-Bond Yield 4.05% +1.15%
VIX 14.81 -.80%
Put/Call .64 -15.79%
NYSE Arms .70 -10.26%

Market Movers
DRI +7.0% on 3Q outlook and multiple upgrades.
DCGN +26.1% on the announcement of a 7-year agreement with Merck to develop new medicines.
FCS +6.4% on upgrade to Outperform by Thomas Weisel.
NOVN +20.9% on better-than-expected 4Q and upgrade from W.R. Hambrecht.
SBUX -3.88% after saying recent strong trends aren't sustainable.
CENX -11.6% on better-than-expected 4Q earnings, but J.P. Morgan downgrades on outlook.
Homebuilders up across the board on TOL earnings.

Economic Data
Durable Goods orders fell 1.8%, below expectations of a gain of 1.4%.
Durable Goods ex transportation rose 2.0% vs. expectations of 1.8%.
Initial Jobless Claims rose to 350K last week vs. expectations of 345K.
New Home Sales were 1106K vs. expectations of 1075K.
Help Wanted Index was 38 last months vs. expectations of 39.

Recommendations
Morgan Stanley cut CHTR to Underweight. IRF raised to Outperform at Thomas Weisel. NXTL cut to Neutral at CSFB. Goldman says INTC and AGR/A are favorites coming out of their tech conference. JWN cut to In-line at Goldman. TIF raised to Outperform at GS on improvement in Japan. GS reiterated Outperform on SYMC and raised estimates. Finally, GS upgraded WMT to Outperform. Citi Smith Barney is upgrading NSM to 1H. Citi reiterating Buy on AFCI and raising earnings estimates. Citi also positive on EXTR. Citi says it is still early in semi equipment cycle and sell-off is buying opportunity.

Mid-day News
U.S. stocks are mostly higher Thursday afternoon, as shares of homebuilders rose on Toll Brother's earnings and tech shares continued their oversold bounce. Defense shares are pressuring the Dow. An Illinois couple is suing the federal government over restrictions on purchasing prescription drugs in Canada. Diane Swonk, chief economist for Bank One, told CNBC that U.S. manufacturers are seeing bottlenecks because they don't have enough workers, raw materials or supplies. Infineon Tech, the world's third largest chipmaker, is struggling with delivery problems as demand surpassed the company's capacity the CEO said. JC Penney's CEO said on CNBC it is attracting more younger customers. The U.S. lifted its ban on American travel to Libya to reward it for agreeing to dismantle nuclear programs. Disney's ABC network, last in ratings among the top 4, is getting a record average of $1.5M for 30 second commercials on its Sunday broadcast of the Academy Awards.

BOTTOM LINE: The Portfolio is having a very good day today as my shorts are down and longs are up. I have not made any changes yet and continue to maintain market exposure of 75% net long. I may close out some profitable shorts later as I uncover new long opportunities. The tone of the market is much better the last 2 days, I am not ruling out the possibility that the recent correction has run its course.

Thursday Watch

Earnings Announcements
Company/Estimate
AEOS/.55
ADSK/.29
CPN/-.11
CHINA/.03
DECK/.08
EASI/.54
GPS/.37
JCP/.80
KSS/.69
MCDTA/.01
PWR/.04
TOL/.60
MRVL/.28

Splits
None of note

Economic Data
Durable Goods Orders expected to increase 1.4% in January vs. .3% in December.
Weekly Initial Jobless Claims estimated at 345K vs. 344K the prior week.
New Home Sales estimated at 1075K in January vs. 1060K in December.
Help Wanted Index estimated at 39 in January vs. 38 in December.

Late-Night News
Microsoft Corp.'s Japanese unit was raided by Japan's Fair Trade Commission for suspected violation of the nation's Antimonopoly Law. China warned of escalating tension if Taiwan President Chen Shui-bian holds a public referendum on China relations in tandem with the March 20 presidential election, the official China Daily reported. Japanese retail sales post biggest gain in 7 years. More Americans are traveling overseas recently, as passport applications rose 13% from Oct. to this week, on pace to set an annual record, the Wall Street Journal said. Samsung, Hynix, Infineon and Micron are among companies that are being investigated by a federal grand jury in San Francisco for accusations of price-fixing, the WSJ said. Soaring U.S. lumber prices shouldn't affect homebuilders because they buy at volume discounts and lock in prices as much as a year in advance, the Journal reported.

Late-Night Trading
Asian markets are mostly up, ranging from -.50% to +1.25%.
S&P 500 indicated +.10%.
NASDAQ indicated +.14%.

BOTTOM LINE: I expect to see a follow-through rally tomorrow on a strong durable goods report, better-than-expected earnings and a continuation of the oversold bounce from tech. I may take the Portfolio up to 100% net long, depending on the morning's opportunities.

Wednesday Close

S&P 500 1,143.67 +.40%
NASDAQ 2,022.98 +.87%

Leading Sectors
Networking +2.84%
Disk Drives +2.65%
Semis +1.82%

Lagging Sectors
Fashion -.08%
Broadband -.17%
Telecom -.35%

Other
Crude Oil 35.70 +.06%
Natural Gas 5.23 +.23%
Gold 396.80 +.18%
Base Metals 112.75 +1.25%
U.S. Dollar 87.25 +1.28%
10-Yr. Long-Bond Yield 4.01% -.29%
VIX 14.93 -6.10%
Put/Call .76 unch.
NYSE Arms .78 -45.45%

After-hours Movers
SBUX -3.77% after CEO said February same-store sales growth of 13% and 32% revenue growth isn't sustainable.
VTS +6.1% after significantly beating 2Q earnings/sales estimates.
MW +3.6% after beating 4Q estimates.
OPEN +6.25% after beating 4Q earnings estimates and raising 1Q guidance.

Recommendations
Goldman Sachs says that Pizza Hut's new pre-packaged salads for delivery will be supplied entirely by PFGC's Fresh Express Business. They reiterate their "Outperform" and expect 25% upside over the next 12 months. GS also thinks CCL's guidance is conservative. Goldman views CMX as the best positioned pharmaceutical benefit manager because of its specialty offerings and growing blue chip customer base. TheStreet.com reported that chip-equipment maker Novellus Systems raised its expectations for orders, sales and earnings in a mid-quarter update.

After-hours News
U.S. stocks finished the day stonger on fairly light volume. Strong earnings reports and optimistic comments from Alan Greenspan sparked the rise. After the close, Treasury Secretary John Snow said China has pledged to end its currency's peg with the dollar, helping U.S. manufacturing firms' competitiveness. Illinois named Isle of Capri, Harrah's Entertainment and Midwest Gaming as finalists for a casino gaming license it's selling, Reuters reported. The U.S. Justice Department has requested information from Nextel Communications, Motorola and Verizon for an antitrust probe of the push-to-talk mobile-phone market dominated by Nextel. CALPERS will withhold votes for the re-election to the board of Disney CEO Eisner.

BOTTOM LINE: I made some buys in the afternoon and covered a short, bringing the Porfolio's market exposure up to 75% net long. My short-term indicators are still giving sell signals. However, I am anticipating some follow-through to this rally as end-of-the-month positioning occurs and tech bounces from oversold levels. I concentrated my buys in tech, beaten-up chinese cyclicals and retail.

Mid-day Update

S&P 500 1,143.05 +.34%
NASDAQ 2,017.74 +.61%

Leading Sectors
Networking +2.02%
Disk Drives +1.87%
I-Banks +1.44%

Lagging Sectors
Iron/Steel -.32%
Broadcasting -.42%
Homebuilders -.91%

Other
Crude Oil 35.60 +2.95%
Natural Gas 5.16 +1.63%
Gold 396.40 -2.08%
Base Metals 112.75 +1.25%
U.S. Dollar 87.21 +1.24%
10-Yr. Long-Bond Yield 4.00% -.38%
VIX 15.42 -3.02%
Put/Call .81 +6.58%
NYSE Arms .74 -48.25%

Market Movers
RMBS +6.8% on belief that its recent courtroom victory will survive appeal.
IM +13.3% after significantly beating 4Q estimates and raising 1Q forecasts.
ESRX +4.7% after beating 4Q estimates and strong 04 outlook.
ESI, CECO, APOL, COCO and STRA all down after federal agents served ESI with a search warrant at its corporate offices. The warrant is related to information and documents on retention rates, student placement, recruitment, attendance and admissions.
STZ -10.5% after saying a recent secondary will lower 05 earnings.
CMTL +11.7% after raising 2Q and full-year 04 estimates.
GLDB +14.1% on takeover by DLJ Merchant Banking, Cypress Group and other investors.
CURE -14.6% after disappointing 4Q, weak guidance and announcing their 11th acquisition in a few years.

Economic Data
Existing Home Sales were 6.04M for January vs. an estimate of 6.25M.

Recommendations
IM raised to "Buy" at First Albany. ESRX, AEOS raised to "Outperform" at Wachovia. EMC added to focus list at J.P. Morgan. XLNX raised to "Overweight" at Lehman. AMD raised to "Buy" at Oppenheimer. Goldman raising rating on HD to "Outperform." GS says to buy CSCO and NT at current levels. Also, GS says to buy YHOO at these prices. Goldman says DOX has emerged from telecom downturn in strongest competitive position in its history. GS also saying wireless infrastructure spending continues to pick-up steam and should remain a revenue driver for semi companies in 04. Finally, GS thinks semis remain in trading range through mid-04. TheStreet.com is positive on TK, TNP and SJH on high energy prices. Citi Smith Barney says conditions remain strong for Semi. Equipment companies. Citi also raising SBUX price target to $45 and reiterating "Buy" before February sales figures. Citi says to buy ACS on weakness. Merrill Lynch "Focus 1" stock is CIN.

Mid-day News
U.S. stocks are higher mid-day on strong reports from Ingram Micro and Tiffany & Co., as well as continued optimism on the prospects for the U.S. economy by Alan Greenspan. TXN is saying VOIP is being deployed by cable companies in much larger volumes than previously. Jim Cramer, of TheStreet.com, is saying recent talk by the mainstream press of a bubble cannot be backed up with facts. Cramer also saying Ingram Micro's report bodes very well for tech. Fidelity doesn't plan to offer hedge funds, as it could result in a conflict of interest with their mutual funds. Clear Channel plans to impose new standards to prevent its stations from airing indecent content. The U.S. dollar is gaining on talk of an interest rate cut by the European Central Bank and strong U.S. growth prospects. Greenspan said the U.S. economy has made the transition from a period of sub-par growth to one of more vigorous expansion. He also recommended spending cuts instead of tax increases to cut the deficit. Thousands of drugs will be required to have bar codes on their labels similar to those used in grocery stores, the FDA said. The SEC proposed a mandatory 2% redemption fee on short-term mutual fund trades. States that offer college scholarships can deny them to students majoring in theology without violating their constitutional rights, the U.S. Supreme Court ruled. Worldwide semi sales will rise 23% this year, outpacing their 03 gain of 14%, researcher Gartner said.

BOTTOM LINE: The Portfolio is having a good day today notwithstanding its relatively low market exposure of 25% net long, as the shorts are up less than the longs. Greenspan reiterated again that the economy was on pace to grow vigorously in 04. Employment has always been a lagging indicator, usually improving 6-9 months after vigorous GDP growth. U.S. GDP growth only started to accelerate substantially in the 3Q of 03 due to corporate scandals, Sept. 11th and the War with Iraq. Moreover, the U.S. overcapacity issue which was created by the excesses and corruption of the later part of the 90's, delayed vigorous economic growth and is now affecting job creation. Too many companies with bad business models and inexperienced management were created during the bubble to target inflated markets, thus creating artificially high employment. This overcapacity in the labor markets had to be worked off with time and increased demand. With GDP growth the best in 2 decades stimulating demand, the timing now seems right to expect better labor conditions in the very near future. I would like to see the market strengthen throughout the day before increasing the Portfolio's market exposure. I will look to add names in retail, oil service and tech if this occurs.

Wednesday Watch

Earnings Announcements
Company/Estimate
ADRX/.21
BLI/.65
CLST/.12
TIF/.70
MWY/-.25
TJX/.44
TRK/.25

Splits
None of note

Economic Data
Existing Homes Sales expected at 6.25M for Jan. vs. 6.47M in Dec.

Recommendations
SPOT cut to "Sell" at Merrill.

Late-Night News
The U.S. may keep interest rates low for an "extended period of time" because of continuing signs of disinflation, said the Fed's Broaddus in an interview with Dow Jones Newswires. Broaddus said the Fed's preferred measure of inflation, the personal consumption expenditure index minus food and energy, is still rising at a rate well below 1%. As long as that is the case the Fed can maintain an accommodative policy, he said. He also stated that he expects U.S. GDP growth of between 4.5-5% for 04. The IMF is saying the Japanese economy will growth 3% this year, significantly stronger than previous forecasts. Ukrainian border guards stopped a man trying to take 450 grams of uranium into Hungary, the AP said.

Late-Night Trading
Asian markets are mixed, ranging from -.50% to +.25%.
S&P 500 indicated +.04%.
NASDAQ indicated +.07%.

BOTTOM LINE: It will be interesting to see the market's reaction to the statements made by Broaddus. He replaced the phrase "can be patient" with "extended period of time" again. He also reiterated strong growth forecasts and a pick-up in job growth. Current market valuations are low(S&P 500 P/E=18 on 04 estimates) relative to interest rates at 46-yr. lows, economic growth is at 20-year highs, corporate profitability is near all-time highs, inflation is historically low, job growth is accelerating, significant tax cut stimulus is coming and the Fed is saying they are on hold for "an extended period of time." These are all very postive characteristics of the current investment envionment. I expect the current correction will likely be mild and set the stage for a move through recent highs within a few months.

Tuesday Close

S&P 500 1,139.09 -.17%
NASDAQ 2,005 -.10%

Leading Sectors
Oil Service +1.84%
Telecom +.96%
Homebuilders +.73%

Lagging Sectors
I-Banking -1.25%
Broadband -1.50%
Fashion -1.51%

Other
Crude Oil 34.58 unch.
Natural Gas 5.10 +.57%
Gold 404.40 -.10%
Base Metals 111.36 +1.09%
U.S. Dollar 86.15 -.87%
10-Yr. Long-Bond Yield 4.02% -.29%
VIX 15.90 -2.39%
Put/Call .76 +24.59%
NYSE Arms 1.43 +17.21%

After-hours Movers
SMTC +4.21% after beating 4Q estimates and raising 1Q guidance. Also, announced $50M stock buyback plan.
RMBS +7.4% after Judge Stephen McGuire released the public version of his initial decision in the Rambus antitrust case.
IM +12.4% after world's biggest computer distributor significantly beat 4Q earnings/sales estimates and raised 1Q guidance substantially.
APSG -3.74% after slightly missing 1Q estimates.
EPIQ -8.7% after missing 4Q estimates by .03.
DMRC -4.89% after missing 4Q estimates and raising 04 guidance.

After-hours News
U.S. stocks fell modestly, pushing the S&P 500 and DJIA down for a 5th straight day, the longest losing streak since January 03. A larger-than-expected fall in the Conference Board's Consumer Confidence Index was the likely catalyst. After the close, Henry Herrmann, CIO at Waddell & Reed, told CNBC he expects the economy to begin adding 150,000-250,000 jobs/month very soon. The CEO of Nautilus said he expects earnings to grow 15% the next 2 years, 3 times the market's growth, as health clubs update their equipment and baby boomers purchase it for their homes. The U.S. Senate voted to block a bill supported by health-care providers that would limit medical malpractice awards in the delivery of babies. Goldman continues to be positive on cell-tower stocks, saying that the perception of the damage done by consolidation is worse than reality and that AMT should rise over 20% during the next 12 months. The latest weekly survey by the Intl. Council of Shopping Centers says chain-store sales were up 8.3% vs. a year ago. Moreover, ShopperTrak said retail sales for the month of February are poised to rise 20.3%.

BOTTOM LINE: February's exceptionally strong retail numbers confirm my suspicion that the recent fall in Consumer Confidence is a result of politics and the mainstream media's constant focus on the jobs reports. These are short-term problems in my opinion. I took a position in AMAT near the close today and will use a close below $21 as my stop. The Portfolio's net long exposure is now 25%. The NASDAQ made a stand today at 2000 and should rise tomorrow on the Ingram Micro report. I will look to add selective longs on the open.