Wednesday Watch

Company/Estimate
ABS/.11
CMVT/.02
HOV/1.03
NMG/A/1.39
VRNT/.18

Splits
BNN 3-for-2
BR 2-for-1
ELAB 2-for-1

Economic Data
Total Vehicle Sales for May estimated at 16.8M versus 16.4M in April.
Domestic Vehicle Sales for May estimated at 13.4M versus 13.1M in April.

Recommendations
Goldman Sachs thinks ATYT will gain market share in 2H 2004 with OEMs on the back of the PCI Express transition. Goldman reiterated Outperform on DOW, DNA, CAL and CIT. Goldman reiterated Underperform on CMOS.

Late-Night News
Asian indices are mixed as strength in India and Hong Kong is being offset by weakness in Taiwan and Korea. The FBI issued a nationwide alert for two stolen propane tanker trucks, Reuters reported. China's economy will probably grow 11.4% in the second quarter, accelerating from a revised 9.8% pace in the first three months, the Beijing News reported. China's trials on high-speed mobile phone services reveal its networks are failing to transmit images and voices accurately, the South China Morning Post reported. The U.S. and five Central Asian nations signed an agreement to establish a trade council and strengthen U.S. ties to the region, the AP reported. Toyota Motor, the first automaker to sell cars powered by hybrid gasoline-electric engines, expanded annual production of its Prius hybrid sedan by as much as 44% to build as many as 130,000 units a year.

Late-Night Trading
Asian Indices -1.25% to +1.0% on average.
S&P 500 indicated +.11%.
NASDAQ indicated -.03%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning on a fall in oil prices and carryover from today's afternoon rally. I would expect to see more investor complacency before the current rally runs its course. The Portfolio is 125% net long heading into trading tomorrow.

Tuesday Close

S&P 500 1,121.20 +.05%
NASDAQ 1,990.77 +.20%

Leading Sectors
Hospitals +1.71%
Energy +1.42%
HMO's +1.26%

Lagging Sectors
Fashion -1.37%
Disk Drives -1.57%
Airlines -1.66%

Other
Crude Oil 42.45 +.28%
Natural Gas 6.69 +.21%
Gold 395.80 +.08%
Base Metals 110.42 +1.48%
U.S. Dollar 88.88 -.02%
10-Yr. T-note Yield 4.70% +1.15%
VIX 16.30 +5.16%
Put/Call .95 -8.65%
NYSE Arms 1.11 -2.63%

After-hours Movers
ALKS -3.54% after revising its financial expectations downwards for the fiscal year 05 in connection with the decision to discontinue commercialization of Nutropin Depot.

Recommendations
Goldman Sachs reiterated Outperform on ACN, IGT, FS, BNS, ENH and MDT.

After-hours News
U.S. stocks finished modestly higher Monday on strength in healthcare and energy shares, notwithstanding rising interest rates. China is succeeding in reducing the symptoms of an overheating economy, which may delay their need to raise interest rates, the Asian Wall Street Journal reported. Shipping companies keep launching new versions of "the world's largest container ship" as they try to outdo one another amid a global trade boom, straining transport facilities in the process, the LA Times said. Disney plans to start three of is own tv channels in India helped by a joint venture with a local company, Handelsblatt said. Three terrorists who escaped capture after taking hostages in a Saudi housing compound Saturday bluffed authorities into believing accomplices were ready to blow up buildings unless they were allowed to leave, Reuters reported.

BOTTOM LINE: The Portfolio had a good day today as a few of my internet, basic material and telecom equipment long positions rose substantially in the afternoon. I did not trade today and the Portfolio is still 125% net long. Today's modest gains were a big positive for the Bulls as a substantial rise in oil prices and interest rates could not send stocks lower. The market's tone was constructive most of the day and small-caps continue to outperform. I expect U.S. stocks to build on last week's rally as the week progresses.

Mid-day Update

S&P 500 1,116.21 -.40%
NASDAQ 1,977.02 -.51%

Leading Sectors
Hospitals +1.38%
Energy +1.02%
HMO's +.84%

Lagging Sectors
I- Banks -1.50%
Disk Drives -2.56%
Airlines -2.58%

Other
Crude Oil 41.91 +5.09%
Natural Gas 6.68 +3.69%
Gold 395.50 +.15%
Base Metals 110.42 +1.48%
U.S. Dollar 88.81 -.10%
10-Yr. T-note Yield 4.71% +1.36%
VIX 16.80 +8.39%
Put/Call 1.05 +.96%
NYSE Arms 1.39 +21.93%

Market Movers
BHAG +15.53% after saying GE Energy will acquire it for $260 million.
NILE +8.65% on continued strength from IPO.
OSG +7.34% after JP Moran upgrade to Overweight on increased tanker rates and business from Saudi Arabia.
SRX +8.53% on speculation that it won part of the $10 billion homeland security IT contract.
CME -5.2% after Merrill downgrade to Neutral on potential share sales when limits on selling by members end on Friday.

Economic Data
Construction Spending for April rose 1.3% versus estimates of a .4% increase and a revised 2.4% rise in March.
ISM Manufacturing for May came in at 62.8 versus estimates of 61.5 and 62.4 in April.
ISM Prices Paid for May fell to 86.0 versus estimates of 89.3 and 88.0 in April.

Recommendations
Goldman Sachs reiterated Outperform on AMGN, ENH, VIA/B and MDT. Citi SmithBarney reiterated Buy on MTB, target $102. Citi reiterated Buy on NSM, target $24. Citi thinks TLAB won a sizable contract from Verizon and will announce it at Supercomm in late June, reiterated Buy, target $11. OSG raised to Overweight at JP Morgan. SJH cut to Underweight at JP Morgan. MDP raised to Buy at UBS, target $63. GMTN rated new Buy at Bank of America, target $28. USFC raised to Outperform at Bear Stearns, target $38. BE rated Overweight at JP Morgan.

Mid-day News
U.S. stocks are modestly lower mid-day as another strong economic report and violence in Saudi Arabia over the weekend push energy prices and interest rates higher. Merrill Lynch lowered its second-quarter earnings forecast for Intel to .26 and its revenue forecast to less than $8 billion, CNBC reported. The Chinese government's efforts to slow investment in industries such as steel, aluminum and cement are working, state-owned CCTV said. California Governor Schwarzenegger and four Indian tribes reached a tentative agreement on a plan to share casino revenue with the state, LA Daily News reported. Boston Scientific agreed to buy closely held Advanced Bionics for about $740 million in cash to add products that treat neurological disorders, Bloomberg reported. U.S. construction spending rose 1.3% in April to a record annual pace of $970.4 billion, led by work on housing and highways, Bloomberg said. Drugmakers including Eli Lilly, Merck and Novartis are competing to offer the elderly discounts of 12% to 50% on prescriptions under a U.S. government-sponsored Medicare plan that began today, Bloomberg reported. A group led by Accenture won a contract worth up to $10 billion over 10 years to develop a system for tracking visitors to the U.S., the Dept. of Homeland Security said. Crude oil futures surges to a record in New York after the killing of 22 people in a key Saudi Arabian oil-producing region Saturday raised concern that attacks might disrupt shipments, Bloomberg reported. A gauge of U.S. manufacturing unexpectedly rose last month to the highest in almost two decades as increased demand prompted more factories to hire than at any time in 31 years, Bloomberg reported.

BOTTOM LINE: The Portfolio is up slightly today and I have not traded. Thus, market exposure is still 125% net long. It is disappointing that oil is having such an adverse reaction to the weekend's violence. However, stocks are relatively strong considering the rise in oil and interest rates. Small-caps are actually up on the day. As well, the continued significant improvement in manufacturing and creation of jobs are very positive developments. I expect U.S. shares to strengthen into the close on afternoon short-covering, leaving the major indices down modestly on the day.

Tuesday Watch

Earnings of Note
Company/Estimate
CDT/.06
PLL/.39
UNFI/.20

Splits
AVP 2-for-1
BCR 2-for-1
CNQ 2-for-1
IEX 3-for-2

Economic Data
Construction Spending for April estimated +.4% versus +1.5% in March.
ISM Manufacturing for May estimated at 61.5 versus 62.4 in April.
ISM Prices Paid for May estimated at 89.3 versus 88.0 in April.

Weekend Recommendations
Forbes on Fox had guests that were positive on DVN, UNFI, BBY, mixed on SIL, AVTI and NKE. Bulls and Bears had guests that were positive on CME, EBAY, AUO, EON, SNP, mixed on SI and negative on NT, AMD and NOK. Cashin' In had guests that were positive on CLX and mixed on GE, MSFT and HOV. Louis Rukeyser's Wall Street had guests that were positive on CMCSA, BSX, PRU, JNJ, MKL, STA, NTRS, XOM, MSFT, AA, IR, DOW and negative on energy and semis. Wall St. Week w/Fortune had guests that were positive on HKF, ACAI, SUP, OCA, NTZ, ET, WLP, OHP, HUM, MEAS and OLGC. Barron's had a negative column on CYBX.

Weekend News
The U.S. market for wind and solar power is expected to increase 20% annually for the next five to 10 years, Barron's said. U.S. demand for second, or vacation, homes is likely to rise due to low mortgage rates and an aging, affluent baby-boomer population, Barron's said. Radio-frequency identification, which tracks goods from production to consumers' shopping carts, has the potential to lift economies worldwide, Barron's reported. Nokia may cut its sales forecast for this quarter because it hasn't been able to start selling enough new products, Kauppalehti reported. Hewlett-Packard will increase its backing of so-called open source software by offering programs made by MySQL and JBoss, the Wall Street Journal reported. Many U.S. public schools are focusing more on reading, writing and math in an effort to raise low test scores to comply with new federal educational standards, the Washington Post reported. China won't raise interest rates anytime soon because declining aluminum and steel prices signal the government's efforts to curb inflation are working, the Asian Wall Street Journal reported. The U.S. military in Iraq is moving its focus from combating insurgents to protecting a new Iraqi government and helping to rebuild the country, the NY Times said. Goldman Sachs, UBS and Lehman Brothers said this week that the dollar will fall against the euro and yen in coming months after a 3-month rally. A statement purportedly issued by the al-Qaeda terrorist network said it carried out a hostage-taking incident in Saudi Arabia over the weekend that resulted in the deaths of 22 people, Agence France-Presse reported. Intel and other personal computer and electronics makers will tout home entertainment features at Taiwan's Computex 2004 trade show, Bloomberg reported. JP Morgan has joined Citigroup in eclipsing Merrill Lynch in the $80 billion market for underwriting U.S. stock sales. Morgan Stanley has an interesting analysis of the energy market.

Late-Night Trading
Asian indices are higher, +.25% to +1.75% on average.
S&P 500 indicated unch.
NASDAQ indicated -.14%.

BOTTOM LINE: I expect U.S. stocks to open higher in the morning as there were no significant terrorist attacks over the weekend. Moreover, Asian strength, U.S put/call and arms readings, and a low AAII % Bulls should provide the catalysts to push shares higher. The Portfolio is 125% net long heading into the week.

Chart of the Week

Bottom Line: Spending on information technology is increasing at the fastest annual rate since the mania of the late 90's. Unlike the bubble period, current spending is from companies with solid balance sheets and real business models. Moreover, corporate IT spending, which is highly correlated to labor growth, should accelerate throughout the year. Researcher Gartner Inc. now expects PC sales growth of 14% in the second quarter, matching their prior projections for all of 2004. A need to replace almost 100 million obsolete PCs this year will also contribute to gains, Gartner said.

Weekly Outlook

There are a number of important economic reports and only a few significant corporate earnings reports scheduled for release this week. Economic reports this week include Construction Spending, ISM Manufacturing/Prices Paid, Auto Sales, Non-farm Productivity, Unit Labor Costs, Initial Jobless Claims, Factory Orders, ISM Non-Manufacturing, Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls and Average Weekly Hours. The ISM reports, Productivity, Unit Labor Costs, and Change in Non-farm Payrolls all have market-moving potential.

Hovnanian Enterprises(HOV), Albertson's(ABS), Neiman-Marcus(NMG/A), Comverse Technology(CMVT) and Mandalay Resort Group(MBG) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The Citi SmithBarney Semiconductor Conference, ASCO 2004 Annual meeting, American Society of Clinical Oncology Conference, Flextronics(FLEX) Mid-quarter Update and Intel(INTC) Mid-quarter Update could all impact trading this week.

Bottom Line: I expect U.S. stocks to rise this week on strong economic reports, declining energy prices and stabilizing interest rates. As well, positive news from mid-quarter updates and several conferences should push stocks higher. The relatively high Put/Call and ARMS readings at the end of last week and fall in the AAII % Bulls also bode well for stocks this week. Recent price action in the major U.S. indices is very similar to that seen right after the lows in March 03. Breadth is very good, small-caps are outperforming and tech is recovering. I expect biotechnology and technology shares to outperform this week, while homebuilders and retailers lag. My short-term trading indicators all still giving buy signals and the Portfolio is 125% net long heading into the week.