Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Preliminary 3Q GDP(Tues.), Consumer Confidence(Tues.), Chicago Purchasing Manager(Tues.), Personal Income/Spending(Wed.), PCE Deflator Y-o-Y(Wed.), Construction Spending(Wed.), ISM Manufacturing/Prices Paid(Wed.), Fed's Beige Book(Wed.), Vehicle Sales(Wed.), Initial Jobless Claims(Thur.), Factory Orders(Thur.), Unemployment Rate(Fri.), Average Hourly Earnings(Fri.), Change in Non-farm Payrolls(Fri.), Average Weekly Hours(Fri.), and ISM Non-Manufacturing(Fri.). GDP, Consumer Confidence, Chicago Purchasing Manager, ISM Manufacturing, Change in Non-farm Payrolls and ISM Non-Manufacturing all have market-moving potential.

OSI Pharmaceuticals(OSIP-Mon.), Chico's FAS(CHS-Tues.), Omnivision Technologies(OVTI-Tues.), Neiman Marcus Group(NMG/B-Wed.) and Synopsys(SNPS-Wed.) are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The CSFB Tech Conference(Tues.-Fri.), The Homebuilding Industry Conference(Tues.-Wed.), Merrill Health Services Conference(Tues.), INTC mid-quarter update(Thur.), Fed's Bernanke speaking(Thur.), Fed's McTeer speaking(Fri.) and Fed's Santomero speaking(Fri.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, better-than-expected economic reports, strength in technology shares, more optimism, a rebound in the US dollar, declining energy prices, short-covering and bargain-hunting. The most important day of the year for retailers was Friday and it appears the holiday shopping season is off to a strong start. Research firm ShopperTrak said overall U.S. retail sales climbed 10.8% over last year and Visa, the No. 1 issuer of credit cards, said sales on its cards soared 15.5% from last year. The S&P 500 and Russell 2000 are at their highs for the year. The DJIA and NASDAQ will likely test their yearly highs this week. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,182.65 +1.07%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks finished moderately higher last week in another win for the bulls. It was the fourth weekly rise for the S&P 500 in 5 weeks. Gains were especially frustrating for the bears considering the decline in the dollar, rising energy prices and worries over inflation. Small-caps again outperformed as the Russell 2000 hit another ALL-TIME high and breadth was very healthy. Commodity-related stocks were the top-performers for the week, led by steel and oil service companies. Moreover, the AAII % Bulls fell 22.81% to 49.48%, which is big positive considering recent complacency. While perpetually negative pundits and analysts paint a bleak picture for U.S. stocks on inflation and profit fears, the overall technical picture of the market appears the healthiest to me since 1995.

Economic Week in Review

ECRI Weekly Leading Index 132.70 +.08%

Existing Home Sales for October were 6.75M versus estimates of 6.72M and 6.76M in September. "With low interest rates and an improving job market we're seeing some extraordinary numbers in housing," said the CEO of Foxtons North America, a real estate brokerage firm. October's sales were the fourth-highest ever, Bloomberg said. The median selling price of an existing home was $187,000 last month, up 8.8% from the same month last year. "As long as mortgage rates stay at about the 6-6.5% level, I think the housing market should be strong," said Bruce Harting, a senior analyst who covers mortgage companies at Lehman Brothers. Re-sales were the strongest in the South and West, rising 3.7% and 3.6% for the month respectively. While prices have increased, America's homeowners are not over-leveraged, according to the Homeownership Alliance. The latest Federal Reserve data show that mortgage payments accounted for 9.87% of disposable incomes in the second quarter of this year, down from over 10% in 1990-1992, Bloomberg said.

Durable Goods Orders for October fell .4% versus estimates of a .5% rise and an upwardly revised .9% gain in September. Durable Goods Orders Less Transportation for October fell .7% versus estimates of a .2% fall and an upwardly revised 2.8% increase in September. After the September revisions, the October dollar volume was close to estimates, Bloomberg reported. Shipments, which the government uses to calculate quarterly GDP, rose 3.1%, the biggest rise since March, Bloomberg said.

Initial Jobless Claims for last week were 323K versus estimates of 335K and 335K the prior week. Continuing Claims were 2755K versus estimates of 2795K and 2784K prior. The four-week moving average of claims dropped to a four-year low of 332,000. "Labor markets are improving, and we expect to see that reflected in payroll gains for November," said Gary Bigg, an economist at Banc of America Securities. A survey by the National Assoc. of Business Economists released on Nov. 22 showed economists expect the labor market to give a boost to the economy next year, with the unemployment rate falling to 5.2%, from its current 5.5%, Bloomberg reported. Moreover, economists project 2.2 million jobs will be created in 2005.

The Final Univ. of Mich. Consumer Confidence reading for November was 92.8 versus estimates of 96.0 and a prior forecast of 95.5. "With the election over, energy prices declining, and the labor market improving, we would have expected a more significant boost to attitudes," said Stephen Stanley, chief economist at RBS Greenwich Capital. However, the University's current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 104.7 from 104 in October, Bloomberg said. As well, the expectations index, based on optimism about the next one to five years, rose to 85.2 from 83.8 last month. "Based on the positive momentum over the past three weeks, Visa maintains an optimistic outlook for the holiday shopping season," said Wayne Best, senior vice president of strategic and economic analysis at Visa USA. Finally, the National Retail Federation is now projecting a fairly strong 4.5% gain in retail sales during the holiday season.

New Home Sales for October rose to 1226K versus estimates of 1200K and 1224K in September. This was the third fastest rate on record, Bloomberg said. The median price jumped to $221,800, up 14% from a year ago. The U.S. gained the most jobs in seven months during October and mortgage rates remain within a percentage point of an all-time low, helping boost sales, Bloomberg reported. "We are still seeing extremely strong traffic and demand," said Alan Levan, CEO of Levitt, a homebuilder based in Fort Lauderdale, Florida. Sales of new and existing homes will reach an all-time record this year, according to a forecast from the National Assoc. of Realtors. Sales were the strongest in the Northeast and West, rising 20% and 13% respectively.

Bottom Line: Overall, last week's economic data were mildly positive. The Weekly Leading Index has now risen 4 consecutive weeks since the election. Housing remains a pillar of strength for the U.S. economy and will remain so, barring an unexpected substantial rise in interest rates. The decline is Durable Goods Orders was a result of the significant upward revision to the prior month and is not of concern. The better jobless claims readings over the past few weeks suggest another good month for employment is in the offing. This should definitely result in better consumer confidence in the very near future, notwithstanding high energy prices. As well, stock market gains, less negativity by politicians and a strong housing market should also boost sentiment going forward. I continue to expect U.S. economic growth to surprise on the upside over the next few months. Data in December should confirm this view.

Friday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
None of note.

Economic Data
None of note.

Recommendations
Saks Inc.(SKS), which operates 350 traditional and luxury department stores, owns a high portion of is shops, making its stock an attractive buy, Business Week reported. Shares of Boston Scientific(BSX) are worth buying because the company has a "rich" pipeline of products, Business Week said. Shares of Bioenvision(BIVN), a maker of drugs to treat cancer, are expected to rise as the U.S. FDA considers approving the company's Clofarabine drug, Business Week said.

Holiday News
U.S. experts expressed reservations over an accord signed by European officials and Iran to stop the country's uranium enrichment program, the NY Times reported. U.S. Steel is interested in bidding for two steel operations of insolvent Stelco, possibly provoking a bidding war, the Globe and Mail reported. A laboratory for the manufacture of chemical weapons was found in the Iraqi city of Fallujah, Reuters reported. The Ukrainian Supreme Court today suspended publication of the Nov. 21 presidential election results until it can examine an opposition appeal challenging them, Agence France-Presse reported. The European Central Bank is waiting for the right moment to sell euros or buy dollars and curb the European currency's record-breaking rally, Reuters said. TiVo's plan to use pop-up ads is too intrusive, the AP reported. Companies plan to hire 20% more college graduates this year, Business Week reported, citing a study of 582 companies by Collegiate Employment Research Institute at Michigan State. American Express said it would replace Ernst & Young LLP as the company's independent auditor. The U.S., as a net international borrower, has "little to fear" from the dollar's slide, said Paul McCulley, a managing director at PIMCO. The European Union and Russia clashed over the results of Ukraine's presidential election, with the EU rejecting the vote outcome and Russian President Putin urging other countries to stay out of Ukraine's domestic affairs, Bloomberg said. Warehouse Group, New Zealand's largest retailer, is betting it can revive flagging sales in its peak Christmas season by adding name-brand products such as Eastman Kodak digital cameras and Dell notebook PCs, Bloomberg reported. Asian stocks are mixed tonight, with a regional benchmark set for its sixth straight weekly gain, the longest winning stretch in 14 months, Bloomberg said. China's government has cut its holdings of U.S. Treasury bonds in the nation's foreign-exchange reserves to $180 billion, First Economic and Finance Daily said. Cell phones are increasingly becoming attractive targets to computer hackers, the Washington Post says. Asian steelmaker shares are advancing, led by Nippon Steel and Posco, on speculation automakers including Toyota Motor and Nissan will pay higher prices, Bloomberg reported. Crude oil futures may decline next week on speculation the U.S. is importing enough to boost inventories, easing concern about a shortage of winter fuel, according to a Bloomberg survey.

Late-Night Trading
Asian indices are mixed, -1.25% to +.25% on average.
S&P 500 indicated -.16%.
NASDAQ 100 indicated +.06%.

BOTTOM LINE: I expect U.S. stocks to open modestly lower on worries over higher interest rates and energy prices. However, stocks should rally later in the day on short-covering and more optimism as interest rates stabilize. The Portfolio is 125% net long heading into tomorrow.

HAPPY THANKSGIVING

I will resume blogging tomorrow night with the Friday Watch. Check out this long-term chart of the DJIA.

Mid-day Report

S&P 500 1,180.12 +.27%
NASDAQ 2,097.52 +.64%

Leading Sectors
Airlines +2.66%
Papers +1.18%
Internet +1.0%

Lagging Sectors
Defense unch.
Retail -.04%
Telecom -.63%

Other
Crude Oil 48.60 -.69%
Natural Gas 7.16 +5.4%
Gold 449.00 +.25%
Base Metals 120.24 +1.22%
U.S. Dollar 82.43 -.61%
10-Yr. T-note Yield 4.19% +.23%
VIX 12.82 +1.26%
Put/Call .61 -22.78%
NYSE Arms 1.08 -11.48%

Market Movers

Economic Data
Durable Goods Orders for October fell .4% versus estimates of a .5% increase and an upwardly revised .9% gain in September.
Durable Goods Orders Less Transportation for October fell .7% versus estimates of a .2% fall and an upwardly revised 2.8% gain in September.
Initial Jobless Claims for last week were 323K versus estimates of 335K and 335K the prior week.
Continuing Claims were 2755K versus estimates of 2795K and 2784K prior.
Final Univ. of Mich. Consumer Confidence for November was 92.8 versus estimates of 96.0 and a reading of 95.5 in October.
New Home Sales for October were 1226K versus estimates of 1200K and 1224K in September.
Help Wanted Index for October was 37 versus estimates of 37 and a reading of 36 in September.

Recommendations

Mid-day News

Bottom Line: The Portfolio is higher mid-day on strength in my medical instrument, gaming and internet longs. I took profits in an internet long this morning and added BWLD long, thus leaving the Portfolio 125% net long. I am using a stop-loss of $32.50 on this position. Overall, today's economic data was mildly positive. While durable goods orders unexpectedly fell, the upward revisions for last month were significant. I would have liked to see Consumer Confidence at higher levels, however this reading should continue higher through at least year-end. Considering the small gains by the major indices, today's breadth is very healthy. I expect U.S. stocks to trade modestly higher into the close as higher energy prices are more than offset by short-covering.