Mid-day Report

S&P 500 1,200.19 +.13%
NASDAQ 2,155.47 +.32%

Leading Sectors
Broadcasting +2.01%
Semis +1.63%
Oil Service +1.42%

Lagging Sectors
Wireless -.56%
Homebuilders -.56%
Networking -1.41%

Other
Crude Oil 41.40 +.95%
Natural Gas 7.29 +1.73%
Gold 437.40 -.66%
Base Metals 116.09 +.37%
U.S. Dollar 82.64 +.65%
10-Yr. T-note Yield 4.17% +1.31%
VIX 12.39 -1.20%
Put/Call .88 +23.94%
NYSE Arms .80 +11.11%

Market Movers
SYMC -12.1% after reports it is in advanced talks to acquire Veritas Software(VRTS) for at least $13 billion, the NY Times reported. VRTS +9.7%.
ERTS +5.6% after saying it entered into exclusive licensing relationships with the NFL and Players Inc. to develop, publish and distribute interactive football games. Competitor TTWO -5.3%.
RIMM +7.6% after a US appeals court orders new hearings in a patent infringement suit by a Virginia company.
ORNG +14.8% on strong demand for IPO.
MPS +13.2% after saying it had been selected as one of Raymond James' Analysts' Best Picks for 2005.
LNG +12.5% after completing an agreement to the rights to its Louisiana-based plant to ChevronTexaco.
PQE +11.2% after saying it will buy Voyager Expanded Learning for $360 million is cash and stock to expand its educational products.
SLAB +10.1% after Citi SmithBarney initiated it with Buy(Top Pick), target $46.
VRNT +7.4% on CIBC upgrade to Sector Outperform, target $43.
ADTN -14.7% after lowering 4Q estimates and multiple downgrades.
MSTR -10.4% after saying CFO is leaving and multiple downgrades.
AFCO -9.8% on Lehman Brothers downgrade to Equal Weight from Overweight.
JRCC -14.14% on disappointing 3Q results.
COO -7.1% on disappointing 3Q results.

Economic Data
Trade Balance for October was -$55.5B versus estimates of -$53.0B and -$50.9B in September.
Industrial Production for November rose .3% versus estimates of a .2% increase and a .6% gain in October.
Capacity Utilization for November fell to 77.6% versus estimates of 77.8% and 77.5% in October.

Recommendations
-Goldman Sachs reiterated Outperform on NKE, FON and SYMC.
-Citi SmithBarney said to Buy GIS, target $51.50. Citi said to Buy ACE and STA now, targets $49 and $43, respectively. Citi reiterated Sell on OSG, target $49. Citi reiterated Buy on CSC, target $68. Citi reiterated Buy AXP, target $57. Citi reiterated By on MAY, target $35. Citi reiterated Buy on ERTS, target $67.
-Banc of America rated NWS/A to Buy, target $21. BofA rated L Buy, target $13.25. BofA rated TWX Buy, target $23.
-UBS raised KYPH to Buy, target $30.
-CIBC raised VRNT to Sector Outperform, target $43. CIBC raised ISLE to Sector Outperform, target $30. CIBC raised HLT to Sector Outperform, target $25. CIBC raised PENN to Sector Outperform, target $59. CIBC raised HOT to Sector Outperform, target $61. CIBC cut PNK to Sector Underperform, target $16. CIBC cut ASCA to Sector Underperform, target $36. CIBC cut STN to Sector Underperform, target $55. CIBC cut KZL to Sector Underperform, target $56.
-Merrill Lynch said US dollar is undervalued and Euro is overvalued. Merrill also said US bonds will perform poorly in 2005.
-Thomas Weisel raised STE to Outperform, target $29.
-Legg Mason rated CBM Buy, target $31. Legg Mason rated FSH Buy, target $73.

Mid-day News
U.S. stocks are modestly higher mid-day on a rebound in the US dollar, merger speculation and a better-than-expected industrial production report. The US restaurant business is being pushed to reduce trans fats that are often used in processed foods to improve shelf-life, taste and texture, but which have been linked to health troubles, the Wall Street Journal reported. Mergers and acquisitions worth about $1.7 trillion worldwide have been announced so far this year, compared to $1.3 trillion for all of 2003, the Wall Street Journal reported. The Bush administration will urge Congress to overhaul air quality legislation early next year, the Washington Post reported. Bear Stearns is the subject of speculation on Wall Street over whether CEO Cayne will sell the company, the NY Times reported. Lucent and Nortel, the two main wireless network-equipment suppliers to Sprint, may benefit if Sprint merges with Nextel, the NY Times said, citing analyst Susan Kalla of FBR. Iraq next week will begin war crimes trials for leaders of the former regime of ousted dictator Saddam Hussein, the AP reported. Theme parks in North America boosted attendance by 4% this year, the first increase since the 2001 terrorist attacks, the LA Times reported. Companies are spending heavily on employee monitoring software, USA Today reported. Doctors might be able to identify patients with Alzheimer's disease by using a basic scratch-and-sniff test, Reuters reported. Boeing won a $928 million US contract to develop parts and systems for a site in Huntsville, AL, that will be part of a US anti-missile system from the Missile Defense Agency, Reuters reported. Mahmoud Abbas, the interim Palestinian leader and the front-runner to win Jan. 9 leadership elections, called for an end to the Palestinian armed uprising, saying it has been counterproductive, the AP reported. About 30% of companies in Massachusetts plan to hire in the first quarter of 05 compared with 20% a year earlier, according to Manpower. ChevronTexaco increased 2005 spending by 18% from this year to boost production amid record demand for oil and natural gas, Bloomberg said. Blockbuster will stop charging late fees to compete with Netflix, Bloomberg reported. Vodafone said it's not in talks with Verizon about mounting a bid for Sprint, Bloomberg said.

Bottom Line: The Portfolio is unchanged mid-day as strength in my semi and internet longs is offsetting weakness in my software and Chinese ADR longs. I have not traded today and the Portfolio is still 125% net long. The tone of the market is ok as more stocks are advancing than declining and volume is decent. It is a positive to see the US dollar rally on the trade report. The CRB is also falling again today even with the rise in energy prices. I expect US stocks to rise modestly into the close on merger optimism, short-covering and year-end repositioning.

Tuesday Watch

Earnings of Note
Company/Estimate
EASI/.71
FCEL/-.44
NTY/.40
PIR/.22

Splits
BLUD 3-for-2

Economic Data
Trade Balance for October estimated at -$53.0B versus -$51.6B in September.
Industrial Production for November estimated up .2% versus a .7% gain in October.
Capacity Utilization for November estimated at 77.8% versus 77.7% in October.
FOMC expected to raise 25 basis points to 2.25%.

Recommendations
Goldman Sachs reiterated Outperform on AGN, A, CIL, BAX and CAT. Goldman reiterated Underperform on RAI.

Late-Night News
Asian indices are higher on strength in exporters after a better-than-expected retail sales report in the US. Goodyear Tire & Rubber will renew efforts to raise cash by selling operations not related to tire-making, including a unit that makes hoses and conveyor belts, the Daily Deal reported. General Electric and other companies have invested billions of dollars into struggling airlines as a way to avoid potentially massive losses from a bankrupt carrier, the Wall Street Journal reported. Verizon Communications may bid for Sprint, with the backing of Britain's Vodafone Group Plc, its partner in Verizon Wireless, the Wall Street Journal said. Google will announce tomorrow that it will convert more than 15 million books and documents from research institutions such as Stanford University and Oxford University into Internet-searchable files, the NY Times reported. Frontline Ltd., the world's biggest tanker company, said it's considering a bid for General Maritime Corp., a move that would create a company able to ship about five days of OPEC oil production, Bloomberg reported.

Late-Night Trading
Asian Indices are +.50%. to +1.0% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on optimism over merger activity, better-than-expected economic reports and gains in Asia. I also expect the Fed to raise 25 basis points and to reiterate their plans to continue raising at a "measureed pace." The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,198.68 +.90%
NASDAQ 2,148.50 +.96%

Leading Sectors
Software +3.09%
Iron/Steel +2.53%
HMOs +1.85%

Lagging Sectors
Retail -.09%
Networking -.41%
Hospitals -.49%

Other
Crude Oil 41.10 +.22%
Natural Gas 7.27 +1.52%
Gold 440.50 +.05%
Base Metals 115.66 +1.28%
U.S. Dollar 82.14 -.64%
10-Yr. T-note Yield 4.15% -.05%.
VIX 12.54 -1.72%
Put/Call .71 +14.52%
NYSE Arms .72 -47.83%

After-hours Movers
SHOP +4.6% after saying Shopping.com UK entered into a services agreement with Google.
SLAB +4.7% after Citi SmithBarney initiated it with Buy(Top Pick), target $46.
LNG +14.3% after completing an agreement to the rights to its Louisiana-based plant to ChevronTexaco.
ERTS +5.0% after saying it entered into exclusive licensing relationships with the NFL and Players Inc. to develop, publish and distribute interactive football games.
TTWO -6.21% on ERTS news.
TKLC -6.90% after saying its CFO resigned to become CFO for DGIN.

Recommendations
Citi SmithBarney rated SLAB and SWKS Buy, targets $46 and $14.25, respectively.

After-hours News
U.S. stocks finished higher today on optimism over U.S. economic growth and merger activity. After the close, China and Russia will hold joint military exercises next year, a step that the Chinese defense minister said should not be seen as threatening to other nations, Russia's Interfax news agency reported. The National Hockey League, which is in the midst of an 89-day lockout, will reject the latest proposal from the players union and make a counteroffer tomorrow, TSN of Canada reported. Anger, fear and other negative emotions may be triggers for a stroke, a study of 200 stroke victims bound, Bloomberg reported. New York's crime rate has dropped 4.6% this year, making it the safest of the 25 largest U.S. cities, Mayor Bloomberg said. Sprint and Nextel stand to save more than $3 billion in network costs by combining their U.S. mobile-telephone operations, Bloomberg reported. PepsiCo agreed to purchase General Mills' 40% stake in their European snacks joint venture for $750 million, Bloomberg said. Scott Peterson was sentenced to death by a California jury for the murder of his 27-year-old pregnant wife Laci, Bloomberg reported. American Express agreed with Citigroup to issue credit cards in the U.S. that will be accepted on its global merchant network, Bloomberg reported.

BOTTOM LINE: The Portfolio finished higher today on gains in my internet, semi, semi-equipment and Chinese ADR longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The overall tone of the market improved throughout the day with volume increasing and the advance/decline line finishing near its highs for the day. Interest rates failed to move higher even with the pullback in the dollar. As well, it was a positive for the bulls to see energy prices bounce up and equities advance to 3-year highs. I continue to expect data and events this week to propel U.S. stocks higher.

Mid-day Report

S&P 500 1,196.20 +.69%
NASDAQ 2,140.63 +.58%

Leading Sectors
Software +2.93%
Iron/Steel +2.51%
HMOs +1.91%

Lagging Sectors
Airlines -.63%
Networking -.73%
Hospitals -.75%

Other
Crude Oil 40.85 +.42%
Natural Gas 7.11 +3.90%
Gold 440.30 unch.
Base Metals 115.66 +1.28%
U.S. Dollar 82.19 -.58%
10-Yr. T-note Yield 4.14% -.28%
VIX 12.20 -4.39%
Put/Call .63 +1.61%
NYSE Arms .71 -48.55%

Market Movers

Economic Data
Advance Retail Sales for November rose .1% versus estimates of a .1% decline and an upwardly revised .8% increase in October.
Retail Sales Less Autos for November rose .5% versus estimates of a .3% increase and an upwardly revised 1.1% gain in October.
Business Inventories for October rose .2% versus estimates of a .5% increase and no change in September.

Recommendations
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Mid-day News

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet, semi and semi-equipment longs. I added a few new technology longs this morning, bringing the Portfolio's market exposure to 125% net long. One of my new longs is ARBA and I am using a $15.50 stop-loss on this new position. It is very positive to see the large revision in retail sales for Oct. and a better-than-expected Nov. Moreover, internet retail is booming this holiday season. OSTK remains my favorite internet retailer in the intermediate-term. It should also be a longer-term winner in this space. The overall tone of the market is pretty good today and improving, notwithstanding the bounce in energy prices and dollar pullback. I expect U.S. stocks to rise modestly into the close on optimism over economic growth, short-covering, merger activity and bargain-hunting.

Monday Watch

Earnings of Note
Company/Estimate
CKR/.16
ORCL/.13

Splits
GDW 2-for-1

Economic Data
Advance Retail Sales for November are estimated to fall .1% versus a .2% rise in October.
Retail Sales Less Autos for November are estimated to rise .3% versus a .9% gain in October.
Business Inventories for October are estimated to rise .5% versus a .1% gain in September.

Weekend Recommendations
Rukeyser's Wall Street had guests that were positive on SZE, TIF, XOM, TMO, PTEK, AEE, D and GIS. Forbes on Fox had guests that were positive on LLL, IDTI, INTC, RPM, ZBRA and ANZ. Cashin' In had guests that were positive on HSY, LUK, HD and mixed on K, PZZA, SAFM, NUE. Bulls and Bears had guests that were positive on GSIC, NCC, EBAY, ERTS, GS, SFA, NVS and mixed on CSCO, CI, TOL. Barron's had positive comments on JPM, AES, RRI, CPN, ADM, EK, HL, WMT and INT. Goldman Sachs reiterated Outperform on ACS, DNA, EBAY, MER, X, NUE and SPP.

Weekend News
China has raised next year's economic growth target to 8%, the first time it has lifted its estimate above 7% since 1999, the Economic Observer reported. Ukrainian opposition leader Yushchenko said his administration would go to court to reverse illegal sales of state assets if he were to become president, the Financial Times reported. Taiwan President Chen Shui-bian's party failed to win more seats in a legislative vote, which could hamper his proposals to further the island's national identity that would have deepened a rift with China, Bloomberg said. The Canadian Internet pharmacy industry, which has more than $800 million in annual sales in transactions with the U.S., is facing increasing regulatory, political and economic pressures, the NY Times reported. U.S. stocks will rise next year as the economy strengthens, boosting the S&P 500 Index as much as 12%, money managers told Barron's. Job growth may accelerate in 2005 and the US trade deficit may narrow to as little as 5% of gross domestic product, helping GDP growth to rise 4%-5%, higher than the 3.5% forecast of economists, Barron's reported. Bristol-Myers Squibb is preparing to sell its consumer medicines unit for as much as $800 million, and GlaxoSmithKiline Plc and Johnson & Johnson may bid for it, London's Sunday Times reported. More than 300,000 U.S. students between eighth and 12th grade used steroids last year, Newsweek magazine said, citing analysis of a report from the Univ. of Mich. Honeywell Intl., the world's No.1 maker of cockpit electronics, plans to buy Novar Plc for $1.52 billion to obtain its building security, fire systems and services business, the Wall Street Journal reported. Permira, a European buy-out group has entered a joint venture with Apollo Management LP to make an offer for Toys R Us, which is worth about $3.5 billion, the Financial Times said. Procter & Gamble's Indian unit had a 25.5% sales growth in October compared with a 1.9% increase at rival Hindustan Lever, Economic Times said. Mahmoud Abbas, the chairman of the Palestinian Liberation Organization, apologized to Kuwait for Palestinian support for Iraq in the 1990-1991 Persian Gulf War, the AP reported. The oil minister for Saudi Arabia, OPEC's biggest oil producer, said the nation will reduce output by 500,000 barrels a day to enforce a recent accord. The supply of oil is still outstripping demand after OPEC, the producer of more than a third of the world's output, begins to reduce production to prop up falling prices, the Qatari oil minister said. General Motors and DaimlerChrysler AG will jointly develop a gasoline-electric power system to catch Toyota Motor and Honda Motor in the technology that saves fuel and cuts tailpipe emissions, Bloomberg reported. A number of economists say a gradually declining US dollar is good for equities, the AP reported.

Late-Night Trading
Asian indices are mostly lower, -.75% to +.25% on average.
S&P 500 indicated +.14%
NASDAQ 100 indicated +.31%.

BOTTOM LINE: I expect US stocks to open modestly lower in the morning on a bounce in oil prices, however shares will likely strengthen later in the day. The Portfolio is 100% net long heading into tomorrow.

Chart of the Week

Morgan Stanley Commodity Related Index(CRX)

Bottom Line: The CRX has risen 28.1% over the last 12 months. However, I expect these stocks to underperform over the intermediate-term. An exodus by momentum investors, lower commodity prices, a stabilizing dollar, greater supply and slackening demand from Asia/Europe should provide the catalysts. I expect the CRX to test its 200-day moving-average over the coming months.