Mid-day Report

S&P 500 1,200.58 +.50%
NASDAQ 2,142.83 +.70%

Leading Sectors
Transports +1.64%
Airlines +1.53%
Software +1.51%

Lagging Sectors
Foods +.16%
Energy +.13%
Defense -.24%

Other
Crude Oil 45.70 -.17%
Natural Gas 6.78 -2.40%
Gold 443.00 -.14%
Base Metals 121.19 +.49%
U.S. Dollar 81.89 +.27%
10-Yr. T-note Yield 4.17% -.32%
VIX 11.57 -2.20%
Put/Call .79 -15.05%
NYSE Arms .81 -22.86%

Market Movers
IACI +7.8% after saying it will spin off its travel-related assets into a new business named Expedia.
RMBS -14.28% after Infineon Technologies AG filed a motion to dismiss one case and said Rambus destroyed evidence.
ATYT -5.0% after missing 1Q estimates and raising 2Q outlook.
ANGO +17.7% after beating 2Q estimates and raising 05 guidance.
CMC +8.5% on continuing optimism over 1Q results.
UNP +5.1% after boosting 4Q estimates.
CVC +11.6% after suspending the spin-off of its Rainbow Media Enterprises unit.
YRK -12.15% after lowering 05 estimates and multiple downgrades.
LFUS -10.1% after lowering 4Q guidance substantially.
IVC -10.7% after lowering 4Q and 05 guidance.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Underperform on CVC.
-Citi SmithBarney reiterated Buy on HYGS, target $7.50. Citi reiterated Buy on SYY, target $42. Citi reiterated Buy on ACI, target $43. Citi reiterated Buy on CNX, target $49. Citi reiterated Buy on ILSE, target $24. Citi reiterated Buy on JBL, target $33. Citi reiterated Buy on NRG, target $45. Citi reiterated Buy on JNJ, target $72.
-UBS raised NEM to Buy, target $54.25. UBS raised ABX to Buy, target $27.50. UBS raised KGC to Buy, target $9. UBS rated ASCL Buy, target $18. UBS raised BVN to Buy, target $27.50. UBS raised PDG to Buy, target $22. UBS rated TIBX Buy, target $15.
-Lehman Brothers raised INTC to Overweight.
-JP Morgan rated MDC Underweight. JPM rated HOV Overweight. JPM rated RYL Overweight. JPM rated PIR Underweight. JPM rated PVN Underweight. JPM rated TOC Overweight. JPM rated COF Overweight. JPM rated AXP Overweight. JPM rated TSN Overweight. JPM rated PPC Overweight. JPM rated BZH Underweight.
-Moran Stanley downgraded HRB to Underweight.
-Legg Mason rated NILE Buy, target $34. Legg rated GSIC Buy, target $20.
-Prudential rated RBK Overweight, target $47.
-CSFB raised NXTL to Outperform, target $26. CSFB raised RIG to Outperform, target $53.
-Oppenheimer rated ENDP Buy, target $26. Oppenheimer rated MOT Buy, target $22. Oppenheimer raised CMA to Buy, target $68. Oppenheimer raised SMDI to Buy, target $8.
-Deutsche Bank rated NWL Buy, target $28. Deutsche rated DRL Buy, target $55. Deutsche rated NDE Buy, target $38.

Mid-day News
U.S. stocks are quietly higher mid-day on strength in transportation and software stocks. Comcast will boost the speeds of its broadband service in the first quarter of 2005 at no extra cost to customers, the NY Times reported. Acupuncture relieves knee pain in patients with osteoarthritis, the Wall Street Journal reported, citing a study published today in the Annals of Internal Medicine. Several popular Internet file-sharing sites shut down a week after movie studios sued more than 100 operators of sites in the US and Europe that host links to downloadable music, movies and books, the AP reported. Russian President Putin said state-owned companies may buy the former main oil-producing unit of OAO Yukos Oil from the company that acquired it in a government auction held on Sunday, Bloomberg reported. Morgan Stanley said fiscal fourth-quarter profit rose 18%, boosted by stock underwriting and a surge in fees for advising companies on takeovers, Bloomberg said. Tenet Healthcare agreed to establish a $395 million fund to settle litigation over allegedly unnecessary medical procedures performed at Redding Medical Center in California, Bloomberg reported. Iran will continue to enrich raw "yellowcake" uranium, a process that can be used to derive fuel for a nuclear weapon, through February, after signing a pledge to suspend all such activities, Reuters reported. Washington Post said it reached an agreement with Microsoft to acquire online magazine Slate, Bloomberg said. Pfizer's bid to head off a Celebrex recall may get a boost from new government data showing the painkiller didn't raise heart risks in a study, while naproxen, which is sold as Aleve, did, investors said.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my software and semi-equipment longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is pretty good and improving. It is good to see the Transports making another ALL-TIME high today. As well, declining long-term rates, falling energy prices and a stabilizing US dollar are boosting equities. I expect the major indices to rise into the close on short-covering and year-end repositioning.

Tuesday Watch

Earnings of Note
Company/Estimate
BSC/2.14
GIS/.87
GTK/.35
MWD/1.01
PAYX/.23
SLR/.05

Splits
ADSK 2-for-1

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on BSX, IP and SPP. Goldman reiterated Attractive View of the Internet sector.

Late-Night News
Asian indices are mostly higher, led by financial stocks in the region. A former American Online worker reached a tentative deal with federal prosecutors in a case accusing him of selling millions of stolen e-mail addresses to so-called spammers, the AP reported. China shouldn't rush to tighten its fiscal policy because there is not sign of higher inflation and the economy overall isn't overheated, the official Xinhua news agency said. Donald B. Marron, the former chief executive officer of Paine Webber Group, may be among the top candidates to replace Fannie Mae CEO Franklin Raines should the company decide to fire him, Bloomberg reported. U.S. stocks may rise more than expected next year amid speculation that President Bush's plan to privatize Social Security will spur cash inflows, according to Tobias Levkovich, chief US equity strategist for Citigroup Global Markets. Enron Corp. legal advisers led by NY law firm Weil Gotshal & Manges asked a judge to approve more than $780 million in fees, the most ever in a bankruptcy case, Bloomberg said. OAO Yukos Oil said it will sue to recover more than $20 billion of damages after the government confiscated its biggest unit, prompting concern cargoes may be seized by foreign courts, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly lower and to rise later in the afternoon ahead of a number of economic reports. The Hennessee Hedge Fund Short-Biased Index, which was up 15.81% at the end of August, is now only ahead by 1.57% this year. I suspect many short-biased funds and "market neutral" funds that are hovering near breakeven for the year will be quick to cover into year-end to keep their performance positive for the year. The Portfolio is 100% net long heading into tomorrow.

Monday Close

S&P 500 1,194.65 +.04%
NASDAQ 2,127.85 -.34%

Leading Sectors
Utilities +1.25%
Energy +1.10%
Tobacco +.65%

Lagging Sectors
Hospitals -1.04%
Drugs -1.10%
Software -1.43%

Other
Crude Oil 45.62 -.35%
Natural Gas 6.93 -.32%
Gold 444.00 +.09%
Base Metals 120.60 +1.96%
U.S. Dollar 81.65 -.02%
10-Yr. T-note Yield 4.19% +.09%.
VIX 11.83 -1.0%
Put/Call .93 +12.05%
NYSE Arms 1.05 -26.57%

After-hours Movers
SSTI -10.2% after cutting 4Q estimates.
CTIC -11.0% after saying it agreed to sell approximately 2.6M shares of its common stock to several institutional investors at $7.10/share.
ENCY -9.5% after saying a study on using the Thelin treatment for patients with pulmonary arterial hypertension at a small dose showed "no meaningful efficacy trends."

Recommendations
Goldman Sachs rated TRI and HMA Outperform. Goldman rated THC Underperform. UBS rated FSH Buy, target $74. CSFB reiterated Outperform on SYMC and MFE.

After-hours News
U.S. stocks finished quietly mixed today as declines in pharmaceutical and software stocks were offset by gains in energy shares. After the close, Toyota Motor will release a car with no lead, mercury, cadmium or hexavalent chromium in 2006 as part of its plan to reduce environmental waste disposals, Nikkei English News reported. Rio Tinto Group, BHP Billiton and Cia Vale do Rio Doce are seeking to raise iron ore prices by a record for 2005 during contract talks with Japanese steelmakers, the Tex report said. Pfizer's CEO McKinnell said the FDA's cardiology panel will review studies of the Celebrex painkiller on Feb. 15 and Feb. 16, CNBC reported. Consumer devices that measure blood pressure may be better able to predict heart disease than those at the doctor's, according to a recommendation published in Hypertension: Journal of the American Heart Association. Jabil Circuit, a designer and builder of electronics for Cisco Systems, NEC Corp. and Hewlett-Packard, said first-quarter profit rose 32% as it boosted consumer electronics sales, Bloomberg said. President Bush said he'd propose "a tough budget" to send a signal to financial markets that he's serious about reducing the federal budget deficit during his second term, Bloomberg reported. Liberty Media said it will end a stock swap agreement with Merrill Lynch early, boosting its voting stake in News Corp. to about 18%, Bloomberg said. Iraqi political parties were assigned positions on the Jan. 30 ballot as President Bush and UN Secretary-General Annan said they were confident the vote could be held, Bloomberg reported. PanAmsat Holding Corp., which owns and operates 24 satellites, filed to sell as much as $1.12 billion worth of shares in an IPO, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my internet and security longs were offset by losses in my retail and semi longs. I exited a retail long in the afternoon and added SYMC long, thus leaving the Portfolio 100% net long. I am using a $23.50 stop-loss on this position. The tone of the market was weak today as most sectors declined and the advance/decline line finished near its daily low. As well, most measures of investor anxiety fell. On the positive side, volume was lighter and energy prices fell. I continue to expect the major indices to mount anther push higher before year's end.

Mid-day Report

S&P 500 1,197.13 +.25%
NASDAQ 2,133.50 -.08%

Leading Sectors
Utilities +1.23%
Energy +.98%
Iron/Steel +.81%

Lagging Sectors
Drugs -.83%
Broadcasting -.99%
Software -1.26%

Other
Crude Oil 45.00 -2.77%
Natural Gas 6.88 -7.74%
Gold 443.00 +.05%
Base Metals 120.60 +1.96%
U.S. Dollar 81.70 -.56%
10-Yr. T-note Yield 4.18% -.51%
VIX 12.17 +1.84%
Put/Call .84 +1.20%
NYSE Arms 1.07 -25.17%

Market Movers
SYMC -4.5% on continuing worries over VRTS merger, TMIC news and slowing growth.
MFE -6.7% after MSFT said it would use TMIC's anti-virus computer technology for MSN Hotmail.
TASR +4.0% after saying it had entered into an exclusive distribution agreement with one of the largest firearm and accessory distributors in the US.
CATG +14.7% after winning a court ruling awarding it higher royalties from US partner Abbott Labs.
KRT +17.03% after Centro Properties and Watt Commercial Properties agreed to buy it for $610 million in cash.
CMC +9.42% after reporting strong 1Q and raising dividend.
TMIC +9.9% after announcing an agreement with MSN to provide anti-virus scanning and cleaning protection for Hotmail.
PEG +5.6% after Exelon Corp. agreed to buy it for about $12.8 billion to create the nation's biggest utility operator.
SMSC -16.5% after missing 3Q estimates substantially and lowering 4Q outlook.

Economic Data
Leading Indicators for November rose .2% versus estimates of a .1% gain and a .4% fall in October.

Recommendations
-Goldman Sachs reiterated Outperform on COH, TU, PFE, ACS, CCL, GILD and Underperform on SGP, PBG.
-Citi SmithBarney thinks semi equipment merger activity will accelerate in 05. Favorite combinations would be AMAT/VECO, KLAC/ORBK, MTSN/ACLS, AMAT/UTEK, LTXX/Eagle Test Systems, MYK/Celerity Group. Citi reiterated Buy on SANM, target $12. Citi reiterated Buy on WMT, target $65.
-UBS raised FCH to Buy, target $17. UBS cut COTT to Reduce, target $24.
-JP Morgan rated AGCC Underweight. JP Morgan cut BVN to Underweight.
-Banc of America rated CCRN Buy, target $21. BofA rated AHS Buy, target $19.
-Deutsche Bank rated ZIPR Buy, target $21.

Mid-day News
U.S. stocks are quietly mixed mid-day as weakness in the software and drug sectors is being offset by strength in energy shares. Sprint today will announce plans to add a radio service to its cell phones, allowing customers to listen to music for $5.99 a month, the NY Times reported. Cingular Wireless and other mobile-phone carriers are trying to not offer pornography and violent video games as more of this content is being adapted for wireless services, the NY Times said. Amazon.com and other Internet retailers are extending the cutoff date for last-minute orders to guarantee delivery of packages in time for Christmas, the NY Times reported. Campbell Soup is selling more of its products through food vendors at restaurants and college campuses to limit its dependency on grocery store sales, the Philadelphia Inquirer reported. US Steel Corp. plans to raise its prices on carbon flat-rolled steel products by $30 to $50 a ton on Jan. 3, American Metal Market reported. Wm. Wrigley Jr. Co. may consider buying Tootsie Roll Industries, Crain's Chicago Business reported. Bristol-Myers Squibb and biotechnology partner Gilead Sciences formed a venture to develop and market an HIV treatment that combines two of their drugs, Bloomberg reported. Crude oil is falling on expectations that temperatures in most of the US will rise, reducing demand for heating oil, Bloomberg said. The index of leading US economic indicators rose in November for the first time in six months, buoyed by higher stock prices, Bloomberg reported.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet and security longs. I have not traded today and the Portfolio is still 100% net long. The underlying tone of the market is slightly negative. Given the positive news today with falling energy prices, declining interest rates and a better Leading Indicators report, today's action is disappointing for the bulls. I expect US stocks to rise modestly into the close.

Monday Watch

Earnings of Note
Company/Estimate
AMHC/.21
JBL/.31
NAV/1.86

Splits
AIT 3-for-2
CNC 2-for-1

Economic Data
Leading Indicators for November estimated to rise .1% versus a .3% decline in October.

Weekend Recommendations
Rukeyser's Wall Street had guests that were positive on LU, PD, ITW, COH, UNH, TIF, HMA, HDI, CVD, PXP, CSH, CVX, COP and PFE. Forbes on Fox had guests that were positive on DRS and mixed on COO. Cashin' In had guests that were positive on GE, CIG, MAT and negative on AAPL, MU. Bulls and Bears had guests that were positive on GE, MER, GOOG, SAP, PPH, CTX, ABT, TIF and mixed on NVDA, COST, PAYX, BRCM. Wall St. Week w/Fortune had guests that were positive on BBY, TGT, JCP, AEOS, LTD, AAPL, mixed on WMT and negative on ZIXI, KKD. Barron's had positive comments on MOSY, TWX and negative comments on HSY. Goldman Sachs reiterated Outperform on MO, PFE, MDT, EBAY, DHR, INTC and underperform on UNM, RAI, MU, SGP.

Weekend News
Japan's crude steel production will likely reach a 30-year high this year, Nihon Keizai reported. AO VimpelCom's bill for $157 million of back taxes "appears exaggerated" and will be reviewed next week in talks between Russia's Finance Ministry and the tax service, Interfax reported. Germany will train more Iraqi military personnel, the daily newspaper Handelsblatt reported. The disclosure of problems in drugs from Pfizer, Eli Lilly and AstraZeneca shows that pharmaceutical companies are having trouble developing new drugs, the NY Times said. The ACLU is being criticized for using software to collect information about its members and donors, which goes against its support for privacy rights, the NY Times reported. Foxwoods Resort Casino and Las Vegas Sands will compete for a license to operated slot machines in Bethlehem, Pennsylvania, the Morning Call of Allentown reported. New Jersey will test a $1.5 million automatic road de-icing system on Route 78 this winter, the Morning Call reported. The UN reported it had found 150 allegations of sexual misconduct, including rape and sex with minors, by peacekeepers in the Congo, the NY Times reported. Xcel Energy has won approval form Colorado regulators to build a $1.35 billion coal-fired power plant in the state after agreeing to invest in pollution control and energy-efficiency programs, the Rocky Mountain News reported. Citigroup may buy Union State Bank for about $530 million to expand in Westchester and Rockland counties, New York, the NY Daily News reported. T-Mobile USA forecast growth to accelerate as the planned merger of two competitors helps it gain customers, Focus reported. BMW AG plans to modernize its factory in South Carolina to increase output there, Automobilwoche said. Vodafone Group Plc may back a bid by Verizon Communications for Sprint Corp. that would cost the British company at least $15 million, the Observer reported. Dell Inc. has sought to cut manufacturing costs by increasing productivity in its US operations instead of relying on overseas plants, the NY Times reported. Donations to major nonprofit organizations are on the rise nationally, Crain's NY Business reported. The Bush Administration is pressing the Pentagon to cut spending over the next several years to help cut the budget deficit, the LA Times reported. Microsoft lost market share to Firefox in Web browsers for the first time due in part to the outdated security programming of its Internet Explorer, the NY Times said. Pfizer agreed to suspend advertising of its Celebrex drug to consumers and change the way it markets the drug to doctors at the request of the US FDA, the Wall Street Journal reported. President Bush said Congress should seek to improve the US economy by making his tax cuts permanent, overhauling Social Security and limiting liability litigation to restrict junk lawsuits, Bloomberg reported. President Bush was named Time's "Person of the Year" in 2004, Time reported. Russia's property fund agreed to sell the largest oil unit of OAO Yukos Oil to OOO Baikalfinansgroup for $9.34 billion, Bloomberg reported. Centro Properties Group, Australia's fourth-largest real estate investment trust by market value, agreed to buy Kramont Realty Trust, a US shopping mall owner, for $610 million, Bloomberg reported. Honda Motor said its global sales of automobiles may rise 8% in 2005, on demand for new models like its Ridgeline light trucks, Bloomberg reported. Merrill Lynch plans to buy $400 million of asset-backed securities from LG Card Co. as South Korea's second-largest credit card company seeks a bailout to avoid collapse, Bloomberg reported. Nokia stands by its forecast that the global mobile phone market will grow by 10% next year, the Financial Times reported. A computer science professor at Rice Univ. and two of his students have found a security problem with Google's new desktop search program, the NY Times reported. The US FDA may soon issue a ruling on cox-2 painkiller drugs which could include a demand for their withdrawal, the Financial Times said.

Late-Night Trading
Asian indices are mostly higher, -.25% to +.50% on average.
S&P 500 indicated +.14%
NASDAQ 100 indicated +.31%.

BOTTOM LINE: I expect US stocks to open modestly higher in the morning on a decline in energy prices and a stronger Leading Indicators report. The Portfolio is 100% net long heading into tomorrow.

Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Leading Indicators (Tues.)-None of note (Wed.)-Final 3Q GDP, Final 3Q Personal Consumption, Final 3Q Price Deflator (Thur.)-Personal Income, Personal Spending, PCE Deflator, Durable Goods Orders, Initial Jobless Claims, Final Univ. of Mich. Consumer Confidence, New Home Sales (Fri.)-Financial Market Closed. Leading Indicators, Personal Spending, Initial Jobless Claims and Consumer Confidence all have market-moving potential.

Tue.-Bear Stearns(BSC), General Mills(GIS), Morgan Stanley(MWD), Paychex(PAYX), Solectron Corp.(SLR) Wed.-Micron Technology(MU) are some of the more important companies that release quarterly earnings this week. The Fed's Lacker speaking Mon. could also impact trading.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, strong economic reports, more optimism, a stabilizing US dollar and short-covering. My short-term trading indicators are still giving Buy signals and the Portfolio is 100% net long heading into the week.