Tuesday Close

S&P 500 1,182.99 -.61%
NASDAQ 2,079.62 -.83%

Leading Sector
HMOs +.22%
Oil Service +.09%
Energy +.05%

Lagging Sectors
Networking-1.82%
Iron/Steel -2.16%
Semis -2.48%

Other
Crude Oil 45.78 +.22%
Natural Gas 6.07 -.41%
Gold 422.50 +.02%
Base Metals 120.49 +1.29%
U.S. Dollar 83.07 -.34%
10-Yr. T-note Yield 4.24% -.78%.
VIX 13.19 -.30%
Put/Call .88 +14.29%
NYSE Arms 1.77 +86.32%
ISE Sentiment 218.00 +36.25%

After-hours Movers
ADIC +6.2% after saying that fourth-quarter earnings will increase by 2 cents a share because of a correction in how it recognized about $1 million in cumulative losses in connection with investments made in a private tech partnership since 2000.
NEOF +21.8% after saying it hired Merrill Lynch to evaluate a possible sale of the company.
CAMP +5.5% after meeting 3Q estimates and raising 4Q guidance.
CRM -6.9% after slightly lowering 4Q outlook.
*Semi-equipment stocks up across the board on Intel cap-ex forecast.

Recommendations
Goldman Sachs upgraded Telecom equipment sector to Attractive, favorites are Outperform rated JNPR, RIMM, CSCO and In-line rated SONS, MOT, NTGR. Goldman also upgraded its handset market forecast to 11% growth in unit volume from 6% in 2005. Goldman reiterated Underperform on TLAB.

After-hours News
U.S. stocks finished lower today on further weakness in small-cap and technology shares. After the close, General Motor’s cost of restructuring its European operations in 2005 may be less than anticipated, at $1.05 billion, the Financial Times said. Burlington Coat Factory Warehouse CEO Milstein told CNBC financial network that same-store sales were up more than 20% in the week before and the week after Christmas. Iraqi Prime Minister Allawi said some small parts of the country will be unable to take part in elections Jan. 30, Bloomberg said. A levee in San Juan Capistrano is southern California that may not be able to hold back a swollen river led local officials to evacuate about 4,000 people, CNN reported. Johnson & Johnson’s drug-coated Cypher heart stent may be better than Boston Scientific’s Taxus for repeat procedures to unclog some arteries, according to a study in the Jan. 12 Journal of the American Medical Association, Bloomberg reported. Cattle prices in Chicago rose to a 13-month high on speculation that the US will withdraw a plan to resume imports of beef and live cattle from Canada because of a new case of mad cow disease, Bloomberg reported. The yen rose by the most in almost a month against the US dollar after European Central Bank Chief Economist Issing suggested Asian nations must let their currencies strengthen to help shrink the US trade deficit, Bloomberg said. A US judge, acting on a complaint by the US FTC, ordered 11 businesses and individuals to stop sending sexually explicit spam e-mail, Bloomberg said. Microsoft said CFO Connors is retiring to become a partner at a Seattle-area venture capital firm, Bloomberg reported. United Parcel Service said fourth-quarter earnings, excluding a tax benefit, were 75 cents to 76 cents a share, compared with the company’s previous forecast of 83 cents to 87 cents a share, Bloomberg said. Intel said fourth-quarter sales rose to a record, exceeding $9 billion for the first time as holiday-season demand for laptops lifted orders, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slightly lower today as weakness in my retail, internet and networking longs more than offset gains in my steel, chemical and auto parts shorts. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. Volume increased once again on today’s losses and breadth was poor. I continue to expect a better bounce at any time, however measures of investor sentiment are still showing too much complacency for a solid bottom. I will closely monitor the market’s reaction to Intel’s report in the morning and react accordingly.

Mid-day Report

S&P 500 1,184.62 -.47%
NASDAQ 2,081.24 -.75%

Leading Sectors
Broadcasting +.29%
HMOs +.24%
Energy +.21%

Lagging Sectors
Biotech -1.63%
Iron/Steel -1.97%
Semis -2.37%

Other
Crude Oil 45.65 +.71%
Natural Gas 6.05 -1.85%
Gold 422.30 +.62%
Base Metals 120.49 +1.29%
U.S. Dollar 82.97 -.46%
10-Yr. T-note Yield 4.24% -.55%
VIX 13.21 -.15%
Put/Call .90 +16.88%
NYSE Arms 1.87 +96.84%
ISE Sentiment 218.00 +36.25%

Market Movers

Economic Data
None of note.

Recommendations
-Goldman Sachs: Reiterated Outperform on MCK, GILD and UTX. Reiterated Underperform on UTX.
-Banc of America: Downgraded CHIR, target $30, and REGN, target $4, to Sell. Rated APH Buy, target $41.
-UBS: Cut AMD to Reduce, target $12. Rated DRL Buy, target $60.
-Legg Mason: Raised AT to Buy, target $65.
-CSFB: Raised DF to Outperform, target $37.
-Morgan Stanley: Cut HPQ to Sell.
-Raymond James: Raised SLNK to Strong Buy, target $21.
-Thomas Weisel: Raised DVA to Outperform. Raised RCI to Outperform.
-Deutsche Bank: Raised ROK to Buy, target $55.
-Merrill Lynch: Raised NTAP to Buy, target $40. Raised GCT to Buy, target $14.50.
-JP Morgan: Cut AWA to Underweight.

Mid-day News
U.S. stocks are lower mid-day on weakness in technology shares and continued profit-taking in small-caps. About 43% of individuals with investable assets of more than $10 million lack a will, the Wall Street Journal reported, citing a study of 792 affluent Americans. Ameritrade Holding is offering a basic trading program for $5, about half its regular fee, Dow Jones Newswires reported. The discovery of oil in an area of the Gulf of Mexico controlled by Cuba could help Fidel Castro’s government as it tries to use hard currency for more than buying oil from abroad, the NY Times reported. Shares of Apollo Investment Corp.(AINV), which buys loans, debt and stock in private companies, have risen 11% this year as the company takes advantage of parent Apollo Advisors, the NY Daily News reported. Phelps Dodge Corp. temporarily shut a copper-rod facility in Norwich, Connecticut, after a fire at the plant, American Metal Market reported. President Bush has picked federal appeals court judge Michael Chertoff to be the new secretary of the US Homeland Security Department, the AP reported. Vail Resorts has collected about $50 million in deposits from about 500 buyers interested in 52 condominiums planned for construction at Vail Mountain, the Denver Post reported. The US Supreme Court let a circuit court decision stand that will permit victims of a 1999 shooting at a Jewish community center in California to sue the manufacturers of the perpetrator’s guns, the LA Times reported. Canada has found its third case of mad cow disease, Reuters reported. Nortel Networks completed a restatement of results from 2001 to 2003 and said 12 executives will repay the company about $8.6 million in bonuses they got based on the incorrect figures, Bloomberg said. The 12 South Asian nations hit by the Dec. 26 earthquake and tsunami have enough food to meet emergency needs of an estimated two million people, the UN said. Israeli Prime Minister Sharon spoke today by telephone with Mahmoud Abbas, the newly elected Palestinian Authority president, reviving a dialogue between Israelis and Palestinians that broke down in summer 2003, Bloomberg said. Relief efforts are successfully preventing outbreaks of disease in the aftermath of last month’s Asian tsunami disaster, Bloomberg reported. Harvard Management, which manages $22.6 billion for Harvard University, said CEO Meyer will leave the company and form a private investment firm, Bloomberg reported. The storms battering California have dumped more than 8 feet of snow on the Sierra Nevada since the weekend, the most to fall on the mountains in almost 90 years, closing highways and increasing fears of an avalanche, Bloomberg said. Health spending in the US rose at the slowest rate in seven years in 2003, Bloomberg reported. Apple Computer CEO Jobs introduced the first Macintosh computer priced under $500 in the machine’s 21-year history to expand sales of the line, Bloomberg said. The NYSE received a dual blow as seat prices dropped below $1 million and American International Group, one of its biggest companies, said it will also list its shares on an all-electronic market, Bloomberg reported.

Bottom Line: The Portfolio is slightly lower mid-day as losses in my networking, retail and internet longs are more than offsetting gains in my steel and auto parts shorts. I exited a few longs this morning, bringing the Portfolio back to 50% net long. The tone of the market is poor again today as the advance/decline line is weak and the major indices break down through their recent trading range. Steel stocks are underperforming and I expect this to continue in the intermediate-term. The market’s reaction to Intel’s report after the close will tell a lot about psychology. After recent declines, semis should at least bounce on this report. If not, further losses for the major indices should be expected. US stocks will likely trade mixed-to-weaker into the close.

Tuesday Watch

Earnings of Note
Company/Estimate
INTC/.31
NT/-.04
MTB/1.59

Splits
CMC 2-for-1
MDC 13-for-10

Economic Data
None of note.

Recommendations
None of note.

Late-Night News
Asian indices are mostly higher on strength in automaker shares in the region. US Treasury Secretary Snow said the Bush administration believes the dollar's value should be set by markets, according to Reuters. Shanghai's power shortages may worsen this year as electricity demand will continue to rise, while new power plants won't start operating until next year, National Business Daily reported. Man GroupPlc, the world's largest publicly traded hedge-fund company, may issue a quarterly trading statement tomorrow, the Financial Times said. Israeli Prime Minister Sharon will meet Mahmoud Abbas, who won the Jan. 9 election for Palestinian Authority president, in the next few days, Haaretz reported. Yahoo! will release a related program to scan personal computers for documents and e-mail, following Google and Microsoft, Bloomberg said. China's exports rose 33% to a record in December, widening the trade surplus to an all-time high, as consumers in the US, Europe and Japan bought more Chinese-made clothes, cell phones and computers, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on a continuation of today's afternoon weakness. However, stocks should rise later in the day on lower energy prices, short covering and bargain-hunting. The Portfolio is 75% net long heading into tomorrow.

Monday Close

S&P 500 1,190.25 +.34%
NASDAQ 2,097.04 +.40%

Leading Sector
Homebuilders +2.04%
HMOs +1.93%
Biotech +1.17%

Lagging Sectors
Gaming -.79%
Telecom -.80%
Airlines -.97%

Other
Crude Oil 45.39 +.13%
Natural Gas 6.23 +1.15%
Gold 420.40 +.17%
Base Metals 118.95 -.08%
U.S. Dollar 83.35 -.30%
10-Yr. T-note Yield 4.27% +.09%.
VIX 13.23 -1.93%
Put/Call .77 -18.95%
NYSE Arms .95 -24.6%
ISE Sentiment 218.00 +36.25%

After-hours Movers
SCSS +6.71% after boosting 4Q guidance.
ROK +8.02% after substantially boosting 1Q guidance.
TSRA +8.5% after raising 4Q estimates.
DNA -4.2% after missing 4Q estimates.

Recommendations
Goldman Sachs reiterated Outperform on DNA, FSH, CMX, TRI and DTV.

After-hours News
U.S. stocks finished modestly higher today as oil prices fell and homebuilding stocks rose. After the close, Ford Motor CEO Padilla told CNBC that incentives by auto sellers have become a "way of life" and show no signs of ending any time soon. Huawei Technologies, China's top phone-equipment maker, plans to quadruple its annual sales overseas to $10 billion by 2008 through expansion and acquisitions, the Financial Times reported. Overweight people sleep almost two hours less each week than their slimmer counterparts and the conditions appear to be related, according to a study in today's edition of the Archives of Internal Medicine. Alcoa, the world's biggest aluminum maker, said fourth-quarter profit fell 7.9% because of costs to sell some businesses and the weaker US dollar, Bloomberg reported. Genentech said fourth-quarter profit rose 63%, boosted by its Avastin cancer drug, Bloomberg said. Lenovo Group won US antitrust approval to acquire IBM's personal computer business to become the world's No. 3 PC manufacturer, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my internet, semiconductor and homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market deteriorated again this afternoon, however the major indices were able to maintain gains. The major US indices have stabilized over the last 4 days. While I expect stocks to stage a rally over the next few days, I am not ruling out another push lower as complacency remains high. I will remain flexible and trade accordingly.

Monday Watch

S&P 500 1,190.25 +.34%
NASDAQ 2,097.04 +.40%

Leading Sector
Homebuilders +2.04%
HMOs +1.93%
Biotech +1.17%

Lagging Sectors
Gaming -.79%
Telecom -.80%
Airlines -.97%

Other
Crude Oil 45.39 +.13%
Natural Gas 6.23 +1.15%
Gold 420.40 +.17%
Base Metals 118.95 -.08%
U.S. Dollar 83.35 -.30%
10-Yr. T-note Yield 4.27% +.09%.
VIX 13.23 -1.93%
Put/Call .77 -18.95%
NYSE Arms .95 -24.6%
ISE Sentiment 218.00 +36.25%

After-hours Movers
SCSS +6.71% after boosting 4Q guidance.
ROK +8.02% after substantially boosting 1Q guidance.
TSRA +8.5% after raising 4Q estimates.
DNA -4.2% after missing 4Q estimates.

Recommendations
Goldman Sachs reiterated Outperform on DNA, FSH, CMX, TRI and DTV.

After-hours News
U.S. stocks finished modestly higher today as oil prices fell and homebuilding stocks rose. After the close, Ford Motor CEO Padilla told CNBC that incentives by auto sellers have become a "way of life" and show no signs of ending any time soon. Huawei Technologies, China's top phone-equipment maker, plans to quadruple its annual sales overseas to $10 billion by 2008 through expansion and acquisitions, the Financial Times reported. Overweight people sleep almost two hours less each week than their slimmer counterparts and the conditions appear to be related, according to a study in today's edition of the Archives of Internal Medicine. Alcoa, the world's biggest aluminum maker, said fourth-quarter profit fell 7.9% because of costs to sell some businesses and the weaker US dollar, Bloomberg reported. Genentech said fourth-quarter profit rose 63%, boosted by its Avastin cancer drug, Bloomberg said. Lenovo Group won US antitrust approval to acquire IBM's personal computer business to become the world's No. 3 PC manufacturer, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my internet, semiconductor and homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market deteriorated again this afternoon, however the major indices were able to maintain gains. The major US indices have stabilized over the last 4 days. While I expect stocks to stage a rally in the near-term, I am not ruling out another push lower as complacency remains high. I will remain flexible and trade accordingly.

Mid-day Report

S&P 500 1,194.36 +.69%
NASDAQ 2,110.65 +1.06%

Leading Sectors
Homebuilders +2.76%
Disk Drives +2.51%
Biotech +2.16%

Lagging Sectors
Gaming -.30%
Telecom -.70%
Airlines -.74%

Other
Crude Oil 46.80 +3.02%
Natural Gas 6.34 +5.65%
Gold 419.80 +.05%
Base Metals 118.95 -.08%
U.S. Dollar 83.29 -.37%
10-Yr. T-note Yield 4.28% +.28%
VIX 13.03 -3.41%
Put/Call .84 -11.58%
NYSE Arms .84 -33.33%
ISE Sentiment 221.00 +38.13%

Market Movers
FOX +9.4% after News Corp. offered to buy out minority holders of Fox Entertainment for $5.86 billion to solidify control over its largest US asset.
TASR -10.2% on continuing worries over accounting, safety and insider selling.
APPX +33.9% after the make of generic injectable medicines won US approval to sell a new form of a drug for advanced breast cancer.
STIY +11.0% after announcing Roy C. Cuny, former President and CEO of Smith & Wesson, has joined Stinger Systems as President and will serve on the Board.
DJO +14.1% after raising 4Q guidance.
ALNY +14.0% after scientists demonstrated positive in vivo efficacy data from the company’s pre-clinical program to develop Direct RNAi therapeutics for the treatment of respiratory syncytial virus infection.
PPC +11.33% after boosting 1Q estimates.
DECK -6.5% on profit-taking after boosting 4Q guidance.
NGPS -9.68% on continued profit-taking.
*Homebuilders up across the board on positive comments from multiple firms on underlying fundamentals.

Economic Data
Wholesale Inventories for November rose 1.1% versus estimates of a .7% increase and a 1.1% rise in October.

Recommendations
-Goldman Sachs: Reiterated Outperform on BBY, HD, BAX, AMT, WLP, AMGN, DNA and GILD.
-Citi SmithBarney: Is negative on Autos and Auto Suppliers heading into Detroit Auto Show, lowered estimates on GM, AXL, DCN and DPH. Upgraded PAY to Buy, target $30. Reiterated Buy on BAC, target $57. Reiterated Buy on BK, target $37. Reiterated Buy on WB, target $60. Said pullback in semi-equipment stocks is buying opportunity, favorites are LRCX and AMAT. Rated NRGY Buy, target $32. Reiterated Buy on DE, target $82. Reiterated Buy on WMT, target $65. Upgraded SPRT to Buy, target $8.50. Rated PBI Buy, target $51. Reiterated Buy on CMCSK, target $34. Citi reiterated Sell on SNDK, target $21.
-Banc of America: Upgraded JNY to Buy, target $44. Rated WRNC Buy, target $26.
-UBS: Downgraded TEU to Reduce, target $12. Rated HOV Buy, target $67. Raised AINV to Buy, target $18.
Bear Stearns: Raised SYNA to Outperform.
Thomas Weisel: Raised FLSH to Outperform.
Legg Mason: Rated AINV Buy, target $19.

Mid-day News
U.S. stocks are higher mid-day on a bounce from last week’s sell-off and strength in the homebuilding sector. Comcast plans to market an Internet phone service to 15 million homes by the end of this year, marking one of the biggest challenges so far to US phone companies, the Wall Street Journal said. US dentists have started to earn more money than doctors by avoiding some of the limitations imposed on physicians’ fees by health insurance and by marketing cosmetic and other optional care, the Wall Street Journal reported. Campbell Soup, General Mills and Kraft Foods are among US foodmakers who are trying to cut sugar content, and add vitamins or whole grain to products in hopes of convincing parents to buy their processed foods, the Washington Post said. Alltel Corp. CEO Ford told CNBC the company will become the largest wireless provider in rural parts of the US with its $4.42 billion purchase of Western Wireless, Bloomberg reported. General Motors has attracted a broader customer base, including younger buyers, with its “red hot” Cadillac brand, CEO Wagoner told CNBC. The apartment vacancy rate improved somewhat in 4Q as the low cost of mortgages encouraged people to buy instead of rent and much construction caused an oversupply, the Wall Street Journal reported. The cost of goods leaving British factories fell .4% in December, the biggest monthly drop since 2001, led lower by prices for scrap metal, computers and petroleum products, Bloomberg said. Crude oil is jumping to its highest level in six weeks after stormy weather forced Royal Dutch/Shell to halt output at a North Sea field, bringing Norway’s idled production to 12% for a fourth day, Bloomberg said. Movie Gallery agreed to buy Hollywood Entertainment for $13.25 a share, or about $850 million, Bloomberg said. Microsoft is offering a 25% license-fee discount to PeopleSoft customers who sign up for Microsoft’s Business Solutions services, Bloomberg reported. UnitedHealth Group, Humana and other health insurers lost a US Supreme Court bid to stop a class-action lawsuit that claims 600,000 doctors were underpaid for treating patients, Bloomberg said. Viacom’s CBS said it fired four employees for a September report by news anchor Dan Rather questioning President Bush’s National Guard Service, according to a statement issued by the network. UN officials ignored early warnings that humanitarian goods shipped to Iraq were given cursory inspections, a condition that US investigators say may have helped Saddam Hussein siphon large sums of money from the effort, Bloomberg reported. Saudi Arabia cut the amount of crude oil allocated for February shipments to companies that operated global refining systems, compared with supplies for January, Reuters reported.

Bottom Line: The Portfolio is higher mid-day on gains in my homebuilding, internet and semiconductor longs. I added a few new longs from various sectors this morning, thus bringing the Portfolio to 75% net long. One of my new longs is GS and I am using a $103 stop-loss on the position. The tone of the market is better today as advancers are handily outpacing decliners. Small-caps and tech are outperforming. However, volume is below levels seen during last week’s sell-off. As well, investor anxiety measures are falling again and energy prices are rising into mild weather, which are negatives. I expect US stocks to trade mixed-to-higher into the close.