Mid-day Report

S&P 500 1,183.25 +.02%
NASDAQ 2,081.77 +.10%

Leading Sectors
Hospitals +2.63
Oil Service +2.10%
Energy +1.29%

Lagging Sectors
Airlines -1.47%
Broadcasting -1.53%
Transports -2.61%

Other
Crude Oil 45.60 -.18%
Natural Gas 5.90 -3.20%
Gold 426.60 +.99%
Base Metals 120.48 -.01%
U.S. Dollar 82.08 -1.19%
10-Yr. T-note Yield 4.24% +.14%
VIX 12.83 -2.73%
Put/Call .82 -6.82%
NYSE Arms .78 -55.93%
ISE Sentiment 178.00 -18.35%

Market Movers
UPS -7.2% after lowering 4Q guidance and multiple downgrades.
TASR +15.9% on bounce after recent plunge.
HCA +8.6% after raising 4Q guidance as it set aside less money for unpaid bills.
WBSN +8.71% after boosting 4Q estimates and Jeffries upgrade to Buy.
DWA +8.2% on Fulcrum Global upgrade to Buy.
COL +5.8% after boosting '05 forecast.
TRI +6.1% on HCA report.
MYGN +7.2% after saying it started enrollment in a Phase 3 human clinical trial of its therapeutic Alzheimer's disease treatment Flurizan.
SNDA -10.9% on profit-taking.
JOBS -5.6% on profit-taking.
CRDN -5.79% on Matrix downgrade to Sell.

Economic Data
Trade Balance for November fell to -$60.3B versus estimates of -$54.0B and -$56.0B in October.

Recommendations
-Goldman Sachs: Reiterated Outperform on INTC, UPS, SBC, KO, ACS, CZN, TU, AMX. Reiterated Underperform on DJ, T, LVLT. Goldman upgraded BLS to Outperform.
-Citi SmithBarney: Upgraded QLGC to Buy, target $44.
-Morgan Stanley: Rated TU Overweight, target $31.
-CSFB: Reiterated Outperform on FDX, target $130.
-Oppenheimer: Raised G to Sector Outperform, target $52..
-UBS: Raised LQU to Buy, target $22. Raised TIWI to Buy, target $14. Cut DNDN to Reduce, target $6.
-Bear Stearns: Rated ASCA Underperform. Rated CHH Outperform, target $66. Rated HET Outperform, target $80. Rated HMT Outperform, target $20. Rated MGG Outperform, target $85. Rated MAR Outperform, target $77. Rated OEH Outperform, target $26. Rated SHFL Outperform, target $53. Rated HOT Outperform, target $69. Rated WYNN Outperform, target $79. Rated STN Outperform, target $69.
-Merrill Lynch: Raised MRX to Buy, target $39. Downgraded CHZ to Sell.
-Raymond James: Raised LPNT to Strong Buy, target $43.

Mid-day News
U.S. stocks are slightly higher mid-day on gains in hospital, energy and semiconductor shares. The US Medicare system will probably try to curb costs by reducing the use of magnetic resonance imaging and other scans, the Wall Street Journal said. Manhattan's downtown district around the destroyed World Trade Center is experiencing a real estate revival driven by cheap rents, the Wall Street Journal reported. Children under the age of nine shouldn't use cell phones because of the risk of radiation penetrating their brains, the Daily Telegraph reported. SABMiller Plc may bid for Molson Inc. if Molson's proposed merger with Adolph Coors doesn't materialize, the Wall Street Journal reported. General Motors is recalling 98,221 Chevrolet and GMC pickup trucks, vans and sport-utility vehicles because steering wheels and brakes may fail, the AP reported. US Steel halted some deliveries of coke, a steelmaking ingredient, as flooding on the Monongahela and Ohio rivers hindered transportation, American Metal Market reported. Man Group Plc boosted assets under management to about $42 billion in the fourth quarter as returns improved, Bloomberg said. Kraft Foods will reduce the number of junk-food brands it advertises as part of its strategy to encourage consumers to adopt healthier diets, Bloomberg said. Mylan Labs said it may cancel a $4 billion agreement to buy King Pharmaceuticals because King is restating financial results, Bloomberg said. OfficeMax said its CFO resigned and the company will delay the release of fourth-quarter results after expanding an accounting probe, Bloomberg said. The US Supreme Court struck down aspects of the federal criminal sentencing guidelines in a decision that may bolster the rights of convicted drug traffickers and corporate-fraud defendants, Bloomberg said. The US dollar dropped by the most in five weeks against the euro and declined versus the yen after the US trade deficit unexpectedly expanded to a record in November, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my telecom equipment longs are offsetting losses in my steel shorts. I have not traded today and the Portfolio is still 50% net long. The tone of the market is poor once again as decliners handily outpace advancers and tech stocks' reaction to Intel's positive report is muted. With investor complacency rising again today it is likely another push lower will come in the near-term. I expect US stocks to weaken into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
AAPL/.48
MDC/2.82

Splits
None of note.

Economic Data
Trade Balance for November estimated at -$54.0B versus -$55.5B in October.
Monthly Budget Statement for December estimated at $0.0B versus -$17.6B in November.

Recommendations
Goldman Sachs reiterated Outperform on MSFT, IGT, DNA, IP, JTX, SPP and Underperform on KZL. Goldman reiterated Attractive view of Lodging sector.

Late-Night News
Asian indices are mostly lower after declines in US shares and continuing worries over slowing global growth. Intel Corp. expects the market for flash memory to remain competitive, CFO Bryant said in an interview with CNBC. Billionaire investor George Soros and Herbert and Marion Sandler of Golden West Financial Corp., who opposed President Bush's re-election, are planning to fund more Democratic party research groups, the Financial Times reported. Exxon Mobil's Mobil Travel Guide, which rates restaurants and hotels, is restructuring amid increased competition from a growing number of travel Web sites, books and services, the Wall Street Journal said. Walt Disney President Iger said in an interview with Reuters that rain in Southern California has had "some impact" on attendance revenue at its Disneyland theme park in Anaheim. BMW AG will diversify into the international market for multiple-purpose vehicles, or "people carriers," the Financial Times said. Lehman Brothers Holdings talks to buy London-based hedge fund GLG Partners have come to a standstill in recent weeks, the Wall Street Journal said. Foreign-exchange trading rose to record levels in the first week of 2005, when the dollar, used for 90% of global currency transactions, surged against the euro, the Financial Times said. China will probably add 58 million mobile-phone users this year, state-run Xinhua News Agency said, Bloomberg reported. China risks inciting a backlash from US lawmakers and businesses because of policies subsidizing state-run companies, curbing imports and pegging its currency to the dollar, US Commerce Secretary Donald Evans said. Cleveland-Cliffs, the biggest North American marker of iron ore pellets, agreed to buy Australia's Portman Ltd. for $465 million in cash to increase iron ore sales to Chinese steelmakers, Bloomberg reported. Copper for immediate delivery in London may rise about 10% to $3,500 a metric ton in the second quarter as smelters close for maintenance, sapping supply, said an official at Japan's No.3 producer of the metal. Infosys Technologies said third-quarter profit rose 51.5% as it won new orders from customers, Bloomberg said.

Late-Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 indicated +.15%.
NASDAQ 100 indicated +.51%.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on strength in technology shares. I will decide whether or not to shift market exposure later in the day. The Portfolio is 50% net long heading into tomorrow.

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.