Thursday Close

S&P 500 1,177.45 -.86%
NASDAQ 2,070.56 -1.05%

Leading Sectors
Homebuilders +1.86%
Oil Service +1.76%
Iron/Steel +1.71%

Lagging Sectors
Biotech -1.65%
Drugs -1.69%
Airlines -2.94%

Other
Crude Oil 47.90 -.29%
Natural Gas 6.54 +1.55%
Gold 425.60 +.12%
Base Metals 119.34 -.95%
U.S. Dollar 82.51 +.41%
10-Yr. T-note Yield 4.17% -1.48%.
VIX 12.84 +2.23%
Put/Call .83 -8.79%
NYSE Arms 1.47 +77.11%
ISE Sentiment 156.00 -6.02%

After-hours Movers
CREE -22.01% after missing 2Q estimates and lowering 3Q forecast.
SUNW -4.15% after missing 2Q revenue estimates.

Recommendations
Goldman Sachs expects VRTS to beat consensus revenue and eps estimates for December quarter. Goldman thinks steel stocks are oversold, favorites are STLD, NUE and X. UBS rated AMAT, KLAC, LRCX and VSEA Buy. GenCorp Inc.(GY), a maker of aerospace components, may face more takeover bids as investors focus on assets that include undeveloped land, Business Week reported. Spectrum Pharmaceuticals may see its shares climb as it seeks to introduce a generic version of GlaxoSmithKline’s Imitrex migraine drug, Business Week reported. Bandag’s(BDG) sales growth may benefit from last year’s acquisition of Speedco, Business Week reported.

After-hours News
U.S. stocks finished lower today, spurred by a late-afternoon sell-off on increased worries over economic growth. After the close, Mahmoud Abbas, the newly elected Palestinian leader, said he will work to implement the conditions of the internationally backed “road map” peace plan and called on Israel to reciprocate, the AP reported. European online advertisement is increasing at an average of 24% a year, with the biggest increases in Sweden, France and the Netherlands, the Financial Times reported. The European Parliament has voted in favor of beginning the process that will lead to Ukraine becoming a member of the European Union, the Financial Times said. The tsunami disaster in southern Asia and eastern Africa “devastated” the fishing industry in the region, destroying docks, boats and ice plants, Bloomberg reported. The US Treasury Department said companies can’t use foreign profit returned to the US during a one-year tax holiday to repurchase shares or pay dividends to shareholders, Bloomberg said. Molson Inc. will increase its special dividend to shareholders by 67% as part of their transaction with Adolph Coors, Bloomberg reported. General Motors plans two-thirds of its future growth in emerging markets such as China, Brazil and Russia after competition from Toyota Motor and other rivals limited gains in the US and Europe, Bloomberg said. Microsoft’s control over how information is presented on the Web may be challenged by the success of Mozilla’s Firefox Web browser, Business Week said. Taiwan’s five makers of flat-panel displays may have combined losses in the fourth-quarter of more than $314 million as product prices drop, the Commercial Times reported. Taiwan’s four largest computer makers can’t get enough Intel processors for desktop computers or graphics chips from ATI Technologies and Nvidia Corp., the Commercial Times reported.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my homebuilding and wireless longs offset losses in my steel and chemical shorts. I exited a number of longs in the afternoon as they hit stop-losses and added a few new shorts, thus bringing the Portfolio’s market exposure to 25% net long. One of my new shorts is WBSN and I am using a $53 stop-loss on this position. The tone of the market weakened significantly in the final hour of trading as the advance/decline line fell to it lows for the day and volume picked up. The slide seemed to coincide with the announcement from the Treasury Department regarding profit repatriation. Measures of investor anxiety mostly rose, but are still not at levels normally associated with a durable bottom. Interest rates fell substantially today and should continue to fall modestly in the intermediate-term as measures of inflation decelerate, the US dollar stabilizes and worries over global economic growth worsen.

Mid-day Report

S&P 500 1,185.43 -.19%
NASDAQ 2,087.77 -.23%

Leading Sectors
Oil Service +2.17%
Iron/Steel +2.06%
Boxmakers +1.92%

Lagging Sectors
Drugs -.91%
Telecom -1.21%
Airlines -2.05%

Other
Crude Oil 48.00 +3.52%
Natural Gas 6.41 +7.69%
Gold 425.00 -.38%
Base Metals 119.34 -.95%
U.S. Dollar 82.44 +.33%
10-Yr. T-note Yield 4.19% -.92%
VIX 12.53 -.24%
Put/Call .75 -17.58%
NYSE Arms 1.23 +48.19%
ISE Sentiment 139.00 -16.27%

Market Movers
AAPL +8.2% after substantially beating 1Q estimates, raising 2Q outlook and multiple upgrades.
TASR +25.1% after the US Defense Department said it supports Taser’s argument its stun guns are generally safe and a study in the Pacing and Clinical Electrophysiology Journal states its guns are unlikely to cause heart problems.
VRST +55.9% after saying it agreed to be purchased by Cadence Design for $285.7 million in cash.
HLIT +20.2% after boosting 4Q sales estimates.
LCBM +26.3% after beating 2Q estimates and raising ’05 guidance.
TKR +9.2% after raising 4Q and 04 estimates.
ABMD -16.4% after lowering 3Q estimates.
KCP -8.08% after cutting 4Q estimates and re-affirming 05 guidance.

Economic Data
Import Price Index for December fell 1.3% versus estimates of a .3% decrease and a downwardly revised .2% fall in November.
Advance Retail Sales for December rose 1.2% versus estimates of a 1.1% increase and a .1% gain in November.
Retail Sales Less Autos for December rose .3% versus estimates of a .4% increase and a .4% gain in November.
Initial Jobless Claims for last week were 367K versus estimates of 340K and 357K the prior week.
Continuing Claims were 2631K versus estimates of 2775K and 2850K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on STZ, FSH, AMX, BLS, CZN, MCK and SBC. Reiterated Underperform on MKL, FHCC, CVH, T and LVLT.
-Banc of America: Upgraded AAPL to Buy, target $85. Rated CHD Sell, target $28.
-JP Morgan: Reiterated Overweight on RL, target $49. Cut KWD to Underweight. Raised FOSL to Overweight.
UBS: Rated AFR Buy, target $16.50. Rated GR Buy, target $37.
CSFB: Rated DTV Outperform, target $20. Rated FON Outperform, target $28. Rated NXTL Outperform, target $35. Rated T Underperform, target $15.
Prudential: Raised VCI to Overweight, target $42. Raised AAPL to Overweight, target $93.
Legg Mason: Rated IWA Buy, target $22.50.
Merrill Lynch: Raised AXCA to Buy, target $25.

Mid-day News
U.S. stocks are modestly lower mid-day as energy prices rise and worries continue over slowing growth persist. Charles Schwab lowered the asset requirement for avoiding service fees on some accounts, in hopes of attracting more clients, the Wall Street Journal said. Ubisoft Entertainment SA, make of “Tom Clancy’s Splinter Cell” video game, is considering several defenses against a possible takeover by Electronic Arts, the Wall Street Journal reported. US company directors have become nervous that agreements by former directors of WorldCom and Enron to pay $31 million to settle suits over accountability for corporate frauds may increase their own liabilities, the Wall Street Journal reported. GM’s finance unit is altering its borrowing plans in case its credit rating falls below investment grade, the Financial Times reported. Cendant Corp. is speeding up plans to sell its marketing services unit for about $3 billion, the NY Post reported. China’s steel exports more than doubled to a record 14.23 million metric tons in 2004 from a year earlier, the Tex Report said. EBay plans to increase some of the prices it charges on its EBay and EBay Motors Web sites on Feb. 18 as it experiences higher demand, the Wall Street Journal reported. Georgia’s Cobb County school system was ordered to remove stickers place inside science textbooks that say evolution is a “theory, not a fact,” the Atlanta Journal Constitution reported. Wal-Mart Stores will begin an advertising campaign to counter criticism that it pays workers too little, Bloomberg reported. Owens Corning, driven into bankruptcy by personal injury lawsuits, is set to find out what it will cost to settle hundreds of thousands of claims, Bloomberg reported. Bayer AG, Germany’s second-largest drug company, will pare its research and development budget for a third straight year to the lowest since 1997, Bloomberg said. The euro fell against the dollar and yen after European Central Bank President Trichet said inflation pressures in the 12-nation region have diminished, Bloomberg said. Merk’s Mevacor cholesterol drug should require a doctor’s prescription to ensure an effective dose and prevent kidney damage, physicians said before a US government meeting today on the company’s request to sell the medication over the counter, Bloomberg reported. RadioShack Corp. said Leonard Roberts will step aside as CEO in May when President and COO Edmondson takes over, Bloomberg said. US Homeland Security Chief Ridge said the country will begin a pilot program using eye scans to expedite travelers through NY’s John F. Kennedy airport as it looks to limit security checks on low-risk flyers, Bloomberg reported. Newly elected Palestinian Authority President Abbas said he’s serious about implementing the US-backed “road map” to peace with Israel, Bloomberg said. US Treasury notes rose after government reports showed the prices of goods imported to the US fell and first-time jobless claims rose, Bloomberg reported. Nine vendors for a US unit of Netherlands-based Royal Ahold NV, the world’s fourth largest retailer, were charged with helping company executives inflate earnings by more than $800 million, Bloomberg said. Crude oil is rising to a six-week high on forecasts that colder weather will move into the eastern US next week, bolstering demand for heating fuel, Bloomberg said. Sales at US retailers rose 1.2% in December, the most in three months, as incentives boosted auto purchases and lower gasoline prices left shoppers with more to spend on furniture and holiday gifts, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on gains in my homebuilding and wireless longs. I have not traded and the Portfolio is still 75% net long. The tone of the market is improved today, notwithstanding small losses in the major indices. The advance/decline line is negative, however much improved from recent sell-offs and a number of sectors are gaining. Small-caps and commodity-related stocks are outperforming. I expect crude prices to top over the next few days and begin heading to around $35/bbl. sometime in the first half of 05 on ample supply, decelerating demand and a stabilizing US dollar. I look for US stocks to trade modestly higher into the close.

Thursday Watch

Earnings of Note
Company/Estimate
CBH/.87
CREE/.32
MTG/1.34
SUNW/.01

Splits
CMN 3-for-2

Economic Data
Import Price Index for December estimated to fall .3% versus a .2% increase in November.
Advance Retail Sales for December estimated to rise 1.0% versus a .1% increase in November.
Retail Sales Less Autos for December estimated to rise .4% versus a .5% increase in November.
Initial Jobless Claims for last week estimated at 340K versus 364K last week.
Continuing Claims estimated at 2773K versus 2840K prior.

Recommendations
Goldman Sachs reiterated Outperform on CAT, MCK and EBAY. Goldman reiterated Underperform on HRB.

Late-Night News
Asian indices are mixed as strength in India is being offset by weakness in Japan. The US Department of Justice filed court papers supporting a whistle-blower's lawsuit that accuses Apollo Group's University of Phoenix of paying counselors commissions to enroll students, the Wall Street Journal reported. Tourists from China who went abroad rose 55.4% to 23 million in 2004 from a year earlier, state-run Xinhua News Agency reported. News Corp. is interested in entering the video games industry, the Financial Times said. John R. Alkire, CIO at Morgan Stanley Asset & Investment Trust in Tokyo, expects the Nikkei 225 to rise as much as 23% this year, Bloomberg reported. The US SEC is preparing to charge the NYSE with not sufficiently monitoring its specialist floor-trading firms, the Wall Street Journal reported.

Late-Night Trading
Asian Indices are -.50%. to +.75% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.22%.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on good economic reports and strength in technology shares. The Portfolio is 75% net long heading into tomorrow.

Wednesday Close

S&P 500 1,187.70 +.40%
NASDAQ 2,092.53 +.62%

Leading Sectors
Hospitals +3.37%
Oil Service +2.40%
Energy +1.79%

Lagging Sectors
Airlines -.67%
Broadcasting -1.04%
Transports -2.12%

Other
Crude Oil 46.54 +.37%
Natural Gas 5.92 -.30%
Gold 426.60 unch.
Base Metals 120.48 -.01%
U.S. Dollar 82.17 -1.08%
10-Yr. T-note Yield 4.23% -.05%.
VIX 12.56 -4.78%
Put/Call .91 +3.41%
NYSE Arms .83 -53.11%
ISE Sentiment 166.00 -23.85%

After-hours Movers
AAPL +10.2% after substantially beating 1Q estimates and raising 2Q outlook.
CREAF +4.62% on AAPL report.
SYNA +6.0% on AAPL report.
PLAY +10.07% on AAPL report.
RRGB -6.02% after cutting 4Q estimates.
LCBM +13.4% after beating 2Q estimates and raising ’05 guidance.
TSCM +15.0% after hiring investment-banking firm Allen & Co. to help explore a possible sale of the company.
TASR -3.7% after rival Stinger Systems CEO Gruder said the company would introduce a stun gun in February to compete with those made by Taser.

Recommendations
Goldman Sachs reiterated Outperform on FSH.

After-hours News
U.S. stocks finished higher today on a surge in the late afternoon. After the close, Infosys Technologies CEO Nilekani told CNBC that the company projects 50% fiscal fourth-quarter growth, Bloomberg reported. NASA today sent its $267 million Deep Impact spacecraft on a mission to blow a crater as big as a football stadium in a comet orbiting between Earth and Mars, Bloomberg reported. McKesson Corp. said it agreed to pay $960 million to settle a class action suit brought by shareholders after the company restated earnings in 1999, Bloomberg said. Crude oil rose to a six-week high of $46.37/bbl. after an Energy Department report today showed a greater-than-expected US inventory decline, Bloomberg said. Pfizer’s advertisements on the Celebrex and Bextra painkillers violated regulations because they overstated the drugs’ benefits and omitted risks, Bloomberg reported. Apple Computer’s first-quarter profit more than quadrupled as sales of iPod digital music players and iMac personal computers surged in the holiday gift-buying season, Bloomberg said. SunTrust Banks said the SEC issued subpoenas seeking documents related to the bank’s loan loss reserve accounting as part of a formal investigation, Bloomberg reported. The US Environmental Protection Agency said a chemical used to make DuPont’s Teflon nonstick coatings has the potential to cause caner in humans, Bloomberg said. Prostate cancer hormone treatment may increase a man’s risk of bone fractures, according to researchers who say the medicine may be responsible for 3,000 US cases a year, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my telecom equipment and alternative energy longs offset losses in my steel shorts. I added a few new longs in the afternoon, bringing the Portfolio’s market exposure to 75% net long. One of my new longs is MOT and I am using a $16 stop-loss on this position. It appears a short-term rally has begun as the late-day sell-off trend ended today and Apple’s report is boosting tech after-hours. While a bounce is well overdue, weakness will likely resurface over the next couple of weeks as investor complacency remains too high for a solid bottom. I will remain nimble and view any near-term purchases as trading opportunities.

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.