Mid-day Report

S&P 500 1,193.26 +.74%
NASDAQ 2,100.85 +.62%

Leading Sectors
I-Banks +1.78%
Tobacco +1.68
Insurance +1.49%

Lagging Sectors
HMOs +.08%
Iron/Steel -.89%
Papers -1.17%

Other
Crude Oil 48.00 -.79%
Natural Gas 6.18 -3.28%
Gold 423.50 +.05%
Base Metals 118.80 -.29%
U.S. Dollar 83.34 +.11%
10-Yr. T-note Yield 4.21% +.05%
VIX 12.39 -.32%
Put/Call .87 +19.18%
NYSE Arms .76 -3.80%
ISE Sentiment 152.00 -3.18%

Market Movers
MAY +17.0% after CEO Kahn resigned and multiple upgrades.
KKD +13.3% after saying its replacing CEO Livengood with Stephen Cooper, a turnaround specialist who led Enron and Laidlaw out of bankruptcy.
NCR +5.0% after substantially raising 4Q estimates and slightly boosting 05 guidance.
ATW +6.15% on CSFB upgrade to Neutral and raising target to $66.
OSTK +7.6% short-covering and optimism over upcoming earnings report.
IMPC +19.69% after Elekta AB, the world’s largest maker of radiation surgery equipment, agreed to buy it for about $250 million in cash.
JOBS -36.5% after lowering 4Q estimates substantially.
HNR -32.9% after saying it suspended drilling in Venezuela after the company’s 05 business plan was rejected by state oil company Petroleos de Venezuela.
FLE -15.65% after cutting 3Q estimates substantially.
PH -8.66% after missing 2Q estimates and widening 3Q guidance.
AL -5.1% on disappointing 4Q.
PETM -6.19% after cutting 4Q and 05 forecast.
GP -4.95% after lowering 4Q estimates.

Economic Data
Empire Manufacturing for January fell to 20.08 versus estimates of 25.0 and a reading of 27.07 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on ADP, KRB, JTX, YHOO, AL, GE, DKS and ACS. Reiterated Underperform on FRX. Upgraded AWA and SYK to Outperform.
-Bank of America: Upgraded MAY to Buy, target $37. Rated SMA Buy, target $22. Upgraded PSA to Buy, target $59. Cut EXR to Sell, target $11.
-JP Morgan: Reiterated Buy on YHOO, target $50. Raised DOX, MAY, BLX to Overweight. Cut BCH, WBSN, TIBX and VRST to Underweight.
-Citi SmithBarney: Raised DOX to Buy, target $34. Rated PII Buy, target $75. Raised LUV to Buy, target $19.
-UBS: Raised GLG and MDG to Buy. Rated FCL Buy, target $27. Cut SCT to Reduce.
-CSFB: Reiterated Outperform on RIG.
-Legg Mason: Raised BRCM to Buy, target $39.
-Oppenheimer: Raised MAY to Buy.

Mid-day News
U.S. stocks are higher mid-day on a continuation of Friday’s bounce and strong earnings reports. Ntelos Inc., a telecom service provider that services customers in Virginia, West Virginia, Kentucky and North Carolina, will likely be bought for about $750 million by investors headed by Quadrangle Capital Partners and Citigroup Venture Capital, the Wall Street Journal reported. TD Waterhouse, Fidelity and E*Trade are seeking customers by offering new online trading tools, the Wall Street Journal reported. New government regulations, such as the Sarbanes-Oxley Act, are driving demand for accountants and lawyers at US corporations, USA Today reported. A government advisory panel of economists, and health-care experts and providers recommended that the US Congress make lower Medicare payments than promised next year to hospitals and keep payments to nursing homes unchanged, the NY Times reported. Kimberly-Clark and Procter & Gamble plan to introduce new toiletries for babies and toddlers, the NY Times said. Archipelago Holdings, which operates the Archipelago Exchange stock-trading network, plans to open for trading by 4am NY time as soon as March to lure business from Europe, the Financial Times reported. An Internet virus is embedded in a bogus e-mail soliciting aid for victims of last month’s tsunami, Reuters reported. National City Corp. CFO Daberko told CNBC it will consider expanding this year through smaller acquisitions, as it did last year. Teva Pharmaceuticals said a study linking its Copaxone multiple sclerosis drug to breast cancer is flawed and that its own research shows no such connection, Bloomberg said. Bank of America said quarterly profit rose 41% as consumer banking fees climbed and the company arranged more loans for both individuals and companies, Bloomberg reported. International investors increased their net holding of US assets in November by the most since June, driven by the biggest stock purchases in more than three years, the Treasury Department said. 3M Co. said fourth-quarter profit increased 16%, helped by higher sales in its security and health businesses, Bloomberg said. Charter Communications said CEO Vogel resigned, becoming the third top executive to leave in the last six months, Bloomberg said. MeadWestvaco Corp., the second-largest US maker of coated paper for magazines, agreed to sell its papers unit and forest assets for $2.3 billion to Cerberus Capital Management to pay debt and focus on packaging, Bloomberg reported. The US dollar approached a two-month high against the euro and gained versus the yen after a Treasury Department report showed international investors increased purchases of US assets by 67.7% in November from October, Bloomberg said. Crude oil is falling on speculation that stronger demand for heating fuel during a cold wave in the US Northeast doesn’t justify the recent surge in prices, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day as my computer service, semiconductor and alternative energy longs are rising and my software and auto parts shorts are falling. I added to a few of my current tech longs this morning, thus bringing the Portfolio to 75% net long. I increased my long position in DRIV and I am using a $32.25 stop-loss on this position. The tone of the market is good today on continuing improvement in the advance/decline line and decent volume. Financials and small-caps are outperforming, which is also a positive. The fact the international investors added to US stock holdings by the most in 3 1/2 years is also a big positive considering the weaker US dollar. Measures of investor anxiety are mixed. I expect US stocks to trade modestly higher into the close on short-covering and bargain-hunting.

Tuesday Watch

Earnings of Note
Company/Estimate
ABT/.67
AMD/.08
CHKP/.29
AMTD/.19
BAC/.94
FRX/.67
FCX/.69
IBM 1.76
JNPR/.14
LLTC/.32
MOT/.24
RYL/2.08
STX/.24
STT/.58
WFC/1.06
TER/.02
YHOO/.11

Splits
EV 2-for-1
SHFL 3-for-2

Economic Data
Empire Manufacturing for January estimated at 25.0 versus 29.93 in December.
NAHB Housing Market Index for January estimated at 70 versus 71 in December.

Weekend Recommendations
Bulls and Bears had guests that were positive on JNJ, IBM, TX, HNZ MCRL and mixed on XTO, CBSS, ASN, FSL, AAPL. Forbes on Fox had guests that were positive on TYC, C, SC, AMAT, GLW and mixed on MSO. Cashin' In had guests that were positive on NSC, SONS, VVR, CVX, WIT, DELL and mixed on GM. Barron's had positive comments on RVSN, LOGI, PLCM, GMST, TTWO, CRI, ETP, BRK/A, CAS, NVH, PSUN, WLL, AHL, XEC, AMGN, BIIB, GENZ, PFE, TYC, MCD, C and RIO. Goldman Sachs reiterated Outperform on BSX, GE and DKS. Goldman reiterated Underperform on EW and MAY. Ken Fisher sees a 25% gain for the S&P 500 in 2005, he likes FLS and FMS.

Weekend News
The NYSE is considering opening earlier in order to lure some trading away from European markets, the Financial Times reported. A new, low-carb potato may stem the decline in the vegetable's consumption caused by the increasing popularity of the Atkins diet, the London-based Times reported. Goldcorp Inc. investors will be weighing executives' arguments as they consider a $2.3 billion merger with Wheaton River Minerals Ltd. or a $3 billion hostile takeover bid from Glamis Gold Ltd., Barron's said. Oracle, Agilent Technologies and Johnson & Johnson are among companies that would benefit from a temporary tax change allowing the repatriation of earnings from foreign affiliates, Barron's said. China plans to build at least one nuclear reactor each year between now and 2020 in an ambitious expansion at a pace comparable to that of the US in the 1970s, the NY Times reported. The US and India reached an air travel agreement that will lead to more flights between the two countries, a drop in fares and stronger economic relations, the AP reported. Intel Corp. will on Wednesday unveil a new chipset, its biggest launch since Centrino in 2003, The Business reported. President Bush's approval rating climbed to 53% as more Americans support his economic policies, according to a Time magazine poll. Fund managers forecast stock markets will rise in 2005, the US dollar will further decline and China's economy will experience a "soft landing," the Guardian said, citing a Morgan Stanley poll. US retail stores are using new technologies such as projectors that display product details on floors and walls and wireless phone systems to reduce costs and increase efficiency, the Washington Post reported. US retailers could face probes into whether they use racial profiling to identify potential shoplifters, the Wall Street Journal said, citing NY Attorney General Spitzer. Planned reductions of $30 billion in the US military budget have caused shares of weapons companies to nosedive, but the market may have overreacted, the Wall Street Journal reported. US television networks, including Disney's ABC and GE's NBC, are increasingly making product-placement agreements to boost advertising revenue, the Wall Street Journal reported. TiVo Inc. plans to offer its video recording system and develop other technology for television viewers without partnerships with cable companies, the NY Times said. Educational Testing Service, which administers 25 million tests annually, is planning a new examination to assess students' command of information technology skills, the NY Times reported. Fleetwood Enterprises Inc., the maker of recreational vehicles, has teamed up with vacation exchange operator RCI to offer a shared ownership program for motor homes, the Financial Times said. About 5.6 million American workers age 50 and older are self-employed today, 23% more than in 1990, USA Today said. FedEx Corp. CEO Smith said a fuel surcharge introduced for its ground shipping business Jan. 1 would restore the unit's margins, Reuters reported. The China Securities Regulatory Commission may announce measures to bolster slumping stock markets, Shanghai Securities News reported. US Army Specialist Charles Graner Jr. was sentenced to 10 years in prison for his role in the Abu Ghraib prison abuse scandal, Fox News reported. Saudi Arabia can pump as much as 11 million barrels a day and is currently producing about 9 million barrels a day, Bloomberg reported. Hewlett-Packard will sell new computers based on Intel's Itanium processors in a push to replace machines made by IBM and Sun Microsystems, Bloomberg said. Intel said it is reorganizing into five business units from two in an effort to speed new product introductions, Bloomberg reported. Crude oil futures in NY rose to a seven-week high on expectations cold weather moving into the US Northeast will boost demand for heating fuel, Bloomberg said. John Malone's Liberty Media International and UnitedGlobalCom agreed to merge into a new company called Liberty Global, Bloomberg reported. US Homeland Security Secretary Tom Ridge said there is no evidence of a terrorist plot to disrupt President George Bush's inauguration on Jan. 20, the Washington Post said.

Late-Night Trading
Asian indices are mostly lower, -.50% to unch. on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.16%

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning on a continuation of Friday's bounce. The Portfolio is 50% net long heading into the week.

Weekly Outlook

There are some important economic reports and a number of significant corporate earnings reports scheduled for release this week. Economic reports include (Tues.)-Empire Manufacturing, NAHB Housing Market Index (Wed.)-Consumer Price Index, Housing Starts, Initial Jobless Claims, Fed's Beige Book (Thur.)-Leading Indicators, Philly Fed. (Fri.)-Univ. of Michigan Consumer Confidence. The CPI, Housing Starts, Leading Indicators, Philly Fed. and Consumer Confidence all have market-moving potential.

Tues.- Bank of America(BAC), Juniper Networks(JNPR), Motorola(MOT), Yahoo!(YHOO), 3M(MMM), IBM(IBM) Wed.- eBay(EBAY), Qualcomm(QCOM), Symantec(SYMC), General Motors(GM), JP Morgan(JPM), Pfizer(PFE) Thur.- Delta Air Lines(DAL), Intl. Game Technologies(IGT), Xilinx(XLNX), Citigroup(C), Fri.- United Technologies(UTX), Charles Schwab(SCH), Fannie Mae(FNM), General Electric(GE) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. Tues. - The Fed's Lacker speaking, the Fed's Santomero speaking, the Fed's Stern speaking Wed. – Semi Book-to-Bill, the Fed's Poole speaking, the Fed's Yellen speaking Thur. – the Fed's Bies speaking and the Fed's Stern speaking could also impact trading this week.

Bottom Line: I expect US stocks to finish the week higher on strong earnings/economic reports, a stabilizing US dollar, lower interest rates, short-covering and bargain-hunting. While weakness will likely resurface over the next few weeks, an oversold bounce is likely from current levels. My short-term trading indicators are still giving Sell signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,184.52 -.14%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: The S&P 500 declined for a second straight week, its first back-to-back weekly decline since October. Considering the steep rise in energy prices and some earnings disappointments, last week's minimal declines were a positive. As well, small-caps bounced back from recent losses, the advance/decline line improved and interest rates fell. The homebuilding index hit another all-time high and this sector should continue to outperform as interest rates remain low, housing supply stays relatively low by historic standards and demand remains strong. The oil service index has been in a trading range for almost four months and will likely continue to underperform as crude prices fall further over the next few months. On the negative side, the transportation index has now declined 6.36% from its all-time high on 12/28. This is a concern, but is likely just a correction from recent outsized gains. Finally, most measures of investor anxiety fell on the week and likely remain too low for a durable bottom.

Economic Week in Review

ECRI Weekly Leading Index 130.40 -.91%

Wholesale Inventories for November rose 1.1% versus estimates of a .7% increase and a 1.1% gain in October. Companies have been restocking to ensure enough goods are on hand after consumer spending grew at the fastest pace in almost three years during the third quarter, Bloomberg said. Inventory growth and rising demand are fueling orders, boosting production and helping boost economic growth. "Growth, particularly in consumer spending, has continued to surprise to the upside, so I think we may be back in a situation where inventory growth has been too small," said Stephen Stanley, chief economist at RBS Greenwich Capital. Wholesalers had enough supply on hand to last 1.15 months at the current sales pace. The ratio has held there since May, Bloomberg said.

The Trade Balance for November came in at -$60.3B versus estimates of -$54.0B and -$56.0B in October. The Monthly Budget deficit was -$3.4B versus estimates of $0.0B and -$17.6B in December 2003. The trade deficit unexpectedly grew in November as US demand for oil and consumer goods pushed imports to a record and exports fell as growth in Asia and Europe slowed. The imbalance with China accounted for more than a quarter of the total deficit, Bloomberg said. Tax receipts rose 16.0% in 2004 as tax cuts spurred economic growth, thus increasing corporate and personal incomes, Bloomberg said. The Congressional Budget Office said in its latest annual forecast that the budget deficit would shrink to $348B in 2005, Bloomberg reported. For the first three months of the fiscal year, the US budget deficit fell 8.9% from the prior year.

The Import Price Index for December fell 1.3% versus estimates of a .3% fall and a downwardly revised .2% decline in November. Imports account for about 15% of all goods and services bought in the U.S. The cost of imported petroleum fell 11.5% in December, the biggest drop since April 2003, after falling 5.7% the month before, Bloomberg reported.

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% rise in November. Retail Sales rose 8% for the year, the most in five years. Excluding autos, retail sales surged 8.9%, the strongest performance in 12 years, Bloomberg reported. The economy created 2.2 million jobs in 2004, leading to a pickup in incomes that is likely to keep people buying and the economy expanding, Bloomberg said. "Once again the consumer proves healthier than expected, with big-ticket goods like furniture, appliances and autos leading the way," said Christopher Low, chief economist at FTN Financial.

Initial Jobless Claims for last week rose to 367K versus estimates of 340K and a downwardly revised 357K the prior week. Continuing Claims fell to 2631K, the lowest since April 2001, versus estimates of 2775K and 2850K prior. Claims for jobless benefits typically increase around the start of the year because of seasonal job cuts at retailers and construction companies, Bloomberg said. "We continue to feel that 2005 will see a sustained strengthening of the labor market," said Steve Pogorzelski, president of Monster North America, a unit of Monster Worldwide. Last year, payrolls averaged 185,920 a month. Job growth of about 100,000 to 150,000 is needed to keep pace with the increase in the labor force and keep the unemployment rate from rising, according to most economists.

The Producer Price Index for December fell .7% versus estimates of a .1% decline and a .5% increase in November. PPI Ex Food & Energy for December rose .1% versus estimates of a .2% increase and a .2% gain in November. "Inflation is still low in the absolute sense but the net of the recent data is that inflation is moving up and that keeps pressure on the Fed to keep raising rates," said James O'Sullivan, senior economist at UBS Securities. The price of gasoline fell 11.1% last month, the largest decline since April 2003, Bloomberg said. Moreover, Federal Reserve Bank of New York President Geithner said in a recent speech that "core inflation is moderate and various measures of inflation expectations suggest confidence in the outlook for price stability."

Business Inventories for November rose 1.0% versus estimates of a .6% increase and a .4% gain in October. The buildup, in conjunction with rising consumer spending, likely boosted economic growth in the final three months of the year and will help ease some of the negative impact of a high trade deficit on GDP in the quarter, economists said. The ratio of inventories to sales, a measure of how long goods remain in store at the current pace of demand, rose to 1.31 months, compared with October's record-tying low of 1.3 months, Bloomberg said.

Industrial Production for December rose .8% versus estimates of a .4% gain and a .2% increase in November. Capacity Utilization for December came in at 79.2% versus estimates of 78.9% and 78.6% in November. Gains in production of metals and computers helped push up the index, Bloomberg said. The manufacturing sector is doing very well," said Stephen Stanley. "We've seen continued strength in orders which bodes well for 2005."

Bottom Line: Overall, last week's economic data were modestly positive. Inventory gains are helping to boost economic growth and illustrate manager's confidence in the economy. The US trade deficit will likely worsen slightly before it gets better. The budget deficit should shrink this year as tax receipts remain strong and government spending decelerates. The rate of inflation will slow in 2005, with the CPI likely rising below its long-term average of 3.0%. The fact that retail sales, excluding autos, rose the most in 12 years last year is remarkable considering the negativity from the election, terrorism fears, worries over the financial health of the consumer and higher interest rates. The recent rise in jobless claims is likely the result of seasonal factors rather than real weakness in the labor market. Manufacturing has been exceptionally strong as of late and capacity utilization is nearing its long-term average of around 81.0%. The ECRI Weekly Leading Index has now declined the most in the last 2 weeks since before it began trending higher in 2002.

Weekly Scoreboard*

Indices
S&P 500 1,184.52 -.14%
Dow 10,558.00 -.43%
NASDAQ 2,087.91 -.03%
Russell 2000 617.48 +.70%
DJ Wilshire 5000 11,635.73 +.06%
S&P Equity Long/Short Index 1,006.96 +.01%
S&P Barra Growth 571.23 +.07%
S&P Barra Value 608.88 -.36%
Morgan Stanley Consumer 582.05 -.19%
Morgan Stanley Cyclical 765.78 +.37%
Morgan Stanley Technology 484.13 -.11%
Transports 167.49 -2.29%
Utilities 332.29 +2.34%
Put/Call .73 -23.16%
NYSE Arms .79 -37.30%
Volatility(VIX) 12.43 -7.86%
ISE Sentiment 157.00 -1.88%
AAII % Bulls 33.99 -10.79%
US Dollar 82.97 -.75%
CRB 283.22 +1.56%

Futures Spot Prices
Crude Oil 48.38 +7.15%
Unleaded Gasoline 127.61 +5.64%
Natural Gas 6.39 +6.85%
Heating Oil 135.09 +6.12%
Gold 422.30 +1.12%
Base Metals 119.14 +.08%
Copper 139.60 +1.90%
10-year US Treasury Yield 4.21% -1.05%
Average 30-year Mortgage Rate 5.74% -.52%

Leading Sectors
Oil Service +6.11%
HMOs +4.88%
Homebuilders +4.42%

Lagging Sectors
Restaurants -2.18%
Airlines -2.53%
Telecom -3.25%

*% Gain or loss for the week