Mid-day Report

Indices
S&P 500 1,205.66 +.03%
Dow 10,789.14 -.07%
NASDAQ 2,080.44 +.18%
Russell 2000 634.60 -.03%
DJ Wilshire 5000 11,871.47 +.02%
S&P Barra Growth 578.35 +.14%
S&P Barra Value 622.93 -.10%
Morgan Stanley Consumer 591.72 -.09%
Morgan Stanley Cyclical 765.63 -.01%
Morgan Stanley Technology 474.86 +.17%
Transports 3,594.82 -.51%
Utilities 355.38 +.71%
Put/Call .92 +10.84%
NYSE Arms 1.03 +71.67%
Volatility(VIX) 11.58 +1.40%
ISE Sentiment 179.00 +38.76%
US Dollar 83.87 -.83%
CRB 287.13 +.33%

Futures Spot Prices
Crude Oil 47.23 +.15%
Unleaded Gasoline 129.00 +.49%
Natural Gas 6.05 -.71%
Heating Oil 129.80 -.60%
Gold 427.50 +1.30%
Base Metals 123.04 +.90%
Copper 143.90 +1.16%
10-year US Treasury Yield 4.06% -.47%

Leading Sectors
Wireless +.97%
Computer Hardware +.82%
Iron/Steel +.82%

Lagging Sectors
Airlines -.95%
Insurance -1.16%
Oil Service -1.74%

Market Movers
TASR +10.9% after saying it received four orders with a combined value of more than $675,000.
ENCY +12.27% after releasing clinical data for a pulmonary hypertension drug showing that patients receiving the drug could walk farther than those receiving a placebo and that it plans to file a new drug application with the FDA in April.
AIG -3.45% after receiving subpoenas from NY Attorney General Spitzer and the SEC seeking information on policies that may help companies smooth earnings.
ARBA +13.78% after agreeing to pay $37 million to settle litigation related to claims of infringement involving three patents that rival EPlus owns.
DSCO +13.47% after saying the FDA will approve its respiratory drug Surfaxin, without additional clinical trials, once the company finalizes labeling and corrects “previously reported manufacturing issues.”
BER +6.71% after beating 4Q estimates
REXI +6.88% on no news.
GRU +9.1% on short-covering.
NVEC -10.93% on no news.
CYBX -7.34% on insider selling.
AH -4.85% on Goldman Sachs downgrade to Underperform.
OMX -5.57% after saying CEO Milliken has resigned, one month after the departure of CFO Anderson.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
None of note.

Recommendations
-Goldman Sachs: Reiterated Outperform on AIG, FSL, BSX, ACS and ACN. Reiterated Underperform MHX. Downgraded AH to Underperform.
-Citi SmithBarney: Raised DUK to Buy, target $30. Reiterated Buy on GS, target $125. Reiterated Buy on MER, target $73. Reiterated Buy on MWD, target $74. Reiterated Buy on RSH, target $40. Reiterated Buy on PRU, target $70. Reiterated Buy on MERQ, target $58. Reiterated Buy on WMT, target $65. Reiterated Buy on Semi Equipment stocks, favorites are AMAT and LRCX.
-Banc of America: Upgraded EL to Buy, target $50. Raised WFC to Buy, target $67.
-CIBC: Raised GOOG to Sector Outperform, target $245. Raised RBAK to Sector Outperform, target $10.
-CSFB: Raised MNST to Outperform, target $36.

Mid-day News
US stocks are mildly weaker mid-day as shares consolidate after recent gains. Capital Research & Management, a unit of the third-biggest US mutual fund company, has boosted its holdings in Fannie Mae to 11%, the Wall Street Journal reported. Mahmoud Abbas, the new Palestinian leader, said the war with Israel is effectively over, the NY Times reported. Blockbuster faces opposition from the FTC to its hostile bid for Hollywood Entertainment, the Wall Street Journal reported. A highly drug-resistant strain of HIV has been found in NYC that is virtually impossible to treat and turns rapidly into AIDS, the Wall Street Journal reported. Man Group Plc, the UK hedge-fund operator, faces competition from new funds created by Wall Street brokerages just as its own performance slows, the Wall Street Journal reported. JC Penney plans to stick to its focus on the mid-prices retail market by strengthening apparel for women, the Wall Street Journal said. Programs in at least nine US states that offer Web sites designed to help residents purchase inexpensive prescription drugs from Canada have been ineffective, the Wall Street Journal reported. The NBA is partnering with Reebok International on its biggest advertising campaign to date for NBA licensed apparel as the league tries to boost merchandise sales amidst recent embarrassments, the NY Times reported. Democrats will hold hundreds of hometown events next week to counter President Bush’s campaign to promote private Social Security accounts, the Washington Post reported. The Feb. 11 resignation of Eason Jordan, chief news executive at Time Waner’s CNN, marks the second time in five months that Bloggers have driven out a high-profile media figure over inaccurate reporting, the NY Times reported. A UN-contracted inspector accepted bribes to help Iraq export more oil than was authorized under the UN-administered oil-for-food program, the NY Tiimes reported. Settlements of securities class-action lawsuits over losses in the stock market hit an all-time high in 2004, the NY Times said. The US State Department relaxed visa rules for foreign scientists and students working or studying in the US, the NY Times reported. Residential builders are pushing into Manhattan’s far west side and developers are buying up property in the area in what has been a gritty industrial neighborhood, the NY Times said. Rents for some office space in midtown Manhattan rose 5 to 10% in the last year, reversing four years of flat or falling prices, Crain’s NY Business reported. Motorola said the GSM Assoc. picked the company to supply 6 million low-cost handsets for a program to sell cell phones in developing countries, Bloomberg reported. BAE Systems Plc, Cobham Plc and Smiths Group Plc are among UK defense companies planning to acquire US military contractors, Bloomberg reported. Copper prices in NY rose to a two-week high on expectations that economic growth in the US will boost metals demand from manufacturers, Bloomberg reported. Nokia Oyj and Microsoft will cooperate in wireless music downloading to challenge Apple Computer and Motorola, Bloomberg said. MCI is worth more than the $6.7 billion Verizon Communications agreed to pay, said Leon Cooperman, CEO of Omega Advisors. President Bush nominated Lester Crawford as the next commissioner of the FDA, a job he has held on a temporary basis for almost a year, Bloomberg reported.

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my internet, networking and telecom longs. I added a few new longs this morning and increased my GOOG long, thus bringing the Portfolio to 100% net long. GOOG is now my largest long position. The tone of the market is mixed today on a healthy consolidation of recent gains. Volume is light and the advance/decline line is slightly negative. Measures of investor anxiety are mostly higher, which is a positive. I expect US stocks to trade modestly higher from current levels into the close on lower interest rates, rebounding tech shares and short-covering.

Monday Watch

Weekend News
Copper prices may rise for a second week in London and New York as buyers in China, the world’s largest user of the metal, resume purchases after the Lunar New Year holidays, Bloomberg reported. The death toll from the Dec. 26 earthquake and tsunami in Asia reached 285,993, Agence France-Presse reported. Reuters Group Plc, the world’s largest investor owned provider of financial information, will next week start its first interactive television channel, as competition intensifies with rivals Bloomberg and CNBC, the Financial Times reported. London-based Reuters has agreed to a distribution contract with Microsoft, using its XP Media product, the newspaper said. AstraZeneca’s cholesterol reducing drug Crestor should be used only after alternatives have failed to work, the Independent reported, citing a US FDA official. Nortel Networks will file financial results for the second half of 2004 by the end of March, the Globe and Mail reported. Wal-Mart will pay $135,549 to settle federal charges that it violated child labor laws in three states, the NY Times reported. US colleges and universities are removing telephone land lines from dormitories because students use cell phones to keep in touch with families and friends, the Washington Post reported. A blood-sucking mite that has grown resistant to pesticide threatens the honeybee population across the US, the San Diego Union-Tribune reported. As many as 50 CIA informants in Iran were put in jail or executed in the late 1980s and early 1990s, the LA Times reported. The Chicago Police Department and the city are reconsidering the use of Taser International’s stun guns after a man died when a Taser was used to subdue him this week, the NY Times reported. Countries must put aside earlier differences over the US liberation of Iraq and work together to ensure that the Iraqis’ display of courage in voting leads to peace in that nation, UN Secretary General Annan wrote in the Washington Post. Leucadia National may have to acquire a business because the company’s WilTel Communications Group has lost its biggest customer, SBC Communications, Barron’s reported, citing Lehman Brothers analyst Robert Willens. Pepsico, Tyson Foods and closely held Slade Gorton are seeking to follow US government recommendations to winnow unhealthy trans fat from the products they sell, the NY Times reported. A more efficient tax system is central to President Bush’s vision of an “ownership society,” Barron’s said, and the president can count on support from Democrats in his effort to revamp the tax code by next year. Iraq will this month invite companies to bid for two licenses to install and operated a nationwide fixed-line telephone network to boost subscribers five-fold within 10 years, Middle East Economic Digest reported. The FDA may toughen testing on arthritic painkillers when its committee meets on Feb. 16, forcing Pfizer to add warning labels to its Celebrex drug, The Business reported. The former head of the UN/Iraq oil-for-food program obstructed an audit during the period he is alleged to have solicited oil purchases on behalf of friends, investigators told the AP. A $225 million shareholders’ restitution fund Computer Associates International set up under threat of prosecution by the US Justice Department hasn’t been disbursed because no stockholders have come forward, the NY Times reported. Iran rejected a proposal from European negotiators today to stop building a heavy-water nuclear reactor, which critics say will be used for weapons, and get a light-water one instead, the AP reported. Fund-raising in aid of the victims of the Dec. 26 tsunami has reached such levels that some lending charities are finding it difficult to distribute it, the London-based Times said. Motorola and the GSM Association have developed a low-cost $40 mobile handset to be initially marketed in Asia to kick-start economic development in the region, the Financial Times said. Carlyle Group, the world’s third-biggest buyout firm, may say it returned a record $5.3 billion to investors in 2004, compared with $2.1 billion in 2003, the Financial Times said. Wal-Mart said February sales at US stores open at least a year are rising within its forecast for a gain of as much as 4%, Bloomberg reported. Former Vermont Governor Howard Dean became head of the Democratic Party, vowing a grassroots rebuilding effort after last year’s electoral defeat, Bloomberg said. Qwest Communications raised its takeover offer for MCI to more than $7 billion, topping a bid by Verizon Communications, Bloomberg reported. China will use “all channels” of communication to encourage N. Korea to return to six-nation talks on dismantling its nuclear-weapons program, Foreign Minister Li Zhaoxing said. GM will pay Fiat SpA $2 billion to avoid having to take over the unprofitable auto unit of Italy’s biggest auto manufacturer, Bloomberg said. Gold prices may rise for a second week on expectations the US will veto proposed bullion sales by the IMF, owner of 2.1% of the world’s supply, Bloomberg reported. Iraq may be run by a coalition government formed around a secular leader such as interim Prime Minister Ayad Allawi after a Shiite Muslim coalition failed to win a majority in the National Assembly election, Bloomberg reported. Teekay Shipping won’t match higher dividend payments announced by rivals Frontline and General Maritime, Lloyd’s List reported. MCI agreed to be bought by Verizon Communications for about $6.6 billion, rejecting a higher offer from Qwest Communications, Bloomberg reported.

Weekend Recommendations
-Bulls and Bears: Had guests that were positive on PWR, SYMC, SLM, CTV, mixed on AW, SOSA, HSY, FS, LTD, TIF, SYNA and negative on HPQ.
-Forbes on Fox: Had guests that were positive on APA, DQ and mixed on WFSI and MO.
-Cashin' In: Had guests that were positive on CZR, ERES, CPL and mixed on IACI, EBAY.
-Goldman Sachs: Reiterated Outperform on AMGN, DNA, BSX, EBAY, JTX, PFE, KO and WAG. Reiterated Underperform on HRB and CNA.
-Forbes: Ken Fisher made positive comments on the overall market and AAA, RANKY, CCH and WFSI.
-Fortune: Had a positive column on AAPL.

Night Trading
Asian Indices are higher, +1.0% to +1.75% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.16%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
A/.19
ISLE/.07
OMM/1.12
SEAC/-.04

Splits
None of note.

Economic Data
None of note.

BOTTOM LINE: I expect US stocks to open modestly higher in the morning on gains in Asia, rebounding tech shares, lower energy prices, short-covering and increasing fund inflows. The Portfolio is 75% net long heading into the week. Between the Hedges currently has a VERY slim lead in The 2005 Business Blogging Awards for Best Financial Industry/Investment Blog. I greatly appreciate everyone’s support. To those that have yet to cast their ballot, please click here to vote. The poll closes on Wed. at 3pm EST. Again, thank you for your support.

Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include: Tues.-Empire Manufacturing, Advance Retail Sales, Business Inventories, Net Foreign Security Purchases and the NAHB Housing Market Index Wed.-Housing Starts, Building Permits, Industrial Production, Capacity Utilization and Greenspan's Report on the Economy/Fed Policy Thur.-Import Price Index, Initial Jobless Claims, Leading Indicators and Philadelphia Fed Fri.-Producer Price Index and Preliminary Univ. of Mich. Consumer Confidence. Advance Retail Sales, Housing Starts, Industrial Production, Greenspan's report and Consumer Confidence all have market-moving potential.

Some of the more important companies that release quarterly earnings this week are: Mon.-Agilent(A) Tues.-Applied Materials(AMAT), Career Education(CECO), Deere & Co.(DE), Medco Health Solution(MHS), Network Appliance(NTAP), Nordstrom(JWN), Transocean(RIG) Wed.-Coca-Cola(KO), Hewlett Packard(HPQ), IAC/InterActiveCorp(IACI), Medtronic(MDT), Outback Steakhous(OSI), Synopsys(SNPS), Wendy's Intl.(WEN) Thur.-Baker Hughes(BHI), Barrick Gold(ABX), Genzyme Corp.(GENZ), Intuit(INTU), Nextel Communications(NXTL), RadioShack(RSH), Wal-Mart Stores(WMT) Fri.-Campbell Soup(CPB), Target Corp.(TGT).

There are also a few other events that have market-moving potential. The UBS Global Healthcare Services Conference(Mon.-Wed.), Merrill Lynch Insurance Conference(Mon.-Wed.), Banc of America Gaming Conference(Tues.), UBS Chemical Conference(Tues.-Wed.), Deutsche Bank Global Transport Conference(Wed.-Thur.), Citi SmithBarney Small/Mid-cap Conference(Wed.-Thur.), Fed's Greenspan testimony before Senate(Wed.), JP Morgan Airline Conference(Thur.), Semi Book-to-Bill(Thur.) and the Fed's Greenspan testimony before House(Thur.) could also impact trading this week.

Bottom Line: I expect US stocks to finish the week modestly higher on a decline in energy prices, increasing fund inflows, rebounding tech shares, short-covering, strong earnings reports and more constructive Fed comments. I continue to expect the major US indices to end the first half of the year mostly unchanged, however stocks should work higher over the near-term. I would like to see the Nasdaq close above technical resistance at around 2100, before positioning the Portfolio in a more aggressive manner. The 10-Year T-Note is overbought short-term and may decline modestly this week. My short-term trading indicators are still giving mixed signals and the Portfolio is 75% net long heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 134.40 +.52%

Consumer Credit for December fell to $3.1 billion versus estimates of $8.0 billion and $2.0 billion in November. Borrowing slowed as the Fed raised rates to 2.25% in December from 1% in June to stem inflation fears. The US central bank raised rates another quarter point this month and said further increases may come at a "measured" pace, Bloomberg reported. Weaker-than-expected December consumer-borrowing figures, following lackluster job-creation figures on Friday, may give Fed Chairman Greenspan margin to pause the increase in interest rates, said Mike Englund, chief economist at Action Economics. For the year, consumer borrowing rose 4.6%, the fastest annual increase since 2001, Bloomberg said.

Wholesale Inventories for December rose .4% versus estimates of a .9% increase and a 1.2% rise in November. Consumer spending in the last six months of 2004 rose at the fastest pace in almost five years, government reports last month showed. The gains kept stockpiles from becoming bloated, leaving wholesalers room to boost inventories in coming months and increase orders to manufacturers, Bloomberg said. "Inventories haven't been running far ahead of sales and therefore aren't excessive by any means," said Douglas Porter, a senior economist at BMO Nesbitt Burns. Wholesaler sales last year surged 13.8%, the biggest gain in history, Bloomberg reported. As well, the latest string of monthly rising wholesaler sales surpassed the record of 18 consecutive gains, which ended in August 1973, Bloomberg said. Rebuilding inventories may contribute .3 percentage points to GDP this quarter after adding .4 percentage points to growth in the previous three months, according to a forecast by economists at Lehman Brothers.

The Trade Balance for December came in at -$56.4 billion versus estimates of -$57.0 billion and -$59.3 billion in November. The biggest drop in the price of oil since early 1991 contributed to the narrowing trade deficit, Bloomberg said. These numbers follow Fed Chairman Greenspan's comment last week that deficits may shrink as the declining value of the dollar makes US exports more competitive, Bloomberg said. "I'm optimistic that we'll see more of an improvement, but it's only one month and I'd like to see a few more," said Glenn Haberbush, an economist at Mizuho Securities. "As other economies continue to improve, that will help, but consumption in the US is still extremely strong, so the quantity of imports will remain about the same." The trade deficit with China narrowed to $14.3 billion from $16.6 billion. US exports to China for all of last year rose to an all-time record of $35 billion.

Initial Jobless Claims for last week fell to 303K, the lowest level in more than four years, versus estimates of 325K and 316K the prior week. Continuing Claims for last week rose to 2737K versus estimates of 2700K and 2690K prior. Consumer Confidence rose to a six-month high in January as Americans said they were more optimistic about finding work and the unemployment rate fell to a three-year low, the Conference Board said Jan. 25. The economy created 2.2 million jobs for all of 2004, the most in five years, as companies added workers to meet demand as the economy expanded 4.4%, the fastest since 1999, Bloomberg reported. "Unemployment is working its way down," Fed Governor Gramlich told a business group last week. "We would like to see it move a little faster, but it is moving in the right direction."

The Monthly Budget Statement for January was $8.7 billion versus estimates of $10.0 billion and -$1.4 billion in December. The US Treasury reported a budget surplus in January, helped by a jump in quarterly tax payments from corporations and individuals, Bloomberg said. "The budget deficit is on the mend, and this is good news for the US," said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. Tax revenues rose 9.2% in the month to $202.2 billion from a year earlier, led by a 53% gain in corporate income tax receipts, Bloomberg reported. Moreover, the addition of more than 2 million workers to payrolls last year contributed to an 11% rise in income tax receipts, which totaled $110 billion in January, Bloomberg said. Finally, for the first four months of this fiscal year, the deficit totaled $109.2 billion, down 17% from the first four months of the previous fiscal year, according to Bloomberg.

Bottom Line: Overall, last week's economic data were positive. As long as consumer borrowing remains relatively healthy, a decline is welcome. High levels of consumer debt have been one of the bears' main focal points. A deceleration in the rate of recent inventory gains may take from economic growth in the near-term, however inventory rebuilding will likely add to GDP in subsequent months as sales remain relatively robust. I expect the trade deficit to improve throughout the year as the US dollar remains near current levels, spending slows from last year's blistering pace and energy prices decline further. Jobless claims have fallen noticeable over the last few weeks which is a big positive for consumer spending. However, I am closely monitoring the labor market for any signs that unemployment has reached such low levels as to result in a substantial rise in unit labor costs, the largest component of inflation. At this time, I continue to foresee modest improvements in the job market which should continue to spur consumer spending while holding inflation in check. US government tax receipts have rebounded substantially as the US economy grew last year at the fastest pace of all the world's industrialized nations. The US budget deficit should continue to shrink this year as income tax receipts, capital gains tax receipts and sales tax receipts continue to rise while government spending decelerates. Finally, the ECRI Weekly Leading Index rose again and has now more than recouped all of its late December/early January losses. It currently stands at the highest level since May of 2004.

Market Week in Review

S&P 500 1,205.30 +.19%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Overall, last week's market performance was mixed. Optimism over the possibility of meaningful legal reforms, an improving labor market and increasing fund inflows was mostly offset by worries over higher energy prices and slowing earnings growth. Technology and small-caps continued their underperforming ways which began at the first of the year. Breadth was sub-par and a number of sectors fell for the week. Measures of investor anxiety were also mixed on the week. On the positive side, the Dow is now in the black for the year and appears poised to make an assault on its highs at year-end of 2004. Long-term interest rates remained low and the average 30-year fixed rate mortgage fell to its lowest level since early April 2004. Finally, the Semiconductor Index significantly outperformed for the week and is looking better technically. The fact that somewhat disappointing results from Cisco and Dell failed to send tech meaningfully lower is also a psychological positive.

Weekly Scoreboard*

Indices
S&P 500 1,205.30 +.19%
Dow 10,796.01 +.75%
NASDAQ 2,076.66 -.48%
Russell 2000 634.76 -.42%
DJ Wilshire 5000 11,868.64 +.13%
S&P Equity Long/Short Index 1,021.71 +.28%
S&P Barra Growth 577.55 -.11%
S&P Barra Value 623.53 +.48%
Morgan Stanley Consumer 592.23 +.03%
Morgan Stanley Cyclical 765.66 +.12%
Morgan Stanley Technology 474.04 -.37%
Transports 3,613.03 +.42%
Utilities 352.88 +.03%
Put/Call .83 +13.70%
NYSE Arms .53 -45.92%
Volatility(VIX) 11.43 +1.96%
ISE Sentiment 129.00 -24.12%
AAII % Bulls 43.75 +4.99%
US Dollar 84.58 +.19%
CRB 286.18 +1.75%

Futures Spot Prices
Crude Oil 47.16 +1.38%
Unleaded Gasoline 128.37 +2.04%
Natural Gas 6.09 +.54%
Heating Oil 130.58 +2.09%
Gold 422.20 +1.39%
Base Metals 121.94 +1.46%
Copper 141.90 +3.35%
10-year US Treasury Yield 4.08% +.22%
Average 30-year Mortgage Rate 5.57% -1.07%

Leading Sectors
Semis +4.15%
Insurance +3.68%
Oil Service +3.13%

Lagging Sectors
Airlines -2.51%
Biotech -2.54%
Software -2.96%

*% Gain or loss for the week