Stocks Modestly Higher Mid-day, Consolidating Recent Gains

Indices
S&P 500 1,233.09 +.17%
DJIA 10,675.00 +.33%
NASDAQ 2,202.57 +.28%
Russell 2000 665.86 +.14%
DJ Wilshire 5000 12,316.74 +.17%
S&P Barra Growth 590.41 +.18%
S&P Barra Value 638.26 +.14%
Morgan Stanley Consumer 594.45 +.20%
Morgan Stanley Cyclical 743.10 +.53%
Morgan Stanley Technology 515.61 +.16%
Transports 4,059.86 +.39%
Utilities 386.42 -1.21%
Put/Call .73 -2.67%
NYSE Arms .63 -20.88%
Volatility(VIX) 11.84 -.50%
ISE Sentiment 230.00 +47.44%
US Dollar 91.94 -.15%
CRB 315.53 +.32%

Futures Spot Prices
Crude Oil 57.70 -.17%
Unleaded Gasoline 149.00 -1.11%
Natural Gas 11.65 +2.37%
Heating Oil 173.75 -.34%
Gold 469.40 +.36%
Base Metals 139.80 +1.44%
Copper 190.55 +1.82%
10-year US Treasury Yield 4.56% +.76%

Leading Sectors
Steel +2.65%
Coal +2.10%
Airlines +2.03%

Lagging Sectors
Defense -.74%
Tobacco -.92%
Utilities -1.15%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Semi longs, Airline longs and Medical Information System longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is neutral, most sectors are rising and volume is below average. Measures of investor anxiety are lower. Overall, market action is neutral. It is my experience that tight, sustained trading ranges result in extreme moves in either direction. We are in the midst of the longest string of 3%+ GDP growth quarters since 1986, yet consumer confidence was recently at the lowest level since the depths of the recession in the early 1990s. Given the U.S. economy's bulletproof disposition, there has been a major disconnect between perception and reality, thanks to fact the that there has never before in U.S. history been so many that perceive they will benefit(both politically and financially) from a U.S. economic collapse. I contend that all the irrational negativity that has built up since the bursting of the bubble five years ago will help propel the major averages higher out of the recent trading range over the intermediate-term.

Today's Headlines

Bloomberg:
- Pennsylvania’s seven-decade monopoly on wine sales is ending after a judge overturned the commonwealth’s ban on Internet and mail-order shipments.
- Oil may fall to $50.16 a barrel, halting a four-year rally that quadrupled prices, said Citibank, the world’s largest bank.
- The World Health Organization said a $135 million international effort stopped a polio epidemic that paralyzed almost 200 children for life in west and central Africa.
- Silver Lake Partners, a buyout firm that specializes in technology companies, will purchase Serena Software for $1.2 billion and take the company private.
- UBS AG and Goldman Sachs Group raised their forecasts for the US dollar versus the euro and yen, and Lehman Brothers Holdings said investors should add to bets the dollar will gain against Europe’s currency.
- Crude oil is falling to the lowest in more than three months as rising US imports make up for production shut by storms in the Gulf of Mexico.

Wall Street Journal:
- Nike Inc. is re-launching Los Angeles Lakers All-Star Kobe Bryant as an endorser.
- Microsoft’s shares, which have lost favor with investors looking for growth, are much sought-after by those wanting bargains.
- Merck will have a harder job defending liability cases over its Vioxx painkiller in its home state of New Jersey after a state court judge told lawyers she wanted to hear cases involving plaintiffs who took the drug for 18 months or longer.

NY Times:
- United Airlines plans to hire 2,000 flight attendants over the next year, adding such employees for the first time since the 9/11 terrorist attacks pushed the airline industry into decline.
- State transportation agencies in Maryland and Virginia plan to test tracking cell phones to provide traffic information.
- A lack of workers may be hurting New Orleans’ recovery from the damages caused by Hurricane Katrina, citing local officials and business leaders. Some employers, such as Southern Electronic, are paying two to three times the regular wage to attract workers.
- The US National Academy of Televisions Arts & Sciences, which rules on the Daytime Emmy Awards, plans to announce a new category of prizes for original video content created for mobile devices such as cellular phones and Apple Computer’s iPod.

Washington Post:
- US envoy to the United Nations John Bolton said yesterday that inaction by UN members jeopardizes the passage of initiatives to overhaul the bureaucracy of the scandal-tarnished world body.

AFP:
- US Secretary of State Condoleezza Rice made an unannounced visit to Iraq today, arriving in Mosul in the north of the country with a full entourage of officials and media.

Economic Releases

- None of note

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- Prices of coking coal, used to make steel, may fall 28% during the next two years as new mines start production, JPMorgan Chase said.
- Crude oil may decline again next week because of reduced global demand growth and surging stockpiles, a Bloomberg survey showed.
- Japan’s economy grew faster than expected in the third quarter, adding to signs spending by companies and consumers will sustain the longest expansion in eight years.
- A unit of J&J issued a warning on its birth control patch.

Business Week:
- Wachovia may consider buying Capital One Financial Corp., which issues Visa and MasterCard credit cards, to expand in the lucrative credit card market.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on NSM and CRL.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for October is estimated to remain unchanged versus a 1.9% increase in September.
- The PPI Ex Food & Energy for October is estimated to rise .2% versus a .3% gain in September.
- Advance Retail Sales for October are estimated to fall .6% versus a .2% increase in September.
- Retail Sales Less Autos for October are estimated to rise .3% versus a 1.1% gain in September.
- Empire Manufacturing for November is estimated to rise to 15.0 versus a reading of 12.1 in October.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in technology shares in the region. I expect US equities to open mixed and rally later in the day. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher on Falling Energy Prices, Declining Long-term Rates and Less Irrational Pessimism

Indices
S&P 500 1,230.96 +.84%
DJIA 10,640.10 +.89%
NASDAQ 2,196.68 +.96%
Russell 2000 664.93 +.77%
DJ Wilshire 5000 12,295.55 +.78%
S&P Barra Growth 589.31 +.87%
S&P Barra Value 637.38 +.82%
Morgan Stanley Consumer 593.28 +1.08%
Morgan Stanley Cyclical 739.15 +.87%
Morgan Stanley Technology 514.80 +.57%
Transports 4,043.90 +.99%
Utilities 391.16 -1.19%
Put/Call .75 -8.54%
NYSE Arms .80 +4.79%
Volatility(VIX) 11.90 -7.03%
ISE Sentiment 156.00 +4.70%
US Dollar 92.04 -.04%
CRB 314.53 -.63%

Futures Spot Prices
Crude Oil 57.74 -.10%
Unleaded Gasoline 150.00 -.45%
Natural Gas 11.43 +.48%
Heating Oil 174.10 -.14%
Gold 467.40 -.06%
Base Metals 137.81 +.87%
Copper 187.05 -.05%
10-year US Treasury Yield 4.55% +.09%

Leading Sectors
Airlines +4.18%
Gaming +2.70%
Homebuilders +2.58%

Lagging Sectors
Coal -1.58%
Energy -3.12%
Oil Service -3.93%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on IMCL and LLL.
- Reiterated Underperform on TWMC and GM.

Afternoon/Evening Headlines
Bloomberg:
- IBM, Northrop Grumman, Computer Sciences and Accenture won contracts to develop models for a national system of electronic health information.
- The US dollar is headed for a second weekly advance versus the euro on improving fundamentals versus foreign currencies.
- Treasury 10-year notes rose the most since August after foreign investors bought a record amount of the securities at an auction.

The Age:
- Rio Tinto Group CEO Clifford said rising steel production in China is leading to an extreme shortage of iron ore.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet longs, Retail longs, Airline longs, Semi longs and Energy shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, it was a good day for the bulls as the major indices and breadth finished near session highs on above-average volume even as energy stocks finished near session lows. The MS Tech Index has broken out of the trading range that has contained it over the last year and appears poised to make an assault on multi-year high levels. Falling long-term interest rates, healthy economic growth, declining energy prices and less pessimism are providing the catalysts.