Stocks Mixed Mid-day on Healthy Consolidation of Recent Gains

Indices
S&P 500 1,233.38 -.11%
DJIA 10,687.24 +.01%
NASDAQ 2,199.07 -.16%
Russell 2000 662.33 -.65%
DJ Wilshire 5000 12,314.11 -.16%
S&P Barra Growth 590.04 -.12%
S&P Barra Value 639.03 -.10%
Morgan Stanley Consumer 591.91 -.49%
Morgan Stanley Cyclical 750.52 +.83%
Morgan Stanley Technology 515.24 -.08%
Transports 4,047.33 -.64%
Utilities 386.82 -.31%
Put/Call .96 +43.28%
NYSE Arms .72 +11.57%
Volatility(VIX) 12.25 +5.33%
ISE Sentiment 183.00 +8.93%
US Dollar 92.09 +.12%
CRB 314.62 -.29%

Futures Spot Prices
Crude Oil 57.60 +.03%
Unleaded Gasoline 149.50 +.67%
Natural Gas 11.62 -.79%
Heating Oil 173.00 +.52%
Gold 469.10 -.06%
Base Metals 140.02 +.16%
Copper 191.35 +.42%
10-year US Treasury Yield 4.59% +.65%

Leading Sectors
Papers +6.16%
Oil Service +1.41%
Semis +.72%

Lagging Sectors
Coal -1.50%
Airlines -1.56%
Steel -1.89%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Semi longs, Medical longs and Medical Information System longs. I added ELOS long this morning and added to existing shorts, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is lower, sector performance is mixed and volume is light. Measures of investor anxiety are mostly higher. Overall, today’s market action is positive considering recent gains and the rise in rates. Sanford C. Bernstein is out with a report today saying that prime brokerage fees from hedge funds will top $7.5 billion this year, up 32% in two years. Bernstein estimates these fees will rise by another 33% by 2009. According to Hedge Fund Research Inc., hedge fund assets have risen 2,650% to $1.1 trillion since 1990. These facts underscore my point last week that there has been a massive shift of capital from institutional and high-net-worth investors since the bursting of the bubble in 2000. Assets have shifted from long-only strategies into strategies that are negatively correlated or have a low correlation with the U.S. equity market, which could in turn spur a substantial short-covering rally over the intermediate term.

Today's Headlines

Bloomberg:
- A NYSE membership, known as a seat, sold for a record $3.025 million today, bolstering the Big Board’s defense against critics of its plan to purchase electronic exchange Archipelago Holdings.
- Hedge funds will pay Wall Street record fees this year for brokerage services, a business dominated by Morgan Stanley, Bear Stearns and Goldman Sachs.
- The French government approved extending the nation’s sate of emergency as curfews and bans on public meetings in Paris and Lyon brought calm to areas hit more than two weeks of violence.

Wall Street Journal:
- Google has contacted at least one publisher to gauge interest in a possible service that allows consumers to “rent” books online.
- The computer industry’s unceasing drive to improve performance has encountered an obstacle, in that the latest hardware uses too much electricity and generates too much heat.
- A Chinese government copper trader is missing after he took a big short position on the London Metal Exchange.
- President Bush’s administration is looking to trade easier foreign investment in US airlines in exchange for improved entry rights for US carriers to London’s Heathrow Airport.
- Negotiations over a possible sale of Computer Sciences to Lockheed Martin and three private-equity firms have broken down over the structure of the transaction.
- Archipelago Holdings intends to start an exchange-traded fund focusing on technology, an area of the market in which there’s already plenty of competition.
- A plan to make a $100 laptop computer has attracted the interest of computer companies and governments.

NY Times:
- The US record industry says it loses most sales to so-called “casual piracy” or the copying and sharing of CD’s by friends.
- In some Arab countries, such as Jordan, secret police are a hindrance to democratic reform.
- A coalition of US liberal groups plans a television campaign against Judge Samuel Alito, the Supreme Court nominee, seeking to move attention from his record on abortion to other issues.
- EBay may announce today that it will stop charging fees to people who develop Internet and software programs that direct customers to its Web site.
- Members of the Writers Guild of America and the Screen Actors Guild want to create rules that restrict how commercial products can be incorporated into the story lines of television shows.

Crain’s New York Business:
- Many of New York’s wine and liquor wholesalers are eliminating discounts to stores and restaurants in response to an investigation by state Attorney General Eliot Spitzer.

AP:
- The number of US prisoners sentenced to death and those executed fell last year as the country’s death row population declined.

Profil:
- EBay’s $2.6 billion purchase of Skype Technologies will make it easier for the online auctioneer to sell more expensive products such as new cars and real estate, CEO Whitman said.

Economic Releases

- None of note

Links of Interest

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Market Internals
Economic Commentary
Movers & Shakers
IBD New America
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I-Watch Sector Overview
NYSE Unusual Volume
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Option Dragon
Real-time Intraday Chart/Quote

Monday Watch

Weekend Headlines
Bloomberg:
- France banned all public gatherings in central Paris that might create disorder, to head off calls for increased violence in the capital after two weeks of rioting in French suburbs that has led to a total of 2,440 arrests. 502 cars were torched around the country last night.
- Wal-Mart said November sales at its US stores are rising within its forecast.
- The US dollar rose to a two-year high against the euro this week on speculation the gap between the strength of the US economy and Europe will widen further after widespread violence in France.
- Advantest Corp., the world’s biggest maker of memory-chip testing equipment, said operating profit will rise 67% in three years, helped by sales of machines that can be adapted to check different types of semiconductors.
- Georgia-Pacific agreed to be bought by closely held Koch Industries for $13.2 billion in cash.
- Gold’s surge to a 17-year high is prompting the biggest miners of the metal to seek new deposits from Mali to Russia.
- US private donations to aid hurricane relief may reach a record, topping private charity after Sept. 11.

Wall Street Journal:
- The US government filed a “statement of interest” in a US court, asking to keep its BlackBerry devices running in case a court orders Research In Motion Ltd. to shut them down.
- Toyota Motor Corp. is seeking a site in the US to build a new engine and transmission plant over the next few years to keep up with production demands in the area.

NY Times:
- Many Arabs view Israel as their enemy, which diverts their attention from social, political, religious and economic issues.
- The Chinese government is struggling to maintain people’s confidence in the legal system even after changes in 1996 that permitted a shift toward an adversarial trial process.
- The US Defense Department on Monday will urge suppliers to adopt radio-identification tags like those used by Wal-Mart Stores to track inventory.

Washington Post:
- The experience at the Federal Reserve of Ben Bernanke should dispel any doubts he would effectively work with financial markets.
- Viacom is changing almost all of the Web sites for its CBS and UPN networks to include a search tool that displays sponsored advertising links along with news.
- The Democratic National Committee under the chairmanship of Howard Dean trails Republicans in campaign fundraising by a two-to-one margin, prompting concern among party strategists the party will be at a disadvantage in the 2006 midterm elections.

Crain’s Chicago Business:
- Motorola Inc. is lobbying the US government to convert to digital television from the analog standard, freeing up broadcast airwaves for use by new devices and creating a “multibillion-dollar opportunity” for the company.

Detroit News:
- GM, which posted a sales decline of 26% last month after ending steep discounts, plans to offer more incentives beginning tomorrow to spur sales.

Star-Ledger:
- A $6 billion urban school construction program in New Jersey was crippled by waste, poor management and political favors.

Financial Times:
- Google will offer a free service analyzing the effectiveness of Web sites and online advertising, citing Google engineering director Paul Moret.
- Wal-Mart may provide facilities in its stores for customers to download feature films on to portable discs.

Economist.com:
- After losing $43 billion in five years, airlines are at the beginning of a massive boom.

Business:
- Acambis Plc, a UK vaccine-maker, will this week say its experimental flu vaccine, which could protect against avian influenza, is ready to start clinical trials.

Times of London:
- Thames River Capital, a London-based hedge fund with more than $7 billion of assets, may ask its US customers to leave rather than register with the SEC.
- Queen Elizabeth II’s security has been tightened after the British monarch was described by a senior al-Qaeda official in a video message as “one of the severest enemies of Islam.

Weekend Recommendations
Barron's:
- Had positive comments on AVII, NOK, MSFT, ACN, SAPE, SAY, INFY, IBM, SAP, S and PNC.

Goldman Sachs:
- Reiterated Outperform on AMGN.

Night Trading
Asian indices are unch. to +.50% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.15%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
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Asian Indices
European Indices
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Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/Estimate
A/.37
AIG/.78
LOW/.77
TSN/.30
WMT/.57

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are mostly higher, boosted by technology stocks in the region after an optimistic outlook by Advantest. I expect US stocks to open mixed. The Portfolio is 100% net long heading into the week.

Weekly Outlook

There are some important economic reports and significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - Producer Price Index, Advance Retail Sales, Empire Manufacturing
Wed. - Consumer Price Index, Business Inventories, Net Foreign Security Purchases, NAHB Housing Market Index
Thur. - Housing Starts, Building Permits, Initial Jobless Claims, Industrial Production, Philadelphia Fed.
Fri. - None of note

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Agilent Technologies(A), American International Group(AIG), Lowe’s(LOW), Tyson Foods(TSN), Wal-Mart Stores(WMT)
Tues. - Abercrombie & Fitch(ANF), American Eagle Outfitters(AEOS), Analog Devices(ADI), Dick’s Sporting Goods(DKS), GameStop(GME), Home Depot(HD), Staples(SPLS), TJX(TJX)
Wed. - Applied Materials(AMAT), Borders Group(BGP), DR Horton(DHI), Intuit(INTU), Medtronic(MDT), Petsmart(PETM), Tyco International(TYC)
Thur. - Autodesk(ADSK), Barnes & Noble(BKS), Gap Inc.(GPS), H&R Block(HRB), Hewlett-Packard(HPQ), Marvell Technology(MRVL), Nordstrom(JWN), Sears Holdings(SHLD), Sports Authority(TSA), Starbucks Corp.(SBUX), Walt Disney(DIS), Williams-Sonoma(WSM)
Fri. - AnnTaylor Stores(ANN), Freddie Mac(FRE)

Other events that have market-moving potential this week include:

Mon. - Banc of America Energy Conference
Tue. - UBS Global Communications Conference, Merrill Lynch Banking & Financial Services Conference, Banc of America Energy Conference, Pacific Growth Top Tech Conference, the Fed’s Fisher speaking, the Fed’s Moskow speaking, CSFB Insurance Conference
Wed. - Merrill Lynch Banking & Financial Services Conference, CSFB Healthcare Conference, Lehman Brothers Small-cap Conference, UBS Global Communications Conference, the Fed’s Santomero speaking, CSFB Insurance Conference
Thur. - UBS Global Communications Conference, Merrill Lynch Banking & Financial Services Conference, the Fed’s Moskow speaking, the Fed’s Pianalto speaking, CSFB Healthcare Conference, Lehman Brothers Small-cap Conference, Semi Book-to-Bill, Deutsche Bank Hospitality & Gaming Conference, Lehman Brothers Small-cap Conference
Fri. - Lehman Brothers Small-cap Conference, CSFB Healthcare Conference

BOTTOM LINE: I expect US stocks to finish the week mixed, as lower energy prices, lower long-term rates, healthy retail data and decelerating inflation readings offset profit-taking. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.