Stocks Lower Mid-day on Profit-taking after Recent Gains

Indices
S&P 500 1,229.40 -.35%
DJIA 10,684.52 -.12%
NASDAQ 2,188.59 -.56%
Russell 2000 657.55 -.96%
DJ Wilshire 5000 12,280.85 -.34%
S&P Barra Growth 589.61 -.07%
S&P Barra Value 636.18 -.51%
Morgan Stanley Consumer 591.04 -.14%
Morgan Stanley Cyclical 747.84 -.47%
Morgan Stanley Technology 513.83 -.35%
Transports 4,008.78 -1.24%
Utilities 388.57 +.55%
Put/Call .72 -20.88%
NYSE Arms .83 +6.53%
Volatility(VIX) 12.35 +1.40%
ISE Sentiment 178.00 -3.26%
US Dollar 92.21 +.09%
CRB 312.69 -.78%

Futures Spot Prices
Crude Oil 57.10 -.94%
Unleaded Gasoline 146.10 -2.35%
Natural Gas 11.55 -.49%
Heating Oil 169.00 -2.28%
Gold 469.00 -.02%
Base Metals 139.10 -.66%
Copper 193.00 +.86%
10-year US Treasury Yield 4.55% -1.16%

Leading Sectors
Hospitals +1.32%
HMOs +.85%
Utilities +.42%

Lagging Sectors
Retail -2.32%
Oil Tankers -2.37%
Disk Drives -2.67%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Retail longs, Software longs and Medical Information System longs. I added IWM and QQQQ shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are falling and volume is average. Measures of investor anxiety are mixed. Overall, today’s market action is negative considering the fall in long-term rates, the decline in energy prices and positive economic data. The Johnson Redbook same-store sales index rose 3.8% year-over-year this week vs. a 4.2% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 28th week in a row the index has risen 3% or more. This is impressive considering recent depressed consumer sentiment readings and unseasonably warm weather. I expect US stocks to trade mixed-to-lower from current levels into the close on profit-taking.

Today's Headlines

Bloomberg:
- Allergan , the maker of the Botox wrinkle treatment, offered to buy Inamed for $3.2 billion in cash and shares, beating a bid by Medicis Pharmacuticals.
- The US dollar is rising to a two-year high against the euro after the ZEW Center for European Economic Research said German investor confidence unexpectedly fell and a US retail sales report exceeded estimates.
- Johnson & Johnson and Guidant said today that they have entered into a revised merger agreement with a net value of $19 billion.
- Ben Bernanke, the White House adviser nominated to be Federal Reserve chairman, pledged to carry on Greenspan’s interest-rate policies and to move toward more openness if the Senate confirms him for the job.
- United Nations Secretary-General Kofi Annan has rescinded his dismissal of Joseph Stephanides, the only official fired for wrongdoing in the Iraq oil-for-food program, while continuing to say he violated UN rules.
- US Treasuries are rising after Ben Bernanke said long-run price stability is essential for the economy.

Wall Street Journal:
- Genzyme, Amgen and Genentech and other biotech drugmakers have built booming business in the market for so-called “orphan” drugs used to treat rare illnesses.
- The number of US home-purchase contracts signed last month declined 8% from a year earlier at 48 large real-estate brokers, citing a survey by the real-estate consulting company Real Trends.
- US tax burdens have increases as federal and local tax rates rise, citing recent surveys.
- US officials are trying to prevent unscrupulous dealers from selling cars damaged in Hurricanes Katrina or Rita.
- US congressional negotiators have approved additional funding for veterans medical care.

NY Times:
- Officials of Medicare said performance-based bonuses help increase the quality of care given to patients at hospitals.
- Microsoft plans to offer software that will give scientists and engineers a way to gain high-performance computing from their existing desktop computers.

CNBC:
- UTStarcom, the biggest supplier of wireless-telephone systems in China, was awarded a contract, potentially worth billions of dollars, to provide Internet-protocol television to the city of Shanghai.

Edaily:
- Samsung Electronics, Hynix Semiconductor and Toshiba Corp. will soon sign “large” contracts to supply Apple Computer with NAND flash memory chips.

Core Producer Prices Fall, Retail Sales Strong, Manufacturing Healthy

- The Producer Price Index for October rose .7% versus estimates of unchanged and a 1.9% increase in September.
- The PPI Ex Food & Energy for October fell .3% versus estimates of a .2% increase and a .3% gain in September.
- Advance Retail Sales for October fell .1% versus estimates of a .7% fall and a .3% rise in September.
- Retail Sales Less Autos for October rose .9% versus estimates of a .3% gain and an upwardly revised 1.4% increase in September.
- Empire Manufacturing for November rose to 22.8 versus estimates of 15.5 and a reading of 12.1 in October.

BOTTOM LINE: Core producer prices declined by the most in more than two years in October, reflecting cheaper cars, computers, food and clothes, Bloomberg reported. Core prices are now rising at a 1.8% annual pace versus a 2.1% rate at this time last year. Companies have had little success passing higher raw materials costs on to consumers. Car prices fell 3% in October, the largest fall in 4 years. As well, clothing prices declined .4%, the greatest drop in almost 4 years. I continue to believe inflation fears for this cycle peaked in September during the hurricanes.

Sales at US retailers fell less than expected last month as pre-holiday shopping at chain stores helped blunt a drop-off at auto dealerships, suggesting that consumers are largely unfazed by higher energy prices, Bloomberg reported. Sales at clothing and accessory stores rose 3.1%, the largest increase in 3 years, even with unseasonably warm weather. Last month was the 17th warmest October in US history. Moreover, sales at gas stations dropped .8% versus a 5.1% gain the prior month as the average price of gasoline fell to $2.77 from $2.95. This holiday shopping season is shaping up to be much better-than-expected.

Manufacturing in NY state expanded more than economists expected and executives were more optimistic about the future, Bloomberg reported. The prices paid component of the index rose to 60.6 from 57.3 in October. The employment component of the index rose to 16.9, the best level this year, from 9.3 the prior month. Optimism for the next six months soared to 46.9 from 32.6 in October. I continue to believe manufacturing will boost US growth over the next few months as inventory rebuilding continues.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Amazon.com will replace AT&T in the S&P 500 index on Nov. 18.
- Richard Fisher, president of the Federal Reserve Bank of Dallas, said the US economy is growing “very nicely” and he sees no signs that inflation is “running rampant.” “Globalization and competition from abroad is acting as a disinflationary force,” he said.
- GM has begun another round of incentives to lure US buyers after a sharp drop in October sales. Ford Motor said it will announce its own promotion tomorrow.
- Billionaire George Soros’s hedge fund bought stakes in the third quarter in technology companies including Intel, IBM, Amazon and Apple Computer.

Korea Economic Daily:
- Samsung Electronics will make mobile phone chips for Qualcomm of the US as part of a strategic alliance.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, AIG and DIS.

Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 indicated -.19%.
NASDAQ 100 indicated -.15%.

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Earnings of Note
Company/EPS Estimate
ANF/.80
AEOS/.46
ADI/.34
BJ/.36
DKS/.07
GME/.14
HD/.68
JCP/.92
SPLS/.32
TJX/.34

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for October is estimated to rise 0.0% versus a 1.9% increase in September.
- The PPI Ex Food & Energy for October is estimated to rise .2% versus a .3% increase in September.
- Advance Retail Sales for October are estimated to fall .7% 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 15.5 versus a reading of 12.1 in October.

BOTTOM LINE: Asian indices are mostly lowed, weighed down by financial shares in the region. I expect US equities to open mixed and rally modestly later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed on Light Volume Ahead of Inflation Data

Indices
S&P 500 1,233.76 -.08%
DJIA 10,697.17 +.10%
NASDAQ 2,200.95 -.07%
Russell 2000 663.93 -.41%
DJ Wilshire 5000 12,323.20 -.09%
S&P Barra Growth 590.03 -.12%
S&P Barra Value 639.47 -.03%
Morgan Stanley Consumer 591.86 -.50%
Morgan Stanley Cyclical 751.127 +.93%
Morgan Stanley Technology 515.66 unch.
Transports 4,059.21 -.34%
Utilities 386.48 -.40%
Put/Call .91 +35.82%
NYSE Arms .78 +20.54%
Volatility(VIX) 12.18 +4.73%
ISE Sentiment 184.00 +9.52%
US Dollar 92.11 +.14%
CRB 315.08 -.16%

Futures Spot Prices
Crude Oil 57.85 +.28%
Unleaded Gasoline 150.00 +.26%
Natural Gas 11.61 +.07%
Heating Oil 173.25 +.12%
Gold 468.60 -.11%
Base Metals 140.02 +.16%
Copper 191.00 -.18%
10-year US Treasury Yield 4.60% +.91%

Leading Sectors
Papers +6.18%
Oil Service +1.26%
Semis +.56%

Lagging Sectors
Broadcasting -1.70%
Steel -1.83%
Coal -1.86%

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Afternoon Recommendations
Goldman Sachs:
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US airlines must modify fuel tanks on jet aircraft to reduce the risk of explosions like the one that downed TWA Flight 800 in 1996, the FAA said.
- Martha Stewart’s “Apprentice” reality show, in last place in its timeslot, will end after its first season.
- Ben Bernanke’s nomination to succeed Alan Greenspan as Federal Reserve chairman is likely to proceed “quickly” after a confirmation hearing before the Senate Banking Committee tomorrow.
- Berkshire Hathaway doubled its stake in Tyco International and sold shares of Pier 1 imports.
- Target said November comparable store sales may fall below its forecast of 4% to 6%.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Medical longs, Semi longs and Medical Information Systems longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline line finished lower, sector performance was mixed and volume was light. Measures of investor anxiety were mostly higher into the close. Overall, today's market action appeared to be a healthy low volume consolidation of recent gains. The negativity bubble continues to inflate. These graphs of public short sales illustrate how much negativity has permeated the psyche of the general public with respect to U.S. stocks.