Stocks Finish at Session Highs on Increasing Optimism

Indices
S&P 500 1,254.85 +.53%
DJIA 10,820.28 +.50%
NASDAQ 2,241.67 +.66%
Russell 2000 678.96 +1.0%
DJ Wilshire 5000 12,543.34 +.60%
S&P Barra Growth 601.49 +.56%
S&P Barra Value 648.98 +.50%
Morgan Stanley Consumer 593.61 +.04%
Morgan Stanley Cyclical 767.96 +.43%
Morgan Stanley Technology 527.92 +.30%
Transports 4,156.48 +.38%
Utilities 397.69 +.31%
Put/Call .79 +27.42%
NYSE Arms .77 +5.45%
Volatility(VIX) 10.82 -2.70%
ISE Sentiment 226.00 +24.86%
US Dollar 92.04 +.11%
CRB 313.63 +.28%

Futures Spot Prices
Crude Oil 57.68 -.03%
Unleaded Gasoline 145.73 -.32%
Natural Gas 11.40 +.65%
Heating Oil 170.95 +.78%
Gold 491.90 +.47%
Base Metals 142.62 +1.0%
Copper 190.75 -.18%
10-year US Treasury Yield 4.46% -.48%

Leading Sectors
Steel +3.78%
Oil Service +2.74%
Gold & Silver +2.55%

Lagging Sectors
Computer Services -.94%
Airlines -1.59%
Disk Drives -1.91%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW.

Afternoon/Evening Headlines
Bloomberg:
- Vice President Dick Cheney said the administration won’t set a timetable for withdrawing US troops from Iraq and that Iraqi forces are making progress toward securing the country on their own.
- Sprint Nextel, the third-largest US mobile phone provider, agreed to buy affiliate Alamosa Holdings for $3.4 billion to end a legal dispute and gain almost 1.5 million direct customers.
- Palm’s third-largest shareholder is demanding the maker of Treo phones and Palm handheld devices take steps to boost its stock price, including a share buyback or a possible sale of the company.
- Pfizer may pay Incyte as much as $803 million for rights to experimental medicines against diseases including rheumatoid arthritis.
- Robert Johnson, who became a billionaire after selling Black Entertainment Television, is starting a hedge-fund venture with Deutsche Bank AG in his aim to develop the largest money manager owned by black Americans.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Retail longs, Medical longs and Homebuilding longs. 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, almost every sector rose and volume was about average. Measures of investor anxiety were mixed into the close. Overall, today's market action was positive. As I predicted last week, the S&P 500 is making a new 52-week high. I am beginning to sense some panic in the short-selling community as the averages grind higher on little news during a holiday-shortened week. Take a look at Overstock.com (OSTK) for evidence. This controversial stock, with 62% of the float sold short, is breaking up through its 200-day moving average and has gained 28% in less than a month on above-average volume.

Stocks Modestly Higher Mid-day as Long-term Rated Decline Again

Indices
S&P 500 1,250.58 +.19%
DJIA 10,790.18 +.22%
NASDAQ 2,232.22 +.23%
Russell 2000 675.65 +.51%
DJ Wilshire 5000 12,497.73 +.23%
S&P Barra Growth 599.47 +.22%
S&P Barra Value 646.61 +.14%
Morgan Stanley Consumer 593.03 -.06%
Morgan Stanley Cyclical 764.37 -.04%
Morgan Stanley Technology 525.30 -.20%
Transports 4,144.02 +.09%
Utilities 396.94 +.12%
Put/Call .85 +37.10%
NYSE Arms .91 +24.66%
Volatility(VIX) 11.10 -.18%
ISE Sentiment 255.00 +40.88%
US Dollar 92.03 +.11%
CRB 313.13 +.12%

Futures Spot Prices
Crude Oil 57.20 -.20%
Unleaded Gasoline 146.10 -.14%
Natural Gas 11.31 -.91%
Heating Oil 170.90 +.75%
Gold 489.50 +.68%
Base Metals 142.62 +1.0%
Copper 191.10 -.10%
10-year US Treasury Yield 4.45% -.78%

Leading Sectors
Steel +2.95%
Gaming +1.31%
Homebuilders +1.20%

Lagging Sectors
Computer Services -1.09%
Airlines -1.63%
Disk Drives -2.54%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Internet longs and Retail longs are offsetting losses in my Steel shorts and Medical Information Systems longs. I exited a Medical Information Systems long this morning as it hit my stop-loss and added to some existing longs including SKYW, BRCM and ELOS, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is barely higher, most sectors are rising and volume is about average. Measures of investor anxiety are mixed. Overall, today’s market action is slightly negative considering the fall in long-term interest rates and stable energy prices. According to David Rosenberg, Merrill's chief North American economist, blue-chip companies are on track for their greatest run of double-digit quarterly profit gains since at least 1936. The estimated 16% profit gain in the third quarter would mark the 14th quarter in a row in which the S&P 500's component companies increased operating profits by double digits. However, P/E multiples have contracted throughout this period, notwithstanding this amazing streak. As I have pointed out before, the U.S. economy has withstood significant headwinds such as terrorism fears, war, multiple natural disasters, soaring commodity prices, pandemic worries, many Fed rate hikes, corporate scandals, historically bitter politics and the hangover effects from the overcapacity generated during the bubble years. I continue to believe the bulletproof disposition of the U.S. economy will result in P/E multiple expansion for equities. I expect US stocks to trade modestly higher from current levels into the close on short-covering, lower long-term interest rates, more optimism and falling energy prices.

Today's Headlines

Bloomberg:
- Crude oil may extend a two-month decline as concern about shortages eases, leaving traders who bet on $100 oil with near-worthless investments.
- Microsoft went out of its way to court Electronic Arts, the world’s largest developer of video games, to help make its $12 billion investment in the Xbox a success.
- Shares of GlaxoSmithKline Plc, Europe’s largest drugmaker, fell as much as 5% after the US FDA proposed a label change that would restrict the use of Glaxo’s best-selling Advair asthma medicine.
- Apple Computer reached long-term supply agreements with a group of flash memory components makers including Intel and Micron.
- European Central Bank President Jean-Claude Trichet said an increase in interest rates as early as next month may not be the first of many.
- US Treasury 10-year notes gained on speculation that the Fed’s interest-rate increases will keep inflation contained.
- General Motors will close 12 North American plants and other operations and purge 30,000 jobs in its deepest round of cuts since 1991.
- Crude oil and heating oil are rising today because of speculation that falling temperatures in the US Northeast and central Europe will increase fuel use.

Wall Street Journal:
- S&P will say today that it intends to include stock-options expenses in all its calculations of company earnings.
- TiVo Inc. may today announce plans to let users of its digital video recorders download any television show onto their Apple Computer iPod digital players.
- More realistic testing of driving patterns under different conditions by the US Environmental Protection Agency may reduce the stated fuel mileage on new cars by as much as 10%.
- SBC Communications, which completed its $16 billion purchase of long-distance operator AT&T on Friday, wants to be the first major company to use Internet technology to deliver all types of telecommunications services in the US.

AP:
- Camden, New Jersey, has been named the most dangerous US city for the second year running, citing an annual ranking by Morgan Quitno Press.

Reuters:
- EBay’s Skype Technologies SA, which offers Web-based phone services for 66 million users mostly in Europe and Asia, said yesterday that it will distribute telephone kits at 3,500 RadioShack stores in the US.

Leading Indicators Jump

- Leading Indicators for October rose .9% versus estimates of a .8% increase and a .8% decline in September.

BOTTOM LINE: The index of leading economic indicators in the US rose in October for the first time in four months as the labor market improved and companies in the South rebounded after three recent hurricanes, Bloomberg reported. Falling energy prices are boosting consumer sentiment and spending causing companies to replenish inventories. Money supply, the largest component of the index, added .13 percentage points to the measure. The manufacturing workweek, the second-largest component of the index, increased to 41 hours from 40.6 hours in September, adding .25 percentage points to the gauge. I expect the Leading Indicators for November to rise again on rising consumer sentiment, an improving labor market and rising stock market.

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Monday Watch

Weekend Headlines
Bloomberg:
- China’s economy will probably slip back into deflation by the end of this year or early 2006, ending more than 12 months of inflation that climbed as high as 2.3% in the first six months of 2005.
- The US House, casting a largely symbolic vote, overwhelmingly rejected by a vote of 403-3 a proposed resolution by Democrats calling for an immediate withdrawal of US troops from Iraq.
- Saudi Arabia, Kuwait and Qatar, three nations that together pump more than 40% of OPEC’s oil, welcomed a three month slide in crude oil prices and said they have no plans to reduce supplies.
- US 10-year Treasury notes rose for a second straight week, the first back-to-back gain in more than two months, after government reports suggested inflation is contained and the housing market may be cooling.
- Wal-Mart said November sales at its US stores are rising within its forecast.
- Saudi Basic Industries, the world’s largest chemical maker by market value, expects prices and profits to decline next year because of an excess of supply, the company’s CEO said.
- Mentor Corp., a maker of plastic surgery products, made a $2.2 billion hostile bid in stock for Medicis Pharmaceutical, the latest offer in an industry where acquisitions have risen 15% from a year earlier.
- UK house prices gained for a second month in November, reinforcing signs of a pickup in Britain’s $6 trillion property market after a yearlong slowdown, property Web site Rightmove said.
- Senator Joseph Biden said he and fellow Democrats are more likely to block the Supreme Court nomination of Samuel Alito Jr. by using a filibuster after seeing statements he made in a 1985 Reagan administration job application.
- Boeing won orders today worth a total of $13.7 billion for 112 aircraft from Emirates and China, extending gains in new business this year over Airbus SAS.

Wall Street Journal:
- Toyota Motor may set a goal next month of producing as many as 9.2 million cars in 2006, which could make it the first company in 70 years to produce more cars than GM.

NY Times:
- About 40% of New Orleans is still without power, and the city’s main utility, Entergy Corp., says some areas of the city are too devastated to predict when electricity will come back on.
- Wal-Mart Stores’ Sam’s Club warehouse stores and J. Crew Group are reaching out to higher-income shoppers this holiday season with luxury goods ranging from Italian cashmere to diamond wreath necklaces.
- Support is increasing for a nationwide telephone service that would connect callers to social services and ways to volunteer in their communities.
- Iran’s Parliament voted today to approve the outline of a bill that would prevent the United Nations from inspecting its nuclear sites should Iran’s case be referred to the UN Security Council for possible sanctions.

Washington Post:
- Lockheed Martin and three private-equity firms ended talks with Computer Sciences about a buyout of the No. 5 US computer-sciences company.

The Chronicle of Philanthropy:
- Donations to US hurricane relief efforts have surpassed the amount raised for victims and their families after the terrorist attacks on Sept. 11, 2001.

AP:
- Abu Musab al-Zarqawi, the leader of Iraq’s al-Qaeda cell, may be among those who died in a gunfight in the northern Iraqi city of Mosul and “there are efforts under way to determine if he was killed.”

Financial Times:
- Chinese copper trader Liu Qibing is being made a “scapegoat” for losses at a government agency and worked with proper approvals, citing an unidentified trader in Shanghai who knows Liu.

London-based Times:
- US companies are having their longest streak of double-digit quarterly profit rises since 1936, citing research by Merrill Lynch.

The Business:
- Microsoft, Reuters Group and Time Warner’s AOL unit will announce an Internet messaging service, overcoming restrictions that had prevented the technology from being used by financial institutions.
- Buyout firm Blackstone Group is examining a possible purchase of Knight Ridder, publisher of the Philadelphia Inquirer and Miami Herald.

Focus Magazine:
- Germany’s Federal Labor Agency expects the number of jobless people to rise next year, undercutting the estimated level of social insurance contributions by $4.4 billion, citing an internal labor office forecast.
- Plans by the incoming German government to increase taxes will cost citizens an additional $21.7 billion in 2007, citing internal finance ministry estimates.

China Daily:
- China will import less oil and oil products in 2006 than previous years, an official with the Ministry of Commerce said recently.

al-Hayat:
- Egypt discovered a new oil well south of the Sinai desert that contains 20 million barrels of oil reserves.

Le Journal du Dimanche:
- French President Jacques Chirac’s approval rating dropped another 3 percentage points in November to 35%.

Weekend Recommendations
Barron's:
- Had positive comments on EK, WY, BOW and SSCC.
- Had negative comments on AMED and GOOG.

Goldman Sachs:
- Reiterated Outperform on CSCO and GE.

Night Trading
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S&P 500 indicated +.02%.
NASDAQ 100 indicated +.06%.

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Economic Releases
10:00 am EST
- Leading Indicators for October are estimated to rise .8% versus a .7% decline in September.

BOTTOM LINE: Asian Indices are mixed as higher energy prices are offsetting more optimism for exporters in the region. I expect US stocks to open mixed and to rise modestly later in the afternoon. The Portfolio is 100% net long heading into the week.