Stocks Modestly Higher Mid-day, Building on Yesterday's Large Gains

Indices
S&P 500 1,270.99 +.17%
DJIA 10,852.94 +.05%
NASDAQ 2,258.66 +.66%
Russell 2000 688.71 +.68%
DJ Wilshire 5000 n/a
S&P Barra Growth 607.75 +.15%
S&P Barra Value 658.29 +.06%
Morgan Stanley Consumer 596.76 +.14%
Morgan Stanley Cyclical 795.36 +.37%
Morgan Stanley Technology 534.63 +.63%
Transports 4,240.37 +.97%
Utilities 412.16 -.34%
Put/Call .76 +5.56%
NYSE Arms 1.03 +38.51%
Volatility(VIX) 11.53 +3.50%
ISE Sentiment 182.00 +11.66%
US Dollar 89.08 -.85%
CRB 337.66 +.40%

Futures Spot Prices
Crude Oil 63.35 +.33%
Unleaded Gasoline 175.60 +.31%
Natural Gas 10.19 -4.10%
Heating Oil 181.25 +.90%
Gold 536.20 +.69%
Base Metals 155.94 +1.37%
Copper 209.75 +2.39%
10-year US Treasury Yield 4.35% -.18%

Leading Sectors
Airlines +2.10%
Networking +1.98%
Disk Drives +1.93%

Lagging Sectors
Utilities -.28%
Banks -.40%
Gaming -.86%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Semi longs, Software longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is above average. Measures of investor anxiety are mostly higher. I like the action so far today. Above-average volume with good breadth and modest gains for the major averages. Many stocks with exceptional performances yesterday are holding those gains today. A number of leaders are building on yesterday's strong performance. As stocks grind higher, I suspect short-covering will spur another more substantial rally fairly soon. I expect US stocks to trade modestly higher from current levels into the close on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- President Bush called 2005 a “year of progress” in Iraq and said the US will reduce the number of its troops there by “several thousand” because Iraqis are taking more responsibility for their own security.
- Samsung Electronics will release its first high-definition DVD player in North America this week, giving a boost to Sony Corp.’s(SNE) Blu-ray version of the audio and visual technology.
- Copper is rising to a record in London amid concern a strike planned to start today at mines owned by Chile’s Codelco will limit supplies of the metal used in wiring and plumbing.
- US Supreme Court nominee Samuel Alito was given the highest professional rating of “well qualified” by an American Bar Association panel.
- The US dollar had the biggest two-day decline against the euro in four months after the Fed suggested its is closer to halting its interest-rate increases.

Wall Street Journal:
- Hewlett-Packard(HPQ) will announce today a new consumer-electronics range at a trade fair in Las Vegas.
- Film studios and cable television companies are discussing the possibility of offering movies on demand the same day they are released on DVD.
- Allstate(ALL), P&G(PG) and Pfizer(PFE) have cut spending on television ads as viewers have declined in number.
- Oracle(ORCL), Halliburton(HAL) and Schlumberger(SLB) are among companies likely to benefit as businesses boost spending this year.

NY Times:
- New Orleans residents are working together to start so-called charter schools that get less state funding and have more autonomy on curriculum and hiring than traditional public schools.

NY Post:
- NY democratic Attorney General Eliot Spitzer once threatened the head of the state Lobbying Commission, citing a handwritten note dated Dec. 21, 1999.

Daily Telegraph:
- Cuban President Fidel Castro ordered the assignation of US President John F. Kennedy in 1963, citing evidence presented in a documentary to be shown on German television later this week.

Guardian:
- The Iranian government has set up a network in Europe to help buy the expertise and materials needed to develop a nuclear bomb.

Factory Orders Rise on Transportation Orders

- Factory Orders for November rose 2.5% versus estimates of a 2.4% increase and a 1.7% gain in October.

BOTTOM LINE: US factory orders increased for a second consecutive month in November as airlines ordered more planes, while other businesses recovered from the Gulf Coast hurricanes and rebuilt inventories, Bloomberg reported. Bookings rose for oil equipment, commercial aircraft and computers. An indicator of future business spending, orders for capital goods excluding aircraft, fell 2.1%. The inventory-to-shipments ratio remained at a low 1.18 months. Unfilled orders rose 3% to $621.4 billion, the highest in history. I continue to expect manufacturing to add to US growth over the intermediate-term as businesses gain confidence in the durability of the expansion and inventory/hurricane rebuilding takes hold.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil in NY is falling from a two-month high amid expectations mild US temperatures will help bolster winter heating fuel supplies.
- Samsung Electronics topped $100 billion in market value today, joining Vodafone Group Plc(VOD) as the only technology stocks outside the US to pass the milestone.
- The dollar fell to a two-month low against the euro and dropped versus the yen in Asia after minutes from the Fed’s last meeting suggesting it is closer to halting an 18-month policy of raising interest rates.

AP:
- Lynn Swann, a member of the Pro Football Hall of Fame and veteran television football analyst, is expected to announce tomorrow that he’s running for the Republican nomination for governor of Pennsylvania.

Bangkok Post:
- Crude oil prices are likely to trade in a range of $40 to $55 a barrel this year amid steady growth in the energy industry, citing the president of PTT Pcl, Thailand’s biggest energy company.

Economic Daily News:
- China Steel has cut export prices for its hot-rolled and cold-rolled steel by an average of $80 to $100 a metric ton due to weak demand.

Commercial Times:
- AU Optronics(AUO) plans to invest as much as $1.1 billion to expand its so-called fifth-generation production lines to cope with strong demand, citing unidentified equipment suppliers.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Underperform on SMP.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated -.09%.

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Earnings of Note
Company/EPS Estimate
(AYI).42
(BCF)1.01
(DCN)-.02
(SONC).27

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for November are estimated to rise 2.4% versus a 2.2% increase in October.

Afternoon
- Total Vehicle Sales for December are estimated to rise to 16.8M versus 15.7M in November.

BOTTOM LINE: Asian indices are higher, led by technology shares in the region, on optimism the US fed will soon end interest rate hikes. I expect US equities to open mixed and to rally modestly into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Dovish Fed Comments, Bargain Hunting and Short-Covering

Indices
S&P 500 1,268.80 +1.64%
DJIA 10,847.41 +1.21%
NASDAQ 2,243.74 +1.74%
Russell 2000 684.05 +1.61%
DJ Wilshire 5000 n/a
S&P Barra Growth 606.65 +1.70%
S&P Barra Value 657.81 +1.58%
Morgan Stanley Consumer 595.91 +.75%
Morgan Stanley Cyclical 792.44 +.94%
Morgan Stanley Technology 531.30 +1.74%
Transports 4,199.16 +.07%
Utilities 413.55 +2.08%
Put/Call .72 -5.26%
NYSE Arms .74 -55.14%
Volatility(VIX) 11.14 -7.71%
ISE Sentiment 152.00 -6.17%
US Dollar 89.85 -1.34%
CRB 336.37 +1.37%

Futures Spot Prices
Crude Oil 62.92 -.35%
Unleaded Gasoline 174.50 -.31%
Natural Gas 10.47 -1.46%
Heating Oil 179.25 -.22%
Gold 535.10 +.49%
Base Metals 153.83 +.93%
Copper 204.65 -.10%
10-year US Treasury Yield 4.36% -.58%

Leading Sectors
Gold & Silver +6.3%
Oil Service +5.69%
Energy +4.68%

Lagging Sectors
Papers -.05%
Airlines -1.18%
Broadcasting -1.35%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (WAG) and (MSNT).
- Reiterated Underperform on (DJ).

Afternoon/Evening Headlines
Bloomberg:
- US stocks began the year with their biggest rally since October, sparked by a signal that the Fed may soon stop raising interest rates.
- Citigroup Inc.(C), the biggest US bank, may buy Goldman Sachs Group(GS) this year, Wall Street commentator James Cramer wrote in a NY magazine column.
- CBS Corp.(CBS) plans to drive growth with its Internet sites and the sale of television shows on handheld, Chief Executive Officer Leslie Moonves said.
- US Treasury notes rose after the Federal Reserve said in the minutes of its Dec. 13 meeting that the amount of additional interest rate increases needed to control inflation “probably would not be large.”
- Shares of Google(GOOG) had their biggest gain in more than two months after Piper Jaffray analyst Safa Rashtchy said the stock may jump to $600 this year.
- Estee Lauder(EL) will replace Mercury Interactive(MERQE) in the S&P 500.

AP:
- Rhode Island legalized medical marijuana use after the legislature overrode a veto by Republican Governor Don Carcieri.
- Republican Governor George Pataki said New York state will end the fiscal year with a $2 billion surplus.

BOTTOM LINE: The Portfolio finished substantially higher today. 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 above average. Measures of investor anxiety were mostly lower into the close. Overall, Today's action was very good for the bulls as the major averages finished near session highs on above-average volume. As I speculated last week, it does appear many funds sold in advance of January. Today's gains are the type that will likely result in further gains into week's end as shorts scramble to stay in the ballgame.