Today's Headlines

Bloomberg:
- SAP AG(SAP) forecast software license sales will rise as much as 17% this year, beating analyst estimates.
- Women will now be able to determine how many eggs they have left in their ovaries, allowing them to assess whether they can wait before trying to get pregnant or should get to work immediately.
- Boston Scientific(BSX) won bidding for Guidant(GDT) with its $27 billion bid, beating out Johnson & Johnson(JNJ), which declined to raise its offer.
- Investors pulled more money out of hedge funds in the fourth quarter than they put in, the first quarterly withdrawals in more than 10 years, as returns fell below their long-term average for the second straight year, according to Hedge Fund Research.
- Crude oil is falling after an Energy Department report showed that US supplies of gasoline and distillate fuel increased for a fourth straight week.

Wall Street Journal:
- Oxford University Press and other religious textbook publishing companies have come under increasing pressure from Hindu, Jewish and other religious groups to modify passages in textbooks they produce.
- A group of US utilities is trying to persuade automakers to produce plug-in electric hybrid cars in a bid to gain more business.
- US start-up companies are finding it harder to maker IPOs because of regulatory and other stock-market changes.
- Aetna(AET), Wellpoint(WLP), Humana(HUM) and other private insurers in the US are hiring aggressively to help cope with an unexpected level of problems as new Medicare drug-benefit plans are rolled out.
- Google(GOOG), Sun Microsystems(SUNW) and Lenovo Group Ltd. have supplied at least $1 million to finance a new program to identify malicious software producers.
- The US Congress plans to prevent troubled companies from funding lavish pension payouts to executives.

NY Times:
- Ford Motor(F) plans to begin airing a television commercial today explaining the automaker’s financial difficulties and restructuring plans to consumers.

Washington Post:
- President Bush plans to propose tax breaks for individuals’ personal health spending

Gulf News:
- Iraq more than doubled the flow of oil to 500,000 barrels a day through its northern export pipeline to the Ceyhan terminal in Turkey.

Interfax:
- Iran regards “positively” a proposal to set up a joint venture on Russian soil to enrich uranium for the Iranian nuclear industry, citing Ali Larijani, the secretary of Iran’s Supreme National Security Council.

World Gas Intelligence:
- Global liquefied natural gas output capacity may rise 18% this year as four new export plants come online.

Existing Home Sales Slow

- Existing Home Sales for December fell to 6.6M versus estimates of 6.87M and 7.0M in November.

BOTTOM LINE: Sales of previously owned homes fell in December to the lowest level since March 2004, Bloomberg reported. Sales still finished 2005 at an all-time record high of 7.072 million. The median selling price rose 10.5% in December(y-o-y) to $211,000. Inventories rose to 5.1 months’ worth at the current sales pace versus 5 months’ worth in November. Home re-sales fell 11% in the West, 2.6% in the Northeast and 7.2% in the South. They were unchanged in the Northeast. I continue to believe housing is slowing to more healthy sustainable levels.

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Sony Corp.(SNE) will probably revise its annual forecast to a profit from a loss on higher holiday season sales of Bravia flat-screen televisions and digital cameras.
- Crude oil is falling for a third day in NY before a report that may show US oil stockpiles rose last week as mild temperatures sapped heating demand.
- China’s economy grew 9.9% in 2005, overtaking France as the world’s fifth largest, powered by exports and investment in factories, roads and power plants.

Financial Times:
- UK companies are less willing to make acquisitions in emerging markets than companies in the US or other European countries, citing KPMG International research.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (SYK), (PKG), (DD) and (MSFT).
- Reiterated Underperform on (LU), (EAT) and (CR).

Night Trading
Asian Indices are +.25% to +1.25% on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.21%.

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Earnings of Note
Company/EPS Estimate
(ABT)/.76
(ADP)/.45
(AMG)/1.29
(ATI)/.88
(ALTR)/.19
(AHC)/3.26
(ABC).40
(AMTD)/.22
(BLS)/.45
(BMY)/.28
(BR)/2.35
(CL)/.68
(COP)/2.62
(EXC)/.73
(GD)/1.97
(HSY)/.75
(JNPR)/.20
(KMG)/.161
(MXIM)/.41
(NSC)/.75
(NVLS)/.16
(QCOM)/.38
(ROW)/-.21
(STJ)/.40
(SWK)/.82
(VAR)/.33
(WLP)/1.04

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Existing Home Sales for December are estimated to fall to 6.87M versus 6.97M in November.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude build of 1,400,000 barrels. Gasoline inventories are estimated to rise 1,400,000 barrels, and distillate supplies are expected to increase by 875,000 barrels. Finally, refinery utilization is expected to remain unchanged.

BOTTOM LINE: Asian indices are higher on falling energy prices and reports of strong economic growth in the region. I expect US equities to open mixed and to rally later in the day, finishing higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Higher as Oil Prices Fall and Merger Activity Rises

Indices
S&P 500 1,266.86 +.24%
DJIA 10,712.22 +.22%
NASDAQ 2,265.25 +.75%
Russell 2000 718.02 +1.44%
S&P Barra Growth 605.14 +.12%
S&P Barra Value 657.46 +.36%
Morgan Stanley Consumer 596.73 +.01%
Morgan Stanley Cyclical 783.20 +1.17%
Morgan Stanley Technology 532.59 -.03%
Transports 4,275.02 +2.38%
Utilities 425.02 +.78%
Put/Call .53 -39.08%
NYSE Arms 1.13 +8.69%
Volatility(VIX) 13.31 -4.45%
ISE Sentiment 187.00 +1.63%
US Dollar 88.10 +.17%
CRB 343.72 -.31%

Futures Spot Prices
Crude Oil 66.74 -.48%
Unleaded Gasoline 173.30 -.65%
Natural Gas 8.60 -.94%
Heating Oil 180.76 -.52%
Gold 558.90 +.14%
Base Metals 165.06 +.77%
Copper 214.90 -.16%
10-year US Treasury Yield 4.39% +.81%

Leading Sectors
Steel +7.48%
Airlines +3.27%
Oil Tankers +2.95%

Lagging Sectors
Networking -.93%
Oil Service -1.03%
Drugs -1.29%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (UTX), (ACLS), (SYMC) and (EMC).

Afternoon/Evening Headlines
Bloomberg:
- The WB and UPN television broadcast networks, which have failed to improve their audience ratings, will merge to form the CW Television Network to lure younger viewers.
- Advanced Micro Devices(AMD) won more than 20% of the market for chips to run personal computers for the first time in more than four years, snatching sales from Intel Corp.(INTC).
- One in 13 California homes sold for more than $1 million last year as more condominiums and new homes surged past the million-dollar mark.
- Google(GOOG) passed Intel(INTC) and IBM(IBM) to become the world’s second-most valuable technology company after Microsoft(MSFT).
- Corning(GLW) posted a fourth-quarter loss on tax-related expenses and issued a first-quarter forecast that fell short of some analysts’ estimates.
- Intuitive Surgical(ISRG)will replace Siebel Systems(SEBL) in the Nasdaq 100 prior to the market open on Feb.1.

CNBC:
- Johnson & Johnson(JNJ) may make a bid for ImClone Systems(IMCL), said Josh Kosman, consulting editor for Mergermarket.

Women’s Wear Daily:
- Eddie Bauer Holdings, the outdoor apparel retailer with 399 stores, may be purchased by VF Corp.(VFC) or a private equity firm.

TechWeb.com:
- Grade school students, parents and teachers at Freehold Borough School District in New Jersey are undergoing digital iris scans as a way of identifying them before letting them onto school grounds.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Internet longs, Biotech longs, Energy-related shorts and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished higher, sector performance was mostly positive and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, today's performance was pretty good for the bulls as the major averages and breadth finished near session highs even without leadership from tech and energy. Small-caps continue to outperform substantially with the Russell 2000 now up 6.7% already for the year. This is comparable to the best performing emerging market indices, with much less risk in my opinion. I expect volatility to increase tomorrow as shorts capitulate or longs take profits after the recent bounce.

Stocks Higher Into Final Hour as Oil Declines and Irrational Pessimism Over Earngings Subsides

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Biotech longs, Retail longs and Semi longs. I added to my PLAY long and NBR short, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are gaining and volume is above average. Measures of investor anxiety are mostly lower. The Johnson Redbook same-store sales index rose 3.3% year-over-year last week vs. a 3.1% rise the prior week. This week's gain is up from a 1.5% increase in late April, and it's the 38th week in a row that the index has risen 3% or more. Retail sales continue to remain healthy, despite higher oil prices. A healthy labor market, low long-term interest rates, falling energy prices and rising stock prices should cushion any weakness this year related to a slowing housing market. I expect US stocks to trade modestly higher from current levels into the close on short-covering.