Stocks Finish Mostly Higher, Consolidating Recent Gains

Indices
S&P 500 1,402.81 +.16%
DJIA 12,321.59 +.04%
NASDAQ 2,454.84 +.09%
Russell 2000 792.17 +.20%
Wilshire 5000 14,085.02 +.21%
S&P Barra Growth 651.79 +.22%
S&P Barra Value 748.76 +.11%
Morgan Stanley Consumer 677.03 -.03%
Morgan Stanley Cyclical 885.99 +.38%
Morgan Stanley Technology 578.98 +.23%
Transports 4,851.88 +.28%
Utilities 449.39 +.24%
Put/Call 1.02 +24.39%
NYSE Arms .99 -19.23%
Volatility(VIX) 9.90 -.70%
ISE Sentiment 137.0 -15.43%
US Dollar 85.20 -.26%
CRB 310.32 +1.31%

Futures Spot Prices
Crude Oil 60.09 +2.19%
Unleaded Gasoline 162.10 +4.29%
Natural Gas 7.94 -.87%
Heating Oil 172.90 +3.48%
Gold 627.10 -.25%
Base Metals 233.87 +.62%
Copper 314.50 -.08%
10-year US Treasury Yield 4.57% -.51%

Leading Sectors
Gold & Silver +3.75%
Steel +2.71%
Airlines +2.37%

Lagging Sectors
Drugs -.46%
Telecom -.60%
Semis -1.10%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Dell Inc.(DELL) posted a third-quarter profit that beat analysts’ estimates and said steps to improve its financial performance are starting to take hold, sending the shares 9% higher in after-hours trading.
- US economic growth will slow to 2.9% in 2007 from 3.1% this year, the Council of Economic Advisers said.
- Crude oil rose to $60 a barrel in New York after the Trans-Alaska Pipeline System limited the amount of oil it will carry and a North Sea platform was shut because of a gas leak.
- The Justice Department, responding to a legal challenge by former Clinton administration Attorney General Janet Reno, says it stands by a decision to try a suspected terrorist outside the court system.
- The NY Merc announced today that it will expand COMEX metals electronic trading to include side by side trading, COMEX miNYs, Asian metals, and London metals futures contracts on the CME Globex® electronic trading platform beginning Dec. 3 for trade date December 4.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Internet longs and Computer longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was neutral today as the advance/decline line finished about even, sector performance was mixed and volume was below average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was neutral as the major averages continue to consolidate recent gains on below-average volume. Underneath the surface today, quite a number of stocks broke out on volume. As well, market leaders remain strong. The 10-year yield finished near session lows, down another 2 basis points as the White House lowered its economic growth forecast. Despite this, commodities were higher across the board with the CRB Index rising 1.3%. I think oil would have to rise into the upper 60s to generate any substantial weakness in the broad market. I view this as unlikely. The ISE Sentiment Index is plunged 33% to a very low 108.0 this morning. As well, the CBOE total/put call was at above-average levels throughout the day. I have heard a number of pundits point to the low VIX as a sign of the market's imminent demise. The last time the VIX broke below 10 was January 1994. The S&P 500 returned 60% over the next three years. I continue to believe the many U.S. stock market bears remain stunningly complacent as every minor dip is viewed as a major top and every rally just another short-selling/selling opportunity.

Stocks Mixed into Final on a Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is below average. The S&P 500 is up 14.2% this year, however the P/E on the S&P 500 has barely moved off its recent lows seen during the mid-year sell-off. The forward P/E is now 15.9 vs. a long-term average P/E of around 22. This is a result of the fact that earnings continue to exceed even the most optimistic estimates. During the correction, many said 3Q earnings growth would plunge to single digits before turning negative in 4Q as the U.S. entered recession. Instead 3Q earnings growth actually accelerated to around 20%. Another double-digit gain in likely this quarter and the possibilities of an imminent recession look remote. As it becomes apparent that a moderate growth and inflation environment is sustainable, I suspect the forward P/E on the S&P 500 will see 19.0 before we finally head into a cyclical bear. I still believe U.S. stock P/E multiple expansion is in its very early stages. Google (GOOG) is surpassing $500 today. I continue to believe its multiple will eventually expand to much higher levels than most expect. Yesterday, Jordan Kahn, a colleague of mine on TheStreet.com’s Street Insight, touched on the fact that global portfolio managers are underexposed to the U.S. I agree and believe Google will be a prime beneficiary of increased exposure to U.S. equities. Google remains my largest long position. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investor performance anxiety and buyout speculation.

Today's Headlines

Bloomberg:
- Syria will resume diplomatic relations with Iraq after more than 20 years, raising the possibility of collaboration to stem insurgency in Iraq.
- Deere & Co.(DE), the world’s largest maker of farm equipment, said fourth-quarter earnings rose more than analysts estimated as sales unexpectedly increased. The shares surged 6.3%.
- Toyota Motor(TM), whose vehicles earn top marks for buyer satisfaction, has more models than any other automaker ranked at the bottom of a crash-protection study.
- Fed Governor Warsh said inflation is too high and the US economy will remain “remarkably resilient.”
- Lebanese Industry Minister Pierre Gemayel, a well-know Christian and outspoken critic of Syria, was shot dead in an ambush on his car.
- Shares of Google(GOOG) passed $500 for the first time as investors bet the company will extend its dominance in Internet search and advertising.

Wall Street Journal:
- The worst of the US housing slowdown is over, citing a WSJ.com economic forecasting survey.
- Walt Disney(DIS) branded children’s footwear will be made and sold by Payless ShoeSource(PSS).
- Honeywell Intl.(HON) won approval from US regulators for a radar system to help planes beat turbulence.
- US and European Union officials are negotiating ways to preserve a US anti-terrorism program that monitors bank-transfer data while still meeting concerns about privacy.
- Comcast Corp.(CMCSA) will sign a deal with Walt Disney(DIS) to provide content for its video-on-demand service.

NY Times:
- NY Senator Hillary Rodham Clinton spent almost $29.5 million on her re-election campaign, leaving a smaller cash balance for a potential presidential campaign than some of her advisers previously forecast.

AP:
- Former Clinton administration Attorney General Janet Reno filed court papers challenging the Bush administration’s decision to try a suspected terrorist outside the court system.

Financial Times:
- Freeport-McMoRan Copper & Gold’s(FCX) offer to buy Phelps Dodge(PD) for $25.5 billion may mark a peak in mining-company values.

Handelsblatt:
- Intel Corp.(INTC) is gaining market share in Germany from competitor AMD(AMD), citing Intel’s German head Schwaderer.

Vedomosti:
- Evraz Group SA, Russia’s biggest steelmaker, is paying too much for Oregon Steel(OS), citing market analysts.

Vatan:
- An exploration company part-owned by Cukurova Group, the main owner of Turkey’s biggest mobile phone company, found oil in northern Iraq.

Globes:
- IBM(IBM) is in talks to buy Verint Systems(VRNT) for $1 billion to bolster its entrance into the security camera software market.

Economic Releases

- None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The Chicago Board Options Exchange Volatility Index(VIX) closed below 10 for the first time since 1994, suggesting investors have more confidence stocks will rise. In the three years after the VIX last closed below 10 in January 1994, the S&P 500 rallied 60%.
- Southwest Air(LUV) would consider buying gates, planes and other assets sold in a merger of US Air Group and Delta Air, CEO Kelly said.
- Members of the NY Merc’s Comex division have approved a measure to allow electronic trading of gold, copper and other metals contracts.
- CBS Corp.(CBS) asked an appeals court to throw out a FCC finding that the network violated indecency standards when it showed Janet Jackson’s breast during the 2004 Super Bowl. CBS argued in its filing that the FCC’s “zero tolerance” indecency policy is a violation of its right to free speech.
- US commercial construction starts fell 13.9% year-over-year in October, the sixth decline in the last seven months.
- Korean Air Lines, South Korea’s largest carrier, ordered 25 Boeing Co. planes, its largest ever deal.
- Andres Manuel Lopez Obrador, the former Mexico City mayor who lost his bid for president in July elections, swore himself in as the “legitimate” head of state at a rally today in Mexico City.
- Australia’s biofuels production capacity is expanding faster than demand and the industry risks running into oversupply later this decade, an industry consultant said.

London-based Times:
- Nasdaq Stock Market Inc.(NDAQ) is planning two share issues to help finance its bid for London Stock Exchange Group Plc.

Nihon Keizai:
- The Japanese government will downgrade its view of the country’s economy for the first time in almost two years.

China Business News:
- China’s government has ordered Shandong Xinfa Huayu Alumina Co. to stop building a 1.2 million ton-a-year alumina plant after surging domestic capacity caused prices to plummet.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MCD), target $47.
- Reiterated Buy on (PAYX), target $47.

Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/EPS Estimate
- (BGP)/-.64
- (BWS)/.83
- (CBRL)/.57
- (CWTR)/.17
- (DE)/.94
- (DELL)/.24
- (DLTR)/.32
- (EV)/.33
- (GME)/.22
- (JCG)/.21
- (JBX)/.66
- (MWRK)/-.12
- (PSS)/.42
- (PERY)/.71
- (TECD)/.22
- (UNFI)/.29

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are higher, boosted by technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.