Bull Radar

Style Outperformer:

Large-cap Value (+.97%)

Sector Outperformers:

I-Banks (+1.78%), Steel (+1.78%) and Construction (+1.62%)

Stocks Rising on Unusual Volume:

GRT, BCR, AIR, RZ, DGIT, CAKE, FSIN, NUAN, TTWO, JOYG, ICLR, SOLF, CHNR, NDSN, SDTH, HMSY, RIGL, LEAP, DLLR, SYNA, FCSX, MANT, BUCY, GSIC, VSL, DRL, CHU and RICK

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Treasury Secretary Henry Paulson said the Bush administration would seek to alter a mortgage industry plan aimed at helping subprime borrowers should it fail to limit a wave of foreclosures. “We’re going to be all over this, we’re going to watch it and make changes if need be,” said Paulson.
- Japan’s government slashed its economic growth forecast after stricter rules for obtaining building permits caused housing starts to plummet to a four-decade low.
- The yen traded near a five-week low against the dollar after global stocks gained, leading investors to borrow in Japan and buy higher-yielding assets elsewhere.
- NTT DoCoMo Inc. rose the most in two weeks in Tokyo trading after a report said it’s in talks with Apple Inc.(AAPL) to sell the iPhone handset in the country.

MarketWatch.com:
- Give kids reason to give this holiday.
- Choppy waters not as rough as they seem. From an historic perspective, the stock market hasn’t been that volatile recently.

BusinessWeek.com:
- Logitech(LOGI): A Pick to Click. S&P likes the PC accessory maker’s history of strong growth – and its attractively valued stock – and rates the shares strong buy.
- Inside iPod Touch. The Touch will probably set the standard for iPod iterations to come, and our teardown reveals it’s more than just an iPhone you can’t make calls on.
- New Report Cuts China Economy Down a Size. A new Asian Development Bank study suggests that China’s gross domestic product on a purchasing power parity basis is 40% smaller than previously thought.

USA Today.com:
- Sales picture sharpens for HD, the new ‘biggest thing’ in tech.

Financial Times:
- Goldman encounters hard-to-please investors.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (NILE) to Buy, target $88.
- Upgraded (MXIM) to Buy, target $35.

Night Trading
Asian Indices are +.25% to +2.0% on average.
S&P 500 futures +.12%.
NASDAQ 100 futures +.17%.

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Earnings of Note
Company/EPS Estimate
- (KMX)/.17
- (JOYG)/.80
- (GIS)/1.13
- (MLHR)/.59
- (NKE)/.66
- (ORCL)/.27
- (HWAY)/.29
- (SCS)/.28
- (PAYX)/.39
- (COMS)/.02
- (ACN)/.56
- (AZPN)/.10
- (MS)/-.39
- (ATU)/.48
- (CMC)/.62

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 1,500,000 barrels versus a 722,000 barrel decline the prior week. Gasoline supplies are expected to rise by 800,000 barrels versus a 1,618,000 barrel build the prior week. Distillate inventories are estimated to fall by 500,000 barrels versus an 810,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by .25% versus a .68% decline the prior week.

Other Potential Market Movers
- The Fed’s Lacker speaking, weekly MBA Mortgage Applications report and (UST) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology shares and financial stocks 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.

Stocks Finish Near Session Highs, Boosted By Small-Caps

Indices
S&P 500 1,454.98 +.63%
DJIA 13,232.47 +.50%
NASDAQ 2,596.03 +.84%
Russell 2000 754.06 +2.03%
Wilshire 5000 14,592.92 +.68%
Russell 1000 Growth 604.80 +.53%
Russell 1000 Value 789.42 +.64%
Morgan Stanley Consumer 741.22 +.42%
Morgan Stanley Cyclical 974.30 +.69%
Morgan Stanley Technology 612.33 +.69%
Transports 4,662.73 +.42%
Utilities 540.64 +1.41%
MSCI Emerging Markets 147.32 +1.14%

Sentiment/Internals
Total Put/Call 1.03 -7.21%
NYSE Arms .86 -13.31%
Volatility(VIX) 22.64 -7.67%
ISE Sentiment 121.0 +14.15%

Futures Spot Prices
Crude Oil $90.49 -.15%
Reformulated Gasoline 230.45 -1.32%
Natural Gas 7.16 +1.85%
Heating Oil 255.57 -1.62%
Gold 806.90 +.95%
Base Metals 206.10 -.23%
Copper 289.20 +.10%

Economy
10-year US Treasury Yield 4.12% -3 basis points
US Dollar 77.43 +.04%
CRB Index 347.05 -.27%

Leading Sectors
Alternative Energy +3.98%
Computer Services +1.54%
Biotech +1.31%

Lagging Sectors
Tobacco -.38%
Gaming -.79%
I-Banks 1.24%

Evening Review
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Afternoon Recommendations
Bank of America:
- Rated (XRTX) Buy, target $20.
- Rated (ELX) Buy, target $22.

Needham:
- Rated (POWI) Buy, target $37.
- Rated (FMCN) Buy, target $73.
- Rated (SNDA) Buy, target $45.

Afternoon/Evening Headlines
Bloomberg:
- TD Ameritrade(AMTD) sees December Quarter EPS $.39, well above prior estimates of .27-.33 and analysts’ estimates of .32. The stock is rising 5% in after-hours trading.
- Goldman Sachs Group(GS) said clients pulled about $3 billion from quantitative hedge funds including Global Alpha in the fiscal fourth quarter and withdrawals will increase over the next three months.
- Federal Reserve Bank of Dallas President Richard Fisher said that while the US economy appears to be slowing, the central bank shouldn’t “overreact” and must ensure inflation stays low. “The actions we’ve taken should provide some buoyancy through the course of next year to the economy,” he said.
- The perceived risk of US companies defaulting on their debt fell as the European Central Bank injected an unprecedented $500 billion into the banking system. The Markit CDX North America Investment Grade Index, a US benchmark for the cost of protecting debt from default, fell 1.75 basis points to 77 basis points. Credit-default swap prices decline as perceptions of credit quality improve. The cost to borrow in euros plunged after the central bank stepped in as part of a global effort to ease credit-market gridlock. The two-week euro interbank offered rate dropped a record 50 basis points to 4.45%, the European Banking Federation said.
- Welsh, Carson, Anderson & Stowe, the buyout firm that has invested $16 billion since its founding in 1979, plans to buy as much as $1 billion of bank loans and debt securities hurt by this year’s credit-market turmoil.
- Palm Inc., the maker of the Treo e-mail phone, forecast profit and sales that missed analysts’ estimates after customers defected to the BlackBerry and iPhone. The shares fell 8.4% in late trading.

BOTTOM LINE: The Portfolio finished higher today on gains in my Software longs, Biotech longs, Medical longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish. The fact that the (XLF) finished +.02 today despite the meaningful decline in leader Goldman Sachs(GS) is a positive. As well, the Russell 2000 outperformed substantially, which may indicate diminishing recession fears. I suspect we will see a decent rally in the broad market from current levels into year-end. Nikkei futures are indicating an up 90 open in Japan.

Stocks Higher into Final Hour, Reversing Sharply From Mid-day Declines

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs and Medical longs. I covered all of my (IWM)/(QQQQ) hedges, added slightly to my (GOOG)/(AAPL)/(ISRG) longs and covered some of my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. The TED spread is falling another 7 basis points today to 189 basis points. It has declined 32 basis points in six days, which is a big positive. As well, the 10-year swap rate is falling to 63.7 basis points over Treasuries, which is down from 87.5 basis points over Treasuries one month ago. Gauges of credit market angst are beginning to fall meaningfully, which seems to be mostly ignored by investors so far. Investor reactions to the Goldman Sachs(GS) and Best Buy(BBY) earnings reports are other examples of good news failing to be rewarded as the undying belief by the herd that the future for the US economy is bleak remains firmly in tact. I continue to believe that as we move into the first quarter of next year without seeing a further meaningful deterioration in economic data that stocks will rise substantially from current levels as the recession trades get taken off. Below trend economic growth, low interest rates and decelerating inflation should prompt another explosive move higher in true “growth” stocks. I expect US stocks to trade modestly higher into the close from current levels on falling energy prices, diminishing credit market angst, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Demand for new commercial-mortgage securities outstripped supply last week “for the first time in quite a while,” according to RBS Greenwich Capital.
- The perceived risk of financial companies defaulting on their debt fell after Goldman Sachs Group(GS), the world’s largest securities firm, said quarterly profit rose more than analysts estimated.
- DreamWorks Animation(DWA) had its biggest rise in more than three years on the NYSE after saying it will buy back as much as $150 million of its shares.
- Bank of America(BAC), Citigroup(C) and JPMorgan(JPM), designed to bail out short-term debt markets, will start making purchases from structured investment vehicles “within weeks.”
- The US House of Representatives approved energy legislation that will phase out incandescent light bulbs and boost the fuel efficiency of new cars and the gas they use. President Bush plans to sign the measure.
- The cost to borrow in euros plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock through year-end.
- Oil is falling another $.80/bbl. on speculation that demand is waning, supplies are rising and the US dollar will firm.
- Best Buy(BBY), the largest US consumer-electronics retailer, said third-quarter profit rose more than analysts estimated on sales of flat-panel televisions, laptop computers and video-game consoles.
- Goldman Sachs(GS), the world’s largest securities firm, reported record earnings in the worst quarter for Wall Street in six years.
- Thornburg Mortgage(TMA) rose 6.4% in NY after resuming its dividend. Founder Garrett Thornburg resigned as CEO.
- Industrial metals including copper and aluminum have peaked and probably will decline as supplies gain in the next 12 to 18 months, Fitch Ratings said.

Wall Street Journal:
- The US Federal Reserve should avoid revealing if inflation or economic growth is its focus when it explains interest-rate decisions, citing Fed Bank of Philadelphia President Charles Plosser.
- Founders Fund Management, a San Francisco venture-capital firm known for hot investments such as Facebook Inc., has raised $220 million for a new fund to go after more early-stage deals.
- Luxury-Car Sellers Put on the Ritz.
- Market commentators who attacked the US Federal Reserve for cutting interest rates by only a quarter-point last week don’t see far enough ahead, according to Kenneth Rogoff, formerly the chief economist at the IMF and now a professor at Harvard.
- Apple Inc.(AAPL) CEO Steve Jobs met NTT DoCoMo Inc. President Masao Nakamura to discuss selling the iPhone handset in Japan.

Boston Globe:
- Five of New England’s largest banks will commit at least $100 million to refinance subprime mortgages, citing executives.

AP:
- Americans probably spent more this year on mobile telephone services than on land lines for the first time, citing government officials and analysts.

AFP:
- Turkish troops who crossed the boarder into northern Iraq started to withdraw, citing the office of Massoud Barzani, president of Iraq’s Kurdish Regional Government.