Bull Radar

Style Outperformer:

Large-cap Growth (+.61%)

Sector Outperformers:

Software (+1.84%), Wireless (+1.20%) and Computer Services (+1.23%)

Stocks Rising on Unusual Volume:

BYI, SRZ, PUK, VOL, BCA, HEI, LNN, SCS, PSJ, EVY, SMSC, HRBN, DGIT, ORCL, RIGL, LEAP, INWK, HWAY, SNCR, PRGS, LHCG, MLHR, FLML, CBRL, NNDS, LKQX, MELI, ENER, FDRY, CTAS, CCJ, HBHC, CT and AIXG

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Hedge funds will open at the slowest pace since 2003, with 863 starting up through the first nine months of this year, according to a report published today by Hedge Fund Research. Funds also are closing at a slower rate, with liquidations at 408 through the third quarter. That’s on its way to being the lowest level since 2004. The smaller number of startups may be a byproduct of consolidation in the hedge-fund industry, as more money goes to the largest funds. Almost 90% of new capital went to funds with more than $1 billion under management in the third quarter.
- China, which produces one third of the world’s steel, may reduce net exports of the alloy by 20 million metric tons next year, an official from the China Iron and Steel Association said.
- Ayman al-Zawahiri, al Qaeda’s No. 2 leader, will field written questions from reporters over the Web.

Wall Street Journal:
- A Proposal for Reviving the Credit Markets.

MarketWatch.com:
- Where the jobs will be in 2008. America’s top employers expand retail, health-care positions. The hiring picture for 2008 appears to be one of steady growth at many of America’s biggest employees, with retiring baby boomers and the weak US dollar creating new opportunities in some surprising areas.
- Oracle(ORCL) posts strong gains, alleviating investor concern.
- Insiders remain optimistic about stocks.
- Nike(NKE) profit rises more than expected.

SmartMoney.com:
- Moves by Fed and ECB May Offer Relief for Homeowners.
- Red Robin(RRGB) Beefs Up Expansion, Branding Plans.

washingtonpost.com:
- The Blackstone Group LP(BX) is planning a $9 billion commercial mortgage-backed securities offering backed by Hilton Hotels next quarter, according to a Credit Suisse research note.

USA Today.com:
- Shop by phone gets new meaning.
- The government and major airlines struck a deal Wednesday that will cap the number of peak-hour flights at two of NYC’s busiest airports in a move aimed at reducing chronic air travel delays across the nation.

Reuters:
- S&P said on Wednesday that The Washington Post(WPO) will replace Temple-Inland(TIN) in the S&P 500 after the close of trading on Friday, December 28.

Financial Times:
- Bear Stearns’(BSC) market share in the prime brokerage business has dropped significantly during the credit squeeze.
- Year-end credit squeeze fears start to recede.
- Netsuite IPO prices at $26 per share. Shares in Netsuite, whose IPO has become the software industry’s most prominent since this summer’s launch of VMware(VMW), are set to open at an unexpectedly high level on Thursday, following a surge in interest that prompted the company to price the stock at double its most conservative estimate of a week ago.

Daily Telegraph:
- Mergers soar to record despite credit crisis.

globeandmail.com:
- Troubled bond insurer ACA Capital Holdings has reached a last-minute deal with its counterparty banks, including Canadian Imperial Bank of Commerce, to starve off a potential slide into insolvency, according to people familiar with the matter.

Central News Agency:
-. Taiwan’s technology industry sales will rise as much as 30% this year, citing the Taipei Computer Association. The stable growth will continue in the first quarter next year, according to the association.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MS), target $75. Every major institutional business outside of mortgage produced excellent results, and the mortgage overhang is behind it. Subprime mortgage exposure declined over 80%, driven by aggressive writedowns. Furthermore, exposure to other areas including CMBS are much less of an issue based on the new disclosures provided.

CSFB:
- Rated (BXP), (KRC) and (TPGI) Outperform.
- Rated (MAA) and (PSB) Underperform.
- Reiterated Buy on (PAYX), target $50.
- Reiterated Buy on (ACN), target $60.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures +.01%.
NASDAQ 100 futures +.17%.

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Earnings of Note
Company/EPS Estimate
- (PRGS)/.52
- (CAG)/.42
- (DFS)/.36
- (CTAS)/.53
- (AM)/.57
- (WOR)/.32
- (BSC)/-1.82
- (FDX)/1.51
- (RAD)/-.08
- (SCHL)/1.91
- (WGO)/.35
- (JBL)/.35
- (CSC)/.84
- (MU)/-.17
- (RHT)/.18
- (RECN)/.28
- (TIBX)/.15
- (SHFL)/.10
- (CCL)/.43
- (RIMM)/.62

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 3Q GDP is estimated to rise 4.9% versus prior estimates of a 4.9% gain.
- Final 3Q Personal Consumption is estimated to rise 2.8% versus prior estimates of a 2.7% increase.
- Final 3Q GDP Price Index is estimated to rise .9% versus prior estimates of a .9% gain.
- Final 3Q Core PCE is estimated to rise 1.8% versus prior estimates of a 1.8% increase.
- Initial Jobless Claims for this week are estimated to rise to 335K versus 333K the prior week.
- Continuing Claims are estimated to fall to 2610K versus 2639K prior.

10:00 am EST
- Leading Indicators for November are estimated to fall .3% versus a .5% decline in October.

12:00 pm EST
- The Philly Fed for December is estimated to fall to 6.0 versus a reading of 8.2 in November.

Other Potential Market Movers
- The weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 Mostly Higher, Led Again by Small-Caps

Indices
S&P 500 1,453.00 -.14%
DJIA 13,207.27 -.19%
NASDAQ 2,601.01 +.19%
Russell 2000 756.13 +.27%
Wilshire 5000 14,583.24 -.07%
Russell 1000 Growth 604.86 +.01%
Russell 1000 Value 787.87 -.20%
Morgan Stanley Consumer 738.31 -.39%
Morgan Stanley Cyclical 973.32 -.10%
Morgan Stanley Technology 615.58 +.53%
Transports 4,584.10 -1.69%
Utilities 536.81 -.71%
MSCI Emerging Markets 148.33 +.73%

Sentiment/Internals
Total Put/Call 1.14 +10.68%
NYSE Arms 1.01 +24.30%
Volatility(VIX) 21.68 -4.24%
ISE Sentiment 110.0 -9.09%

Futures Spot Prices
Crude Oil $91.29 +1.35%
Reformulated Gasoline 233.40 +1.29%
Natural Gas 7.17 +.41%
Heating Oil 260.23 +1.84%
Gold 806.80 -.07%
Base Metals 208.28 +1.06%
Copper 295.60 +2.48%

Economy
10-year US Treasury Yield 4.03% -9 basis points
US Dollar 77.58 +.23%
CRB Index 350.19 +.90%

Leading Sectors
Airlines +1.61%
Alternative Energy +1.4%
REITs +1.37%

Lagging Sectors
Retail -1.33%
Oil Tankers -1.61%
Restaurants -2.55%

Evening Review
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In Play

Afternoon Recommendations
Bank of America:
- Rated (ULTI) Buy, target $40.
- Rated (CMI) Buy, target $140.
- Rated (TEX) Buy, target $80.

Afternoon/Evening Headlines
Bloomberg:
- Oracle Corp.(ORCL), the world’s largest maker of database software, reported second-quarter sales and profit that beat analysts’ estimates, bolstered by orders for new programs and revenue from customer-support contracts. The stock surged 4.2% in after-hours trading.
- Accenture(ACN) reported a 19% gain in first quarter sales and boosted full-year guidance. The stock rose 4.4% in extended trading.
- Nike Inc.(NKE), the world’s largest athletic shoe maker, said second-quarter profit rose on higher sales in China and Europe and a weaker dollar.
- Activision Inc.(ATVI) raised its forecast for fiscal third-quarter and full-year sales and profit because of better-than-expected holiday sales of video games.
- Google’s $3.1 billion purchase of DoubleClick Inc. will be cleared by US antitrust enforcers as early as this week.
- Bertelsmann AG, Europe’s largest media company, may try to buy News Corp.s(NWS/A) HarperCollins publishing unit for about $1 billion, German publication Manager Magazin said.
- The House approved a bill today that indexes the alternative minimum tax for inflation, preventing a tax increase of about $2,000 for some 23 million US households.
- US Energy Secretary Samuel Bodman plans to ask OPEC to boost production.
- General Motors(GM) may announce an agreement to sell a medium-duty truck unit to Navistar Intl. as soon as tomorrow.
- Nelson Peltz, the billionaire investor who pressured HJ Heinz to raise its stock price, acquired more than a 10% stake in Cheesecake Factory(CAKE).
- Wall Street is turning to Asia and the Middle East for $25 billion to prop up balance sheets battered by writedowns from the collapse of the subprime market.

Wall Street Journal:
- The average farmland price in Iowa has jumped 22% from last year due to rising biofuel demand, according to a new survey.

Reuters:
- Bankers foresee the rise next year of a new instrument in Europe – synthetic collateralized loan obligations (CLOs) – even as investors in the thick of the credit crisis are wary of complex, structured products.

BOTTOM LINE: The Portfolio finished higher today on gains in my Software longs, Biotech longs, Medical longs, Semi 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 mildly positive today as the advance/decline line finished slightly higher, most sectors rose and volume was about average. Measures of investor anxiety were above average into the close. Today's overall market action was bullish. The fact that Oracle(ORCL) posted such a strong quarter after the close today, given their exposure to the financial sector, is a big positive. Oracle also said that sales of new licenses, the best gauge of future growth, jumped 38% versus estimates in September of a 25% increase. Moreover, Accenture(ACN) said, after the close, that revenue from financial services rose 17% during the quarter, that they have “great momentum” at the start of the year and that no deals have been terminated due to the economy. Finally, Nike’s(NKE) results also illustrate the underlying strength of the global economy. Nike reported Q2 worldwide future orders of 13% versus an estimate of 7-9%. None of these reports indicate a US economy that is on the verge of sliding into recession. Given the extreme worries of late over the possibility of weak business spending on technology and how bearishly positioned many investors are right now, I would expect to see stocks rally on this news tomorrow. Nikkei futures are indicating a +220 open in Japan.

Stocks Higher into Final Hour, Boosted by Tech Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs, Retail longs, Semi longs and Medical longs. I added to my (ILMN), (AMSC) and (GILD) longs and took some profits in a few other longs today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly positive today as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. The total put/call hit a high 1.25 and the ISE sentiment index hit a depressed 80.0 today, as retail option traders remain skeptical of the chances for a year-end rally, which bodes well for further gains. Despite Morgan Stanley’s(MS) writedown and S&P’s downgrades of some bond insurers, the (XLF) is .8% higher on the day, which is also a big positive. Moreover, the 30-day asset backed commercial paper yield is falling another 6 basis points today and is down 42 basis points in a week. Despite a 5 basis point drop in the 10-year yield today, the dollar is firm, which bodes well for further dollar strength. Oil will likely begin another move lower at the first of the year after year-end mark-ups by investment funds end, the dollar strengthens more, supply exceeds estimates and global demand continues to decelerate. The Fed’s Lacker said today that he sees growth of 2-2.25% next year. I agree with his prediction. 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 are taken off. As I said yesterday, modestly below trend economic growth, low interest rates and decelerating inflation should prompt another explosive move higher in true “growth” stocks. This may already be beginning as many leading growth stocks are trouncing the major averages today. I expect US stocks to trade modestly higher into the close from current levels on diminishing credit market angst, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Credit Suisse Group investment strategists expect the S&P 500 to increase 13% to a record by the end of 2008. Shares are inexpensive relative to bonds, earnings won’t decline and “only one of five preconditions for a bear market is in place,” a bear market in junk bonds, Andrew Garthwaite and Jonathon Morton wrote today. They expect US economic growth of 1-1.5% for the year.
- President Bush today signed legislation aimed at cutting US dependence on overseas energy by setting tougher mandates for carmakers, electric-appliance manufacturers and ethanol producers.
- Short-term borrowing rates fell in Europe, the US and UK as European Central Bank council member Klaus Liebshcer said the bank is ready to provide more cash to restore confidence in money markets.
- The Fed’s Lacker sees US growth of 2-2.5% next year.
- The Federal Reserve, European Central Bank and Swiss National Bank loaned $34 billion in 28-day funds through special auctions as part of a global attempt by central banks to restore faith in the money markets.
- Morgan Stanley(MS) Posts Loss, Sells Stake to China.
- MBIA Inc.(MBI) and Ambac Financial Group(ABK) had the outlook on their AAA credit ratings lowered to negative from stable by S&P, while ACA Capital Holdings(ACA) guaranty ranking was cut to CCC from A.
- According to data compiled by RealtyTrac Inc. home foreclosures fell 10% in November from October.

Wall Street Journal:
- Interest Groups Gain In Election Cash Quest.
- Kiddies’ Wired Wish Lists. Forget Dolls, Toy Trains; The Younger Set Wants High-Tech Gadgets.
- Bear Stearns(BSC) CEO James Cayne and other top executives at the No. 2 underwriter of mortgage-backed bonds will forgo bonuses this year.
- Mezzanine Debt Attracts Real-Estate Investors.
- Bear Stearns(BSC) Asset Management plans to enter the “130/30” mutual fund category.

NY Times:
- Officials from Merrill Lynch(MER), Bear Stearns(BSC) and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities.

WashingtonPost.com:
- Of likely Iowa caucus voters, 33% plan to vote for Barack Obama, 29% Hillary Rodham Clinton and 20% John Edwards, according to a Washington Post-ABC News poll.

Business Week:
- Honda Targets Toyota’s Hybrid Dominance.

AP:
- Energy futures rose Wednesday after the government said supplies of crude and heating oil fell sharply last week, while gasoline inventories jumped. Much of the decline was due to a sharp drop in imports, almost a million barrels a day, because fog closed the Houston Ship Channel last week. Freight rates charged by the large tankers that bring oil from the Persian Gulf to the US have jumped recently, a sign that OPEC oil exports continue to rise. Today’s report showed gasoline demand fell by about 61,000 barrels last week and was up only .3% over the past four weeks versus a year ago. Analysts consider demand growth under 1.5% to be low.