Bear Radar

Style Underperformer:

Small-cap Value (-.50%)

Sector Underperformers:

Airlines (-2.13%), REITs (-1.28%) and Hospitals (-.80%)

Stocks Falling on Unusual Volume:

CBK, THRX, OPTT, CWCO, NPSI and PPS

Bull Radar

Style Outperformer:

Small-cap Growth(+.69%)

Sector Outperformers:

Foods (+1.51%), Oil Service (+1.21%) and Telecom (+1.09%)

Stocks Rising on Unusual Volume:

TKF, GCO, CKP, LUB, RUK, SMA, CALM, CTDC, MELI, RICK, CRAI, DRYS, SOLF, HDNG, SIGM, SURW, SDTH, WPPGY, AMWD, FLIR, COMV, RES, OLN and UPL

Gauge of US Business Activity Jumps to 7-month High, Order Backlogs Soar to 10-year High, New Home Sales Fall

- The Chicago PMI for December rose to 56.6 versus estimates of 51.7 and a reading of 52.9 in November.

- New Home Sales for November fell to 647K versus estimates of 717K and 711K in October.

BOTTOM LINE: The Chicago PMI, a measure of US business activity, unexpectedly rose this month to the highest level since June as new orders increased and businesses reduced stockpiles of unsold goods, Bloomberg reported. Booming exports may help sustain growth in manufacturing, economists said. The New Orders component of the index rose to 58.4, the highest since August, versus 53.9 the prior month. Moreover, the Order Backlogs component soared to 60.7, the highest since January 1998, versus 45.9 in November. The Prices Paid component fell to 63.8 from 76.2 the prior month and the Employment component fell to 49 versus 54.4 in November. This report is a big positive. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of record exports.

Sales of new homes in the US fell in November, Bloomberg reported. The median price of a new home fell .4% from year ago levels to $239,100. The number of homes for sale fell 1.8% to 505,000, the fewest in two years. The inventory to sales ratio rose to 9.3 months worth from 8.8 months worth in October. New Home Sales fell 28% in the Midwest, 19% in the Northeast and 6.4% in the South. They rose 4% in the West. I continue to believe new home construction will remain muted over the intermediate-term as builders work down inventories. I expect new home sales to bounce back next month, which should bring down inventories meaningfully with homes for sale at a 2-year low.

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Friday Watch

Late-Night Headlines
Bloomberg:
- The funeral of former Pakistani Prime Minister Benazir Bhutto was set for today after her assassination set off street protests and drew condemnations from leaders inside the country and around the world.
- France bans smoking in cafes, hotels and clubs on Jan. 1, stamping out the habit popularized by Jean-Paul Sartre puffing Gauloises in hazy brasseries.
- The perceived risk of Pakistan defaulting on its dollar-denominate debt rose to the highest in a month after former Prime Minister Benazir Bhutto was murdered at an election rally yesterday.

Wall Street Journal:
- Chinese securities regulators are preparing to outline new rules that would give global investment banks access to the country’s domestic exchanges.
- Companies in the S&P 500 paid a record $27.73 a share in dividends in 2007, and S%P expects that amount to rise 9.3% in 2008.

NY Times:
- A Post-Google Fraternity of Investors. A growing number of Google millionaires are hoping to parlay their newfound wealth into even greater riches by bankrolling technology start-ups.

CNNMoney.com:
- Beware the dreaded R word. You don’t know whether we’re in a recession until months after it starts. But investing successfully requires looking forward, not backword.
- Apple(AAPL) seen planning own Ne(x)tflix. Surging consumer tech company is developing rental components to iTunes that could dramatically boost digital movies, according to a report.

SmartMoney.com:
- iPhone Could Give Apple(AAPL) Inroad to Enterprise Sales.

IBD:
- With Housing Down, Some Buying Spots The Boom Bypassed.
- US online retail sales from November 23 through December 24 rose 22.4% from the year-earlier figure, Mastercard(MA) Advisor’s SpendingPulse reported on Thursday. And Chase(CCF) Paymentech’s Pulse Index, which uses transaction data from 10 top online merchants, says holiday sales through December 23 were up nearly 30%.

USA Today.com:
- Nike, Coke try to inspire with New Year’s ads.

Financial Times:
- Bhutto in her own words: ‘Only democracy can defeat Pakistan’s extremists.’

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.25% to unch. on average.
S&P 500 futures +.26%.
NASDAQ 100 futures +.16%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (TWIN) 2-for-1
- (CMI) 2-for-1
- (GHM) 5-for-4

Economic Releases
9:45 am EST
- The Chicago PMI for December is estimated to fall to 51.7 versus 52.9 in November.

10:00 am EST
- New Home Sales for November are estimated to fall to 717K versus 728K in October.

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

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology shares and automaker 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 at Session Lows on Pakistan News, Profit-Taking

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