Mid-day Report

S&P 500 1,188.73 -.20%
NASDAQ 2,148.71 +.03%

Leading Sectors
Disk Drives +1.24%
Boxmakers +.86%
Software +.41%

Lagging Sectors
Retail -.96%
Foods -1.09%
Airlines -1.31%

Other
Crude Oil 42.95 +1.08%
Natural Gas 6.84 +.72%
Gold 456.10 -.26%
Base Metals 117.25 +.04%
U.S. Dollar 81.11 +.16%
10-Yr. T-note Yield 4.22% -.55%
VIX 13.40 +3.40%
Put/Call .74 +7.25%
NYSE Arms 1.11 -18.98%

Market Movers
CGTK -57.4% after saying a product its developing with BMY to treat vein-graft failure of the heart and leg didn't work in a late-stage trial.
SOL +24.6% after Carl Zeiss AG and EQT Partners AB agreed to buy it for $815 million in cash.
DVA +9.9% after the Wall Street Journal reported it was nearing an agreement to buy the dialysis operations of Gambro AB for about $3 billion.
OSTK +5.0% on short-covering after continuing strong holiday sales.
GYI +3.9% after positive comments about the company on Rukeyser's Wall Street.
IMDC +4.0% after announcing it silicone gel-filled breast implants PMA will be reviewed at an upcoming FDA panel meeting.
SHOP -13.3% after Deutsche Bank rated it Sell, target $20.
LNG -6.3% on profit-taking.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Outperform on COH, ACN, AMLN, BBY, WLP, DDR, NKE, RIO. Goldman upgraded CVRD to Outperform.
-Citi SmithBarney said to Buy CIT, target $50. Citi thinks another bidder for S will emerge. Citi reiterated Buy on VNO, target $79. Citi reiterated Buy on MSFT, target $32. Citi reiterated Buy on UTSI, target $26. Citi reiterated Buy on SANM, target $12. Citi reiterated Buy on HUM, target $32. Citi reiterated Buy on THC, target $17.50. Citi reiterated Buy on HOV, target $73. Citi reiterated Buy on GE, target $38. Citi SmithBarney reiterated Buy on TXN, target 27.
-Merrill Lynch rated D Focus 1 Stock of the Week.
-UBS cut DDS to Reduce, target $23. UBS raised ICOS to Buy, target $36. UBS raised MFE to Buy, target $36.
-Deutsche Bank raised CHKP to Buy, target $28.
-Prudential cut KWD to Underweight, target $30.

Mid-day News
U.S. stocks are quietly mixed mid-day as optimism over improving fundamentals in the tech sector is offsetting worries over consumer spending and a bounce-back in oil prices. The U.S. Chamber of Commerce has started a weekly newspaper in Illinois as part of a campaign against frivolous lawsuits, the Washington Post reported. The UN nuclear watchdog said it is certain that the nuclear fuel it monitored in North Korea has been turned into four to six nuclear bombs, the NY Times reported. NY Attorney General Spitzer, who will run for governor, hasn't pursued corruption in NY government with the same vigor he has shown in going after corporate wrongdoers, the NY Times said. Accessories for Apple's iPod digital music player amount to a more than $200 million a year business, the San Francisco Chronicle reported. U.S. Senate minority leader Reid said Democrats would oppose any plans by President Bush to create private accounts for Social Security or pick Clarence Thomas to replace William Rehnquist as chief justice if he leaves the Supreme Court, the Washington Post reported. Red Herring magazine founder Tony Perkins plans to introduce a printed "blogzine" in February with an annual subscription rate of $49 to highlight commentary and stories from blog sites, the San Jose Mercury News said. Best Buy is offering two new lines of electronics under its own Insignia and Geek Squad brands, Bloomberg reported. Cisco formed an alliance with Fujitsu to increase sales to Japanese telephone carriers, Bloomberg said. Crude oil is rising from a three-month low after an attack on the U.S. Consulate in Jeddah, Saudi Arabia, boosted concern that a revival of terrorist attacks might threaten oil shipments form the world's biggest oil exporter, Bloomberg said.

Bottom Line: The Portfolio is unchanged mid-day as strength in my internet and Russian ADR longs is offsetting weakness in my retail and security longs. I have not traded this morning and the Portfolio is still 125% net long. The tone of the market is weaker today, but improving. I view it as a positive that oil is only slightly higher, notwithstanding its recent fall and the news today. The rally in bonds is also a positive, especially considering all the recent talk that the declining dollar would send interest rates substantially higher. I expect U.S. stocks to rise modestly into the close on short-covering and strength in the technology sector.

Monday Watch

Earnings of Note
Company/Estimate
CC/-.04
JOSB/.24
NAV/1.80

Splits
None of note.

Economic Data
None of note.

Weekend Recommendations
Wall Street Week w/Fortune had guests that were positive on CD, IACI, PCLN and TSG. Forbes on Fox had guests that were positive on BAY, JNJ, CSCO and mixed on AMLN. Cashin' In had guests that were positive on SYK, EBAY, WTR, mixed on MNST and negative on TZOO. Bulls and Bears had guests that were positive on BBY, BCF, ET, HD, MSFT, TASR, UPS, PBY, GTN, VIAB, mixed on DLTR, PIR, CY, KRI, JRC and negative on SIRI. Barron's had positive comments on MON, SYT, ELY. Goldman Sachs reiterated Outperform on EBAY, IR, NSM, AMGN, DNA, RIG, DO, SII, BHI, SLB and Underperform on EW.

Weekend News
North Korea has asked for 10,000 tons of emergency fuel oil as a condition for resuming six-party talks on its nuclear program, the Sankei newspaper reported. Sales of Abbott Labs' Mobic, which is used to treat arthritis, more than doubled in October after Merck's recall of Vioxx, the Chicago Tribune reported. Colombia agreed to extradite to the US Gilberto Rodriguez Orejuela, the former leader of the Cali cocaine cartel, the NY Times reported. The European Union wants to send up to 800 observers to the Ukraine to monitor the Dec. 26 re-run of last month's presidential election, the Frankfurter Allgemeine Sonntagszeitung reported. Officials from the U.S. and Canada agreed to a plan to clean up the Great Lakes and the major waterways that flow into them, the NY Times reported. Sanofi-Aventis SA's experimental anti-craving drug rimonabant, described in news reports and by word of mouth as a "miracle drug" to treat obesity, is viewed with some skepticism in the medical community, the NY Times reported. Food manufacturers are selling fewer low-carb products because of decreasing demand by diet conscious consumers, the NY Times reported. Pfizer filed a suit Friday against a new German drug price law because state-owned health insurers won't have to refund the full price of its cholesterol drug to users, Reuters said. Ford Motor CEO Bill Ford Jr. plans to revive his push to make the automaker more environmentally friendly now that he no longer has to deal with a financial crisis, Newsweek reported. The ratio between how much stock company insiders sell versus what they buy is skewed toward sales because shares purchased when insiders exercise stock options aren't usually counted, the NY Times said. Half of all U.S. parents are expected to purchase video games as gifts during the Christmas season, the Entertainment Software Association said. European online travel companies may become subject to takeovers as U.S. companies seek to boost their revenue, the Financial Times reported. Apple Computer will probably raise purchases of computers and other parts in Taiwan by about 25% to $5 billion next year, the Economic Daily News reported. An announcement about IBM's sale of is pc unit to Lenovo Group may be made as early as tomorrow, the Wall Street Journal reported. Goldcorp, Canada's fourth-largest gold producer, has agreed to buy Wheaton River Minerals for $1.8 billion in stock, CEO McEwen said. OPEC is likely to keep production at a 25-year high to prevent shortages during the U.S. winter and lower prices, OPEC officials said.

Late-Night Trading
Asian indices are mostly mixed, -.75% to +.50% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.09%.

BOTTOM LINE: I expect US stocks to open modestly higher on gains in tech stocks, optimism over weekend retail sales, declining energy prices and a stabilizing dollar. The Portfolio is 125% net long heading into tomorrow.

Weekly Outlook

There are a few economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Final 3Q Non-farm Productivity(Tues.), Final 3Q Unit Labor Costs(Tues.), Consumer Credit(Tues.), Import Price Index(Thur.), Initial Jobless Claims(Thur.), Wholesale Inventories(Thur.), Univ. of Mich. Consumer Confidence(Fri.) and the Producer Price Index(Fri.). Initial Jobless Claims, Consumer Confidence and the PPI have market-moving potential.

Circuit City(CC)-Mon., Hovnanian Enterprises(HOV)-Tues., Autozone(AZ)-Wed., DreamWorks(DWA)-Wed., Costco Wholesale(COST)-Thur., National Semiconductor(NSM)-Thur., Toll Brothers(TOL)-Thur. and Nortel Networks(NT)-Fri. are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The CSFB Media & Telecom Week(Mon.-Thur.), Cisco Analyst Meeting(Mon.-Wed.), Citi SmithBarney Chemical Conference(Tues.) and the Texas Instruments Mid-quarter Update(Tues.)could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, improving fundamentals in the technology sector, more optimism, a stabilizing US dollar, declining energy prices, short-covering and bargain-hunting. As I stated a couple of months ago, a number of companies lowered estimates in anticipation of a continuation of the "economic soft patch". However, the economy has since reaccelerated. Thus, many companies, specifically tech, should beat lowered estimates over the next couple of months. Intel was an example of this. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.

Chart of the Week

The Dow Jones Transportation Average


Bottom Line: The DJTA has returned 25.2% this year. With falling energy prices and continuing solid US economic growth, this index should reach an ALL-TIME high before year-end.

Market Week in Review

S&P 500 1,191.17 +.72%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks finished moderately higher last week, led once again by small-cap and technology shares. The Russell 2000 made another ALL-TIME high and the Transport Index is nearing its historic high set in May 1999. As well, volume accelerated and advances outnumbered decliners by a healthy margin. In my opinion, energy prices have peaked for the intermediate-term and should lead the CRB Index lower next year, which bodes well for future inflation readings. I suspect Intel's positive commentary on inventories and raised guidance will be echoed many times by other tech companies over the next couple of months. The recent worries over consumer spending are likely overblown. Holiday retail sales should benefit from a recent 20% plunge in the average price of gasoline, an almost 20% gain in the average stock from August lows, incomes rising at a better rate and unemployment falling. Internet commerce is probably cannibalizing traditional retail sales more than is currently realized. Overall, this holiday shopping/travel season should be a good one.