Mid-day Report

S&P 500 1,188.13 +.37%
NASDAQ 2,094.29 +.20%

Leading Sectors
Energy +2.16%
Oil Service +2.01%
Biotech +1.48%

Lagging Sectors
Internet -.77%
Software -99%
Airlines -2.12%

Other
Crude Oil 45.25 +4.29%
Natural Gas 5.92 +1.49%
Gold 422.20 -1.19%
Base Metals 118.72 +1.32%
U.S. Dollar 83.11 +.68%
10-Yr. T-note Yield 4.27% -.18%
VIX 13.61 -3.69%
Put/Call .88 -5.38%
NYSE Arms .98 -13.91%
ISE Sentiment 226.0 +13.57%

Market Movers
SYMC -5.95% on multiple downgrades due to competition from MSFT.
WWCA +14.29% on speculation of buyout by Alltel(AT) -3.51%.
STIY +34.0% on optimism for its stun gun.
ANTP +14.96% on rebound from recent fall.
ANN +12.34% on optimism over Dec. same-store-sales and outlook.
CHS +11.1% after reporting strong Dec. same-store-sales and 2-for-1 split.
PNRA +15.4% on strong Dec. same-store-sales and Piper Jaffray upgrade to Outperform.
GTRC +9.9% after boosting 4Q forecast.
AEOS +6.0% on strong Dec. same-store-sales.
HELE +9.5% after beating 3Q estimates and affirming 4Q outlook.
BKST -15.63% on weak holiday same-store-sales and Southwest Securities downgrade to Neutral.
NWY -12.8% after cutting 4Q and 05 forecasts.
MSM -6.9% on profit-taking after meeting 1Q estimates and lowering 2Q outlook.
TGT -4.89% after cutting 4Q growth estimates.
ARO -7.07% on disappointing Dec. same-store-sales and multiple downgrades.
CPWM -7.6% after lowering 4Q guidance.

Economic Data
Initial Jobless Claims for last week were 364K versus estimates of 331K and a downwardly revised 321K the prior week.
Continuing Claims were 2840K versus 2779K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on CAT, IBM, IR, BBY, PFE, MDT, KSS, MSFT and Underperform on AG, CNH, IHR, MHX, MAY.
-Citi SmithBarney: Upgraded ELX to Buy, target $20.50. Said to Buy CPO now on weakness before earnings report, target $57. Reiterated Buy on EXTR, target $11. Reiterated Buy on FFIV, target $60. Reiterated Buy on FDRY, target $15. Reiterated Buy on RDWR, target $32. Reiterated Buy on JNPR, target $36. Reiterated Buy on AA, target $42. Reiterated Buy on SEBL, target $12.
-JP Morgan: Rated BK Overweight.
-Deutsche Bank: Rated POWI Buy, target $23.
-Morgan Stanley: Raised STN to Overweight, target $66. Rated CLF Overweight. Rated RSAS Overweight, target $21. Rated SYMC Underweight, target $22. Rated CHKP Underweight, target $17.
-Bear Stearns: Raised MDT Outperform.
-Banc of America: Raised IPXL to Buy, target $21.
-Oppenheimer: Rated WGII Buy. Raised CL to Buy, target $61.

Mid-day News
U.S. stocks are modestly higher mid-day on strength in energy-related stocks and lower interest rates. Apple Computer is being sued for allegedly violating antitrust laws with its iTunes online music store, which doesn’t work with digital music players other than the company’s iPod, Reuters reported. Audiovox Electronics, Pioneer Electronics and Alpine Electronics are among companies likely to benefit from increased demand for car navigation systems that help drivers avoid traffic congestion, the Wall Street Journal said. Investment returns on university and foundation endowments rose to 14.7% in the fiscal year ended June 2004, the best results in four years, the Wall Street Journal reported. Six Apart, which makes the Moveable Type software to publish Blogs, bought Danga Interactive, which publishes the LiveJournal.com Web log site, the NY Times reported. A joint session of the US Congress plans today to certify the presidential election results, and Senator Kerry said he would not participate in a possible protest by Democrats, the NY Times reported. Honeywell Intl. was sued by the state of Illinois for polluting the air after two accidental releases of toxic gas from a plant in southern Illinois, the AP reported. US Airways reached an agreement with its machinists union, which is expected to be ratified in the next few weeks, CNBC said. American Airlines and four other US carriers matched Delta Air Lines lower prices on some flights and dropped other restrictions, Bloomberg reported. US retailers including Wal-Mart and Saks posted the second-biggest holiday sales gain of the last five years after a late shopping surge lifted December sales, Bloomberg said. Microsoft released a free tool to erase spyware programs and will offer a virus-removal program, Bloomberg reported. Crude oil is rising after the Iranian and Qatari oil ministers signaled that OPEC may follow through on output cuts promised last month, Bloomberg said. The US dollar is rising against the euro for a fifth day, the longest rally in more than a year, on optimism faster US job growth will bolster the case for higher interest rates, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my internet and networking longs are offsetting losses in my software and steel shorts. I have not traded today and the Portfolio is still market neutral. The tone of the market is better, but not good. Advancers are outpacing decliners modestly and volume is lighter. Technology stocks are underperforming the broad market. Measures of investor anxiety are mostly lower today, however the AAII % Bulls plunged to 38.1% this week, which is a positive. I expect US stocks to trade modestly higher into the close on short-covering ahead of tomorrow’s employment report.

Thursday Watch

Earnings of Note
Company/Estimate
ACN/.31
STZ/.85
EMMS/.28
SCHN/1.30

Splits
None of note.

Economic Data
Initial Jobless Claims for last week estimated at 331K versus 326K the prior week.
Continuing Claims estimated at N/A versus 2732K prior.

Recommendations
Goldman Sachs reiterated Outperform on DHR, IBM, FS, HOT, ACH and MDT. Goldman reiterated Underperform on ELX.

Late-Night News
Asian indices are mostly lower on declines in technology shares in the region. Harrah's Entertainment's planned joint venture with Gala Group, Britain's largest bingo club owner, to build eight casinos in the UK has ended, the London-based Times said. Taiwan, aiming to prod the development of its semiconductor and flat-panel display industries, plans to cut taxes for companies that invest in more advanced-production technology, the Commercial Times reported. Taiwan plans to sell 130 million Taiwan Semiconductor Manufacturing shares in the US this year, the Commercial Times said. Drug industry associations in the US, Europe and Japan may today pledge to publish more data on clinical trial of their drugs on the Internet, the Financial Times said. Michael Newdow, an atheist who won a lawsuit challenging the phrase "under God" in the Pledge of Allegiance, filed a new lawsuit in California to stop public schools from making students recite the pledge, the AP reported. Saudi Television Manufacturing plans this month to start selling the first mobile telephone made in Saudi Arabia with features such as Muslim prayer times in more than 5,000 cities worldwide, Arab News reported. Lakshmi Mittal, one of Britain's richest men, may suffer from a fall in steel prices as he puts together the world's biggest steelmaker, the Wall Street Journal reported. Microsoft may supply television software to Bell South and will work with TiVo to play recorded TV on phones and portable devices, part of Microsoft's efforts to sell more programs for consumer electronics, Bloomberg said.

Late-Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 indicated +.11%
NASDAQ 100 indicated +.19%.

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on weakness in Asia and continuing worries over slowing global growth. While a bounce could occur at any time, another push lower is likely before a solid trading bottom is in place. The Portfolio is market neutral heading into tomorrow.

Wednesday Close

S&P 500 1,183.74 -.36%
NASDAQ 2,091.24 -.79%

Leading Sectors
HMOs +1.08%
Defense +.36%
Insurance +.18%

Lagging Sectors
Iron/Steel -1.71%
Broadcasting -1.78%
Airlines -5.81%

Other
Crude Oil 43.35 -.09%
Natural Gas 5.82 -.21%
Gold 427.30 unch.
Base Metals 118.72 +1.32%
U.S. Dollar 82.54 +.02%
10-Yr. T-note Yield 4.28% -.18%.
VIX 14.09 +.79%
Put/Call .93 +22.37%
NYSE Arms 1.15 -53.82%
ISE Sentiment 199.0 -22.57%

After-hours Movers
ELX +4.27% after boosting 2Q forecast.
HOTT +8.18% after reporting better-than-expected December same-store-sales.
OTEX +10.10% after boosting 2Q estimates substantially.
AGIX -6.2% after saying it had been contacted by the SEC and the NASD about an informal inquiry into the company’s Sept. 27 announcement of study results and related trading.
SBUX -3.6% after December same-store-sales failed to meet expectations.

Recommendations
Banc of America upgraded IPXL to Buy.

After-hours News
U.S. stocks finished lower today on continued weakness in small-cap, technology and commodity-related shares. After the close, Toyota Motor Corp. plans to introduce industrial robots at all 12 of its factories in Japan to address anticipated labor shortages caused by the country’s declining birthrate, Nikkei English News reported. The US-led “core group” of nations set up in the aftermath of the Dec. 26 tsunami flood disaster will be dissolved tomorrow as the UN takes control of the international relief effort, the Financial Times reported. Amazon.com’s UK division plans to offer products from across “the entire retail segment,” the London-based Times said. Economists Lawrence Kudlow, who served in former President Reagan’s administration and is a CNBC commentator, will head a panel to reform New York State’s tax code, NY Governor Pataki said. Campbell Soup said it is boosting the price of some soups and other US products by about 4.8% effective Feb. 28, Bloomberg said. Babies born extremely prematurely often suffer from mental and physical problems when they reach school age, according to a study to be publish in the New England Journal of Medicine, Bloomberg said. Pfizer’s Lipitor and Bristol-Myers Squibb’s Pravachol cholesterol drugs reduce inflammation levels, decreasing another risk factor for heart attacks and strokes, according to two studies in the Jan. 6 New England Journal of Medicine. Priceline.com said COO Truwit resigned to take a job with Cendant Corp., Bloomberg reported. UN Secretary-General Annan will ask governments today for $977 million to lead a record relief effort for the Asian tsunami victims, two weeks after calling 2004 a “horrible” year for the UN, marked by the Iraqi Oil-for-food scandal and sexual misconduct allegations, Bloomberg reported. CNN may cancel its political debate show “Crossfire” and will not renew the contract of conservative host Tucker Carlson, the AP reported.

BOTTOM LINE: The Portfolio finished unchanged today as my declining commodity-related shorts offset losses in my technology longs. I added a few new technology shorts in the afternoon, thus leaving the Portfolio market neutral(longs-shorts=0). One of my new shorts is HYSL and I am using a $47.25 stop-loss on this position. The overall tone was again weak with decliners handily outpacing advancers on good volume. Measures of investor anxiety remained mixed. I expect another push lower within the next few days that will likely mark a trading bottom.

Mid-day Report

S&P 500 1,191.84 +.32%
NASDAQ 2,111.23 +.16%

Leading Sectors
HMOs +1.55%
Telecom +.98%
Disk Drives +.87%

Lagging Sectors
Broadcasting -1.19%
Iron/Steel -1.34%
Airlines -5.68%

Other
Crude Oil 43.30 -1.39%
Natural Gas 5.83 -1.22%
Gold 427.30 -.44%
Base Metals 118.72 +1.32%
U.S. Dollar 82.43 -.12%
10-Yr. T-note Yield 4.26% -.64%
VIX 13.35 -4.58%
Put/Call 1.04 +36.84%
NYSE Arms .82 -67.07%

Market Movers
TARR +23.3% after affirming 04 and raising 05 guidance.
EDLG +22.7% after CIT Group agreed to buy it for $19.05/share.
KERX +21.2% after saying its experimental KRX-101 drug for the treatment of kidney damage in diabetics was safe in a study.
TOO +13.0% after raising 4Q guidance.
LCRD +13.2% on optimism over homeland security products.
AFFX +5.9% after pre-announcing 4Q.
JWN +4.2% on strong December same-store-sales.
ANTP -20.1% after saying its backlog of orders fell.
NGPS -10.5% on continued profit-taking.
RGS -9.2% after lowering 2Q and 05 forecasts.
BMHC -11.7% on profit-taking.
ACH -5.7% on worries over falling aluminum prices.
*Airlines down across the board on pricing concerns.

Economic Data
ISM Non-Manufacturing for December rose to 63.1 versus estimates of 61.0 and a reading of 61.3 in November.

Recommendations
-Goldman Sachs: Reiterated Outperform on KO, DO, SVU, CEN and BSX. Reiterated Underperform on LSI and FRX. Said to Buy Jan. 05 $65 calls and Sell Jan. 05 $70 calls on AAPL before next week’s earnings and MacWorld.
-Citi SmithBarney: Downgraded JBX to Sell, target $34. Reiterated Buy on MCD, target $36. Reiterated Buy on PFCB, target $68. Reiterated Buy on SBUX, target $70. Reiterated Buy on SYY, target $42. Reiterated Buy on AINV, target $18. Reiterated Buy on CIT, target $50. Reiterated Buy on F, MGA and BWA. Reiterated Buy on TXT, target $83. Reiterated Buy on INTU, target $54. Reiterated Buy on MCRL, target $13.50. Reiterated Buy on FON, target $27.
-CSFB: Raised CINF to Outperform. Rated AGP Outperform, target $90. Rated NPSP Outperform, target $28. Rated VRTX Outperform, target $16.
-Morgan Stanley: Raised CRM to Overweight, target $21. Rated ASO Overweight, target $26. Rated BEC Overweight, target $77.
-Wells Fargo: Raised AMD to Buy, target $27.
-Lazard Freres: Cut MEDI to Sell, target $21.
-Merrill Lynch: Cut ESPD, DAL, AAI to Sell.
-Banc of America: Raised PG to Buy, target $62. Cut CL to Sell, target $44.
-Raymond James: Raised CCI to Strong Buy, target $19.

Mid-day News
U.S. stocks are mildly higher mid-day on falling interest rates and oil prices. Iraq’s national elections, scheduled for Jan. 30, will be held on time, Prime Minister Allawi said today, according to Agence France-Presse. The Consumer Electronics Show, which holds its media day today and likely will draw 130,000 to the exposition, has attracted a large audience of consumers and executives alike to Las Vegas, the NY Times reported. Morningstar Inc. is the subject of three reviews by regulators after 20 years without scrutiny, the Wall Street Journal reported. United Airlines’ creditors and some banks and unions oppose an agreement the bankrupt airline reached with pilots to terminate employee pension plans in exchange for equity in the carrier, the NY Times reported. The tsunami that struck Asian coastlines last week may cause delays in shipments of coffee, cocoa, sugar and cotton and lead to price increases, the NY Post reported. Pamela Thomas-Graham, the president of CNBC, may resign because of poor ratings, the NY Post reported. IBM and customers including Sony plan to invest $1.9 billion to build a semiconductor plant in Fishkill, NY, Reuters said. Massachusetts companies are optimistic about the economy and may hire more people in 2005, the Boston Globe reported. Sanford Wallace, know as the “Spam King,” agreed to stop sending spyware programs until a federal lawsuit against him is resolved, the AP said. EchoStar Communications will increase monthly subscription rates for satellite television packages by as much as $4 starting next month, the Rocky Mountain News reported. The Bush administration is beginning a campaign to change US laws on frivolous medical-malpractice and class-action lawsuits that raise the cost of healthcare, the Washington Post reported. A three-year rally in global commodity markets is faltering and prices may drop for the next six months or more, Barclays Capital said. Delta Air is cutting domestic air fares by as much as 50% in an effort to win back passengers from low-fare competitors and recover from more than $6 billion in accumulated losses, Bloomberg said. Nordstrom said sales rose 11.7% for the five-week period ending Jan. 1 compared with a year ago, Bloomberg said. Bonds of Halliburton may gain after reaching a $4.7 billion settlement of asbestos-damage claims, allowing two units to emerge from bankruptcy, Bloomberg reported. AIG said it will raise the company’s dividend by two-thirds after profits surged, Bloomberg reported. US services expanded at a stepped-up pace in December, capping a record year for the economy’s largest segment, Bloomberg said. RealNetworks will provide a free radio service to Comcast’s 6.5 million high-speed Internet users to gain customers, Bloomberg reported. Sirius Satellite Radio said it plans to offer a video service in automobiles with Microsoft next year and expects to create several channels with children’s programming, Bloomberg said. GlaxoSmithKline, Novartis and Johnson & Johnson may be potential buyers of Bristol-Myers Squibb’s consumer-products business, which includes the Excedrin and Bufferin headache medicines, Bloomberg reported. Oil prices dropped after a government report showed that US fuel inventories rose last week, signaling that a mild winter is helping ease demand for heating oil, Bloomberg said.

Bottom Line: The Portfolio is slightly higher mid-day as my steel and chemical shorts are declining and my internet longs are rising. I have not traded today and the Portfolio is still 25% net long. The tone of the market is weak again as the advance/decline line remains negative, volume is relatively heavy and small-caps continue to underperform. Measures of investor anxiety are mixed and not at levels normally associated with bottoms. However, an oversold rally could occur at any time. I expect US stocks to rise into the close on short-covering, falling energy prices and declining interest rates.

Wednesday Watch

Earnings of Note
Company/Estimate
LFB/.19
MON/.13
NDC/.06
RI/.30

Splits
None of note.

Economic Data
ISM Non-Manufacturing for December estimated at 61.0 versus 61.3 in November.

Recommendations
UBS raised DNA to Buy, target $67. Citi SmithBarney cut CHL to Sell.

Late-Night News
Asian indices are lower on worries over slowing global growth and comments from the US Fed. Samsung Electronics sees global semiconductor sales growing at a "stable" rate in 2005, on demand for chips that go into consumer electronics, the Korea Herald reported. The Bush administration is developing a Social Security proposal that would allow younger workers to invest almost two-thirds of their share of federal payroll taxes in private accounts, the AP reported. Motorola and four other companies yesterday submitted bids for the construction of CAT Telecom Plc's $332 million mobile-phone network expansion across Thailand, the Bangkok Post reported. China Southern Airlines plans to buy 20 Boeing 7E7 planes to be put into operation during the 2008 Olympic Games in Beijing, the Beijing News reported. Six US congressmen will head for North Korea's capital, Pyongyang, on Jan. 11, as part of visits to nations involved in trying to persuade North Korea to dismantle its nuclear weapons program, JoongAng Ilbo newspaper reported. The four major US companies providing local telephone service asked a federal appeals court to rapidly consider their challenge to rules allowing competitors to lease networks to serve businesses, Reuters said. Bristol-Myers Squibb is in talks to sell its over-the-counter medicines business for as much as $1 billion, the NY Times reported. BMW AG used a 22% rise in December sales to top Volkswagen's namesake brand in the US for the second time since Volkswagen began its US sales in 1949, Bloomberg reported. Shares of Honda Motor rose after the company's sales in the US increased 35% last month, Bloomberg said. The Australian dollar is falling the most in almost a month after a plunge in the price of metals the country exports such as aluminum and copper, Bloomberg said. Dongfeng Motor Group, China's fourth-largest automaker, may raise as little as $500 million from its first overseas share sale, half the original goal, after auto stocks slumped, Bloomberg reported. UBS AG surpassed Citigroup as the biggest underwriter of US municipal bonds last year, Bloomberg said.

Late-Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.06%.

BOTTOM LINE: I expect U.S. equities to open mixed in the morning and to move higher later in the day on an oversold bounce, decline in energy prices and fall in interest rates. The Portfolio is 25% net long heading into tomorrow.

Tuesday Close

S&P 500 1,188.05 -1.17%
NASDAQ 2,107.86 -2.06%

Leading Sectors
Tobacco +.11%
Restaurants -.13%
Hospitals -.23%

Lagging Sectors
Networking -3.45%
Defense -3.59%
Airlines -6.79%

Other
Crude Oil 43.68 -.52%
Natural Gas 5.95 +.73%
Gold 428.10 -.26%
Base Metals 117.17 -6.76%
U.S. Dollar 82.50 -.02%
10-Yr. T-note Yield 4.29% +.09%.
VIX 13.98 -.71%
Put/Call .76 unch.
NYSE Arms 2.49 +87.22%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished lower today on losses in my technology, security and biotechnology longs. I did not trade in the afternoon, thus leaving the Portfolio 25% net long. The tone of the market worsened throughout the day as volume remained heavy and the advance/decline line finished at its lows. While a short-term bounce is likely near-term, measures of investor anxiety are not yet at levels normally associated with bottoms. As well, some technical damage is being done that will need time to repair.