Thursday Close

S&P 500 1,175.41 -.78%
NASDAQ 2,045.88 -1.34%

Leading Sectors
Foods +.04%
Hospitals -.05%
Banks -.29%

Lagging Sectors
Wireless -2.76%
Airlines -2.92%
Internet -2.92%

Other
Crude Oil 47.58 +.57%
Natural Gas 6.35 +.75%
Gold 422.50 -.02%
Base Metals 120.02 -.28%
U.S. Dollar 83.78 +.22%
10-Yr. T-note Yield 4.16% -.23%.
VIX 13.83 +4.93%
Put/Call .95 +14.46%
NYSE Arms 1.32 -33.33%
ISE Sentiment 145.00 -11.04%

After-hours Movers
HLIT +8.72% after beating 4Q estimates and raising 1Q guidance substantially.
SYNA +7.74% after beating 2Q estimates and raising 3Q/4Q guidance.
CKFR +3.61% after beating 2Q estimates and raising 3Q outlook.
SFA -7.7% after missing 2Q revenue estimates.
PLAY -7.2% on profit-taking after beating 4Q estimates and raising 1Q guidance.
VIRL -7.2% after meeting 1Q earnings estimates and slightly missing revenue estimates.
LRCX -3.5% after beating 2Q earnings estimates and slightly missing revenue estimates.
TRID +7.2% after beating 2Q estimates.

Recommendations
Goldman Sachs reiterated Outperform on CAL.

After-hours News
U.S. stocks finished lower today, led by tech shares, on earnings and economic worries. After the close, Japan has joined the US in its opposition to the European Union’s proposed lifting of its arms embargo on China, the Financial Times said. The 12 European Union countries that have adopted the euro as their currency saw their combined trade deficit with China increase to $48.1 billion in the first 10 months of 2004, the Financial Times reported. An antibody treatment may reverse structural nerve damage caused by Alzheimer’s disease within three days, researchers from the Washington University School of Medicine report in a study released today. KLA-Tencor Corp. said second-quarter profit more than doubled after sales jumped 57% and that is quarter’s revenue will rise more than analysts expected, Bloomberg reported. MCI Inc. will make at least three acquisitions in the first half of this year to increase its technology services for corporate customers, Business Week reported. Online gaming sales in China may surge 35% a year, reaching about $1.3 billion in 2009, China Daily reported. China plans to put two astronauts into space on a five-day mission as early as September, China Daily reported. Tokyo residential land prices increased in 2004 for the first time in 17 years, the Nihon Keizai newspaper said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my software, oil service and auto parts shorts offset losses in my homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 25% net long. The tone of the market took another turn for the worse in the afternoon as volume accelerated, almost all sectors fell, the advance/decline line ended at its daily lows and the major indices finished near their daily lows. Measures of investor anxiety rose, but are still not at levels normally associated with a durable bottom. An oversold rally could occur at any time, however stocks will likely continue modestly lower over the near-term.

Mid-day Report

S&P 500 1,175.80 -.75%
NASDAQ 2,051.80 -1.05%

Leading Sectors
Hospitals -.02%
Foods -.07%
Semis -.11%

Lagging Sectors
Gaming -2.34%
Internet -2.75%
Wireless -2.78%

Other
Crude Oil 46.85 -1.47%
Natural Gas 6.25 -.68%
Gold 422.30 -.24%
Base Metals 120.02 -.28%
U.S. Dollar 83.85 +.29%
10-Yr. T-note Yield 4.15% -.33%
VIX 13.83 +5.08%
Put/Call .89 +7.23%
NYSE Arms 1.34 -32.32%
ISE Sentiment 149.00 -8.59%

Market Movers
EBAY -18.55% after slightly missing 4Q estimates, lowering 05 guidance, multiple downgrades and announcing 2-for-1 split.
QCOM -7.55% after beating 1Q estimates and lowering 2Q outlook.
RMBS +16.41% after the company said it won a ruling that Hynix Semi infringed some Rambus patents.
MAY +8.7% after the Wall Street Journal reported Federated Dept. Stores is holding talks to buy it.
IGT -8.9% after disappointing 1Q results and multiple downgrades.
MACR +21.9% after beating 3Q estimates, raising 4Q guidance and multiple upgrades.
PGNX +12.4% after announcing positive top-line results from a phase 2 clinical trial of its investigational drug, methylnaltrexone for the management of post-operative bowel dysfunction and Legg Mason upgrade to Buy.
FFIV +10.05% after substantially beating 1Q estimates and raising 2Q guidance.
SPW +6.74% after selling its Kendro lab and life sciences business for $833.5 million to Thermo Electron.
KNX +6.96% after beating 4Q estimates and BB&T upgrade to Buy.
DOX +7.04% after beating 1Q estimates, raising 2Q guidance and Janney Montgomery upgrade to Buy.
AVCT +6.41% after meeting 4Q estimates.
BEBE -14.12% after missing 2Q estimates and lowering 3Q guidance.
CREAF -12.33% after missing 2Q estimates.

Economic Data
-Leading Indicators for December rose .2% versus estimates of a .2% increase and a .3% rise in November.
-Philadelphia Fed. for January fell to 13.2 versus estimates of 25.0 and a reading of 25.4 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on GCI, EBAY, MDT, COH, KRB and INTC. Reiterated Underperform on TRB, MAY, PRXL, BA and DJ. Rated STR Outperform. Downgraded NDC to Underperform.
-Citi SmithBarney: Reiterated Buy on EBAY, target $110. Reiterated Buy on FFIV, target $65. Reiterated Buy on EXTR, target $11. Reiterated Buy on INTC, target $26.50. Reiterated Buy on SWKS, target $11. Reiterated Buy on PRE, target $71. Reiterated Sell on MYG, target $13. Reiterated Buy on LRCX, target $38. Downgraded SAFC to Sell, target $44. Reiterated Sell on TRMK, target $26. Reiterated Buy on TER, target $17.50. Reiterated Buy on LLTC, target $44. Reiterated Buy on SLR, target $7. Reiterated Buy on APH, target $48. Reiterated Buy on FD, target $62. Reiterated Buy on BK, target $37. Reiterated Buy on DOX, target $34.
-CSFB: Raised BNI to Outperform, target $54. Cut UNP to Underperform, target $54. Raised WWY to Outperform, target $67. Raised URS to Outperform, target $36.
-Deutsche Bank: Raised FON to Buy, target $25.50. Raised TEO to Buy, target $12.20.
-UBS: Rated UAPH, target $13.
-Morgan Stanley: Raised HAS to Overweight, target $23.50.
-Bear Stearns: Raised HOTT to Outperform. Raised QLGC to Outperform, target $43-$47.
-Legg Mason: Raised PGNX to Buy, target $23.
-Thomas Weisel: Rated ERTS Outperform.

Mid-day News
U.S. stocks are lower mid-day on weakness in technology shares and worries over slowing economic growth. EarthLink plans to begin offering wireless high-speed Internet services in certain markets in the US in the second half of the year, and other companies have similar plans, the Wall Street Journal reported. Air America, the US liberal radio network thrown off the air in Los Angeles and Chicago last year after running out of money, plans to broadcast to Washington, Detroit and Cincinnati after getting fresh financing and new management, the Wall Street Journal reported. The Financial Accounting Standards Board, which sets the US’s accounting standards, may require companies to more accurately reflect the state of their pension plans, the NY Times reported. Apple Computer’s new Mac Mini personal computer, which will sell for $499 beginning Jan. 22, will be a more viable option for PC users seeking to switch brands, the Wall Street Journal reported. Bank of America signed a 15-year lease with Tishman Speyer Properties for 34,000 square feet of space at 50 Rockefeller Plaza, the NY Post reported. The Fed will probably keep raising its target interest rate at a “measured” pace because inflation remains “subdued,” Gary Stern, president of the Fed Bank of Minneapolis said. California is introducing a temporary tax amnesty to allow people to pay back taxes with interest for the years before 2003, without penalties or prosecution, the San Francisco Chronicle reported. Sony cut its full-year operating profit and sales targets as prices of digital products fell, Bloomberg said. Citigroup said fourth-quarter earnings rose 12% to a record as revenue from consumer and investment banking climbed, Bloomberg reported. UnitedHealth Group said fourth-quarter profit increased 46% as the company added members through acquisitions, Bloomberg said. S&P may soon upgrade Gap Inc.’s bonds from junk status, Bloomberg reported. Manufacturing in the Philadelphia area expanded at a slower pace this month, missing economists’ estimates, Bloomberg said. Crude oil is falling to a one-week low after an Energy Dept. report showed that US fuel stockpiles increased more than expected, Bloomberg reported. A forward-looking measure of the US economy rose for a second straight month in December, lifted by gains in stock prices and consumer confidence, Bloomberg said.

Bottom Line: The Portfolio is unchanged mid-day as gains in my oil service, auto parts and software shorts are offsetting losses in my homebuilding and computer service longs. I have not traded today and the Portfolio remains 25% net long. The tone of the market is poor once again as decliners swamp advancers, volume is good and all sectors are lower. Falling interest rates and energy prices are muting declines to an extent. Most tech stocks are underperforming, however semis are showing relative strength. This is a positive considering the decline in leader QCOM. Most measures of investor anxiety are rising today which is also a positive. I expect US stocks to trade mixed-to-higher into the close.

Thursday Watch

Earnings of Note
Company/Estimate
T/.58
BJS/.54
BEBE/.40
CKFR/.31
C/1.01
DAL/-5.51
DHI/.93
ELX/.19
F/.27
HDI/.69
KLAC/.59
LRCX/.53
IGT/.33
KRB/.58
SFA/.37
PGR/1.66
STI/1.27
UNH/1.08
XLNX/.18

Splits
None of note.

Economic Data
Leading Indicators for December estimated up .2% versus a .2% increase in November.
Philadelphia Fed. for January estimated at 25.0 versus 25.4 in December.

Recommendations
Goldman Sachs reiterated Outperform on PFE, A and Underperform on HRB. Citi SmithBarney cut NOK to Sell.

Late-Night News
Asian indices are lower on declines in technology stocks in the region. The US lowered Taiwan's status on its watch list of countries that aren't adequately protecting intellectual property rights, the Taiwan News reported. China's government will begin relaxing controls on fees charged by China Telecom, China Mobile Communications and other telecom service providers this year, as part of efforts to reform the industry, the China Daily said. MCI Inc. plans to acquire closely held NetSec Inc., a network security company, for more than $100 million, the Wall Street Journal reported. Ukraine's Supreme Court rejected a final appeal against the result of last month's presidential election, confirming Viktor Yushchenko as the winner, Agence France-Presse reported. The US dollar is trading near a two-month high against the euro in Asia after French Finance Minister Herve Gaymard said the US currency's drop "must not continue," Bloomberg reported. Pfizer is nearing an agreement to buy closely held eye-treatment maker Angiosyn for about $527 million, the Wall Street Journal reported. After more than three years pruning insurance and other businesses GE acquired under Jack Welch and making $60 billion of acquisitions in such faster-growing businesses as health care, security and consumer finance, CEO Immelt aims to boost sales from existing operations, Bloomberg reported. A coalition representing companies including Boeing, Pfizer and Fidelity Investments will spend "significantly more" than $5 million to promote President Bush's plan for Social Security. The companies, concerned the government will otherwise raise the 12.4% payroll tax to plug a funding gap, plan a campaign of direct mail and tv ads across the nation to back Bush's proposal, Bloomberg reported.

Late-Night Trading
Asian Indices are -1.0%. to -.50% on average.
S&P 500 indicated -.34%.
NASDAQ 100 indicated -.65%.

BOTTOM LINE: I expect US equities to open lower in the morning on declines in technology shares, worries over slowing global growth and weakness in Asia. Stocks may recoup some of their losses later in the day on declining energy prices, falling interest rates and short-covering. The Portfolio is 25% net long heading into tomorrow.

Wednesday Close

S&P 500 1,184.63 -.95%
NASDAQ 2,073.59 -1.54%

Leading Sectors
Hospitals +.29%
Oil Service +.23%
Homebuilders +.05%

Lagging Sectors
Wireless -2.55%
Airlines -3.24%
Networking -3.64%

Other
Crude Oil 46.86 -1.49%
Natural Gas 6.20 -1.40%
Gold 423.20 -.02%
Base Metals 120.36 +1.31%
U.S. Dollar 83.57 -.04%
10-Yr. T-note Yield 4.17% +.09%.
VIX 13.18 +5.69%
Put/Call .83 -1.19%
NYSE Arms 1.98 +200.00%
ISE Sentiment 163.00 +12.41%

After-hours Movers
MACR +5.23% after meeting 3Q estimates and raising 4Q outlook.
FFIV +4.74% after substantially beating 1Q estimates and raising 2Q guidance.
RDN +4.72% after beating 4Q estimates.
EBAY -11.68% after slightly missing 4Q estimates, lowering 05 guidance and announcing 2-for-1 split.
SHOP -7.29% on EBAY news.
NVEC -7.11% on profit-taking after beating 3Q estimates.
OSTK -7.05% on EBAY news.
QCOM -6.50% after beating 1Q estimates and lowering 2Q outlook.
AMZN -4.23% on EBAY news.

Recommendations
Goldman Sachs reiterated Outperform on CAT and IR. Goldman reiterated Underperform on NAV, ATI and FHN.

After-hours News
U.S. stocks finished lower today on substantial weakness in the technology sector. After the close, Bank of America may try to form an alliance of Parmalat Finanziaria SpA investors to push for changed in litigation against their role in the company’s collapse and press for a broad settlement rather than individual lawsuits, the Financial Times reported. GE’s finance unit may buy as much as 40% of Hyundai Card to become the second-biggest shareholder in the South Korea credit card company, Yonhap News said. European Union failure to understand the scale of US opposition to the lifting of the EU arms embargo on China will result in “major problems,” the Financial Times reported, citing an unidentified US official. Liberty Media may be divided into two as part of a “simplification” plan, the Financial Times said. Qualcomm said first-quarter profit rose 46% as sales climbed on rising demand for handsets that play games and take photos, Bloomberg said. EBay said fourth-quarter profit rose 44%, helped by more holiday shoppers using its US site and increased international listings, Bloomberg reported. EBay shares fell as much as 12% after the company said profit next year may be less than analysts expected, Bloomberg said. Johnson & Johnson said it will return about $11 billion in foreign profit to the US and record tax costs of about $800 million in the fourth quarter, Bloomberg said. The FBI said it’s looking into reports that terrorists may be in Boston, or traveling to the city, with nuclear materials, Bloomberg reported. Crude oil in NY is declining after a government report showed US inventories rose more than expected last week, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today on declines in my semiconductor and internet longs. I added a few new technology and commodity-related shorts in the afternoon, thus bringing the Portfolio to 25% net long. One of my new shorts is NE and I am using a $54 stop-loss on this position. The tone of the market worsened markedly into the afternoon as volume accelerated, tech underperformed, almost all sectors declined and the advance/decline line finished at its daily lows. Measures of investor anxiety remained mixed throughout the day. Declines in the Internet sector and worries over terrorism will likely push the major indices lower again tomorrow morning.

Mid-day Report

S&P 500 1,189.76 -.52%
NASDAQ 2,087.99 -.85%

Leading Sectors
Oil Service +.94%
Hospitals +.39%
Restaurants +.30%

Lagging Sectors
Wireless -1.79%
Airlines -2.45%
Networking -2.95%

Other
Crude Oil 48.10 -.58%
Natural Gas 6.29 +2.49%
Gold 422.80 -.17%
Base Metals 120.36 +1.31%
U.S. Dollar 83.57 +.26%
10-Yr. T-note Yield 4.19% +.05%
VIX 12.65 +1.60%
Put/Call .80 -4.76%
NYSE Arms 1.54 +133.33%
ISE Sentiment 171.00 +17.93%

Market Movers
MOT -7.11% on profit-taking after beating 4Q estimates, raising 1Q outlook and multiple downgrades.
TASR -9.11% on the announcement of several class action lawsuits against the company.
HUBG +9.74% on Raymond James upgrade to Strong Buy.
OSTK +6.2% after saying auction listings are up 50% in 5 days after EBAY price increases.
EDO +7.3% on Friedman, Billings, Ramsey upgrade to Outperform.
CLF +4.03% after Morgan Stanley raised 05/06 estimates.
APH +5.24% after beating 4Q estimates and raising 05 guidance.
DRL -10.45% after missing 4Q estimates.
RMBS -11.64% after missing 4Q estimates and lowering 1Q outlook.
PLT -6.0% after beating 3Q estimates and lowering 4Q outlook.
SNDA -5.98% on continuing sell-off over worries over slowing growth in China.

Economic Data
-The Consumer Price Index for December fell .1% versus estimates of unch. and a .2% rise in November.
-CPI Ex Food & Energy for December rose .2% versus estimates of a .2% gain and a .2% increase in November.
-Housing Starts for December rose to 2004K versus estimates of 1903K and an upwardly revised 1807K.
-Building Permits for December rose to 2021K versus estimates of 1985K and an upwardly revised 2028K in November.
-Initial Jobless Claims for last week fell to 319K versus estimates of 345K and 367K the prior week.
-Continuing Claims rose to 2694K versus estimates of 2675K and 2647K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on IBM, KMR, MUR, EBAY, YHOO, PFE, RIO, MMM, USB, WAG and JNPR. Reiterated Underperform on GAP, WIN and MARSA. Rated BBG Outperform, target $46.
-Bank of America: Downgraded WEN to Sell, target $34. Downgraded OSI to Sell, target $39. Rated YRK Buy, target $45.
-CSFB: Reiterated Outperform on STX.
-UBS: Raised PBG to Buy, target $31.
-JP Morgan: Raised ACXM to Overweight.
-Deutsche Bank: Raised MTSN to Buy, target $12. Cut FCX to Sell.
-Thomas Weisel: Raised CSTR to Outperform.
-Merrill Lynch: Reiterated Buy on RIO, target $35.
-Legg Mason: Rated YSI Buy, target $19.
-Morgan Stanley: Raised SBC to Overweight, target $26.
-Prudential: Rated DTV Overweight, target $19. Rated DISH Underweight, target $35.
-Raymond James: Raised HUBG to Strong Buy, target $64.

Mid-day News
U.S. stocks are lower mid-day on losses in the technology sector. Choice Hotels International plans to introduce a higher-priced brand called Cambria Suites to compete with Hilton Hotels’ Hilton Garden Inn and other chains, the Wall Street Journal said. A group of health and technology organizations gave the Bush administration recommendations yesterday on how to begin creating a national health information network to digitize medical records, the NY Times reported. Exchange-traded funds have been growing more popular with US individuals, as brokerage firms push services that allow investors’ goals to be matched by corresponding portfolios, the Wall Street Journal said. Cablevision Systems’ board decided to oppose the wishes of Chairman Dolan and sell its Voom satellite-television unit, the NY Times reported. Triarc Cos., which operated Arby’s fast-food restaurants, may make an IPO of shares of the sandwich chain, the NY Post said. Donald Trump formed a company called Trump Gold Management to create a golf brand, the Star-Ledger reported. President Bush may host a meeting with the leaders of Canada and Mexico later this year to discuss expanding NAFTA, the Globe and Mail reported. Harvard University President, and former US Treasury Secretary in the Clinton administration, Lawrence Summers issued a written apology yesterday for remarks he made last week at a conference that men have more aptitude for math and science than women, the Boston Globe reported. Venetian Group met with Detroit officials to discuss adding a casino to the city’s Cobo Center, the Detroit Free Press reported. Envoys from Iraqi political parties said last night that corruption in the UN/Iraqi oil-for-food program has damaged the world body’s legitimacy, with one envoy envisioning a “zero” role for the UN in his country’s future, Bloomberg reported. Carl Icahn has fallen short of his $3 billion target for a new hedge fund that would back the type of corporate raids carried out by the financier at RJR Nabisco and Trans World Airlines, Bloomberg said. Bonds of DaimlerChrysler AG are outperforming the debt of its larger US competitors as the company’s Chrysler unit benefits from rising commercial vehicle sales in North America, Bloomberg said. Soybean prices are likely to plunge to a three-year low as importers delay purchases just as farmers in Brazil, the world’s second-largest grower, are about to harvest a record crop, said The Linn Group, a Chicago futures broker. US Chief Justice Rehnquist rejected a California atheist’s bid to block clergy-led prayer at tomorrow’s inauguration ceremony for President Bush, Bloomberg said. US home construction rebounded in December to cap the best year since 1978 as cheap mortgages and increased employment buoyed demand, Bloomberg said. Initial Jobless Claims dropped by 48,000 last week, the biggest decline in three years, Bloomberg reported. Prices paid by US consumers fell in December, restrained by lower gasoline costs, Bloomberg said. Best Buy said it will stop selling Maytag Corp.’s line of washers, dryers and ranges because of growing demand for other brands, Bloomberg reported.

Bottom Line: The Portfolio is lower mid-day on losses in my internet and semiconductor longs. I exited a number of longs this morning as they hit stop-losses, thus leaving the Portfolio 50% net long. The tone of the market is weaker today as decliners outpace advancers, most sectors are lower, technology shares are underperforming and volume is decent. It is also a negative that very good economic reports and mostly positive earnings reports are resulting in losses for the major indices. Measures of investor anxiety are mixed. I expect US stocks to trade mixed-to-higher into the close.