Friday Watch

Late-Night News
Asian indices are mixed as strength in China is being offset by weakness in Japan. Intel Corp. pared its list of customers in Taiwan after changing its organizational structure to focus on its biggest computer clients on the island, the Commercial Times reported. EBay's China unit, Ebay Eachnet, had transactions valued at 740 million yuan in the fourth quarter, compared with 690 million in the previous three months, the China Daily reported. Archipelago Holdings, which operates the Archipelago Exchange stock-trading network, may buy Reuters Group Plc's Instinet Group for as much as $3 billion, the Financial Times said. America West Airlines will stop operating nonstop flights in three transcontinental markets, the Wall Street Journal reported. Motorola will introduce more versions of its Razr-brand mobile phone handsets, including a candy bar-shaped model later this year, Business Week reported. Mobile-phone users in China sent 217.7 billion text messages last year, up 59% from 2003, Xinhua News Agency reported. F5 Networks CEO McAdam told CNBC that his company's revenue is outpacing market growth as the maker of Internet traffic-management products takes business from competitors, Bloomberg reported. Wipro Ltd., India's third-largest software services exporter, said fiscal third-quarter profit rose 61% as it added new clients, Bloomberg said. Crude oil futures are rising for the first time in four days amid expectations colder weather in the US Northeast will raise demand for heating fuel, Bloomberg reported. Wall Street's biggest bond-trading firms expect the 10-year T-Note's yield to rise this year to 5%, Bloomberg reported. Two years after introducing the "Clear Skies" legislation, only to see it languish in Congress, President Bush is preparing to issue executive orders to implement many of the changes by March, Bloomberg reported.

Late Recommendations
Goldman Sachs reiterated Outperform on STZ, BC, ACS, KLAC and Underperform on ELX, T. Shares of Arbitron Inc.(ARB), which compiles radio ratings for broadcasters, may rise on speculation the company could become the target of a takeover, Business Week reported. Schlumberger Ltd.'s(SLB) stock may benefit from increased spending on oil exploration, Business Week reported.

Night Trading
Asian Indices are -.50%. to +1.0% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.10%.

Morning Preview
US AM Market Call
Pre-market Commentary
Before the Bell Video(bottom right)
NASDAQ 100 Pre-Market Heatmap
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
AT/.83
FO/1.21
GE//.49
WY/1.15

Splits
None of note.

Economic Data
Preliminary Univ. of Mich. Consumer Confidence for January estimated at 97.5 versus 97.1 in December.

BOTTOM LINE: I expect US equities to open mixed-to-higher in the morning on a bounce after today's sell-off. However, stocks will likely weaken later in the day on continuing worries over slowing global growth, terrorism and earnings. The Portfolio is 25% net long heading into tomorrow.

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.

Wednesday Watch

Earnings of Note
Company/Estimate
BK/.43
COF/.99
EBAY/.34
FFIV/.21
FAST/.40
GM/.91
JPM/.68
LU/.04
MACR/.21
PFE/.59
QLGC/.47
QCOM/.27
LUV/.08
RDC/.18
SYMC/.22
WM/.75
WB/.98

Splits
AGP 2-for-1
CRDN 3-for-2

Economic Data
Consumer Price Index for December estimated unch. versus a .2% increase in November.
CPI Ex Food & Energy for December estimated up .2% versus a .2% increase in November.
Housing Starts for December estimated at 1905K versus 1771K in November.
Building Permits for December estimated at 1985K versus 2028K in November.
Initial Jobless Claims for last week estimated at 345K versus 367K the prior week.
Continuing Claims estimated at 2675K versus 2631K prior.
Fed's Beige Book.

Recommendations
Goldman Sachs reiterated Outperform on MMM and YHOO.

Late-Night News
Asian indices are mostly lowers on continuing fears over slowing growth in the region. Singapore Airlines hopes that Australia may grant it unlimited access to routes to the US sooner than 12 to 18 months, the Business Times reported. China's Huawei Technologies is tipped to win a contract over Motorola and Ericsson for the construction of CAT Telecom's $332 million mobile-phone network in Thailand, the Nation reported. Kraft Foods plans to double its purchases of certified green coffee from Latin American nations this year, Reuters reported. India's inflation, which slowed to the least in seven months, continues to ease, CNBC reported. Fannie Mae today cut its quarterly dividend to 26 cents a share from 52 cents to conserve capital after making accounting errors, Bloomberg reported. IBM and Yahoo! posted profit and sales that beat analysts' estimates, spurring optimism that other US technology companies reporting this month will follow suit, Bloomberg reported. A Harvard University committee condemned university President, and former US Treasury Secretary during the Clinton administration, Lawrence H. Summers' recent remarks implying women were inferior to men in math and science, the NY Times reported. Texas Instruments won its first order from Samsung Electronics for a processor to run digital cameras in handsets after a two-year effort to get the business, Bloomberg reported.

Late-Night Trading
Asian Indices are -.50%. to unch. on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strong earnings reports, decelerating inflation and better economic reports. The Portfolio is 100% net long heading into tomorrow.

Tuesday Close

S&P 500 1,195.98 +.97%
NASDAQ 2,106.04 +.87%

Leading Sectors
Disk Drives +2.30%
Insurance +1.89%
I-Banks +1.82%

Lagging Sectors
Broadcasting -.02%
Iron/Steel -.52%
Papers -1.15%

Other
Crude Oil 48.36 -.04%
Natural Gas 6.17 +.62%
Gold 423.20 -.07%
Base Metals 118.80 -.29%
U.S. Dollar 83.40 +.19%
10-Yr. T-note Yield 4.18% -.56%.
VIX 12.47 +.32%
Put/Call .84 +15.07%
NYSE Arms .66 -16.46%
ISE Sentiment 145.00 -7.64%

After-hours Movers
CHKP +4.74% after beating 4Q estimates.
RMBS -4.50% after missing 4Q estimates and lowering 1Q outlook.
ALXN -4.04% after announcing that it intends to sell approximately $125 million principal amount of its Convertible Senior Notes.
MOT -3.21% on profit-taking after beating 4Q estimates and raising 1Q outlook.
CNCT +4.28% after saying it will replace Waypoint Financial in the S&P 600 SmallCap 600.

Recommendations
Goldman Sachs reiterated Outperform on PG, WFC, USB and KRB.

After-hours News
U.S. stocks finished higher today on strong earnings reports, declining energy prices, a stable US dollar and falling interest rates. After the close, Amazon.com and Otto GmbH had fewer online shoppers in Germany during the holiday season than in 2003, Financial Times Deutschland said. Viacom’s CBS television unit may replace CBS Evening News anchorman Dan Rather with a group of anchors reporting from different cities, the AP reported. Argentina’s most-traded bond had its biggest drop in six months on concern more investors than expected will reject the government’s offer to restructure $104 billion of defaulted debt, Bloomberg said. US interest rates are likely to rise further this year to keep inflation in check as labor market strength fuels income growth, Fed officials said. International Business Machines said fourth-quarter profit climbed 12%, Bloomberg said. Juniper Networks said fourth-quarter net income rose to $66 million as revenue doubled, Bloomberg reported. United Airlines reached a new contract agreement with its pilots union after a bankruptcy judge rejected an earlier accord Jan. 7, Bloomberg reported. Yahoo! said fourth-quarter profit jumped almost fivefold as it sold more advertising and recoded a gain from the sale of an investment, Bloomberg said. Motorola said fourth-quarter net income rose to $654 million as demand surged for higher priced handsets, including the $499 Razr model, Bloomberg reported.

BOTTOM LINE: The Portfolio finished substantially higher today as my alternative energy, semiconductor, internet and computer service longs rose and my auto parts and software shorts fell. I added a few new longs in the afternoon, bringing the Portfolio’s market exposure to 100% net long. One of my new longs is VRSN and I am using a $28.50 stop-loss on this new position. The tone of the market was good today as the advance/decline line finished at its daily highs, volume was decent, most sectors rose, small-caps and financials outperformed and good news was rewarded. Earnings after the close are generally good and I look for tech to outperform tomorrow.

Mid-day Report

S&P 500 1,193.26 +.74%
NASDAQ 2,100.85 +.62%

Leading Sectors
I-Banks +1.78%
Tobacco +1.68
Insurance +1.49%

Lagging Sectors
HMOs +.08%
Iron/Steel -.89%
Papers -1.17%

Other
Crude Oil 48.00 -.79%
Natural Gas 6.18 -3.28%
Gold 423.50 +.05%
Base Metals 118.80 -.29%
U.S. Dollar 83.34 +.11%
10-Yr. T-note Yield 4.21% +.05%
VIX 12.39 -.32%
Put/Call .87 +19.18%
NYSE Arms .76 -3.80%
ISE Sentiment 152.00 -3.18%

Market Movers
MAY +17.0% after CEO Kahn resigned and multiple upgrades.
KKD +13.3% after saying its replacing CEO Livengood with Stephen Cooper, a turnaround specialist who led Enron and Laidlaw out of bankruptcy.
NCR +5.0% after substantially raising 4Q estimates and slightly boosting 05 guidance.
ATW +6.15% on CSFB upgrade to Neutral and raising target to $66.
OSTK +7.6% short-covering and optimism over upcoming earnings report.
IMPC +19.69% after Elekta AB, the world’s largest maker of radiation surgery equipment, agreed to buy it for about $250 million in cash.
JOBS -36.5% after lowering 4Q estimates substantially.
HNR -32.9% after saying it suspended drilling in Venezuela after the company’s 05 business plan was rejected by state oil company Petroleos de Venezuela.
FLE -15.65% after cutting 3Q estimates substantially.
PH -8.66% after missing 2Q estimates and widening 3Q guidance.
AL -5.1% on disappointing 4Q.
PETM -6.19% after cutting 4Q and 05 forecast.
GP -4.95% after lowering 4Q estimates.

Economic Data
Empire Manufacturing for January fell to 20.08 versus estimates of 25.0 and a reading of 27.07 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on ADP, KRB, JTX, YHOO, AL, GE, DKS and ACS. Reiterated Underperform on FRX. Upgraded AWA and SYK to Outperform.
-Bank of America: Upgraded MAY to Buy, target $37. Rated SMA Buy, target $22. Upgraded PSA to Buy, target $59. Cut EXR to Sell, target $11.
-JP Morgan: Reiterated Buy on YHOO, target $50. Raised DOX, MAY, BLX to Overweight. Cut BCH, WBSN, TIBX and VRST to Underweight.
-Citi SmithBarney: Raised DOX to Buy, target $34. Rated PII Buy, target $75. Raised LUV to Buy, target $19.
-UBS: Raised GLG and MDG to Buy. Rated FCL Buy, target $27. Cut SCT to Reduce.
-CSFB: Reiterated Outperform on RIG.
-Legg Mason: Raised BRCM to Buy, target $39.
-Oppenheimer: Raised MAY to Buy.

Mid-day News
U.S. stocks are higher mid-day on a continuation of Friday’s bounce and strong earnings reports. Ntelos Inc., a telecom service provider that services customers in Virginia, West Virginia, Kentucky and North Carolina, will likely be bought for about $750 million by investors headed by Quadrangle Capital Partners and Citigroup Venture Capital, the Wall Street Journal reported. TD Waterhouse, Fidelity and E*Trade are seeking customers by offering new online trading tools, the Wall Street Journal reported. New government regulations, such as the Sarbanes-Oxley Act, are driving demand for accountants and lawyers at US corporations, USA Today reported. A government advisory panel of economists, and health-care experts and providers recommended that the US Congress make lower Medicare payments than promised next year to hospitals and keep payments to nursing homes unchanged, the NY Times reported. Kimberly-Clark and Procter & Gamble plan to introduce new toiletries for babies and toddlers, the NY Times said. Archipelago Holdings, which operates the Archipelago Exchange stock-trading network, plans to open for trading by 4am NY time as soon as March to lure business from Europe, the Financial Times reported. An Internet virus is embedded in a bogus e-mail soliciting aid for victims of last month’s tsunami, Reuters reported. National City Corp. CFO Daberko told CNBC it will consider expanding this year through smaller acquisitions, as it did last year. Teva Pharmaceuticals said a study linking its Copaxone multiple sclerosis drug to breast cancer is flawed and that its own research shows no such connection, Bloomberg said. Bank of America said quarterly profit rose 41% as consumer banking fees climbed and the company arranged more loans for both individuals and companies, Bloomberg reported. International investors increased their net holding of US assets in November by the most since June, driven by the biggest stock purchases in more than three years, the Treasury Department said. 3M Co. said fourth-quarter profit increased 16%, helped by higher sales in its security and health businesses, Bloomberg said. Charter Communications said CEO Vogel resigned, becoming the third top executive to leave in the last six months, Bloomberg said. MeadWestvaco Corp., the second-largest US maker of coated paper for magazines, agreed to sell its papers unit and forest assets for $2.3 billion to Cerberus Capital Management to pay debt and focus on packaging, Bloomberg reported. The US dollar approached a two-month high against the euro and gained versus the yen after a Treasury Department report showed international investors increased purchases of US assets by 67.7% in November from October, Bloomberg said. Crude oil is falling on speculation that stronger demand for heating fuel during a cold wave in the US Northeast doesn’t justify the recent surge in prices, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day as my computer service, semiconductor and alternative energy longs are rising and my software and auto parts shorts are falling. I added to a few of my current tech longs this morning, thus bringing the Portfolio to 75% net long. I increased my long position in DRIV and I am using a $32.25 stop-loss on this position. The tone of the market is good today on continuing improvement in the advance/decline line and decent volume. Financials and small-caps are outperforming, which is also a positive. The fact the international investors added to US stock holdings by the most in 3 1/2 years is also a big positive considering the weaker US dollar. Measures of investor anxiety are mixed. I expect US stocks to trade modestly higher into the close on short-covering and bargain-hunting.

Tuesday Watch

Earnings of Note
Company/Estimate
ABT/.67
AMD/.08
CHKP/.29
AMTD/.19
BAC/.94
FRX/.67
FCX/.69
IBM 1.76
JNPR/.14
LLTC/.32
MOT/.24
RYL/2.08
STX/.24
STT/.58
WFC/1.06
TER/.02
YHOO/.11

Splits
EV 2-for-1
SHFL 3-for-2

Economic Data
Empire Manufacturing for January estimated at 25.0 versus 29.93 in December.
NAHB Housing Market Index for January estimated at 70 versus 71 in December.

Weekend Recommendations
Bulls and Bears had guests that were positive on JNJ, IBM, TX, HNZ MCRL and mixed on XTO, CBSS, ASN, FSL, AAPL. Forbes on Fox had guests that were positive on TYC, C, SC, AMAT, GLW and mixed on MSO. Cashin' In had guests that were positive on NSC, SONS, VVR, CVX, WIT, DELL and mixed on GM. Barron's had positive comments on RVSN, LOGI, PLCM, GMST, TTWO, CRI, ETP, BRK/A, CAS, NVH, PSUN, WLL, AHL, XEC, AMGN, BIIB, GENZ, PFE, TYC, MCD, C and RIO. Goldman Sachs reiterated Outperform on BSX, GE and DKS. Goldman reiterated Underperform on EW and MAY. Ken Fisher sees a 25% gain for the S&P 500 in 2005, he likes FLS and FMS.

Weekend News
The NYSE is considering opening earlier in order to lure some trading away from European markets, the Financial Times reported. A new, low-carb potato may stem the decline in the vegetable's consumption caused by the increasing popularity of the Atkins diet, the London-based Times reported. Goldcorp Inc. investors will be weighing executives' arguments as they consider a $2.3 billion merger with Wheaton River Minerals Ltd. or a $3 billion hostile takeover bid from Glamis Gold Ltd., Barron's said. Oracle, Agilent Technologies and Johnson & Johnson are among companies that would benefit from a temporary tax change allowing the repatriation of earnings from foreign affiliates, Barron's said. China plans to build at least one nuclear reactor each year between now and 2020 in an ambitious expansion at a pace comparable to that of the US in the 1970s, the NY Times reported. The US and India reached an air travel agreement that will lead to more flights between the two countries, a drop in fares and stronger economic relations, the AP reported. Intel Corp. will on Wednesday unveil a new chipset, its biggest launch since Centrino in 2003, The Business reported. President Bush's approval rating climbed to 53% as more Americans support his economic policies, according to a Time magazine poll. Fund managers forecast stock markets will rise in 2005, the US dollar will further decline and China's economy will experience a "soft landing," the Guardian said, citing a Morgan Stanley poll. US retail stores are using new technologies such as projectors that display product details on floors and walls and wireless phone systems to reduce costs and increase efficiency, the Washington Post reported. US retailers could face probes into whether they use racial profiling to identify potential shoplifters, the Wall Street Journal said, citing NY Attorney General Spitzer. Planned reductions of $30 billion in the US military budget have caused shares of weapons companies to nosedive, but the market may have overreacted, the Wall Street Journal reported. US television networks, including Disney's ABC and GE's NBC, are increasingly making product-placement agreements to boost advertising revenue, the Wall Street Journal reported. TiVo Inc. plans to offer its video recording system and develop other technology for television viewers without partnerships with cable companies, the NY Times said. Educational Testing Service, which administers 25 million tests annually, is planning a new examination to assess students' command of information technology skills, the NY Times reported. Fleetwood Enterprises Inc., the maker of recreational vehicles, has teamed up with vacation exchange operator RCI to offer a shared ownership program for motor homes, the Financial Times said. About 5.6 million American workers age 50 and older are self-employed today, 23% more than in 1990, USA Today said. FedEx Corp. CEO Smith said a fuel surcharge introduced for its ground shipping business Jan. 1 would restore the unit's margins, Reuters reported. The China Securities Regulatory Commission may announce measures to bolster slumping stock markets, Shanghai Securities News reported. US Army Specialist Charles Graner Jr. was sentenced to 10 years in prison for his role in the Abu Ghraib prison abuse scandal, Fox News reported. Saudi Arabia can pump as much as 11 million barrels a day and is currently producing about 9 million barrels a day, Bloomberg reported. Hewlett-Packard will sell new computers based on Intel's Itanium processors in a push to replace machines made by IBM and Sun Microsystems, Bloomberg said. Intel said it is reorganizing into five business units from two in an effort to speed new product introductions, Bloomberg reported. Crude oil futures in NY rose to a seven-week high on expectations cold weather moving into the US Northeast will boost demand for heating fuel, Bloomberg said. John Malone's Liberty Media International and UnitedGlobalCom agreed to merge into a new company called Liberty Global, Bloomberg reported. US Homeland Security Secretary Tom Ridge said there is no evidence of a terrorist plot to disrupt President George Bush's inauguration on Jan. 20, the Washington Post said.

Late-Night Trading
Asian indices are mostly lower, -.50% to unch. on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.16%

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning on a continuation of Friday's bounce. The Portfolio is 50% net long heading into the week.

Weekly Outlook

There are some important economic reports and a number of significant corporate earnings reports scheduled for release this week. Economic reports include (Tues.)-Empire Manufacturing, NAHB Housing Market Index (Wed.)-Consumer Price Index, Housing Starts, Initial Jobless Claims, Fed's Beige Book (Thur.)-Leading Indicators, Philly Fed. (Fri.)-Univ. of Michigan Consumer Confidence. The CPI, Housing Starts, Leading Indicators, Philly Fed. and Consumer Confidence all have market-moving potential.

Tues.- Bank of America(BAC), Juniper Networks(JNPR), Motorola(MOT), Yahoo!(YHOO), 3M(MMM), IBM(IBM) Wed.- eBay(EBAY), Qualcomm(QCOM), Symantec(SYMC), General Motors(GM), JP Morgan(JPM), Pfizer(PFE) Thur.- Delta Air Lines(DAL), Intl. Game Technologies(IGT), Xilinx(XLNX), Citigroup(C), Fri.- United Technologies(UTX), Charles Schwab(SCH), Fannie Mae(FNM), General Electric(GE) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. Tues. - The Fed's Lacker speaking, the Fed's Santomero speaking, the Fed's Stern speaking Wed. – Semi Book-to-Bill, the Fed's Poole speaking, the Fed's Yellen speaking Thur. – the Fed's Bies speaking and the Fed's Stern speaking could also impact trading this week.

Bottom Line: I expect US stocks to finish the week higher on strong earnings/economic reports, a stabilizing US dollar, lower interest rates, short-covering and bargain-hunting. While weakness will likely resurface over the next few weeks, an oversold bounce is likely from current levels. My short-term trading indicators are still giving Sell signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,184.52 -.14%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: The S&P 500 declined for a second straight week, its first back-to-back weekly decline since October. Considering the steep rise in energy prices and some earnings disappointments, last week's minimal declines were a positive. As well, small-caps bounced back from recent losses, the advance/decline line improved and interest rates fell. The homebuilding index hit another all-time high and this sector should continue to outperform as interest rates remain low, housing supply stays relatively low by historic standards and demand remains strong. The oil service index has been in a trading range for almost four months and will likely continue to underperform as crude prices fall further over the next few months. On the negative side, the transportation index has now declined 6.36% from its all-time high on 12/28. This is a concern, but is likely just a correction from recent outsized gains. Finally, most measures of investor anxiety fell on the week and likely remain too low for a durable bottom.

Economic Week in Review

ECRI Weekly Leading Index 130.40 -.91%

Wholesale Inventories for November rose 1.1% versus estimates of a .7% increase and a 1.1% gain in October. Companies have been restocking to ensure enough goods are on hand after consumer spending grew at the fastest pace in almost three years during the third quarter, Bloomberg said. Inventory growth and rising demand are fueling orders, boosting production and helping boost economic growth. "Growth, particularly in consumer spending, has continued to surprise to the upside, so I think we may be back in a situation where inventory growth has been too small," said Stephen Stanley, chief economist at RBS Greenwich Capital. Wholesalers had enough supply on hand to last 1.15 months at the current sales pace. The ratio has held there since May, Bloomberg said.

The Trade Balance for November came in at -$60.3B versus estimates of -$54.0B and -$56.0B in October. The Monthly Budget deficit was -$3.4B versus estimates of $0.0B and -$17.6B in December 2003. The trade deficit unexpectedly grew in November as US demand for oil and consumer goods pushed imports to a record and exports fell as growth in Asia and Europe slowed. The imbalance with China accounted for more than a quarter of the total deficit, Bloomberg said. Tax receipts rose 16.0% in 2004 as tax cuts spurred economic growth, thus increasing corporate and personal incomes, Bloomberg said. The Congressional Budget Office said in its latest annual forecast that the budget deficit would shrink to $348B in 2005, Bloomberg reported. For the first three months of the fiscal year, the US budget deficit fell 8.9% from the prior year.

The Import Price Index for December fell 1.3% versus estimates of a .3% fall and a downwardly revised .2% decline in November. Imports account for about 15% of all goods and services bought in the U.S. The cost of imported petroleum fell 11.5% in December, the biggest drop since April 2003, after falling 5.7% the month before, Bloomberg reported.

Advance Retail Sales for December rose 1.2% versus estimates of a 1.1% increase and a .1% gain in November. Retail Sales Less Autos for December rose .3% versus estimates of a .4% increase and a .4% rise in November. Retail Sales rose 8% for the year, the most in five years. Excluding autos, retail sales surged 8.9%, the strongest performance in 12 years, Bloomberg reported. The economy created 2.2 million jobs in 2004, leading to a pickup in incomes that is likely to keep people buying and the economy expanding, Bloomberg said. "Once again the consumer proves healthier than expected, with big-ticket goods like furniture, appliances and autos leading the way," said Christopher Low, chief economist at FTN Financial.

Initial Jobless Claims for last week rose to 367K versus estimates of 340K and a downwardly revised 357K the prior week. Continuing Claims fell to 2631K, the lowest since April 2001, versus estimates of 2775K and 2850K prior. Claims for jobless benefits typically increase around the start of the year because of seasonal job cuts at retailers and construction companies, Bloomberg said. "We continue to feel that 2005 will see a sustained strengthening of the labor market," said Steve Pogorzelski, president of Monster North America, a unit of Monster Worldwide. Last year, payrolls averaged 185,920 a month. Job growth of about 100,000 to 150,000 is needed to keep pace with the increase in the labor force and keep the unemployment rate from rising, according to most economists.

The Producer Price Index for December fell .7% versus estimates of a .1% decline and a .5% increase in November. PPI Ex Food & Energy for December rose .1% versus estimates of a .2% increase and a .2% gain in November. "Inflation is still low in the absolute sense but the net of the recent data is that inflation is moving up and that keeps pressure on the Fed to keep raising rates," said James O'Sullivan, senior economist at UBS Securities. The price of gasoline fell 11.1% last month, the largest decline since April 2003, Bloomberg said. Moreover, Federal Reserve Bank of New York President Geithner said in a recent speech that "core inflation is moderate and various measures of inflation expectations suggest confidence in the outlook for price stability."

Business Inventories for November rose 1.0% versus estimates of a .6% increase and a .4% gain in October. The buildup, in conjunction with rising consumer spending, likely boosted economic growth in the final three months of the year and will help ease some of the negative impact of a high trade deficit on GDP in the quarter, economists said. The ratio of inventories to sales, a measure of how long goods remain in store at the current pace of demand, rose to 1.31 months, compared with October's record-tying low of 1.3 months, Bloomberg said.

Industrial Production for December rose .8% versus estimates of a .4% gain and a .2% increase in November. Capacity Utilization for December came in at 79.2% versus estimates of 78.9% and 78.6% in November. Gains in production of metals and computers helped push up the index, Bloomberg said. The manufacturing sector is doing very well," said Stephen Stanley. "We've seen continued strength in orders which bodes well for 2005."

Bottom Line: Overall, last week's economic data were modestly positive. Inventory gains are helping to boost economic growth and illustrate manager's confidence in the economy. The US trade deficit will likely worsen slightly before it gets better. The budget deficit should shrink this year as tax receipts remain strong and government spending decelerates. The rate of inflation will slow in 2005, with the CPI likely rising below its long-term average of 3.0%. The fact that retail sales, excluding autos, rose the most in 12 years last year is remarkable considering the negativity from the election, terrorism fears, worries over the financial health of the consumer and higher interest rates. The recent rise in jobless claims is likely the result of seasonal factors rather than real weakness in the labor market. Manufacturing has been exceptionally strong as of late and capacity utilization is nearing its long-term average of around 81.0%. The ECRI Weekly Leading Index has now declined the most in the last 2 weeks since before it began trending higher in 2002.

Weekly Scoreboard*

Indices
S&P 500 1,184.52 -.14%
Dow 10,558.00 -.43%
NASDAQ 2,087.91 -.03%
Russell 2000 617.48 +.70%
DJ Wilshire 5000 11,635.73 +.06%
S&P Equity Long/Short Index 1,006.96 +.01%
S&P Barra Growth 571.23 +.07%
S&P Barra Value 608.88 -.36%
Morgan Stanley Consumer 582.05 -.19%
Morgan Stanley Cyclical 765.78 +.37%
Morgan Stanley Technology 484.13 -.11%
Transports 167.49 -2.29%
Utilities 332.29 +2.34%
Put/Call .73 -23.16%
NYSE Arms .79 -37.30%
Volatility(VIX) 12.43 -7.86%
ISE Sentiment 157.00 -1.88%
AAII % Bulls 33.99 -10.79%
US Dollar 82.97 -.75%
CRB 283.22 +1.56%

Futures Spot Prices
Crude Oil 48.38 +7.15%
Unleaded Gasoline 127.61 +5.64%
Natural Gas 6.39 +6.85%
Heating Oil 135.09 +6.12%
Gold 422.30 +1.12%
Base Metals 119.14 +.08%
Copper 139.60 +1.90%
10-year US Treasury Yield 4.21% -1.05%
Average 30-year Mortgage Rate 5.74% -.52%

Leading Sectors
Oil Service +6.11%
HMOs +4.88%
Homebuilders +4.42%

Lagging Sectors
Restaurants -2.18%
Airlines -2.53%
Telecom -3.25%

*% Gain or loss for the week

Mid-day Report

S&P 500 1,183.37 +.50%
NASDAQ 2,082.76 +.59%

Leading Sectors
Airlines +2.04%
Iron/Steel +2.03%
Semis +1.72%

Lagging Sectors
Biotech +.04%
Boxmakers -.07%
Telecom -.25%

Other
Crude Oil 48.30 +.54%
Natural Gas 6.38 -.93%
Gold 423.00 -.49%
Base Metals 119.14 -.17%
U.S. Dollar 83.02 +.62%
10-Yr. T-note Yield 4.21% +1.17%
VIX 12.49 -2.73%
Put/Call .70 -15.66%
NYSE Arms .87 -40.82%
ISE Sentiment 134.00 -14.10%

Market Movers
CREE -24.66% after missing 2Q estimates and lowering 3Q forecast.
EPIX -29.5% after the company and its German partner, Schering AG said US regulators demanded more data before approving its scan contrast product MS-325.
CAAS +16.4% after announcing it has signed a technology licensing agreement with Korea Delphi Automotive Systems to manufacture and export its M150/M200 model automotive steering systems.
NX +11.2% after boosting 1Q estimates.
ASKJ +9.1% on Piper Jaffray upgrade to Outperform.
AIT +12.8% after beating 2Q estimates and raising 3Q forecast.
GMTN -16.6% after cutting 4Q forecast.

Economic Data
Producer Price Index for December fell .7% versus estimates of a .1% fall and a .5% increase in November.
PPI Ex Food & Energy for December rose .1% versus estimates of a .2% increase and a .2% gain in November.
Business Inventories for November rose 1.0% versus estimates of a .6% increase and a .4% rise in October.
Industrial Production for December rose .8% versus estimates of a .4% gain and a .2% increase in November.
Capacity Utilization for December came in at 79.2% versus estimates of 78.9% and an upwardly revised 78.6% in November.

Recommendations
-Goldman Sachs: Reiterated Outperform on HD and BAX. Reiterated Underperform on BE.
-Banc of America: Upgraded NOVL to Buy, target $8.50. Rated LLY Buy, target $67. Rated WYE Buy, target $46. Rated SGP Sell, target $17.
-Citi SmithBarney: Upgraded ELOS to Buy, target $37. Upgraded RSAS to Buy.
-CSFB: Raised STX to Outperform.
-JP Morgan: Cut JTX, KSS to Underweight. Raised RA, AMB to Overweight. Rated NINE Overweight.
-UBS: Raised FLEX to Buy, target $17. Raised KNX to Buy, target $28. Rated OS Buy, target $26.
-Deutsche Bank: Rated VSEA Buy, target $39. Rated SPRT Buy, target $9. Raised ABX to Buy, target $26.50.
-Thomas Weisel: Rated CPC Outperform.
-Morgan Stanley: Raised DISH to Overweight, target $40.
-Prudential: Rated NWAC Overweight, target $16. Rated LUV Overweight, target $22. Rated JBLU Overweight, target $28. Rated DAL Underweight, target $9. Rated AMR Overweight, target $17. Rated AAI Overweight, target $15. Cut UST to Underweight, target $40.
-Legg Mason: Rated AOC Sell.
-Merrill Lynch: Raised DIS to Buy, target $35.

Mid-day News
U.S. stocks are modestly higher mid-day on good economic data and a technical bounce after yesterday’s sell-off. Marsh & McLennan offered to pay $600 million to settle allegations of contract bid-rigging, the Wall Street Journal said. Boeing will end production of its 717 short-haul airliner after completing outstanding orders for the 117-seat jet, the Wall Street Journal reported. Fannie Mae and Freddie Mac earned about $4 billion last year through guarantees fees, at the expense of millions of homeowners, the Wall Street Journal said. Cosmetics makers Revlon, L’Oreal SA and Unilever Plc said they no longer use phthalates in their products, because of concern that the chemicals may be harmful to health, the Wall Street Journal reported. US trade and budget deficits are unlikely to slow efforts by the Bush administration to tackle meaningful reform of the tax code and Social Security, the Wall Street Journal reported. A new US law that requires employers to destroy papers containing personal information of workers such as nannies may boost sales of shredding machines, USA Today reported. Harvard University has hired 2004 graduate Zac Corker, who helped create a Web site that posts party information, drinking-game rules and tips on how to unhook a bra, as its new social programmer to help students unwind, the Boston Herald reported. The NY Metropolitan Transportation Authority will start operating its first computer-run subways in July on the L line, the NY Times reported. Hewlett-Packard will combine its printing and personal computer units and said Executive Vice President Duane Zitzner, who ran the PC group, left the company, Bloomberg reported. Shares of Verizon Communications fell for the 13th consecutive day amid concern by some investors that cable and wireless companies will win local-calling customers, Bloomberg said. Merck and Johnson & Johnson provided an “adequate rationale” for selling the cholesterol medication Mevacor without a doctor’s prescription, Bloomberg reported. US industrial production increased more than expected in December, making last year the busiest for factories, mines and utilities since 2000, Bloomberg said. US wholesale prices fell a larger-than-expected .7% last month, the biggest decline since April 2003 and led by falling energy costs, Bloomberg reported. The US dollar is gaining against the euro after a Fed official said policy makers may drop their plan to lift interest rates at a “measured” pace “at some point,” Bloomberg said.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my homebuilding longs and software shorts. I have not traded today and the Portfolio remains 25% net long. The tone of the market is better today, however volume is lighter and most measures of investor anxiety are falling. The homebuilders’ ability to add to yesterday’s gains with long-term interest rates rising today is a positive for the group. I continue to believe the Fed is trying to jawbone the dollar and do not expect an accelerated pace of rate hikes. I expect US stocks to trade mixed-to-weaker into the close.

Friday Watch

Earnings of Note
Company/Estimate
BBT/.76

Splits
None of note.

Economic Data
Producer Price Index for December estimated down .1% versus a .5% increase in November.
PPI Ex Food & Energy for December estimated to rise .2% versus a .2% increase in November.
Business Inventories for November estimated up .6% versus a .2% increase in October.
Industrial Production for December estimated up .4% versus a .2% increase in November.
Capacity Utilization for December estimated at 78.9% versus 78.7% in November.

Recommendations
Goldman Sachs reiterated Outperform on MSFT and RE. Goldman said restrictions for the American Jobs Creation Act repatriation provision include: share buybacks, dividend payments to shareholders, portfolio investments or payment of taxes. Important permitted uses include: debt repayment, research and development, employee benefit plan contributions, acquisition of intangible property including patent rights, advertising and marketing and certain acquisitions. Goldman also thinks payment of tort liabilities could be included.

Late-Night News
Asian indices are mostly higher, led by technology stocks in the region. Rio Tinto, the biggest supplier of iron ore to Japan, has asked Nippon Steel to pay 50% more for the material, the Nihon Keizai newspaper reported. International Data Group's venture capital unit in China will open a $150 million venture capital fund in February to invest in consumer Web services, digital media and software companies, Business Week reported. China's State Administration of Radio, Film and Television is keeping curbs on foreign investment in media by restricting overseas companies to one venture in film production and in television, South China Morning Post reported. St. Louis Federal Reserve Bank President William Poole said the central bank will eventually have to drop its commitment to increasing interest rates at a "measured" pace, Reuters reported. Corporate information technology budgets may show their biggest increase since 2001, rising by an average 2.5% this year, the Financial Times said. Howard Dean paid Jerome Armstrong and Markos Zuniga, who publish the political blogs MyDD and DailyKos, $12,000 each to promote his unsuccessful Democratic presidential nomination campaign on their sites last year, the Wall Street Journal reported. China's crude oil demand may expand at a rate of 6.4% this year, down from 14.2% last year, Xinhua news agency reported. President Bush said his administration has a "strong dollar policy" and is confident foreign investors will continue to find America a good place to invest, USA Today reported. Viacom's CBS unit may cancel "60 Minutes Wednesday," which aired the discredited report on President Bush's National Guard record, when the television season ends in May, the NY Times reported. Samsung Electronics, Asia's biggest electronics maker by market value, said profit in the final three months of 2004 fell for the first time in six quarters as prices of mobile phones, flat-panel displays and chips dropped, Bloomberg said. The threat of terrorist attacks in Indonesia prompted the U.S. to issue an alert to its citizens and the U.K. to close its embassy and consulate offices in the capital, Jakarta, Bloomberg reported.

Late-Night Trading
Asian Indices are -.25%. to +1.0% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.10%.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strength in Asia, lower interest rates and a bounce from today's sell-off. However, stocks may fall later in the day on worries over too many Fed rate hikes and higher energy prices. The Portfolio is 25% net long heading into tomorrow.

Thursday Close

S&P 500 1,177.45 -.86%
NASDAQ 2,070.56 -1.05%

Leading Sectors
Homebuilders +1.86%
Oil Service +1.76%
Iron/Steel +1.71%

Lagging Sectors
Biotech -1.65%
Drugs -1.69%
Airlines -2.94%

Other
Crude Oil 47.90 -.29%
Natural Gas 6.54 +1.55%
Gold 425.60 +.12%
Base Metals 119.34 -.95%
U.S. Dollar 82.51 +.41%
10-Yr. T-note Yield 4.17% -1.48%.
VIX 12.84 +2.23%
Put/Call .83 -8.79%
NYSE Arms 1.47 +77.11%
ISE Sentiment 156.00 -6.02%

After-hours Movers
CREE -22.01% after missing 2Q estimates and lowering 3Q forecast.
SUNW -4.15% after missing 2Q revenue estimates.

Recommendations
Goldman Sachs expects VRTS to beat consensus revenue and eps estimates for December quarter. Goldman thinks steel stocks are oversold, favorites are STLD, NUE and X. UBS rated AMAT, KLAC, LRCX and VSEA Buy. GenCorp Inc.(GY), a maker of aerospace components, may face more takeover bids as investors focus on assets that include undeveloped land, Business Week reported. Spectrum Pharmaceuticals may see its shares climb as it seeks to introduce a generic version of GlaxoSmithKline’s Imitrex migraine drug, Business Week reported. Bandag’s(BDG) sales growth may benefit from last year’s acquisition of Speedco, Business Week reported.

After-hours News
U.S. stocks finished lower today, spurred by a late-afternoon sell-off on increased worries over economic growth. After the close, Mahmoud Abbas, the newly elected Palestinian leader, said he will work to implement the conditions of the internationally backed “road map” peace plan and called on Israel to reciprocate, the AP reported. European online advertisement is increasing at an average of 24% a year, with the biggest increases in Sweden, France and the Netherlands, the Financial Times reported. The European Parliament has voted in favor of beginning the process that will lead to Ukraine becoming a member of the European Union, the Financial Times said. The tsunami disaster in southern Asia and eastern Africa “devastated” the fishing industry in the region, destroying docks, boats and ice plants, Bloomberg reported. The US Treasury Department said companies can’t use foreign profit returned to the US during a one-year tax holiday to repurchase shares or pay dividends to shareholders, Bloomberg said. Molson Inc. will increase its special dividend to shareholders by 67% as part of their transaction with Adolph Coors, Bloomberg reported. General Motors plans two-thirds of its future growth in emerging markets such as China, Brazil and Russia after competition from Toyota Motor and other rivals limited gains in the US and Europe, Bloomberg said. Microsoft’s control over how information is presented on the Web may be challenged by the success of Mozilla’s Firefox Web browser, Business Week said. Taiwan’s five makers of flat-panel displays may have combined losses in the fourth-quarter of more than $314 million as product prices drop, the Commercial Times reported. Taiwan’s four largest computer makers can’t get enough Intel processors for desktop computers or graphics chips from ATI Technologies and Nvidia Corp., the Commercial Times reported.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my homebuilding and wireless longs offset losses in my steel and chemical shorts. I exited a number of longs in the afternoon as they hit stop-losses and added a few new shorts, thus bringing the Portfolio’s market exposure to 25% net long. One of my new shorts is WBSN and I am using a $53 stop-loss on this position. The tone of the market weakened significantly in the final hour of trading as the advance/decline line fell to it lows for the day and volume picked up. The slide seemed to coincide with the announcement from the Treasury Department regarding profit repatriation. Measures of investor anxiety mostly rose, but are still not at levels normally associated with a durable bottom. Interest rates fell substantially today and should continue to fall modestly in the intermediate-term as measures of inflation decelerate, the US dollar stabilizes and worries over global economic growth worsen.

Mid-day Report

S&P 500 1,185.43 -.19%
NASDAQ 2,087.77 -.23%

Leading Sectors
Oil Service +2.17%
Iron/Steel +2.06%
Boxmakers +1.92%

Lagging Sectors
Drugs -.91%
Telecom -1.21%
Airlines -2.05%

Other
Crude Oil 48.00 +3.52%
Natural Gas 6.41 +7.69%
Gold 425.00 -.38%
Base Metals 119.34 -.95%
U.S. Dollar 82.44 +.33%
10-Yr. T-note Yield 4.19% -.92%
VIX 12.53 -.24%
Put/Call .75 -17.58%
NYSE Arms 1.23 +48.19%
ISE Sentiment 139.00 -16.27%

Market Movers
AAPL +8.2% after substantially beating 1Q estimates, raising 2Q outlook and multiple upgrades.
TASR +25.1% after the US Defense Department said it supports Taser’s argument its stun guns are generally safe and a study in the Pacing and Clinical Electrophysiology Journal states its guns are unlikely to cause heart problems.
VRST +55.9% after saying it agreed to be purchased by Cadence Design for $285.7 million in cash.
HLIT +20.2% after boosting 4Q sales estimates.
LCBM +26.3% after beating 2Q estimates and raising ’05 guidance.
TKR +9.2% after raising 4Q and 04 estimates.
ABMD -16.4% after lowering 3Q estimates.
KCP -8.08% after cutting 4Q estimates and re-affirming 05 guidance.

Economic Data
Import Price Index for December fell 1.3% versus estimates of a .3% decrease and a downwardly revised .2% fall in November.
Advance Retail Sales for December rose 1.2% versus estimates of a 1.1% increase and a .1% gain in November.
Retail Sales Less Autos for December rose .3% versus estimates of a .4% increase and a .4% gain in November.
Initial Jobless Claims for last week were 367K versus estimates of 340K and 357K the prior week.
Continuing Claims were 2631K versus estimates of 2775K and 2850K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on STZ, FSH, AMX, BLS, CZN, MCK and SBC. Reiterated Underperform on MKL, FHCC, CVH, T and LVLT.
-Banc of America: Upgraded AAPL to Buy, target $85. Rated CHD Sell, target $28.
-JP Morgan: Reiterated Overweight on RL, target $49. Cut KWD to Underweight. Raised FOSL to Overweight.
UBS: Rated AFR Buy, target $16.50. Rated GR Buy, target $37.
CSFB: Rated DTV Outperform, target $20. Rated FON Outperform, target $28. Rated NXTL Outperform, target $35. Rated T Underperform, target $15.
Prudential: Raised VCI to Overweight, target $42. Raised AAPL to Overweight, target $93.
Legg Mason: Rated IWA Buy, target $22.50.
Merrill Lynch: Raised AXCA to Buy, target $25.

Mid-day News
U.S. stocks are modestly lower mid-day as energy prices rise and worries continue over slowing growth persist. Charles Schwab lowered the asset requirement for avoiding service fees on some accounts, in hopes of attracting more clients, the Wall Street Journal said. Ubisoft Entertainment SA, make of “Tom Clancy’s Splinter Cell” video game, is considering several defenses against a possible takeover by Electronic Arts, the Wall Street Journal reported. US company directors have become nervous that agreements by former directors of WorldCom and Enron to pay $31 million to settle suits over accountability for corporate frauds may increase their own liabilities, the Wall Street Journal reported. GM’s finance unit is altering its borrowing plans in case its credit rating falls below investment grade, the Financial Times reported. Cendant Corp. is speeding up plans to sell its marketing services unit for about $3 billion, the NY Post reported. China’s steel exports more than doubled to a record 14.23 million metric tons in 2004 from a year earlier, the Tex Report said. EBay plans to increase some of the prices it charges on its EBay and EBay Motors Web sites on Feb. 18 as it experiences higher demand, the Wall Street Journal reported. Georgia’s Cobb County school system was ordered to remove stickers place inside science textbooks that say evolution is a “theory, not a fact,” the Atlanta Journal Constitution reported. Wal-Mart Stores will begin an advertising campaign to counter criticism that it pays workers too little, Bloomberg reported. Owens Corning, driven into bankruptcy by personal injury lawsuits, is set to find out what it will cost to settle hundreds of thousands of claims, Bloomberg reported. Bayer AG, Germany’s second-largest drug company, will pare its research and development budget for a third straight year to the lowest since 1997, Bloomberg said. The euro fell against the dollar and yen after European Central Bank President Trichet said inflation pressures in the 12-nation region have diminished, Bloomberg said. Merk’s Mevacor cholesterol drug should require a doctor’s prescription to ensure an effective dose and prevent kidney damage, physicians said before a US government meeting today on the company’s request to sell the medication over the counter, Bloomberg reported. RadioShack Corp. said Leonard Roberts will step aside as CEO in May when President and COO Edmondson takes over, Bloomberg said. US Homeland Security Chief Ridge said the country will begin a pilot program using eye scans to expedite travelers through NY’s John F. Kennedy airport as it looks to limit security checks on low-risk flyers, Bloomberg reported. Newly elected Palestinian Authority President Abbas said he’s serious about implementing the US-backed “road map” to peace with Israel, Bloomberg said. US Treasury notes rose after government reports showed the prices of goods imported to the US fell and first-time jobless claims rose, Bloomberg reported. Nine vendors for a US unit of Netherlands-based Royal Ahold NV, the world’s fourth largest retailer, were charged with helping company executives inflate earnings by more than $800 million, Bloomberg said. Crude oil is rising to a six-week high on forecasts that colder weather will move into the eastern US next week, bolstering demand for heating fuel, Bloomberg said. Sales at US retailers rose 1.2% in December, the most in three months, as incentives boosted auto purchases and lower gasoline prices left shoppers with more to spend on furniture and holiday gifts, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on gains in my homebuilding and wireless longs. I have not traded and the Portfolio is still 75% net long. The tone of the market is improved today, notwithstanding small losses in the major indices. The advance/decline line is negative, however much improved from recent sell-offs and a number of sectors are gaining. Small-caps and commodity-related stocks are outperforming. I expect crude prices to top over the next few days and begin heading to around $35/bbl. sometime in the first half of 05 on ample supply, decelerating demand and a stabilizing US dollar. I look for US stocks to trade modestly higher into the close.

Thursday Watch

Earnings of Note
Company/Estimate
CBH/.87
CREE/.32
MTG/1.34
SUNW/.01

Splits
CMN 3-for-2

Economic Data
Import Price Index for December estimated to fall .3% versus a .2% increase in November.
Advance Retail Sales for December estimated to rise 1.0% versus a .1% increase in November.
Retail Sales Less Autos for December estimated to rise .4% versus a .5% increase in November.
Initial Jobless Claims for last week estimated at 340K versus 364K last week.
Continuing Claims estimated at 2773K versus 2840K prior.

Recommendations
Goldman Sachs reiterated Outperform on CAT, MCK and EBAY. Goldman reiterated Underperform on HRB.

Late-Night News
Asian indices are mixed as strength in India is being offset by weakness in Japan. The US Department of Justice filed court papers supporting a whistle-blower's lawsuit that accuses Apollo Group's University of Phoenix of paying counselors commissions to enroll students, the Wall Street Journal reported. Tourists from China who went abroad rose 55.4% to 23 million in 2004 from a year earlier, state-run Xinhua News Agency reported. News Corp. is interested in entering the video games industry, the Financial Times said. John R. Alkire, CIO at Morgan Stanley Asset & Investment Trust in Tokyo, expects the Nikkei 225 to rise as much as 23% this year, Bloomberg reported. The US SEC is preparing to charge the NYSE with not sufficiently monitoring its specialist floor-trading firms, the Wall Street Journal reported.

Late-Night Trading
Asian Indices are -.50%. to +.75% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.22%.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on good economic reports and strength in technology shares. The Portfolio is 75% net long heading into tomorrow.

Wednesday Close

S&P 500 1,187.70 +.40%
NASDAQ 2,092.53 +.62%

Leading Sectors
Hospitals +3.37%
Oil Service +2.40%
Energy +1.79%

Lagging Sectors
Airlines -.67%
Broadcasting -1.04%
Transports -2.12%

Other
Crude Oil 46.54 +.37%
Natural Gas 5.92 -.30%
Gold 426.60 unch.
Base Metals 120.48 -.01%
U.S. Dollar 82.17 -1.08%
10-Yr. T-note Yield 4.23% -.05%.
VIX 12.56 -4.78%
Put/Call .91 +3.41%
NYSE Arms .83 -53.11%
ISE Sentiment 166.00 -23.85%

After-hours Movers
AAPL +10.2% after substantially beating 1Q estimates and raising 2Q outlook.
CREAF +4.62% on AAPL report.
SYNA +6.0% on AAPL report.
PLAY +10.07% on AAPL report.
RRGB -6.02% after cutting 4Q estimates.
LCBM +13.4% after beating 2Q estimates and raising ’05 guidance.
TSCM +15.0% after hiring investment-banking firm Allen & Co. to help explore a possible sale of the company.
TASR -3.7% after rival Stinger Systems CEO Gruder said the company would introduce a stun gun in February to compete with those made by Taser.

Recommendations
Goldman Sachs reiterated Outperform on FSH.

After-hours News
U.S. stocks finished higher today on a surge in the late afternoon. After the close, Infosys Technologies CEO Nilekani told CNBC that the company projects 50% fiscal fourth-quarter growth, Bloomberg reported. NASA today sent its $267 million Deep Impact spacecraft on a mission to blow a crater as big as a football stadium in a comet orbiting between Earth and Mars, Bloomberg reported. McKesson Corp. said it agreed to pay $960 million to settle a class action suit brought by shareholders after the company restated earnings in 1999, Bloomberg said. Crude oil rose to a six-week high of $46.37/bbl. after an Energy Department report today showed a greater-than-expected US inventory decline, Bloomberg said. Pfizer’s advertisements on the Celebrex and Bextra painkillers violated regulations because they overstated the drugs’ benefits and omitted risks, Bloomberg reported. Apple Computer’s first-quarter profit more than quadrupled as sales of iPod digital music players and iMac personal computers surged in the holiday gift-buying season, Bloomberg said. SunTrust Banks said the SEC issued subpoenas seeking documents related to the bank’s loan loss reserve accounting as part of a formal investigation, Bloomberg reported. The US Environmental Protection Agency said a chemical used to make DuPont’s Teflon nonstick coatings has the potential to cause caner in humans, Bloomberg said. Prostate cancer hormone treatment may increase a man’s risk of bone fractures, according to researchers who say the medicine may be responsible for 3,000 US cases a year, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my telecom equipment and alternative energy longs offset losses in my steel shorts. I added a few new longs in the afternoon, bringing the Portfolio’s market exposure to 75% net long. One of my new longs is MOT and I am using a $16 stop-loss on this position. It appears a short-term rally has begun as the late-day sell-off trend ended today and Apple’s report is boosting tech after-hours. While a bounce is well overdue, weakness will likely resurface over the next couple of weeks as investor complacency remains too high for a solid bottom. I will remain nimble and view any near-term purchases as trading opportunities.

Mid-day Report

S&P 500 1,183.25 +.02%
NASDAQ 2,081.77 +.10%

Leading Sectors
Hospitals +2.63
Oil Service +2.10%
Energy +1.29%

Lagging Sectors
Airlines -1.47%
Broadcasting -1.53%
Transports -2.61%

Other
Crude Oil 45.60 -.18%
Natural Gas 5.90 -3.20%
Gold 426.60 +.99%
Base Metals 120.48 -.01%
U.S. Dollar 82.08 -1.19%
10-Yr. T-note Yield 4.24% +.14%
VIX 12.83 -2.73%
Put/Call .82 -6.82%
NYSE Arms .78 -55.93%
ISE Sentiment 178.00 -18.35%

Market Movers
UPS -7.2% after lowering 4Q guidance and multiple downgrades.
TASR +15.9% on bounce after recent plunge.
HCA +8.6% after raising 4Q guidance as it set aside less money for unpaid bills.
WBSN +8.71% after boosting 4Q estimates and Jeffries upgrade to Buy.
DWA +8.2% on Fulcrum Global upgrade to Buy.
COL +5.8% after boosting '05 forecast.
TRI +6.1% on HCA report.
MYGN +7.2% after saying it started enrollment in a Phase 3 human clinical trial of its therapeutic Alzheimer's disease treatment Flurizan.
SNDA -10.9% on profit-taking.
JOBS -5.6% on profit-taking.
CRDN -5.79% on Matrix downgrade to Sell.

Economic Data
Trade Balance for November fell to -$60.3B versus estimates of -$54.0B and -$56.0B in October.

Recommendations
-Goldman Sachs: Reiterated Outperform on INTC, UPS, SBC, KO, ACS, CZN, TU, AMX. Reiterated Underperform on DJ, T, LVLT. Goldman upgraded BLS to Outperform.
-Citi SmithBarney: Upgraded QLGC to Buy, target $44.
-Morgan Stanley: Rated TU Overweight, target $31.
-CSFB: Reiterated Outperform on FDX, target $130.
-Oppenheimer: Raised G to Sector Outperform, target $52..
-UBS: Raised LQU to Buy, target $22. Raised TIWI to Buy, target $14. Cut DNDN to Reduce, target $6.
-Bear Stearns: Rated ASCA Underperform. Rated CHH Outperform, target $66. Rated HET Outperform, target $80. Rated HMT Outperform, target $20. Rated MGG Outperform, target $85. Rated MAR Outperform, target $77. Rated OEH Outperform, target $26. Rated SHFL Outperform, target $53. Rated HOT Outperform, target $69. Rated WYNN Outperform, target $79. Rated STN Outperform, target $69.
-Merrill Lynch: Raised MRX to Buy, target $39. Downgraded CHZ to Sell.
-Raymond James: Raised LPNT to Strong Buy, target $43.

Mid-day News
U.S. stocks are slightly higher mid-day on gains in hospital, energy and semiconductor shares. The US Medicare system will probably try to curb costs by reducing the use of magnetic resonance imaging and other scans, the Wall Street Journal said. Manhattan's downtown district around the destroyed World Trade Center is experiencing a real estate revival driven by cheap rents, the Wall Street Journal reported. Children under the age of nine shouldn't use cell phones because of the risk of radiation penetrating their brains, the Daily Telegraph reported. SABMiller Plc may bid for Molson Inc. if Molson's proposed merger with Adolph Coors doesn't materialize, the Wall Street Journal reported. General Motors is recalling 98,221 Chevrolet and GMC pickup trucks, vans and sport-utility vehicles because steering wheels and brakes may fail, the AP reported. US Steel halted some deliveries of coke, a steelmaking ingredient, as flooding on the Monongahela and Ohio rivers hindered transportation, American Metal Market reported. Man Group Plc boosted assets under management to about $42 billion in the fourth quarter as returns improved, Bloomberg said. Kraft Foods will reduce the number of junk-food brands it advertises as part of its strategy to encourage consumers to adopt healthier diets, Bloomberg said. Mylan Labs said it may cancel a $4 billion agreement to buy King Pharmaceuticals because King is restating financial results, Bloomberg said. OfficeMax said its CFO resigned and the company will delay the release of fourth-quarter results after expanding an accounting probe, Bloomberg said. The US Supreme Court struck down aspects of the federal criminal sentencing guidelines in a decision that may bolster the rights of convicted drug traffickers and corporate-fraud defendants, Bloomberg said. The US dollar dropped by the most in five weeks against the euro and declined versus the yen after the US trade deficit unexpectedly expanded to a record in November, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my telecom equipment longs are offsetting losses in my steel shorts. I have not traded today and the Portfolio is still 50% net long. The tone of the market is poor once again as decliners handily outpace advancers and tech stocks' reaction to Intel's positive report is muted. With investor complacency rising again today it is likely another push lower will come in the near-term. I expect US stocks to weaken into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
AAPL/.48
MDC/2.82

Splits
None of note.

Economic Data
Trade Balance for November estimated at -$54.0B versus -$55.5B in October.
Monthly Budget Statement for December estimated at $0.0B versus -$17.6B in November.

Recommendations
Goldman Sachs reiterated Outperform on MSFT, IGT, DNA, IP, JTX, SPP and Underperform on KZL. Goldman reiterated Attractive view of Lodging sector.

Late-Night News
Asian indices are mostly lower after declines in US shares and continuing worries over slowing global growth. Intel Corp. expects the market for flash memory to remain competitive, CFO Bryant said in an interview with CNBC. Billionaire investor George Soros and Herbert and Marion Sandler of Golden West Financial Corp., who opposed President Bush's re-election, are planning to fund more Democratic party research groups, the Financial Times reported. Exxon Mobil's Mobil Travel Guide, which rates restaurants and hotels, is restructuring amid increased competition from a growing number of travel Web sites, books and services, the Wall Street Journal said. Walt Disney President Iger said in an interview with Reuters that rain in Southern California has had "some impact" on attendance revenue at its Disneyland theme park in Anaheim. BMW AG will diversify into the international market for multiple-purpose vehicles, or "people carriers," the Financial Times said. Lehman Brothers Holdings talks to buy London-based hedge fund GLG Partners have come to a standstill in recent weeks, the Wall Street Journal said. Foreign-exchange trading rose to record levels in the first week of 2005, when the dollar, used for 90% of global currency transactions, surged against the euro, the Financial Times said. China will probably add 58 million mobile-phone users this year, state-run Xinhua News Agency said, Bloomberg reported. China risks inciting a backlash from US lawmakers and businesses because of policies subsidizing state-run companies, curbing imports and pegging its currency to the dollar, US Commerce Secretary Donald Evans said. Cleveland-Cliffs, the biggest North American marker of iron ore pellets, agreed to buy Australia's Portman Ltd. for $465 million in cash to increase iron ore sales to Chinese steelmakers, Bloomberg reported. Copper for immediate delivery in London may rise about 10% to $3,500 a metric ton in the second quarter as smelters close for maintenance, sapping supply, said an official at Japan's No.3 producer of the metal. Infosys Technologies said third-quarter profit rose 51.5% as it won new orders from customers, Bloomberg said.

Late-Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 indicated +.15%.
NASDAQ 100 indicated +.51%.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on strength in technology shares. I will decide whether or not to shift market exposure later in the day. The Portfolio is 50% net long heading into tomorrow.

Tuesday Close

S&P 500 1,182.99 -.61%
NASDAQ 2,079.62 -.83%

Leading Sector
HMOs +.22%
Oil Service +.09%
Energy +.05%

Lagging Sectors
Networking-1.82%
Iron/Steel -2.16%
Semis -2.48%

Other
Crude Oil 45.78 +.22%
Natural Gas 6.07 -.41%
Gold 422.50 +.02%
Base Metals 120.49 +1.29%
U.S. Dollar 83.07 -.34%
10-Yr. T-note Yield 4.24% -.78%.
VIX 13.19 -.30%
Put/Call .88 +14.29%
NYSE Arms 1.77 +86.32%
ISE Sentiment 218.00 +36.25%

After-hours Movers
ADIC +6.2% after saying that fourth-quarter earnings will increase by 2 cents a share because of a correction in how it recognized about $1 million in cumulative losses in connection with investments made in a private tech partnership since 2000.
NEOF +21.8% after saying it hired Merrill Lynch to evaluate a possible sale of the company.
CAMP +5.5% after meeting 3Q estimates and raising 4Q guidance.
CRM -6.9% after slightly lowering 4Q outlook.
*Semi-equipment stocks up across the board on Intel cap-ex forecast.

Recommendations
Goldman Sachs upgraded Telecom equipment sector to Attractive, favorites are Outperform rated JNPR, RIMM, CSCO and In-line rated SONS, MOT, NTGR. Goldman also upgraded its handset market forecast to 11% growth in unit volume from 6% in 2005. Goldman reiterated Underperform on TLAB.

After-hours News
U.S. stocks finished lower today on further weakness in small-cap and technology shares. After the close, General Motor’s cost of restructuring its European operations in 2005 may be less than anticipated, at $1.05 billion, the Financial Times said. Burlington Coat Factory Warehouse CEO Milstein told CNBC financial network that same-store sales were up more than 20% in the week before and the week after Christmas. Iraqi Prime Minister Allawi said some small parts of the country will be unable to take part in elections Jan. 30, Bloomberg said. A levee in San Juan Capistrano is southern California that may not be able to hold back a swollen river led local officials to evacuate about 4,000 people, CNN reported. Johnson & Johnson’s drug-coated Cypher heart stent may be better than Boston Scientific’s Taxus for repeat procedures to unclog some arteries, according to a study in the Jan. 12 Journal of the American Medical Association, Bloomberg reported. Cattle prices in Chicago rose to a 13-month high on speculation that the US will withdraw a plan to resume imports of beef and live cattle from Canada because of a new case of mad cow disease, Bloomberg reported. The yen rose by the most in almost a month against the US dollar after European Central Bank Chief Economist Issing suggested Asian nations must let their currencies strengthen to help shrink the US trade deficit, Bloomberg said. A US judge, acting on a complaint by the US FTC, ordered 11 businesses and individuals to stop sending sexually explicit spam e-mail, Bloomberg said. Microsoft said CFO Connors is retiring to become a partner at a Seattle-area venture capital firm, Bloomberg reported. United Parcel Service said fourth-quarter earnings, excluding a tax benefit, were 75 cents to 76 cents a share, compared with the company’s previous forecast of 83 cents to 87 cents a share, Bloomberg said. Intel said fourth-quarter sales rose to a record, exceeding $9 billion for the first time as holiday-season demand for laptops lifted orders, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slightly lower today as weakness in my retail, internet and networking longs more than offset gains in my steel, chemical and auto parts shorts. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. Volume increased once again on today’s losses and breadth was poor. I continue to expect a better bounce at any time, however measures of investor sentiment are still showing too much complacency for a solid bottom. I will closely monitor the market’s reaction to Intel’s report in the morning and react accordingly.