Stocks Finish Modestly Higher on Merger Activity and Strong US Economic Growth

Indices
S&P 500 1,262.79 +.25%
DJIA 10,833.73 +.26%
NASDAQ 2,231.66 +.42%
Russell 2000 679.74 +1.03%
DJ Wilshire 5000 12,623.75 +.35%
S&P Barra Growth 604.78 +.24%
S&P Barra Value 653.59 +.27%
Morgan Stanley Consumer 600.89 +.27%
Morgan Stanley Cyclical 787.43 +1.16%
Morgan Stanley Technology 527.70 +.55%
Transports 4,198.69 +2.33%
Utilities 408.24 -1.21%
Put/Call .71 -37.72%
NYSE Arms .89 -21.66%
Volatility(VIX) 10.81 -3.40%
ISE Sentiment 204.00 -17.41%
US Dollar 91.00 +.24%
CRB 326.53 +.22%

Futures Spot Prices
Crude Oil 58.65 +.17%
Unleaded Gasoline 154.20 +.36%
Natural Gas 14.31 +.28%
Heating Oil 176.05 +.23%
Gold 497.70 +.48%
Base Metals 151.67 +.39%
Copper 201.50 -.12%
10-year US Treasury Yield 4.49% +.66%

Leading Sectors
Disk Drives +7.55%
Gold & Silver +2.48%
Gaming +1.90%

Lagging Sectors
Semis -.33%
Telecom -.52%
Utilities -1.21%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on WCC, IBM, PFE, CEM, FD, CCU and GNW.

Afternoon/Evening Headlines
Bloomberg:
- French Connection Group Plc, the owner of fashion stores in Europe, the US and Asia, has won a fight to continue using its FCUK logo on watches and jewelry, the BBC said on its Web site.
- Research In Motion said third-quarter profit rose 33%, beating analysts’ estimates and soothing concerns about customer defections.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Medical Information System longs and Computer longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sector rose and volume was slightly below average. Measures of investor anxiety were mostly lower into the close. Overall, I would classify today's action as neutral. The major averages and breadth are finishing modestly higher, however the afternoon weakness was disappointing for the bulls. My sense is that hedge funds, which now dominate trading, are very worried about a January swoon in stocks and have been positioning accordingly, which should benefit stocks in January. I expect stocks to put in a better showing to end the week.

Stocks Higher Mid-day on Merger Activity

Indices
S&P 500 1,264.47 +.38%
DJIA 10,855.42 +.47%
NASDAQ 2,232.42 +.45%
Russell 2000 678.50 +.85%
DJ Wilshire 5000 12,632.89 +.42%
S&P Barra Growth 605.62 +.38%
S&P Barra Value 654.38 +.39%
Morgan Stanley Consumer 601.07 +.31%
Morgan Stanley Cyclical 786.94 +1.09%
Morgan Stanley Technology 527.29 +.47%
Transports 4,197.43 +2.30%
Utilities 410.71 -.61%
Put/Call .58 -49.12%
NYSE Arms .79 -30.04%
Volatility(VIX) 11.67 -4.83%
ISE Sentiment 226.00 -8.50%
US Dollar 91.03 +.28%
CRB 325.69 -.04%

Futures Spot Prices
Crude Oil 58.35 +.45%
Unleaded Gasoline 151.70 +.54%
Natural Gas 14.11 +.21%
Heating Oil 175.20 +1.84%
Gold 495.30 -.34%
Base Metals 151.67 +.39%
Copper 201.75 -.12%
10-year US Treasury Yield 4.48% +.57%

Leading Sectors
Disk Drives +6.78%
Steel +1.75%
Gaming +1.62%

Lagging Sectors
Semis -.09%
Telecom -.37%
Utilities -.70%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Semi longs, Medical longs and Medical Information System longs. I covered the rest of my IWM and QQQQ shorts this morning and was stopped-out of a short, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is about average. Measures of investor anxiety are mostly lower. Overall, today’s market action is mildly positive considering recent trading. The Fed's Lacker is saying that he sees 3.5% real GDP growth next year, with household spending rising 3.5% as well. However, he said he sees "substantially faster" business investment. He said core inflation has been low and steady, but the Fed must respond vigorously to inflation signs. Finally, he says housing activity will cool next year. It is a positive that the Fed is acknowledging the slowing housing market. I expect US stocks to trade mixed-to-higher into the close on short-covering.

Today's Headlines

Bloomberg:
- Bloomingdale’s employees outnumbered lunchtime shoppers in the New York store’s main floor cosmetic department yesterday as the city’s first full-scale transit strike in 25 years kept customers away.
- The trial of ousted dictator Saddam Hussein resumed in Baghdad today after a two-week break due to Saddam’s refusal to attend court on Dec. 7.
- Allergan, maker of the Botox anti-wrinkle treatment, agreed to buy Inamed for $3.42 billion in cash and stock, adding Inamed’s wrinkke-smoothing Juvederm and saline breast implants.
- IBM agreed to buy Micromuse, a provider of network management software, for about $865 million in cash.
- President Bush accused Senate Democrats of “inexcusable” obstruction for failing to extend provisions of the USA Patriot Act that are scheduled to lapse at year’s end.
- The US Senate approved a package of $39.7 billion in spending cuts with Vice President Chaney casting the tie-breaking vote.
- US Senate Democrats blocked a bid to allow oil drilling in Alaska.
- Boeing may boost annual output of the new 787 plane because of strong demand and is considering another long-range version of the aircraft.

Wall Street Journal:
- China wants to use its enormous appetite for raw materials to screw down prices paid to suppliers.
- Seagate Technology, a California-based maker of computer disk drives, agreed to buy Maxtor for $1.9 billion in stock.
- Bank of America will tie up with American Express to issue a new range of credit cards as it seeks to win more big spenders.
- Toyota Motor is using automotive components and technologies to develop products including wheelchairs and orthopedic mattresses for Japan’s elderly.
- General Electric is in advanced talks with unidentified partners to buy Arden Realty, a southern California real-estate investment trust worth more than $3.1 billion.
- Thomas H. Lee Partners LP, one of the world’s biggest private-equity firms, has been thrown into turmoil by the departure of its founding partner, after whom it’s named.
- GMAC, which has been the subject of takeover interest, is being targeted by companies including Wachovia and JPMorgan Chase.
- Time Warner Executive Vice President Olaf Olafsson took control of negotiations over the sale of a stake in AOL after AOL executives expressed reservations about Microsoft’s technology.

NY Times:
- Sling Media’s Slingbox has the potential to further fragment the television-viewing audience.

AFP:
- OPEC will let the world’s leading industrial nations build up their stockpiles of oil during the next three months.

Detroit News:
- Hyundai Motor, South Korea’s largest automaker, will invest $94 million and add 600 jobs to expand a new technical center near Ann Arbor, Michigan.

LA Times:
- Crime in Los Angeles has fallen by about 10% this year and is on target for a third consecutive year of significant decline, citing Police Chief William J. Bratton.

CNBC:
- Billionaire Kirk Kerkorian may restore his stake in GM to 9.9%.

US Economic Growth Streak Best Since 1986

- Final 3Q GDP rose 4.1% versus estimates of a 4.3% gain and prior estimates of a 4.3% increase.
- Final 3Q Personal Consumption rose 4.1% versus estimates of a 4.2% gain and prior estimates of a 4.2% increase.
- Final 3Q GDP Price Index rose 3.3% versus estimates of a 3.0% increase and prior estimates of a 3.0% gain.

BOTTOM LINE: The US economy grew at a 4.1% annual rate in the third quarter, substantially higher than the 20-year average of 3.1%, Bloomberg reported. The economy has now grown by 3% or more for 10 straight quarters, the best streak since 1986. I expect US growth to slow to average levels next year, which will be viewed positively by equity investors.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
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Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Chevron said hurricanes in the Gulf of Mexico that shut oil wells and the company’s biggest refinery probably cut fourth-quarter profit by more than $600 million.
- Crude oil in NY is little changed, after rising yesterday for the first day in five, on expectations a US government report will show supplies dropped.
- Billionaire investor Kirk Kerkorian, GM’s third-biggest shareholder, sold almost a fifth of his 9.9% stake in the company after the investment lost one-third of its value.
- Time Warner agreed to sell Google a stake in AOL to help revive the Web unit’s sales.
- Calpine, the US power plant owner saddled with more than $17 billion in debt, filed for bankruptcy protection after soaring natural gas prices left it unable to make loan and bond payments.
- Citigroup is leading a bid of at least $2.7 billion for 85% of Guangdong Development Bank, the first state-owned Chinese lender to offer investors a majority stake.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on TYC and GOOG.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.18%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
BBBY/.45
BMET/.43
KMX/.212
CMC/1.18
FDO/.31
FDX/1.40
MLHR/.39
JOYG/.45
MU/.11
PAYX/.29
RHAT/.09

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 3Q GDP is estimated at 4.3% versus prior estimates of 4.3%.
- Final 3Q Personal Consumption is estimated at 4.2% versus prior estimates of 4.2%.
- The Final GDP Price Index is estimated at 3.0% versus prior estimates of 3.0%.

BOTTOM LINE: Asian indices are higher, boosted by exporters in the region after the US dollar rose. I expect US equities to open mixed and to trade modestly higher into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Lower on GM Worries and a Bounce in Energy Prices

Indices
S&P 500 1,259.62 -.02%
DJIA 10,805.55 -.29%
NASDAQ 2,222.42 -.01%
Russell 2000 672.78 +.08%
DJ Wilshire 5000 12,580.03 +.02%
S&P Barra Growth 603.35 -.09%
S&P Barra Value 651.84 +.05%
Morgan Stanley Consumer 599.25 -.21%
Morgan Stanley Cyclical 778.43 -.23%
Morgan Stanley Technology 524.81 -.20%
Transports 4,103.12 -.12%
Utilities 413.22 +.26%
Put/Call 1.14 +22.58%
NYSE Arms 1.13 +25.54%
Volatility(VIX) 11.19 -1.67%
ISE Sentiment 247.00 +6.01%
US Dollar 90.79 +1.02%
CRB 325.81 -.09%

Futures Spot Prices
Crude Oil 58.18 +.15%
Unleaded Gasoline 151.32 +.29%
Natural Gas 14.12 +.30%
Heating Oil 172.20 +.10%
Gold 494.90 -.42%
Base Metals 151.09 -.68%
Copper 202.00 unch.
10-year US Treasury Yield 4.46% +.49%

Leading Sectors
Oil Service +2.07%
Gaming +1.75%
HMOs +1.37%

Lagging Sectors
Disk Drives -.79%
Networking -1.19%
Gold & Silver -1.39%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on S.

Afternoon/Evening Headlines
Bloomberg:
- The Transport Workers Union may try to take over its striking NY Local 100 and seek a settlement with the Metropolitan Transport Authority.
- Richard McCabe is retiring as chief market analyst at Merrill Lynch after 43 years with the NY-based company. Mary Ann Bartels, Merrill’s equity-trading strategist, will succeed him.
- Electronic Arts cut its sales and profit forecasts for this quarter and next.
- Gold fell to $495 an ounce, down $50 in just over a week, after US producer prices tumbled in November by the most since April 2003, reducing the appeal of the precious metal as a hedge against inflation.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Energy-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished lower, sector performance was mixed and volume was average. Measures of investor anxiety were mixed into the close. Overall, today's action was mildly bearish. Investors likely need to see GM stabilize, natural gas fall further, some more positive holiday shopping data points and a quick end to the NY transit strike before a meaningful push higher in stocks can occur.

Stocks Mixed Mid-day as Bounce in Energy Prices Offsets More Positive Economic Data

Indices
S&P 500 1,260.17 +.02%
DJIA 10,813.79 -.21%
NASDAQ 2,224.70 +.09%
Russell 2000 675.49 +.48%
DJ Wilshire 5000 12,589.06 +.09%
S&P Barra Growth 603.67 -.04%
S&P Barra Value 652.05 +.08%
Morgan Stanley Consumer 599.76 -.12%
Morgan Stanley Cyclical 780.01 -.03%
Morgan Stanley Technology 524.68 -.23%
Transports 4,117.59 +.24%
Utilities 413.59 +.35%
Put/Call 1.13 +21.51%
NYSE Arms 1.14 +24.91%
Volatility(VIX) 11.15 -1.85%
ISE Sentiment 252.00 +8.15%
US Dollar 90.84 +1.07%
CRB 325.74 -.11%

Futures Spot Prices
Crude Oil 57.90 +.98%
Unleaded Gasoline 151.40 -.84%
Natural Gas 13.98 -.45%
Heating Oil 172.20 +1.10%
Gold 495.80 -2.0%
Base Metals 151.09 -.68%
Copper 202.10 +.40%
10-year US Treasury Yield 4.46% +.53%

Leading Sectors
Oil Service +2.13%
Gaming +1.87%
HMOs +1.68%

Lagging Sectors
Disk Drives -.84%
Telecom -.89%
Gold & Silver -1.94%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Energy-related shorts. I covered some of my IWM and QQQQ shorts this morning and added to my ELOS, ANF and BRCM longs, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is slightly higher, most sectors are higher and volume is about average. Measures of investor anxiety are mixed. Overall, today’s market action is neutral considering more positive economic data and the bears inability to extend yesterday’s sell-off. The Johnson Redbook same-store sales index rose 3.4% year-over-year last week vs. a 3.3% rise the prior week. This week's gain is up from a 1.5% increase in late April, and it's the 33rd week in a row that the index has risen 3% or more. The Morgan Stanley Retail Index (MVRX) has returned 14.3% since late October vs. a 7.6% gain for the S&P 500. I expect US stocks to trade mixed-to-higher into the close on short-covering.

Today's Headlines

Bloomberg:
- Japan’s stock market will be among the world’s “worst performers” in the next three months as a strengthening yen lowers the value of exporters’ overseas sales, according to Goldman Sachs’ Kenneth Courtis.
- New Yorkers woke up to a transit strike and set out to travel to work without public transportation for the first time in a quarter of a century.
- A Pennsylvania school district cannot require the teaching of intelligent design in high school biology classes, a federal judge ruled in a case that may influence other challenges to the theory of evolution.
- Chevron said it discovered oil in the deepest well ever drilled in the Gulf of Mexico in a joint effort with three other companies including Canada’s Nexen, the field operator.
- Shares of GM fell as much as 6.8% to a 23-year low.
- The US dollar climbed the most in six months against the euro and advanced versus the yen as a report showing gains in US housing spurred optimism for US assets.
- Exxon Mobil and BP Plc were sued by a local development agency in Alaska that alleged the companies withheld natural gas from US markets.
- Morgan Stanley increased bets in commodity markets by 53% in the fiscal fourth quarter, faster than in any other market.
- Gold is falling below $500/oz. for the first time since Nov. 30.

Wall Street Journal:
- Ford Motor plans to support efforts by environmental groups to stabilize global carbon dioxide emissions, becoming the first automaker to back such programs.
- Apollo Advisers, a private equity firm, is close to agreeing to buy the plastics and adhesives unit of Tyco International for about $1 billion.
- News Corp.’s Fox Film Entertainment said yesterday it will start a unit making films and other entertainment distributed via the Internet and cell phones for teenagers and young adults.

NY Times:
- Google will experiment with advertisements using logos and graphics on its Web site, a change of policy prompted by talks with Time Warner’s AOL unit.

Reuters:
- US Defense Secretary Donald Rumsfeld ordered a cut in the number of American troops in Afghanistan to about 16,000 from the current 19,000 by next spring.

CNBC:
- Steve Forbes, CEO of Forbes Inc., said the US economy will enter a recession by 2008 if Congress doesn’t extend tax cuts on dividends and capital gains.
- Sprint Nextel agreed to buy Nextel Partners for about $28.50 a share.

Producer Prices Fall the Most in Almost 3 Years, Housing Starts Exceed Estimates

- The Producer Price Index for November fell .7% versus estimates of a .5% decline and a .7% gain in October.
- The PPI Ex Food & Energy for November rose .1% versus estimates of a .2% increase and a .3% decline in October.
- Housing Starts for November rose to 2123K versus estimates of 2018K and 2017K in October.
- Building Permits for November rose to 2155K versus estimates of 2091K and 2103K in October.

BOTTOM LINE: US producer prices fell in November by the most since April 2003 as energy prices receded, a government report showed, Bloomberg reported. Core prices are rising at a 1.8% annual pace this year versus a 2.2% rate at the same time last year. The cost of energy fell 4.0% last month, the largest fall in 2 ½ years. As well, car prices fell .8%, computers fell 1.1% and capital equipment prices declined .1%. I continue to believe most measures of inflation will continue to decelerate through next year.

US housing starts in November rose by the most in seven months as a pickup in jobs and reconstruction after the hurricanes reignited the homebuilding market. Home sales have set four consecutive annual records. The National Assoc. of Realtors is forecasting a 4.8% decline in home starts next year. New housing starts increased 12.3% in the Midwest, 11.5% in the West and 11% in the Northeast. Starts declined 1.3% in the South. I continue to believe housing is slowing to more healthy sustainable levels.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- About 500 pounds of commercial explosives were stolen yesterday from an Albuquerque business licensed by the US government.
- President Bush’s job-approval rating rose 8 percentage points in one month to 47%, with the public viewing his handling of the war in Iraq more favorably, according to an ABC News/Washington Post poll.
- Honda Motor said its auto sales may rise 4% next year in the US, helped by demand for its redesigned Civic and other new vehicles.
- Japan’s government, the world’s biggest debtor, will reduce bond sales for the first time in nine years as it cuts spending and economic growth boosts tax receipts.

Financial Times:
- Average company dividend pay-out ratios are to rise by 60% over the next four years, citing a report by Eaton Vance, the largest US manager of funds designed to minimize taxes.
- US hotels may report record profits on higher room rates, tighter supply of accommodation and a recovery in business travel since September 2001, citing research by PricewaterhouseCoopers LLP.

Xinhua News:
- Wuhan Iron & Steel Group, China’s third-largest steelmaker, acquired Liiuzhou Iron & Steel Group as the industry consolidates amid an oversupply of steel.

Interfax:
- The al-Qaeda terrorist network has lost 70% of its highest-ranking members in the international war against terrorism, citing Sergei Lebedev, director of Russia’s Foreign Intelligence Service.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on CFC, UVN and EBAY.
- Reiterated Underperform on HRB, STXS and TCO.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
PLB/.05
BSG/.17
FDS/.34
FLS/.28
JBL/.42
KEGS/.20
MWD/1.08
NKE/1.03
PALM/.43

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for November is estimated to fall .5% versus a .7% rise in October.
- The PPI Ex Food & Energy for November is estimated to rise .2% versus a .3% fall in October.
- Housing Starts for November are estimated to rise to 2020K versus 2014K in October.
- Building Permits for November are estimated to fall to 2090K versus 2103K in October.

BOTTOM LINE: Asian indices are mixed as gains in financial shares are offsetting losses in commodity stocks in the region. I expect US equities to open mixed and to trade modestly lower into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Finish Lower After Housing Index Unexpectedly Declines

Indices
S&P 500 1,259.92 -.58%
DJIA 10,836.53 -.36%
NASDAQ 2,222.74 -1.32%
Russell 2000 672.25 -1.59%
DJ Wilshire 5000 12,577.35 -.71%
S&P Barra Growth 603.91 -.43%
S&P Barra Value 651.53 -.74%
Morgan Stanley Consumer 600.51 +.20%
Morgan Stanley Cyclical 780.26 -.83%
Morgan Stanley Technology 525.84 -1.64%
Transports 4,108.15 -.83%
Utilities 412.14 -1.36%
Put/Call .93 +16.25%
NYSE Arms .88 -7.90%
Volatility(VIX) 11.38 +6.55%
ISE Sentiment 230.00 +23.66%
US Dollar 89.88 +.21%
CRB 326.06 -.08%

Futures Spot Prices
Crude Oil 57.40 +.10%
Unleaded Gasoline 152.69 -2.68%
Natural Gas 14.18 +.98%
Heating Oil 170.75 +.25%
Gold 506.60 +.10%
Base Metals 152.12 -.76%
Copper 201.10 -.10%
10-year US Treasury Yield 4.43% +.09%

Leading Sectors
Drugs +2.56%
Disk Drives +.01%
Telecom -.07%

Lagging Sectors
Steel -1.65%
Biotech -1.84%
Semis -2.30%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on KR.

Afternoon/Evening Headlines
Bloomberg:
- El Paso said it agreed to sell the majority of its remaining wholesale power trading portfolio to Morgan Stanley Capital Group for $442 million.
- Ford Motor was cut to junk by Fitch Ratings amid falling sales, forcing the bonds of its finance unit out of Lehman Brothers Holdings’ investment-grade index.
- New York’s economy has been hurt by a threatened bus and subway strike as negotiations between transit workers and the state-run Metropolitan Transportation Authority approach a midnight deadline.
- Crude oil and heating oil fell to the lowest this month on forecasts that a warm weather system will move across the northern US.

Dow Jones Newswire:
- The NY Merc, the word’s largest energy market, received an expression of interest from the Chicago Merc for a possible investment stake.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Semi longs and Airline longs. I added to my IWM and QQQQ shorts in the afternoon and took profits in a few existing longs, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was average. Measures of investor anxiety were mixed into the close. Overall, today's action was bearish as the major indices and breadth finished near session lows. This is even more disappointing for the bulls, considering another drop in oil and stable long-term rates. It appears as though investors are factoring in a substantial slowdown in consumer spending on technology products. I believe this fear will prove unfounded. However, the technical action of late leads me to conclude more sideways action is in store.

Stocks Lower Mid-day on Weakness in Small-caps

Indices
S&P 500 1,262.57 -.37%
DJIA 10,849.91 -.23%
NASDAQ 2,234.73 -.79%
Russell 2000 674.14 -1.31%
DJ Wilshire 5000 12,607.76 -.47%
S&P Barra Growth 605.68%
S&P Barra Value 652.54 -.58%
Morgan Stanley Consumer 601.40 +.35%
Morgan Stanley Cyclical 781.18 -.71%
Morgan Stanley Technology 529.77 -.91%
Transports 4,116.76 -.62%
Utilities 412.55 -1.25%
Put/Call .99 +23.75%
NYSE Arms .79 -17.43%
Volatility(VIX) 11.12 +4.12%
ISE Sentiment 226.00 +21.51%
US Dollar 89.94 +.27%
CRB 326.23 -.04%

Futures Spot Prices
Crude Oil 57.40 -1.14%
Unleaded Gasoline 153.10 -2.42%
Natural Gas 13.98 +2.62%
Heating Oil 171.20 -1.15%
Gold 506.70 +.16%
Base Metals 152.12 -.76%
Copper 201.40 -.74%
10-year US Treasury Yield 4.43% unch.

Leading Sectors
Drugs +2.88%
Papers +.15%
Telecom -.11%

Lagging Sectors
Homebuilders -1.36%
Steel -1.53%
HMOs -1.56%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Semi longs and Medical longs. I covered my IWM and QQQQ shorts this morning and added back to them, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are lower and volume is slightly below average. Measures of investor anxiety are mixed. Overall, today’s market action is negative considering the decline in energy prices and recent positive economic reports. The fact that Yahoo! (YHOO) is approaching a 52-week high notwithstanding the Google (GOOG)/AOL news illustrates the magnitude of the opportunity for both parties in my opinion. Google is trading at another all-time high, up $4.50. I expect US stocks to trade mixed-to-lower into the close on fears that a slowing housing market will damage consumer spending.

Today's Headlines

Bloomberg:
- Norfolk Southern is buying new locomotives and Audi AG is investing in new models, part of a worldwide corporate spending spree that may take over the US consumer’s role in driving global growth next year.
- US health officials are preparing new hospital infection control guidelines to slow the growing spread of bacteria that has become resistant to antibiotics.
- FPL Group agreed to buy Constellation Energy Group for about $11 billion, doubling its number of nuclear power plants and expanding in deregulated electricity markets.
- DaimlerChrysler’s Chrysler will operate its North American factories at full capacity for the first time since 19999 as 10 new models help to increase US market share, the unit’s chief said.
- Shares of Pfizer rose as much as 12%, the most in more than 20 years, after a US court ruling blocked generic competition until 2011 for Lipitor, the world’s best-selling prescription drug.

Wall Street Journal:
- PepsiCo has started growing potatoes in China as part of a risky gambit to dominate the global market for snacks and other packaged foods.
- THQ Inc., the publisher of video games such as “SpongeBob SquarePants,” plans to announce today an agreement with Massive Inc. to deliver advertisements over the Internet to its games.
- The US is boosting training of dogs that can sniff explosives as part of a broader program to boost security on the nation’s transportation systems.
- AG Edwards has started a subsidiary that will sell investment services for third parties, such as mutual funds and insurance companies.
- SEC Chairman Cox has left intact new mutual fund governance rules, hedge fund registration requirements and other changes introduced by his predecessor.
- Southwest Air CEO Kelly said the carrier has six US cities, including Charlotte, North Carolina, that are “high on the list” for possible expansions to its route network.

Barron’s:
- Microsoft may be developing a digital media player to challenge Apple’s iPod.

NY Times:
- Some US minors create pornographic Web sites, displaying themselves through Web cameras, as they seek to earn money.
- US companies are helping filmmakers distribute movies to consumers through Internet downloads or direct DVD sales.

Lloyd’s List:
- A 12% overcapacity of liquefied natural gas tankers during the next two years may spur freight rates to fall and shop operators to cut costs by trimming crews and maintenance.

AFP:
- The Shiite Muslim-led United Iraqi Alliance won 58% of the vote in the province of Baghdad in the Dec. 15 parliamentary elections.

Economic Releases

- None of note

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said December same-store sales at its US stores are rising within its forecast.
- Vice President Dick Cheney made a surprise visit to Iraq, landing at Baghdad International Airport last night for meetings with local officials and hailing the “tremendous results” of last week’s elections there.
- Afghanistan will inaugurate its first parliament since 1969 at a ceremony today, following elections for the assembly held in September.
- Goldman Sachs, the world’s leading adviser on corporate mergers, reclaimed the top spot in a record year for takeovers in Asia outside Japan after arranging the biggest transactions in China.

Wall Street Journal:
- The US Patent and Trademark Office plans to accelerate its reexamination of five patents held by NTP that could be used to ban Research in Motion’s Blackberry device and e-mail service in the US.
- Vonage Holdings plans to raise another $250 million in a private sale of convertible debt, bringing the total raised by the Internet-based telephone carrier to $658 million.

NY Times:
- Chinese authorities have beaten, bribed and threatened residents of the southern village of Dongzhou to try to prevent them from disclosing details about a clash with security services on Dec. 6.
- The city of New Orleans will soon begin demolishing thousands of the homes most severely damaged by the flooding following Hurricane Katrina in the next several weeks.
- New Jersey awarded $5 million in grants for stem-cell research, becoming the first state to use public funds for that purpose.
- US Airways Group’s merger with America West Holdings may prompt further consolidation in the airline industry.
- eBay’s PayPal has grown to service more than 86.6 million accounts in 55 countries and it expects to process $25 billion in money transfers this year.

NY Post:
- Sirius Satellite Radio on average has spent more than $150 for each of the 1.06 million subscribers it’s gained as of Jan. 1.

San Francisco Chronicle:
- Google receives 150,000 resumes a month and uses perks including free food and annual ski trips to lure new hires.

San Jose Mercury News:
- Random security screening of passengers will return at airports Dec.22, two years after they were dropped.

Philadelphia Inquirer:
- United Parcel Service’s discount shipping offered on the Internet is undercutting the profit its UPS Store franchisees make on in-store fees.

LA Times:
- More victims of Hurricane Katrina came from middle-class neighborhoods than was previously thought, citing data from the state of Louisiana.

Financial Times:
- Music downloads are beginning to offset the decline in compact disc sales, citing unidentified record company executives.
- Lehman Brothers Holdings, Goldman Sachs Group and Bear Stearns will increase staff levels in 2006 after all three investment backs reported record profits.

AP:
- Most Americans favor leaving troops in Iraq until the country is stabilized, citing a Dec. 13-15 AP-Ipsos poll.

Nihon Keizai:
- Japan’s government expects the world’s second-largest economy to grow 1.9% in real terms next fiscal year.

Commercial Times:
- Acer Inc. forecasts its notebook computer sales will expand 50% in 2006 from this year, citing Chairman JT Wang.

Sunday Times:
- The value of acquisitions made by buyout firms this year will increase 12% to $41 billion, the most since 2000.

Iranian Republic News Agency:
- China and Iran may complete an agreement in January on the purchase of liquefied natural gas and investment in an Iranian oilfield, citing Iran’s deputy oil minister.

Weekend Recommendations
Barron's:
- Had positive comments on BA, NAPS, TRB, TIF, FDX, OSG, UTX, GE, ITT and AIG.

Goldman Sachs:
- Reiterated Outperform on PFE.

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.12%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
CC/.04

Upcoming Splits
HYSL 3-for-2

Economic Releases
1:00 pm EST
- The NAHB Housing Market Index for December is estimates to rise to 61 versus a reading of 60 in November.

BOTTOM LINE: Asian Indices are higher, led by technology shares in the region after oil fell the most in three months last Fri. I expect US stocks to open modestly higher and build on gains throughout the day. The Portfolio is 75% net long heading into the week.

Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - NAHB Housing Market Index
Tues. - Producer Price Index, Housing Starts
Wed. - Final 3Q GDP, Final 3Q Personal Consumption
Thur. - Personal Income, Personal Spending, PCE Deflator, Initial Jobless Claims, Leading Indicators
Fri. - Durable Goods Orders, Univ. of Mich. Consumer Confidence, New Home Sales

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Circuit City Stores(CC)
Tues. - BISYS Group(BSG), Factset Research(FDS), Flowserve(FLS), Jabil Circuit(JBL), Morgan Stanley(MWD), Nike(NKE), Palm Inc.(PALM)
Wed. - Commercial Metals(CMC), Carmax(KMX), Biomet(BMET), Bed Bath & Beyond(BBBY), Family Dollar(FDO), FedEx(FDX), Micron Technology(MU), Paychex(PAYX), Red Hat(RHAT)
Thur. - AG Edwards(AGE), American Greetings(AM), Cintas Corp.(CTAS), ConAgra Foods(CAG), General Mills(GIS), Solectron(SLR)
Fri. - 99 Cents Only(NDN)

Other events that have market-moving potential this week include:

Mon. - None of note
Tue. - Semi Book-to-Bill
Wed. - None of note
Thur. - None of note
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week higher on more positive economic/earnings data, declining energy prices, short-covering, seasonal strength, moderating inflation fears and increasing inflows. My trading indicators are still giving bullish signals and the Portfolio is 75% net long heading into the week.

Chart of Interest

BOTTOM LINE: The Consumer Price Index fell at the greatest rate in over 50 years during November. This decline illustrates the extreme effect commodity prices have recently had on various measures of inflation. I continue to believe that the US has experienced a mild bout of cyclical inflation within a secular disinflationary environment. I expect the longer-term trend of disinflation to reassert itself in 2006.

Market Week in Review

S&P 500 1,267.32 +.63%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was neutral considering less hawkish Fed comments, healthy retail sales data, decelerating inflation readings, lower long-term interest rates, increasing deal activity, falling energy prices and decent news from the homebuilders. The advance/decline line rose slightly, sector performance was mixed and volume was slightly above average on the week. Measures of investor anxiety were mixed. However, the AAII % Bulls fell again to 46.15%. This reading is now back near average levels, which is a big positive considering most major averages are at least above 4-year highs. The average 30-year mortgage rate fell to 6.30% which is 109 basis points above all-time lows set in June 2003. I continue to believe mortgage rates will head modestly lower over the intermediate-term as measures of inflation decelerate and economic growth slows to average rates. Moreover, the benchmark 10-year T-note yield fell 9 basis points on the week after the Fed made less hawkish comments in their policy statement, foreign demand for US assets hit another record and measures of inflation decelerated.

Small-cap and Nasdaq shares underperformed on profit-taking, option expiration and index rebalancing. Gold fell substantially on the week and appears to have made an intermediate-term top. Unleaded Gas futures were down again and are 46% below September highs even as refinery utilization still remains below normal as a result of the hurricanes. Natural gas supplies decreased more-than-expected this week, however they are still above the 5-year average for this time of year even as over 20% of daily Gulf of Mexico production remains shut-in. It now appears very likely that natural gas has joined oil and peaked for the intermediate-term. As I said last week, prices for many commodities have been driven by fear and record capital inflows into commodity funds, rather than fundamentals. I still expect global energy demand destruction and a significant increase in supplies into 2006 to push energy prices substantially lower from current levels. The S&P 500 is still within striking distance of my mid-year prediction of a double-digit annual gain. The index is currently up 6.44% for the year with 9 trading days remaining.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,267.32 +.63%
DJIA 10,875.59 +.90%
NASDAQ 2,252.48 -.19%
Russell 2000 683.09 -.83%
DJ Wilshire 5000 12,667.59 +.41%
S&P Equity Long/Short Index 1,105.46 +.52%
S&P Barra Growth 606.51 +.73%
S&P Barra Value 656.41 +.54%
Morgan Stanley Consumer 599.30 +1.44%
Morgan Stanley Cyclical 786.81 +.78%
Morgan Stanley Technology 534.61 +.39%
Transports 4,142.49 +.98%
Utilities 417.82 +1.95%
S&P 500 Cum A/D Line 8,624.00 -.59%
Bloomberg Crude Oil % Bulls 41.0 -21.15%
Put/Call .80 unch.
NYSE Arms .96 -5.88%
Volatility(VIX) 10.68 -8.64%
ISE Sentiment 186.00 -5.10%
AAII % Bulls 46.15 -6.71%
US Dollar 89.71 -1.74%
CRB 326.36 -.44%

Futures Spot Prices
Crude Oil 58.06 -2.42%
Unleaded Gasoline 156.89 -2.37%
Natural Gas 13.63 -4.66%
Heating Oil 173.20 -.06%
Gold 506.20 -4.72%
Base Metals 153.29 -.54%
Copper 202.55 +1.83%
10-year US Treasury Yield 4.43% -1.99%
Average 30-year Mortgage Rate 6.30% -.32%

Leading Sectors
Airlines +7.01%
Drugs +3.11%
Homebuilders +2.98%

Lagging Sectors
Oil Service -2.11%
Steel -2.26%
Oil Tankers -2.87%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Slightly Lower Mid-day on Expiration and Rebalancing

Indices
S&P 500 1,269.17 -.14%
DJIA 10,885.11 +.04%
NASDAQ 2,254.86 -.26%
Russell 2000 682.71 -.30%
DJ Wilshire 5000 12,682.16 -.17%
S&P Barra Growth 607.43 -.16%
S&P Barra Value 657.27 -.13%
Morgan Stanley Consumer 599.59 +.41%
Morgan Stanley Cyclical 787.83 +.07%
Morgan Stanley Technology 535.17 -.09%
Transports 4,147.04 +.03%
Utilities 418.90 +.24%
Put/Call .83 +38.33%
NYSE Arms .96 +15.83%
Volatility(VIX) 10.54 -1.77%
ISE Sentiment 195.00 -10.55%
US Dollar 89.79 -.26%
CRB 326.20 -.73%

Futures Spot Prices
Crude Oil 58.30 -2.82%
Unleaded Gasoline 156.25 -3.36%
Natural Gas 13.68 -.73%
Heating Oil 173.50 -3.15%
Gold 505.90 -.14%
Base Metals 153.29 +1.97%
Copper 202.90 +1.40%
10-year US Treasury Yield 4.44% -.40%

Leading Sectors
Airlines +3.27%
Drugs +.78%
Software +.55%

Lagging Sectors
Coal -1.30%
Oil Service -1.49%
Energy -1.87%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Airline longs and Energy shorts. I covered some of my IWM and QQQQ shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is heavy. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering the decline in long-term rates and energy prices. A partnership with Google (GOOG) would be ideal for AOL, in my opinion. Google would provide the "out-of-the-box" type of thinking that AOL is lacking. I don't believe Microsoft (MSFT) could do that. I am convinced that there is tremendous value that can be unlocked in AOL under the right circumstances. This deal would be very big for both parties. I expect US stocks to trade mixed into the close from current levels as rebalancing offsets lower energy prices.

Today's Headlines

Bloomberg:
- S&P will introduce a series of “growth” and “value” indices today that are tied to its US market benchmarks, including the S&P 500.
- GM CEO Wagoner said there’s been “ample interest” in his finance unit and he is confident the automaker can find a buyer after some of the nation’s biggest banks declined to bid.
- US 10-year Treasuries are rising, heading for the biggest weekly gain since November, on speculation the Fed is almost done raising interest rates.
- United Nations Deputy Secretary-General Louise Frechette, who was criticized by former US Fed Chairman Volcker for failing to properly manage the scandal-plagued Iraq oil-for-food program, announced her resignation today.
- Crude oil, heating oil and natural gas are falling on forecasts showing that warmer weather will move across the northern US, reducing demand.
- Google is discussing a 5% stake in AOL for $1 billion that would exclude Microsoft.

Wall Street Journal:
- Yahoo! has signed an agreement with Marketing Management Analytics research firm to offer advertisers the chance to buy detailed research on the effectiveness of their Web advertisement.
- Google is struggling to reconcile its goal of making information “universally accessible and useful” with its aim of expanding in China as it wrestles with Chinese censors.
- A group including Cerberus Capital Management, Kimco Realty and supermarket chain SuperValu may win the auction to buy Albertson’s for about $9.6 billion, or $26 a share.
- Iraq’s struggle toward democracy will require patience and sacrifice, which necessitates the support of the international community, four Eastern European ambassadors to the US wrote.

NY Post:
- Apollo Management’s $1.3 billion takeover of Linens ‘n Things may fall apart in the next two weeks if the retailer fails to meet the earnings goal set for the acquisition.

Washington Post:
- Saudi Arabia’s new ambassador to the US rejected the Iranian president’s description of the Nazi Holocaust during WW II as a myth, saying the “horrific genocide” isn’t in dispute.

NY Times:
- Sid Richardson Energy Services, a gas pipeline company owned by the Bass family of Fort Worth, Texas, yesterday agreed to be acquired by Southern Union for $1.6 billion in cash.
- The participation of Sunni Arabs, a minority, in Iraq’s national election yesterday will raise hopes of a reconciliation with the ruling Shiite parties that came to power in Janurary.

TheDeal.com:
- Fresh Del Monte Produce is looking for a buyer and could be sold for about $1.8 billion.

Current Account Deficit Shrinks

- The 3Q Current Account Deficit shrunk to -$195.8 billion versus estimates of -$205.0 billion and -$197.8 billion in 2Q.

BOTTOM LINE: The US current-account deficit unexpectedly narrowed from July through September, Bloomberg reported. The shortfall was the smallest since 3Q 2001. I expect the current account deficit to improve modestly going forward.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- Merck moved closer to winning the world’s first approval of a vaccine for the painful shingles infection by gaining the backing of US government advisers.
- Japan’s central bank held interest rates near zero and maintained the pace at which it floods the banking system with cash as it struggles to squeeze the last vestiges of deflation from the world’s second-biggest economy.

NY Times:
- As many as 11 million voters may have taken part in Iraq’s election for a National Assembly, boosted by the participation of the Sunni community. Initial indications are that overall turnout may reach 70%.

China Daily:
- China’s most expensive property market has been deflating since June, when new taxes aimed at speculators halted a six-year boom during which prices almost tripled. The amount of new apartment space on sale in Shanghai jumped to 9.66 million square meters as of Tuesday, almost three times the 3.59 million square meters on the market at the end of 2004.

Hankook Ilbo:
- South Korean steelmakers may have their most difficult year in 2006 because of an oversupply by their Chinese rivals, citing Lee Ku Taek, CEO of Posco.

Economic Daily News:
- Dell Inc. plans to raise the number of monitors it buys from Taiwan by 15% in 2006 from this year, citing the company’s global monitor purchasing chief. The computer maker plans to increase orders from the island because of the improved outlook for sales of PCs, laptops and liquid-crystal display televisions.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on CAH, MAR and ALK.
- Reiterated Underperform on PBG, MAXY and DRI.

Business Week:
- DR Horton(DHI) shares may reach $45 in a year, citing Peter Zuleba, portfolio manager at Glenmede Trust Co. which owns the stock.
- Montpelier Re Holdings Ltd.(MRH), a Bermuda-based re-insurer, may benefit as the annual frequency of hurricanes reverts back to two to three a year, citing John Maloney of M&R Capital Management.
- Western Digital(WDC) may benefit as its products are used in consumer electronics, citing Bernie Schaeffer of Schaeffer’s Investment Research.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.10%.
NASDAQ 100 indicated +.12%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
CCL/.41
GTK/.38
ZQK/.27
SCHL/1.80
SCS/.14

Upcoming Splits
CAM 2-for-1
VLO 2-for-1

Economic Releases
8:30 am EST
- The 3Q Current Account Deficit is estimated to widen to -$205.0 billion versus -$195.7 billion in 2Q.

BOTTOM LINE: Asian indices are mixed as gains in financial shares are offsetting losses in commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Finish Slightly Lower, Pressured by Commodity Shares

Indices
S&P 500 1,270.94 -.14%
DJIA 10,881.67 -.02%
NASDAQ 2,260.63 -.09%
Russell 2000 684.74 -.83%
DJ Wilshire 5000 12,704.21 -.23%
S&P Barra Growth 608.42 +.07%
S&P Barra Value 658.11 -.34%
Morgan Stanley Consumer 597.18 -.20%
Morgan Stanley Cyclical 787.26 -.04%
Morgan Stanley Technology 535.64 -.10%
Transports 4,145.77 +.71%
Utilities 417.89 +.29%
Put/Call .60 -10.45%
NYSE Arms .83 +6.41%
Volatility(VIX) 10.73 +2.39%
ISE Sentiment 218.00 -3.96%
US Dollar 90.01 +.20%
CRB 328.61 -.84%

Futures Spot Prices
Crude Oil 59.96 -.05%
Unleaded Gasoline 161.69 +.01%
Natural Gas 13.66 -.81%
Heating Oil 178.50 -.13%
Gold 503.90 unch.
Base Metals 150.33 -.15%
Copper 214.15 +.73%
10-year US Treasury Yield 4.46% +.13%

Leading Sectors
Airlines +3.04%
Biotech +1.12%
Disk Drives +.95%

Lagging Sectors
Oil Service -.93%
Hospitals -.97%
Steel -1.37%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on SYMC and CRL.

Afternoon/Evening Headlines
Bloomberg:
- Bonds of Calpine, last year’s largest issuer of junk-rated debt, dropped to an all-time low on speculation the company may be unable to make $146 million in interest payments due in the next month.
- Adobe Systems said fourth-quarter profit increased 38% on continued demand for new versions of its Photoshop and Illustrator programs.
- The US dollar rose the most in more than a week against the euro after a Treasury Department report showed foreigners increased purchases of US securities in October at a historic pace.
- Gold in NY fell, capping the largest three-day plunge in 20 months, after the Tokyo Commodities Exchange raised trading costs and measures of inflation declined.
- Crude oil, heating oil and natural gas all fell on speculation that milder weather in the Great Plains will move east by the end of the month, cutting heating-fuel consumption.

BOTTOM LINE: The Portfolio finished higher today on gains in my Technology longs and Commodity shorts. I added to my IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were mostly lower into the close. The AAII percentage bulls fell to 46.15% this week from 49.47% the prior week; this reading is back to around average levels. The percentage bears rose to 22.12% from 18.95% the prior week; this is still at below-average levels. I expect bullish sentiment to fall modestly again next week. It is a big positive to see sentiment ebb while the S&P 500 hits a four-year high.

***Alert***

I am unable to post the Mid-day Scoreboard due to a scheduling conflict. I will post the Thursday Close later this afternoon.

Today's Headlines

Bloomberg:
- UN Secretary General Kofi Annan said the voting in Iraq today has “gone very well so far” and that voter turnout will be “high.”
- Crude oil is falling for a second day after a government report showed that US stockpiles last week were 11% higher than the five-year average.
- Robert Hagstrom, manager of the Legg Mason Growth Trust, increased his investments in Amazon.com and EBay after the companies’ shares tumbled because he expects more shoppers to buy gifts online.
- The US dollar is rising the most in more than a week against the euro after a Treasury Department report showed foreigners increased purchases of US securities in October at a historic pace.
- The union representing 32,000 NY subway and bus workers hardened its public stance on contract negotiations ahead of a midnight deadline, saying the likelihood of a strike was increasing.

Wall Street Journal:
- US net purchases of foreign stocks in the first 10 months of this year are likely to have exceeded the 2003 record of $86.6 billion.
- Quizno’s Corp., which operates the Quizno’s Classic Subs restaurants chain, is to be sold at auction and may fetch as much as $2 billion.
- Walt Disney may buy partner Pixar, citing research reports by CSFB.
- Microsoft is reorganizing its consumer units, citing an internal memorandum that it’s reviewed.
- BMW is set to pass DaimlerChrysler’s Mercedes-Benz cars in worldwide sales for the first time since 1993.
- Ford Motor will run new ads in US gay and lesbian magazines such as the Advocate and Out, after the automaker appeared two weeks ago to have pulled some Jaguar and Land Rover ads from such magazines, citing a Ford letter to gay groups.
- Comcast, Time Warner and other companies with cable systems are experimenting with offering local-content, on-demand services such as video dating or high-school football games.
- Wal-Mart Stores has teamed up with Hewlett-Packard to boost holiday sales of technology products at its stores.
- Time Warner’s HBO unit may announce an agreement today to offer two channels of programming on Cingular Wireless’s phones.
- Google will provide links to musicians’ songs, lyrics and related material at the top of its results pages, starting today.

Washington Post:
- The US House of Representatives yesterday passed legislation that grants local law enforcement agencies funds to investigate and prosecute brothel owners, pimps, and customers of prostitutes.

Arab News:
- Saudi Arabia plans to increase by 61% the number of new oil wells its drills next year to boost production, citing a statement from state-owned Saudi Arabian Oil Co.

NY Times:
- Google, Microsoft and Sun Microsystems will underwrite a $7.5 million lab for computer research at the Univ. of Cal. in Berkeley.

Consumer Prices Fall Most in 50 Years, Manufacturing Remains Healthy, Labor Market Still Strong, Foreign Demand for US Assets Hits Another Record

- The Consumer Price Index for November fell .6% versus estimates of a .4% decline and a .2% increase in October.
- The CPI Ex Food & Energy for November rose .2% versus estimates of a .2% increase and a .2% gain in October.
- Empire Manufacturing for December rose to 28.7 versus estimates of 18.2 and a reading of 22.8 in November.
- Initial Jobless Claims for last week rose to 329K versus estimates of 320K and 328K the prior week.
- Continuing Claims fell to 2606K versus estimates of 2626K and 2585K prior.
- Net Foreign Security Purchases for October rose to $106.8 billion versus estimates of $75.0 billion and $101.7 billion in September.
- Industrial Production for November rose .7% versus estimates of a .5% gain and an upwardly revised 1.3% gain in October.
- Capacity Utilization for November rose to 80.2% versus estimates of 79.8% and a reading of 79.8% in October.
- The Philly Fed for December fell to 12.6 versus estimates of 15.0 and a reading of 11.5 in November.

BOTTOM LINE: A record decline in energy costs last month drove the US consumer price index down .6%, the biggest drop in more than 50 years, Bloomberg said. Gasoline prices declined 16% in November, the most in US history. The average price of gas has continued falling in December, dropping from $2.30/gallon to $2.21/gallon. The cost of all goods including cars, apparel and food fell 2.2% last month versus a .5% decline the prior month. I continue to believe measures of inflation will decelerate most of next year as commodity prices weaken and unit labor costs remain subdued.

Manufacturing in New York state expanded at the fastest pace in 17 months in December as costs declined and demand rose, Bloomberg reported. The new orders component of the index rose to 30.2 from 25.9 in November. I continue to believe manufacturing will add to US economic growth over the intermediate-term as companies rebuild inventories from depleted levels and confidence improves.

The number of Americans filing first-time unemployment benefit claims rose by 1,000 last week, remaining at a level that shows companies are holding on to workers to meet strong demand, Bloomberg reported. The four-week moving-average of claims increased to 328,750 from 322,750 the prior week. The unemployment rate among those able to receive benefits, which follows the US unemployment rate, held steady at 2.0%. I continue to expect the US labor market to remain healthy. However, it is unlikely that enough tightness will occur as to generate a substantial increase in unit labor costs, the largest component of inflation.

International investors increased their net holdings of US assets in October at a historic pace as strong growth lured funds to the world’s largest economy. The US economy grew at more than twice the pace of Europe last quarter. I continue to expect foreign demand for US assets to remain near record levels as US growth outpaces that of other developed nations, the dollar remains firm and commodity prices fall.

US industrial production rose in November for a second month, as companies increased inventories and manufacturing and energy production recovered from the Gulf Coast hurricanes. At 80.2, capacity utilization is well below average levels for this point in the economic cycle. This is a result of the massive overcapacity generated during the late 90s.

Manufacturing in the Philadelphia area expanded more quickly this month, adding to evidence of strength in US industry as companies rebuild inventories and invest in new equipment, Bloomberg reported. The prices paid component of the index fell to 49.0 from 56.8 in November. This large drop in the prices paid component is a big positive and should provide the Fed with another reason to “pause” over the coming months.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- Iraq’s general elections started early today as 10-15 million eligible voters headed to polling stations to elect the country’s first full-term government since the US-led liberation in 2003.
- A threatened strike by New York’s bus and subway workers would cost the city’s economy $400 million a day, Mayor Michael Bloomberg said.
- Iran provided support to Hezbollah terrorists who staged the 1983 bombing of the US embassy in Beirut, Lebanon, and must pay $126 million to 19 victims, a US judge ruled.
- Amgen said it agreed to buy Abgenix for $2.2 billion in cash, acquiring full ownership of a colon cancer drug they have been developing jointly.
- Microsoft said it boosted its quarterly dividend by 1 cent to 9 cents a share.

China Securities Journal:
- China has suspended approval of further foreign investment in domestic brokerages.

USA Today:
- New Orleans will get stronger levees to withstand a storm with the same magnitude as Hurricane Katrina, citing Donald Powell, the federal coordinator for Gulf Coast rebuilding.
- Cyber crime rings are recruiting methamphetamine addicts to perform tasks that are well suited to people who don’t need much sleep and who are mesmerized by repetitive tasks.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, BC, PFE, GILD and SEPR.
- Reiterated Underperform on UST and EOP.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated +.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ADBE/.29
APOL/.70
BSC/2.62
DRI/.31
GS/3.35
KBH/3.34
LEN/3.33
ORCL/.19
PIR/-.09
RAD/-.01

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Consumer Price Index for November is estimated to decline .4% versus a .2% increase in October.
- The CPI Ex Food & Energy for November is estimated to rise .2% versus a .2% increase in October.
- Empire Manufacturing for December is estimated to fall to 18.2 versus a reading of 22.8 in November.
- Initial Jobless Claims for last week are estimated to fall to 320K versus 327K the prior week.
- Continuing Claims are estimated to rise to 2626K versus 2603K prior.

9:00 am EST
- Net Foreign Security Purchases for October are estimated to fall to $75.0 billion versus $101.9 billion in September.

9:15 am EST
- Industrial Production for November is estimated to rise .5% versus a .9% gain in October.
- Capacity Utilization for November is estimated to rise to 79.8% versus 79.5% in October.

12:00 am EST
- Philly Fed for December is estimated to rise to 15.0 versus 11.5 in November.

BOTTOM LINE: Asian indices are mostly higher after the S&P 500 reached the highest close in 4 years. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 75% net long heading into the day.