Stocks Finish Higher, Led by Technology, Steel and Energy Shares

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
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ETF Performance
Style Performance
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In Play

Stocks Mostly Higher into Final Hour, Led by Small-caps

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Semi longs, Software longs and Medical longs. I added (SIGM) long and took a small profit in my (BRCM) long today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is light. Investor anxiety is above average. Today’s overall market action is mildly bullish. The ten-year yield is rising another 7 basis points and copper is rising again on less economic pessimism. Small-cap shares, especially small-cap “growth” stocks, are again leading the way. The TED spread is dropping another basis point today to 151 basis points, which is down 70 basis points in 10 days. It is also down 89 basis points from its August high, which is a big positive and a sign of diminishing credit market angst. Financials are mixed with I-Banks slightly higher and Banks lower. The NYSE Arms and total put/call have been above average all day. Given recent gains and how light volume has been today, it is impressive that the bears weren’t able to make any headway. One of my longs that I disclosed early in the year, American Superconductor(AMSC), is hitting another new high today, likely due to its exposure to the increasing use of wind energy in China. The stock is now up 232% for the year and I see further meaningful gains in the shares next year. I expect US stocks to trade mixed into the close from current levels as profit-taking and higher energy prices offset diminishing credit market angst, less economic pessimism, seasonal strength and short-covering.

Today's Headlines

Bloomberg:
- Buy the bond insurers. If you look past the headlines, and the accompanying hysteria, maybe things are about to look up. The stocks of Ambac Financial(ABK) and MBIA Inc.(MBI) are showing up on some securities firms’ lists of buy recommendations.
- The US will avoid a recession next year as a “stable” job market keeps Americans spending, said Bear Stearns(BSC) Chief Investment Strategist Jonathan Golub.
- Michael Klein, the owner of California hedge-fund firm Pacificor LLC, his teenage daughter, Talia, and a pilot died after their private plane crashed near Panama’s tallest mountain, a colleague said.
- Billionaire investor Joseph Lewis raised his stake in Bear Stearns(BSC) for the second time this month as the fifth-largest US securities firm’s stock fell 11% in December.
- Davis Selected Advisers disclosed a 5.1% stake in MBIA Inc.(MBI).
- Crude oil is rising $1.63/bbl. in NY on year-end mark-ups by investment funds and speculation that tomorrow may show a US inventory decline.
- Toyota Motor(TM) and Honda Motor(HMC), Japan’s two largest automakers, increased production in November on higher overseas demand.
- Goldman(GS) Buys Building in NYC for $1.15 Billion.
- The US dollar is poised to end a two-year slide against the euro in 2008 as government-backed funds in Asia and the Middle East purchase US assets, currency strategists say.

Wall Street Journal:
- Videogames Expand A Popular New Phase Of Full-Body Playing. If you gave or got videogames as gifts yesterday, you may have noticed something very different about how some of the hottest ones are played these days.
- Merrill Lynch(MER) may sell additional stock following the sale of stakes to Temasek Holdings Pte. and Davis Selected Advisors LP. Merrill didn’t structure the stake sales to conform with any writedown.

NY Times:
- India’s Letter Writers Give Way to Cell Phones.
- NYC’s Amsterdam Avenue Becomes New Shopping Corridor.

CNBC:
- SLM Corp.(SLM), the largest US college-loan company, is trying to sell shares to an investor to cover the cost of investments related to a stock-buyback program.

USA Today:
- Only 7% of US employers plan to trim their full-time permanent staff during the first quarter of 2008, while 29% plan to add employees. 60% plan to maintain current levels of employment, according to an online survey by Harris Interactive.

Newsweek:
- Housing Optimism. Why the year in real estate wasn’t all bad news.

CNNMoney.com:
- Gift card booty: $60 billion left to spend. Don’t write off the 2007 holiday shopping season just yet. Consumers are set to cash in $60 billion worth of gift cards in the next seven days, experts say.

engadget:
- RIM developing angled Blackberry keyboard?

International Herald Tribune:
- “China gives top priority to developing renewable energy,” the cabinet’s press office said today in a 44-page report.

Fars:
- Russia plans to sell to Iran advanced surface-to-air missiles, citing Iranian Defense Minister Mostafa Mohammad-Najjar.

Bear Radar

Style Underperformer:

Small-cap Value (-1.08%)

Sector Underperformers:

Retail (-2.75%), Airlines (-2.70%) and REITs (-2.26%)

Stocks Falling on Unusual Volume:

LNN and CH

Bull Radar

Style Outperformer:

Large-cap Growth(-.05%)

Sector Outperformers:

Steel (+1.55%) Alternative Energy (+1.34%) and Oil Service (+.88%)

Stocks Rising on Unusual Volume:

FF, BSI, LXP, CWCO, ULBI, SOLF, CSUN, ESLR, HRBN, CSIQ, MELI, HOKU, COGT, CREE, EMKR, FCSX, FSIN, SPWR, HITT, NSANY and HES

Economic Releases

- None of note

Links of Interest

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Top 20 Biz Stories
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Wednesday Watch

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Stocks Finish at Session Highs on Diminishing Credit Market Angst, Less Economic Pessimism

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Higher into Final Hour on Diminishing Credit Market Angst and Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs, Software longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, almost every sector is rising and volume is light. Investor anxiety is slightly below average. Today’s overall market action is bullish. The ten-year yield is rising another 4 basis points and copper is surging another 2% on less economic pessimism. The TED spread is plunging another 37 basis points today to 152 basis points, which is down 69 basis points in 9 days. It is also down 88 basis points from its August high, which is a big positive and a sign of diminishing credit market angst. Today’s gains are spread across all market-caps and styles. The (XLF) is 1.2% higher, which always seems to help the broad market these days. True "growth" stock leaders are especially strong again today, as has been the case for most of the year. Large(+14%) and mid-cap growth(+13%) stocks are this year's best performers. The economic fear mongering that continues unabated by the many permabears is losing its effectiveness. I still see further upside in the broad market from current levels into year-end. Apple Inc.(AAPL) is relatively strong today, rising 2.4%, on speculation over new 08 product releases and strong holiday sales. The stock remains my second largest long position and I still see substantial upside from current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, less economic pessimism, seasonal strength, bargain-hunting and short-covering. I hope everyone has a merry Christmas or happy holiday! Thanks for reading.

Bear Radar

Style Underperformer:

Mid-cap Value (+.53%)

Sector Underperformers:

Biotech (-.25%), Utilities (-.04%) and Drugs (+.01%)

Stocks Falling on Unusual Volume:

DOM, FCEL, SPRD, SCOR, DDUP, PMTI and SIGM

Bull Radar

Style Outperformer:

Small-cap Value (+.67%)

Sector Outperformers:

REITs (+1.68%) Road & Rail (+1.42%) and Homebuilders (+1.06%)

Stocks Rising on Unusual Volume:

LQU, CH, RZV, DHR, GNI, DHT, PZI, DBD, MTCT, SOLF, HRBN, MGPI, SDTH, TEVA, POSS, FSNM, EMKR, CSIQ, ACIW, PDCO, SPTN, MELI, BWLD, BW, VIP, PZE, HES, MFB and OXM

Economic Releases

- None of note

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Monday Watch

Weekend Headlines
Bloomberg:
- US stocks rose for the third time in four weeks as higher consumer spending and the Federal Reserve’s efforts to provide cash to banks spurred speculation the economy will keep expanding.
- US 10-year Treasury note yields rose to a three-day high on signs that central banks were adding enough funds to the financial system to spur bank lending.
- The yen fell to a six-week low against the dollar and declined versus the euro as concern eased that credit-market losses will deepen, boosting demand for higher-yielding assets funded by loans in Japan.
- Rank Group Ltd., owned by New Zealand billionaire Graeme Hart, agreed to buy Alcoa’s(AA) packaging and consumer businesses for $2.7 billion to expand in the US and gain control of units including Reynolds Wrap foil.
- China, which produces a third of the world’s steel, will raise export tariffs on some steel products from Jan.1 to help rein in a record trade surplus and reduce energy consumption and pollution.
- China will support international investment by companies next year as part of its effort to expand channels for such outbound ventures, said Wei Benhua, deputy director of the State Administration of Foreign Exchange. China will also relax controls on individual overseas investment, Wei said.
- China should take measures to cool economic growth and reduce energy consumption, an official with the National Development and Reform Commission said.
- News Corp.(NWS/A) agreed to sell eight of its Fox network-affiliated television stations in the US to Oak Hill Capital Partners LP for about $1.1 billion in cash.

Wall Street Journal:
- JPMorgan Chase(JPM) and Deutsche Bank AG are among companies planning to start an exchange to compete with CME Group Inc.(CME), operator of the Chicago Mercantile Exchange. The exchange is expected to open next year and will be backed by a dozen firms, including Merrill Lynch(MER), Credit Suisse Group and Citigroup(C).
- Banks Abandon Effort to Set Up Big Rescue Fund. The banks had been trying since September to set up a fund that would buy securities tied to mortgages and other assets that were controlled by banks in off-balance-sheet funds. By the time it began to try to gather assets, banks were already handling the problems themselves.
- Nardelli Says Chrysler Hitting Targets.

Barron’s:
- Getting the red carpet treatment. Preferred shares of Fannie Mae, WaMu and others now look enticing.
- Contrarians Beware: Putin May Mark the Top of Emerging Markets. Is Vladimir Putin the new Jeff Bezos?

NY Times:
- The IRS issued a new rule yesterday that bans selling stock at a loss to get a tax deduction, then immediately buying replacement shares through a retirement account.
- With customers leery of buying toys made in China, makers of wooden toys say in the US they can barely keep up with demand and are hiring extra employees.

TheStreet.com:
- Growth Fund Smokes With Potash and RIM.

CNBC.com:
- SEC Launches Web Tool to Compare Executive Pay.
- Top Manager: Invest in The Next Info Revolution.
- The national average price for gasoline dropped about 3 cents over the last two weeks, according to a survey released Sunday.

MarketWatch.com:
- NetSuite(N): Deja Google(GOOG) all over again. Commentary: NetSuite evolves into key player in online business software.
- Retailers Hope for Big Final Push. The final weekend of the holiday shopping season will likely bring a sigh of relief from many retailers who feared that sales would be weak. This holiday season, “we had projected a 3.6% increase and we expect that number will be hit and, potentially, could go a little bit higher,” said Bill Martin, co-founder of ShopperTrak RCT Corp., which monitors retail sales.

IBD:
- With some 275 biotech stocks trading on major US markets, the biotechnology sector can seem overwhelming to even seasoned investors. Finding the right stocks takes real discernment.

Forbes.com:
- Shoot To Kill. Nvidia(NVDA)

Business Week:
- What the Pros Are Saying. Most of the experts we surveyed the market going up a bit – but the climb will be tough.
- For Nokia(NOK), Excess is a Vertu. Its luxury division is booming as a high-end cell phone becomes the latest status symbol for the world’s richest people.
- A Wily Road Warrior’s Airport Tips.
- Tech Sector Outlook 2008: Part 1.
- Research In Motion(RIMM): What Slowdown?
- Deconstructing the Energy Bill.
- Microsoft’s(MSFT) Games Get Serious. ESP is a new software product based on the popular PC game Flight Simulator. It’s also Microsoft’s first foray into non-entertainment games.

USA Today:
- MySpace cranks up heat in Facebook turf war.
- Internet renovates how homes get sold.

CNNMoney.com:
- X-mas electronics: Apple Inc.(AAPL) rules on Amazon.com(AMZN).
- The odds on an Apple(AAPL) flash memory laptop.

Reuters:
- Microsoft’s(MSFT) piracy fight gains momentum in China.
- Merrill Lynch(MER) may get up to $5 billion in a capital infusion from Singapore state investor Temasek Holdings.
- Consumer spending strong in November.
- Research In Motion(RIMM) stock shoots higher after results.

Financial Times:
- Saudi Arabia plans to establish a sovereign wealth fund that is expected to dwarf Abu Dhabi’s $900 billion and become the largest in the world. The new fund will be a formidable rival for other government-owned investment funds in the Middle East and Asia, which are playing an increasingly active role in channeling capital to western companies, particularly financial companies hard hit by the US mortgage meltdown.
- Central banks resolve eases year-end fears. Interbank lending rates have fallen throughout this week, with the three-month euro Libor rate fixing on Friday at 4.78%, down 17 basis points since action by central banks was announced on December 12.
- iPhone users raise network hopes. Buyers of Apple’s(AAPL) iPhone have turned out to be voracious users of electronic mail and other data services, giving network operators hope that the much-hyped device will finally unlock billions of dollars in mobile advertising revenue.
- Cisco to network whole cities. Cisco Systems(CSCO) plans to launch a business group, based in Bangalore, India, that will wire new buildings and even entire new cities with state-of-the-art networking technology.
- iPhone key to O2 growth. Mathew Key was in California last week, briefing Steve Jobs on the iPhone’s impact in the UK.

AFP:
- Saudi Arabia’s security forces arrested an al-Qaeda-linked group allegedly planning a terrorist attack during the hajj pilgrimage. The suspects “planned to carry out an attack aimed at harming security and damaging the pilgrimage,” citing General Mansur al-Turqi, a spokesman for the Interior Miinstry.

Weekend Recommendations
Barron's:
- Made positive comments on (TWP) and (RHI).
- Made negative comments on (CWCO).

Night Trading
Asian indices are +1.0% to +2.0% on avg.
S&P 500 futures unch..
NASDAQ 100 futures -.08%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/Estimate
- None of note

Upcoming Splits
- (CAM) 2-for-1

Economic Data
- None of note

Other Potential Market Movers
- None of note - US stock exchanges close at 1pm EST

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for the Wall St. Week Ahead by Reuters.

Click here for Stocks in Focus for Monday by MarketWatch.com.

There are a few economic reports of note and significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note, US stock exchanges close 1 pm EST

Tues. – US markets closed

Wed. – S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index

Thur. – Weekly MBA Mortgage Applications Report, weekly EIA energy inventory report, Durable Goods Orders, Initial Jobless Claims, Consumer Confidence

Fri. – Chicago Purchasing Manager, New Home Sales, weekly EIA natural gas inventory report

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

Mon. – None of note

Tues. – US markets closed

Wed. – None of note

Thur. – Christopher & Banks(CBK), Verifone(PAY)

Fri. – Mesa Air(MESA)

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

Mon. – None of note

Tue. – US markets closed

Wed. – None of note

Thur. – None of note

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a firmer US dollar, seasonal strength, less economic pessimism, diminishing credit market anxiety, bargain hunting and short-covering. My trading indicators are still giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,484.47 +1.13%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,484.47 +1.13%
DJIA 13,450.65 +.83%
NASDAQ 2,691.99 +2.1%
Russell 2000 785.60 +4.2%
Wilshire 5000 14,917.77 +1.28%
Russell 1000 Growth 619.43 +1.18%
Russell 1000 Value 803.47 +1.09%
Morgan Stanley Consumer 748.94 +.3%
Morgan Stanley Cyclical 1,005.44 +1.72%
Morgan Stanley Technology 632.29 +1.47%
Transports 4,644.05 -.72%
Utilities 540.32 +.18%
MSCI Emerging Markets 151.90 +.35%

Sentiment/Internals
NYSE Cumulative A/D Line 59,087 -5.3%
Bloomberg New Highs-Lows Index -794
Bloomberg Crude Oil % Bulls 16.0 -60.0%
CFTC Oil Large Speculative Longs 213,103 -.51%
Total Put/Call .56 -46.2%
NYSE Arms .50 -62.87%
Volatility(VIX) 18.47 -19.81%
ISE Sentiment 114.0 -3.25%
AAII % Bulls 35.85 -24.7%
AAII % Bears 47.2 +32.1%

Futures Spot Prices
Crude Oil 93.28 +1.65%
Reformulated Gasoline 237.85 +1.32%
Natural Gas 7.21 +3.11%
Heating Oil 260.70 -.19%
Gold 813.80 +2.19%
Base Metals 214.14 +2.39%
Copper 310.0 +4.59%

Economy
10-year US Treasury Yield 4.17% -7 basis points
4-Wk MA of Jobless Claims 343,000 +1.2%
Average 30-year Mortgage Rate 6.14% +3 basis points
Weekly Mortgage Applications 653.80 -19.5%
Weekly Retail Sales +1.4%
Nationwide Gas $2.98/gallon -.01/gallon
US Heating Demand Next 7 Days 10.0% below normal
ECRI Weekly Leading Economic Index 136.20 -1.23%
US Dollar Index 77.73 +.37%
CRB Index 354.23 +1.6%

Best Performing Style
Small-cap Value +4.50%

Worst Performing Style
Large-cap Value +1.09%

Leading Sectors
Alternative Energy +4.59%
Computer Service +4.27%
Oil Service +3.29%
Wireless +3.15%
Biotech +2.52%

Lagging Sectors
Gaming -.56%
Road & Rail -1.27%
Restaurants -2.25%
Oil Tankers -3.35%
Airlines -4.28%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Soaring into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Computer longs, Internet longs, Software longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Investor anxiety is slightly below average. Today’s overall market action is very bullish. The rise in the ten-year yield is mostly a function of waning recession fears after the strongest consumer spending report in more than two years. The TED spread is falling another 8 basis points today to 186 basis points, which is down 35 basis points in 8 days. It is also down 54 basis points from its August high. Also, the 30-day asset backed commercial paper yield is down another 10 basis points to 5.55%, which is down 61 basis points in 9 days and down 78 basis points from September highs. Moreover, the VIX is breaking below its 200-day moving average today and is trading below 20 for the first time in awhile. Economically sensitive small-caps are today’s best performers as the Russell 2000 is gaining over 2%. As well, the Morgan Stanley Cyclical Index is jumping 2.0%. It appears to me that all the economic fear mongering that continues unabated by the many permabears is starting to lose its effectiveness. I still see further upside in stocks from current levels into year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, less economic pessimism, seasonal strength, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- US stocks gained the most in two weeks, led by energy and technology shares, after the biggest increase in consumer spending in two years helped reduce concern the economy will slow.
- Merrill Lynch(MER) rose in NY trading after the Wall Street Journal reported that the world’s biggest brokerage firm may receive a cash infusion of as much as $5 billion from Singapore’s state-owned Temasek Holdings Pte.
- Dennis Gartman, economist and editor of the Gartman Letter says oil won’t likely reach $100/bbl. in 2008.
- Crude oil rose more than $2/bbl. in NY after a US government report showed consumer spending gained the most in more than two years, signaling economic growth and oil demand may be stronger than expected.
- First Marblehead Corp.(FMD), the third-largest US arranger of securities backed by student loans, rose the most ever on the NYSE after Goldman Sachs(GS) agreed to a $260.5 million investment, equivalent to about 20% of current shares.
- The Federal Reserve will conduct biweekly emergency auctions of loans as “long as necessary” as part of a global attempt by central bankers to restore faith in the money markets.
- ResMed Inc.(RMD), the No. 2 maker of equipment for treating breathing-related sleep disorders, rose the most in five years on the NYSE after analyst speculation that the company may be a takeover target.
- Itron Inc.(ITRI), the maker of utility meters for electric, gas and water usage, rose the most in a year after RBC Capital Markets recommended investors buy the shares.
- Walgreen Co.(WAG), the largest US drugstore chain, posted quarterly profit that beat analysts’ estimates on higher sales of prescription drugs and reduced expenses, sending the shares up the most in more than seven years.
- NetSuite Inc.(N), the software maker majority-owned by Oracle’s Larry Ellison, rose for a second day after its IPO, advancing as much as 30% as investors seek to tap demand for business programs.
- Apple Inc.(AAPL) CEO Steve Jobs’ annual Macworld surprise may be a slimmed-down laptop and a higher-capacity model of the iPhone.

TheDeal.com
- Hedge Connection looks to set up investors with fund managers.

CNBC:
- Bear Stearns(BSC) has been talking to Fortress Investment Group(FIG) about a “capital infusion.”
- Third Avenue Management LLC holds common stock in Radian Group(RDN) and MBIA Inc.(MBI), citing an interview with the money manager’s founder, Martin Whitman. “We hope to be part of the capital infusions that go into these troubled financial institutions,” Whitman said. He said Third Avenue holds 19% of Radian and a little more than 10% of MBIA. He also said the company’s bets involve MGIC Investment Corp.(MTG) and Ambac Financial Group(ABK) and were made over the past 30 to 45 days. (video)

USA Today:
- Senator Barack Obama has pulled even with Senator Hillary Clinton among Democrats in New Hampshire, according to a USA Today/Gallup poll. Clinton and Obama were supported by 32% of those polled, with 18% supporting former senator John Edwards. Last month most surveys in the state showed Clinton with a double-digit lead.

Bearish Sentiment Now Exceeds Levels Seen at Depths of 2000-2003 Bear Market

* Meanwhile, corporate insiders are buying hand over fist.

The AAII percentage of bulls dropped to 35.85% this week from 47.6% the prior week. This reading is approaching depressed levels. The AAII percentage of bears jumped to 47.2% this week from 35.7% the prior week. This reading is now approaching elevated levels. Moreover, the 10-week moving average of the percentage of bears is currently at 45.3%, an elevated level. It has only been higher two other times in its history, which were July-August 2006 and September 1990-December 1990. Moreover, the 10-week moving average of the percentage of bears peaked at 43.0% right near the major bear market low during 2002. It is astonishing that the 10-week moving average of the % bears is currently greater than at any time during the bubble bursting meltdown of 2000-2003, which was arguably the worst stock market decline since the Great Depression.

Furthermore, the 50-week moving average of the percentage of bears is currently 38.3%, an elevated level seen during only one other period since tracking began in the 80s. That period was October 1990-July 1991, right near another major stock market bottom. The extreme reading of the 50-week moving average of the percentage of bears during that period peaked at 41.6% on Jan. 31, 1991. The current reading of 38.3% is slightly above the peak during the 2000-2003 bear market, which was 38.1% on April 10, 2003. I find this even more astonishing, notwithstanding the recent pullback, given that the S&P 500 is currently 102% higher from the October 2002 major bear market lows and just 5.2% off a record high.

Individual investor pessimism towards US stocks is currently deep-seated and historical in nature. This is just more evidence of the current “US negativity bubble" and bodes very well for further out-sized gains over the intermediate-term. It is also noteworthy that as investor pessimism grows ever thicker, corporate insiders continue to display downright giddy behavior with their recent stock activity during this pullback. It is even more interesting that the retail sector is seeing substantial insider buying, notwithstanding the current extreme investor pessimism towards the prospects for consumer spending. Prior to the 2000 economic downturn, insiders were bailing in droves. I continue to believe US stocks are poised for very strong performance during the first quarter of next year as the undying belief in an imminent recession fades and the uncertainty currently surrounding the financial sector lifts substantially.

Personal Incomes Rise, Spending Strongest in Over 2 Years, Spread Between Consumer Present Situation/Expectations Largest Since After Hurricanes in 05

- Personal Income for November rose .4% versus estimates of a .5% increase and a .2% gain in October.

- Personal Spending for November rose 1.1% versus estimates of a .7% gain and an upwardly revised .4% increase in October.

- The PCE Core for November rose .2% versus estimates of a .2% gain and a .2% increase in October.

- Final Univ. of Mich. Consumer Confidence for December rose to 75.5 versus estimates of 74.5 and a reading of 74.5 in November.

BOTTOM LINE: Consumer spending in the US rose in November by the most in more than two years as incomes grew and shoppers took to the streets early, Bloomberg reported. The Core PCE, the Fed’s preferred inflation gauge, rose 2.2% year-over-year in November, the same as in March and below the 20-year average of 2.4%. Adjusted for inflation, personal spending rose .5%, the most this year. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, rose .6%. Purchases of non-durable goods rose .6% and purchases of services rose .5%. I continue to believe consumer spending will remain resilient over the intermediate-term as Americans’ net worth is at record levels. As well, unemployment remains low by historic standards, wage growth is very strong, most interest rates remain very low and stocks remain near record highs.

Consumer confidence finished December slightly higher than initially estimated, Bloomberg reported. The Expectations component of the index came in at 65.6. However, the Current Conditions component, which reflects Americans’ perception of their current financial situation and whether it is a good time to buy big-ticket items like cars, came in at 91. The last time the spread between the two was this large was in September and October of 2005, right after historic hurricanes ravaged the Gulf coast. The S&P 500 rose 13.5% over the ensuing 7 months. Before that, the last time the spread between the two was as large as it is now was July 1993, right after US GDP growth had fallen from 4.6% to .5% during 1Q 1993. The S&P 500 rose 10.8% over the next 9 months on its way to huge gains in subsequent years.

Bull Radar

Style Outperformer:

Small-cap Value (+1.53%)

Sector Outperformers:

Wireless (+3.2%) Steel (+2.84%) and Oil Service (+2.64%)

Stocks Rising on Unusual Volume:

RMD, ROL, UBA, TR, FMD, TAL, SYM, OHI, RESP, MATW, MGEE, NAVG, GRNB, OTTR, STBA, ASFI, BRKR, IWOV, WSBC, SHEN, NGPC, FFIC, MTRX, FFBC, AWBC, AGII, ITRI, DGIT, RIMM, BRP, CCOI, GMO, HES, PSEC, PBR, CGX, BNE, CTB, MOV and FOSL

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Friday Watch

Late-Night Headlines
Bloomberg:
- MBIA Inc.(MBI) has announced that in response to media and other inquiries received as a result of information the Company posted on December 19, 2007 on its Web site relating to its collateralized debt obligation exposure, the Company is issuing the following statement: The inflation posted on December 19,2007 discloses no additional Multi-Sector CDO exposure. MBIA discussed its exposure to CDO transactions with inner CDOs during a conference call for investors on August 2, 2007. The stock surged 11% in after-hours trading.
- Toshihiko Fukui’s final act as governor of the Bank of Japan may be to cut borrowing costs for the first time in more than six years.
- Sharp Corp., Japan’s largest maker of liquid-crystal displays, rose the most in two weeks in Tokyo trading after a report said Toshiba Corp. may buy its LCD panels.

NY Times:
- Genentech(DNA) appears to have resolved a dispute with ophthalmologists that will allow its drug Avastin to continue to be used to treat eye diseases, both sides said.

MarketWatch.com:
- Research In Motion(RIMM) on Thursday saw earnings more than double for its fiscal quarter amid continued strong demand for the company’s BlackBerry line of smart-phone devices.
- NetSuite CEO: Ellison played critical role. Buy Nelson says software on-demand marks changing of the guard in industry.

BusinessWeek.com:
- If you’re a contrarian, you’ll probably like Eastman Kodak(EK), which is currently a pariah on the Street.
- The FCC’s auction of wireless spectrum is swarming with participants, some of which you might not expect – including Chevron(CVX) and Vulcan’s Paul Allen.
- Record Online Sales in Britain. Christmas came early to online retailers as Internet sales have skyrocketed more than 65% higher than during last year’s holiday period.

CNNMoney.com:
- Toy makers close in on safety plan. Group representing companies hopes to get regulators’ OK on tougher testing measures.

SmartMoney.com:
- CEO Interview: John Riccitiello, Electronic Arts(ERTS).

USA Today.com:
- Starbucks-Dunkin’ faceoff may stir market share in hot industry.

Reuters:
- Washington Mutual(WM) said on Thursday it is cooperating with a SEC inquiry into the handling and reporting of mortgage loans that may have been based on inflated home appraisals.

China Securities Journal:
- China’s economy may expand 10.9% next year and inflation may rise 4.5%, the central bank’s research bureau forecast in a report today.

Late Buy/Sell Recommendations
Citigroup:
- In general, we garnered little new from Micron’s(MU) earnings report. We maintain our generally positive view, therefore, predicated on capital spending declines, 200mm decommissioning and NT price stabilization. We note that Micron did point to above seasonal demand conditions for CY1Q08, echoing commentary from other parts of the supply chain. This bodes well for Intel(INTC), our top idea, where strong demand will support upside to consensus margin for 1Q08 and 2Q08(as inventories prove difficult to build).

Morgan Stanley:
- Reiterated Overweight on (CELG), target $79.

CSFB:
- Reiterated Outperform on (CELG), target lowered to $65.

Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 futures +.14%.
NASDAQ 100 futures +.29%.

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Earnings of Note
Company/EPS Estimate
- (CC)/-.31
- (WAG)/.44

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for November is estimated to rise .5% versus a .2% decline in October.
- Personal Spending for November is estimated to rise .7% versus a .2% gain in October.
- The PCE Core for November is estimated to rise .2% versus a .2% gain in October.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for December is estimated at 74.5 versus 74.5 in November.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are higher, boosted by technology shares and financial stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Gains in the Technology Sector

Indices
S&P 500 1,460.12 +.49%
DJIA 13,245.64 +.29%
NASDAQ 2,640.86 +1.53%
Russell 2000 767.54 +1.51%
Wilshire 5000 14,673.05 +.62%
Russell 1000 Growth 609.65 +.79%
Russell 1000 Value 790.14 +.29%
Morgan Stanley Consumer 738.66 +.05%
Morgan Stanley Cyclical 984.85 +1.18%
Morgan Stanley Technology 626.02 +1.70%
Transports 4,583.86 -.01%
Utilities 536.72 -.02%
MSCI Emerging Markets 148.72 +.23%

Sentiment/Internals
Total Put/Call .63 -44.7%
NYSE Arms 1.05 +7.63%
Volatility(VIX) 20.58 -5.07%
ISE Sentiment 110.0 -1.79%

Futures Spot Prices
Crude Oil $91.20 -.04%
Reformulated Gasoline 233.73 +.23%
Natural Gas 7.11 -.89%
Heating Oil 259.43 -.14%
Gold 799.80 -.70%
Base Metals 212.28 +1.92%
Copper 297.0 +.41%

Economy
10-year US Treasury Yield 4.04% +1 basis point
US Dollar 77.78 +.26%
CRB Index 349.63 -.16%

Leading Sectors
Software +2.22%
Wireless +2.11%
Computer Hardware +2.08%

Lagging Sectors
Insurance -.55%
Oil Tankers -1.04%
Airlines -1.17%

Evening Review
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Afternoon Recommendations
Needham:
- Rated (SINA) Buy.

Afternoon/Evening Headlines
Bloomberg:
- The US housing market will bottom out in the second quarter of 2008 and become a positive force on the national economy by the end of the year, said David Seiders, chief economist for the National Association of Home Builders.
- Research In Motion Ltd.(RIMM) said third-quarter profit doubled and gave a forecast that topped analysts’ estimates on consumer demand for the BlackBerry e-mail phone, spurring an 11% surge in the stock in after-hours trading.
- GE Commercials Finance and Allied Capital Corp. raised $3.6 billion to fund smaller private-equity transactions after lenders tightened financing requirements. Unitranche Fund LLC will provide loans of as much as $500 million.
- Red Hat Inc.(RHT) named former Delta Air Lines(DAL) COO James Whitehurst as CEO and said third-quarter profit rose 39%. Red Hat jumped 7.4% in extended trading.
- Campbell Soup(CPB) agreed to sell its Godiva chocolate unit to Yildiz Holding AS for $850 million.
- NetSuite Inc.(N), the software maker majority-owned by Oracle’s(ORCL) Larry Ellison, surged 37% in its first day of trading, underscoring investors’ confidence in business software spending.

NY Times:
- GM’s Fuel-Cell Test: 100 Cars, No Charge.

BOTTOM LINE: The Portfolio finished higher today on gains in my Software longs, Medical longs, Semi longs and Internet longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was about average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish. After the close, Research In Motion(RIMM) beat earnings estimates and boosted its guidance, saying it sees “strong” enterprise demand. This report is a huge positive, given RIMM’s exposure to the financial services sector. There still remains little evidence of the imminent recession that so many have been expecting since housing began deteriorating over two years ago. A further lifting of the uncertainty in the financial services sector, lower energy prices, more fed rate cuts and non-recessionary data in 1Q should provide the catalysts for a very good 1Q for US stocks. I expect the broad market to participate in another tech sector-driven rally tomorrow. Nikkei futures are indicating a +120 open in Japan.

Stocks Mostly Higher into Final Hour, Led by Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, Internet longs and Medical longs. I added to my (NUAN) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. The total put/call hit a high 1.25 and the ISE sentiment index hit a very depressed 64.0 today, as retail option traders remain skeptical of the chances for a year-end rally, which bodes well for further gains. Despite the Bear Stearns(BSC) and MBIA(MBI) news, the (XLF) is less than one percent lower on the day, which isn’t too bad. Moreover, the 30-day asset backed commercial paper yield is falling another 9 basis points today and is down 51 basis points in a week. The US dollar is firm, despite today’s weaker economic data, which bodes well for further dollar strength. Oil is having trouble staying above $92/bbl. for the fifth consecutive day. I still think oil will begin another move lower at the first of the year after the year-end mark-ups by investment funds end, the dollar strengthens more, supply exceeds estimates and global demand continues to decelerate. True “growth” stocks are particularly strong again today. As well, technology shares are substantially outperforming the major averages. The MS Tech Index is now 10.6% higher year-to-date, almost triple the return of the S&P 500. I said early in the year that I expected technology to outperform this year. I also expect this to be the case again next year. Research In Motion's(RIMM) earnings report after the close could provide the catalyst for further tech sector gains tomorrow. The financials continue to trade as if at the very least they are forming a short-term bottom. Instability in the financial sector is the only thing holding the broad market back from more vigorous gains into year-end, in my opinion. Overall bearish sentiment towards US equities remains very elevated. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, tech sector strength, bargain-hunting and short-covering.