Monday, January 31, 2005

Monday Close

Indices
S&P 500 1,181.27 +.85%
Dow 10,489.94 +.60%
NASDAQ 2,062.41 +1.31%
Russell 2000 624.02 +1.80%
DJ Wilshire 5000 11,627.25 +.95%
S&P Barra Growth 567.53 +.66%
S&P Barra Value 609.50 +1.03%
Morgan Stanley Consumer 583.41 +.15%
Morgan Stanley Cyclical 753.89 +1.12%
Morgan Stanley Technology 473.66 +1.43%
Transports 3,598.48 +1.48%
Utilities 343.46 +1.15%
Put/Call .68 -11.69%
NYSE Arms .88 -31.78%
Volatility(VIX) 12.82 -3.17%
ISE Sentiment 155.00 -13.41%
US Dollar 83.57 +.11%
CRB 284.75 +.20%

Futures Spot Prices
Crude Oil 48.15 -.10%
Unleaded Gasoline 134.20 -.42%
Natural Gas 6.29 -.49%
Heating Oil 134.60 -.16%
Gold 424.20 +.02%
Base Metals 122.86 +.26%
Copper 143.00 -.35%
10-year US Treasury Yield 4.13% -.24%

Leading Sectors
Disk Drives +2.59%
I-Banks +2.39%
Airlines +2.27%

Lagging Sectors
Telecom -.11%
Papers -.12%
Drugs -.46%

After-hours Movers
ARBA -20.68% after missing 1Q estimates.
ISSX -5.06% after beating 4Q estimates and widening 1Q/05 guidance.
OS +6.79% after boosting 4Q estimates on higher plate demand and lower scrap prices.
SRX +4.41% after beating 2Q estimates, raising 3Q/05 guidance.
VLTR -8.12% on profit-taking after beating 4Q estimates.
RNOW -7.95% after meeting 4Q estimates, reiterating 1Q outlook and lowering 05 guidance.
ATRS -5.41% on profit-taking after beating 4Q estimates.

Detailed Market Summary
Market Wrap CNBC Video(bottom right)
Futures Recap
NASDAQ 100 After-hours Indicator
Real-time/After-hours Stock Quote

Afternoon Recommendations
-Goldman Sachs: Reiterated Outperform on LVS, XOM, RE, DIS and WYNN.

After-hours News
US stocks finished higher today on optimism over the Iraqi election, increased merger activity and short-covering. After the close, Duke Energy, the biggest US utility owner, may begin auctioning its wholesale electricity unit within six weeks, the Power Finance & Risk newsletter said. China will probably expand the band where it lets is currency trade against the dollar by 3% or more this year, the Nikkei Financial Daily reported. Time Warner’s HBO channel sold the rights to “The Sopranos” to A&E Television Networks for a record price of about $195 million, or $2.5 million per episode, Daily Variety reported. Huawei Technologies, China’s top phone-equipment maker, has considered selling its optical and access units to foreign buyers as part of a review, the Financial Times reported. The US dollar had its biggest monthly advance against the euro since May 2001, Bloomberg said. Brazil sold $1.25 billion of 20-year bonds and Mexico’s credit rating was lifted by Standard & Poor’s, underscoring increased confidence in the creditworthiness of Latin America’s two biggest economies, Bloomberg reported. The European Union may hold consultations with the US and Japan over its possible lifting of its arms embargo on China and any subsequent arms sales, the Financial Times reported.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my internet, retail, computer and RFID longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market improved in the final hour as most sectors rose and the advance/decline line finished near its daily highs. Small-caps, financials and technology outperformed throughout the afternoon. Long-term interest rates fell again today and look to be headed still lower over the next few months. It was disappointing to see oil rise in the face of more stability in Iraq. As well, most measures of investor anxiety fell and volume was lighter. I expect US stocks to continue heading modestly higher in the near-term on increased optimism, more dovish Fed comments and strong earnings reports.

Mid-day Report

Indices
S&P 500 1,180.08 +.74%
Dow 10,491.12 +.61%
NASDAQ 2,060.40 +1.21%
Russell 2000 620.29 +1.19%
DJ Wilshire 5000 11,608.07 +.78%
S&P Barra Growth 567.23 +.61%
S&P Barra Value 608.67 +.89%
Morgan Stanley Consumer 583.08 +.10%
Morgan Stanley Cyclical 753.53 +1.07%
Morgan Stanley Technology 473.84 +1.46%
Transports 3,592.38 +1.31%
Utilities 342.30 +.81%
Put/Call .68 -11.69%
NYSE Arms .87 -32.56%
Volatility(VIX) 12.97 -2.11%
ISE Sentiment 185.00 +3.35%
US Dollar 83.49 +.01%
CRB 283.16 -.36%

Futures Spot Prices
Crude Oil 46.65 -.81%
Unleaded Gasoline 128.40 -1.85%
Natural Gas 6.19 -1.10%
Heating Oil 130.20 -2.69%
Gold 423.10 -1.17%
Base Metals 122.86 +.26%
Copper 143.30 -.38%
10-year US Treasury Yield 4.14% +.14%

Leading Sectors
Airlines +2.74%
Iron/Steel +2.66%
I-Banks +1.86%

Lagging Sectors
Telecom -.11%
Drugs -.67%
Boxmakers -.84%

Market Movers
WYE -7.3% after missing 4Q estimates, lowering 05 guidance and Prudential downgrade to Neutral.
AAPL +4.2% after unveiling faster, more affordable PowerBooks.
CREO +13.65% after Eastman Kodak(EK) agreed to buy it for $980 million in cash.
AVL +19.87% after saying GE gave it exclusive rights to distribute certain parts for GE’s CF6-50 and CF6-80A aircraft engines.
NOVN +17.21% after the FDA denied pending citizen petitions intended to prevent or delay the approval of certain generic versions of Johnson & Johnson’s Duragesic product and RBC upgrade to Outperform.
SEE +9.63% after substantially beating 4Q estimates and raising 05 guidance.
RYAAY +9.05% after raising 3Q estimates and 4Q outlook.
GRMN +7.53% after saying the original equipment parts and accessories provider for Chrysler, Dodge and Jeep will begin offering a new Garmin-built GPS automotive navigation system as a dealer-installed option.
MSTR +3.9% on Maxim upgrade to Buy.
NVEC +11.56% after confirming that Magnetoresistive Random Access Memory alpha samples recently announced by Cypress Semiconductor are covered by NVE’s technology agreement.
RSTG -13.68% on profit-taking.
SIR -33.88% after lowering 4Q estimates and saying it may restate results after an internal review found accounting errors.
HSP -7.4% after lowering 05 outlook.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
-Personal Income for December rose 3.7% versus estimates of a 3.4% increase and a .4% gain in November.
-Personal Spending for December rose .8% versus estimates of a .8% increase and a .4% rise in November.
-PCE Deflator(YoY) for December rose 2.4% versus estimates of a 2.4% increase and a 2.7% increase in November.
-PCE Core(YoY) for December rose 1.5% versus estimates of a 1.5% gain and a 1.6% rise in November.
-New Home Sales for December were 1098K versus estimates of 1200K and 1097K in November.
-Chicago Purchasing Manager for January rose to 62.4 versus estimates of 59.0 and a reading of 61.9 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on SBC, BBY and TSMC. Reiterated Underperform on T and MMC. Reiterated Underweight rating on Newspaper stocks.
-Citi SmithBarney: Upgraded CEG to Buy, target $55. Downgraded EOP to Sell, target $26. Reiterated Buy on NE, target $65. Upgraded SII to Buy, target $73. Reiterated Buy on HAL, target $50. Reiterated Sell on MYG, target $11. Reiterated Buy on WMT, target $65. Reiterated Buy on DNA, target $87.50. Reiterated Sell on NYB, target $17. Reiterated Sell on MU, target $11.50. Reiterated Sell on SIVB, target $34. Reiterated Buy on STZ, target $53.
-UBS: Raised MATR to Buy, target $55.
-Banc of America: Rated ISTA Buy, target $13.
-Morgan Stanley: Cut HAL and BJS to Underweight.
-CSFB: Raised JBL to Outperform, target $28.
-CIBC: Raised RTEC to Sector Outperform, target $20.
-Legg Mason: Raised CCE to Buy, target $26. Raised COTT to Buy, target $30. Raised PBG to Buy, target $32.
-Prudential: Cut NUE to Underweight, target $43. Cut FISV to Underweight, target $35. Cut T to Underweight, target $16.
-Merrill Lynch: Raised AWA to Buy, target $7. Raised CAL to Buy, target $14.
-Bear Stearns: Rated NCTY Outperform, target $32.
-Raymond James: Raised RSAS to Strong Buy, target $22. Cut SBC to Underperform. Raised VRSN to Buy, target $35.

Mid-day News
US stocks are higher mid-day on optimism over the outcome of the Iraqi elections, merger activity and lower energy prices. Yahoo! plans to increase its financial data offerings online, a move that would allow the company to add to its popular finance site and become a data provider for other sites, the Wall Street Journal reported. MetLife is close to buying Citigroup’s Travelers Life & Annuity unit for about $12 billion, the Wall Street Journal reported. The SEC is considering rules that would give investors a better idea of how much their mutual funds spend to buy and sell securities, the Wall Street Journal reported. Time Warner’s cable unit plans to provide America Online accounts to high-speed Internet customers at no extra cost, the Wall Street Journal reported. Vivendi Universal SA has filed suit against EchoStar Communications to force the No. 2 US satellite-television service to carry a new 24-hour music channel, the NY Post reported. Coach Inc. plans to add 100 new stores over the next four to five years, bringing the company’s total outlets to almost 300, the NY Daily News reported. International home-video sales are the fastest-growing part of the film industry, although the Motion Picture Association of America and most studios won’t give specific figures, the NY Times reported. An internal UN investigation and a US Justice Department probe over corruption in the UN/Iraq Oil-for-food Program have clashed over access to documents and witnesses, the NY Times reported. American Indian tribes in Southern California are trying to transform their desert casinos into resorts to compete with Las Vegas, the LA Times reported. SBC Communications agreed to buy AT&T for about $16 billion in stock and cash, marking the end of the 130-year-old company that brought phones into American homes, Bloomberg reported. Lee Enterprises, which operates 44 daily newspapers in 19 states, agreed to buy Pulitzer, owner of 14 daily newspapers, for about $1.41 billion in cash, Bloomberg said. US personal spending accelerated in December and incomes jumped the most on record as Microsoft made a one-time $32.6 billion dividend payout, Bloomberg reported. French President Chirac offered US President Bush help with the training of the Iraqi police force following yesterday’s election, Bloomberg said. Crude oil fell to its lowest in almost three weeks after Iraq’s election yesterday passed without attacks against pipelines and OPEC agreed to leave production quotas unchanged, Bloomberg reported. Marsh & McLennan agreed to pay $850 million to settle NY Attorney General Spitzer’s accusations that it rigged bids and took kickbacks from insurers, Bloomberg said. US sales of new homes rose .1% last month to 1.098 million houses at an annual rate, capping the fourth consecutive all-time record year, Bloomberg reported. US fourth-quarter GDP figures were likely adversely affected as much as .5 percentage points by an error in Canada’s trade report for November, a Commerce Department official said. United Airlines pilots voted to ratify a new contract that will cut pilot pay be 12% and help save the company $180 million annually as part of the airline’s plan to stem losses and exit bankruptcy, Bloomberg said. Iraqi interim Prime Minister Allawi said today the country’s new national assembly should work with Sunni Arabs to create a government and constitution, Bloomberg reported.

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my retail, internet, networking and computer longs. I added a few new longs this morning, thus bringing the Portfolio to 125% net long. One of my new longs is AUO and I am using a $14.50 stop-loss on this position. The tone of the market is pretty good today as most sectors are higher and the advance/decline line is very good. Small-caps and technology shares are outperforming. On the negative side, volume is lighter than I would like to see on a rally and oil isn’t declining as much as I anticipated. As well, measures of investor anxiety are falling. I expect US stocks to rise modestly into the close on more optimism, short-covering and bargain-hunting.

Monday Watch

Weekend News
Arab airlines grew the fastest last year of any regional grouping by number of passengers carried, boosting profits, Arabian Business magazine reported. New York my become the first state to offer a so-called work-readiness credential to students who voluntarily take a test on skills needed to perform entry-level jobs, the NY Times reported. Kaiser Permanente, a California-based hmo, will no longer sell Pfizer's Bextra in its pharmacies after some tests found the arthritis and pain drug may increase the risk of heart attacks and strokes, the NY Times reported. Advisers to President Bush have recommended he propose personal Social Security accounts that let individuals invest initially in three to five diversified funds under a system similar to the Thrift Savings Plan for federal workers, the Boston Globe reported. SBC Communication's possible bid for AT&T will make Verizon Communications, BellSouth and Qwest Communications consider whether to purchase MCI Inc., the NY Times reported. A few days before a Parliament debate to loosen limits on the 35-hour work week, 77% of the French people say they would prefer to leave their working time unchanged, Le Journal du Dimanche reported. Comcast and Time Warner have completed a joint off for the bankrupt Adelphia Communications and may be the only bidder for the whole company by the Jan. 31 deadline, the LA Times reported. Bill Gross, CIO for PIMCO, expects the yield on 10-Year T-notes may rise to 4.75% or 5.0% within 12 months, Barron's reported. Some Trump Hotels and Casino Resorts shareholders and a bank that once offered to buy a controlling stake in it have filed motions blocking the company's plan to exit bankruptcy, the Star-Ledger reported. Public health officials say AIDS infections in newborn babies may be almost eradicated in the US because of more effective drugs, public education and testing, the NY Times reported. The Qatari government is trying to sell unprofitable Al Jazeera after Bush administration officials have complained about biased and false reporting on the Arab language television station, the NY Times reported. International Speedway will sell Nazareth Speedway, once the home track for now-retired race drivers Mario and Michael Andretti, the Morning Call of Allentown, Pennsylvania reported. The British Broadcasting Corp. said it mistakenly reported that US forces and their allies killed more civilians than insurgents fighting in Iraq, Bloomberg reported. Halliburton and Baker Hughes won a government contract to drill for gas in Bahrain, a Persian Gulf archipelago, in an effort to meet demand from its power plants and aluminum industry, Middle East Economic Digest said. Iran, holder of the world's second-largest oil reserves, will increase oil production from its Mansouri field by a third to 150,000 barrels a day as it seeks to increase total production, Petroenergy Information Network said. Boeing CEO Stonecipher is backing plans to build an advanced version of the company's 747 airliner, raising the possibility of the plane's launch in the next few months, the Business reported. Afghan President Karzai was urged by two human rights organizations yesterday to prosecute war criminals after decades of human rights abuses in the nation, the NY Times said. Beating back President Bush's plan to let workers invest a small part of their Social Security taxes in private accounts is the Democratic Party's most important priority this year, the NY Times reported. Russia has as many spies in the US as the former Soviet Union had during the Cold War, and the National Security Council has instructed intelligence agencies to follow the threat closely, Time magazine reported. A US tax amnesty, offset by tax breaks in the American Jobs Creation Act, may reap about $100 billion of foreign exchange earnings for the US, the Financial Times said. Saudi Arabia's OPEC minister said crude oil at $50 a barrel has done nothing to slow economic growth, signaling the group will do little to stop a year long really in prices, Bloomberg said. China's vice premier and deputy central bank chief said they want to maintain a "stable" exchange rate, rebuffing calls from the US and Europe to let the Chinese currency strengthen, Bloomberg said. Libya auctioned off rights to explore for oil in its first such sale for 40 years, with US oil companies, led by Occidental Petroleum, winning the bulk of the bidding, Bloomberg reported. Dubai said it bought a $1 billion stake in DaimlerChrysler AG, making the Persian Gulf emirate the third-largest shareholder in the world's biggest maker of luxury cars, Bloomberg said. Israeli Prime Minister Sharon and Palestinian Authority President Abbas will hold a summit meeting next week to push forward the Middle East peace process after a 19-month lull, Bloomberg said. As many as 8 million Iraqis, or about 60% of eligible voters, voted for a National Assembly, defying insurgents to hold the country's first democratic election since 1953, Bloomberg reported. President Bush called the elections in Iraq a "resounding success" that proves the commitment of Iraqis to democracy and freedom, Bloomberg said. National Semiconductor forecast its China sales will rise by more than 20% this year on expanding demand for electronic and telecommunications products, Bloomberg reported. Crude oil futures are falling, heading for their biggest two-day drop in a month, after Iraq's first free election in 50 years reduced concern that the country's oil supply would be disrupted and OPEN said it may raise output in the second quarter, Bloomberg reported.

Weekend Recommendations
-Bulls and Bears: Had guests that were positive on UDI, AH, PJC, PG, INTU and mixed on ATK, DAL.
-Forbes on Fox: Had guests that were positive on HAL, WWW, TK, MHX and mixed on LLL, PTEN.
-Cashin' In: Had guests that were positive on DUK, MCD and mixed on ISL, BHP.
-Barron's: Had positive comments on SHPGY, FWHLF, TIIPF, AIZ, LEAP, IGI, JPM, FITB, FNF, PFE, LYO, ALL, EP, OMM and CRY. Had negative comments on HOV, TOL, LEN and CTX.
-Goldman Sachs: Reiterated Outperform on MDT, SII, INTC, SPG, ALK, UTX, NFX, BLS and DNA. Reiterated Underperform on PCZ and MU.

Night Trading
Asian Indices are higher, +.50%. to +1.25% on average.
S&P 500 indicated +.43%.
NASDAQ 100 indicated +.76%.

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

Earnings of Note
Company/Estimate
AFL/.58
XOM/1.07
HLT/.16
K/.45
MAT/.48
SEE/.67
SYY/.36
TSN/.25
DIS/.29
WYE/.67
ZMH/.64

Splits
None of note.

Economic Data
-Personal Income for December is estimated to rise 3.3% versus a .3% increase in November.
-Personal Spending for December is estimated to rise .9% versus a .2% increase in November.
-PCE Deflator(YoY) for December is estimated to rise 2.4% versus a 2.6% increase in November.
-New Home Sales for December are estimated at 1200K versus 1125K in November.
-Chicago Purchasing Manager for January is estimated to fall to 59.0 versus 61.9 in December.

BOTTOM LINE: I expect US stocks to open higher in the morning on optimism over the Iraqi elections, increasing potential for meaningful US reforms, lower energy prices, short-covering and bargain hunting. The Portfolio is 100% net long heading into the week.

Sunday, January 30, 2005

Weekly Outlook

There are a number of important economic reports and many significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Personal Income/Spending, PCE Deflator, New Home Sales, Chicago Purchasing Manager (Tues.)-Construction Spending, ISM Manufacturing/Prices Paid, Total Vehicle Sales (Wed.)-FOMC Rate Decision (Thur.)-Preliminary 4Q Non-farm Productivity/Unit Labor Costs, Initial Jobless Claims, Factory Orders, ISM Non-Manufacturing (Fri.)-Unemployment Rate, Change in Non-farm Payrolls, Univ. of Mich. Consumer Confidence. Personal Spending, New Home Sales, Chicago Purchasing Manager, ISM Manufacturing, FOMC Rate Decision, ISM Non-Manufacturing, Change in Non-farm Payrolls and Consumer Confidence all have market-moving potential.

Mon. - AFLAC Inc.(AFL), Exxon Mobil(XOM), Hilton Hotels(HLT), Kellogg(K), Nortel Networks(NT), Walt Disney(DIS), Zimmer Holdings(ZMH) Tues. - Avon Products(AVP), Boston Scientific(BSX), Chicago Mercantile Exchange(CME), Chubb Corp.(CB), Emerson Electric(EMR), Google(GOOG), HCA Inc.(HCA), Ingersoll-Rand(IR), Tyco Intl.(TYC) Wed. - Amazon.com(AMZN), Boeing(BA), Harrah's Entertainment(HET), Northrop Grumman(NOC), Pulte Homes(PHM) Thur. - Comcast (CMCSA), International Paper(IP), Sprint Corp.(FON), Starwood Hotels(HOT) Fri. - Cardinal Health(CAH), Newmont Mining(NEM), Time Warner(TWX) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The CSFB Energy Summit(Mon.-Fri.), Lehman Brothers Industrial Conference(Tues.) and the Fed's Greenspan speaking(Fri.) could also impact trading this week.

Bottom Line: I expect US stocks to finish the week higher on a very positive outcome with the Iraqi elections, increased optimism over meaningful US reforms, declining energy prices, better fund inflows, strong earnings reports and more dovish Fed comments. Economic reports for January will likely show modest deceleration, thus keeping long-term interest rates low. The Fed will likely raise rates by 25 basis points and maintain their language of "continuing hikes at a measured pace." However, I am not ruling out the possibility of comments suggesting a slowing of the pace of their hikes and do expect this at some point in the near future. The markets would view this positively as I believe investors are worried the Fed is now raising rates unnecessarily, given slowing global growth, decelerating inflation and a stabilizing US dollar. My short-term trading indicators are still giving Sell signals and the Portfolio is 100% net long heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 133.20 -.08%

Consumer Confidence for January rose to 103.4 versus estimates of 101.0 and a reading of 102.7 in December. Consumer confidence unexpectedly rose to a six-month high after the economy added more jobs and incomes grew, raising the odds that spending will continue to spur the economy, Bloomberg reported. Wages and salaries rose 4.8% at an annual rate in the third quarter and a 5.7% increase in the previous three months. The percentage of consumer who saw jobs as hard to get fell to 24.7%, the lowest since August 2002, Bloomberg said. Optimism about the current economic situation rose to the highest in 31 months. "Consumer spending has been stellar for the past two quarters, so these levels of consumer optimism are evidently consistent with robust demand," said Stephen Stanley, chief economist at RBS Greenwich Capital.

Existing Home Sales for December fell to 6.69M versus estimates of 6.8M and 6.92M in November. Sales for all of 2004 rose 9.4% to an all-time record. "The housing sector looks very healthy," said David Lereah, chief economist at the National Association of Realtors. "It's down a bit, but the fundamentals are very strong in housing." The median price of an existing home rose 8.1% from the same month last year and the inventory of houses for sale fell to a record low of 3.9 months from 4.3 months, Bloomberg reported. The rate on a benchmark 30-year mortgage averaged 5.84% in 2004, well below historic norms. Increased hiring and rising wages, along with borrowing costs that are still very low by historic standards should keep home buying near last year's record in 2005, economists said.

Durable Goods Orders for December rose .6% versus estimates of a .7% increase and an upwardly revised 1.8% gain in November. Durable Goods Orders Less Transportation for December rose 2.1% versus estimates of a 1.3% increase and an upwardly revised .9% decline in November. Orders rose 8.8% for computers and related products and 17.8% for communications equipment, Bloomberg said. 2004 was the best year in a decade for makers of appliances, autos and other long-lasting items as orders surged 10.9%, Bloomberg reported.

Initial Jobless Claims for last week rose to 325K versus estimates of 332K and 318K the prior week. Continuing Claims were 2840K versus estimates of 2683K and 2698K prior. "The overall picture, when you look at confidence surveys and other reports, is that the labor market is doing better," said MFR Inc. Chief Economist Joshua Shapiro. The volume of help-wanted advertising in major US newspapers in December rose to its highest level in six months, the Conference Board said. "We do have on balance a pretty bright outlook for 2005 for the US economy," Federal Reserve Bank of Kansas City President Hoenig said. About 2 million jobs may be added to the economy this year, Hoenig also said.

Advance 4Q GDP rose 3.1% versus estimates of a 3.5% rise and a 4.0% increase in 3Q. Advance 4Q Personal Consumption rose 4.6% versus estimates of a 4.3% increase and a 5.1% gain in 3Q. Advance 4Q GDP Price Deflator rose 2.0% versus estimates of a 2.1% increase and a 1.4% gain in 3Q. The Employment Cost Index for 4Q rose .7% versus estimates of a .8% gain and a .9% increase in 3Q. For all of last year the US economy grew 4.4%, the most since 1999, Bloomberg said. The trade deficit shaved 1.7 percentage points from growth in the last quarter. The trade gap should detract less this year as a weak US dollar boosts exports, economists said. Consumer spending, inventory building and business spending were among the main contributors to the economy in the fourth quarter, Bloomberg said.

Bottom Line: Overall, last week's economic data were modestly positive. The fact that consumer confidence rose in the face of stock market declines, increased violence in Iraq, domestic terrorism fears and higher energy prices is a big positive. I continue to expect confidence to fall modestly from current levels before setting new cycle highs in the second half of the year. The record low supply of existing homes bodes well for the homebuilding sector and should spur further gains this year as mortgage rates remain very low by historic standards. The 2.1% rise in Durable Goods Orders excluding volatile transportation is a nice rebound from November's decline and remains one of the main engines of economic growth. Initial Jobless Claims were better-than-expected for the second week in a row. I continue to believe the labor market will improve at a moderate pace, thus holding down unit labor costs while allowing unemployment to decline slowly. GDP growth was exceptionally strong for all of 2004, however 4Q growth was disappointing considering the effects of hurricane rebuilding, tax incentives, etc. In my opinion, the Fed should slow their pace of rate hikes as economic growth may fall below 3% this quarter, the dollar stabilizes and measures of inflation decelerate. The 4.6% gain in personal spending, after a 5.1% increase in 3Q, is exceptional and once again proves the death of the US consumer has been greatly exaggerated. I expect the consumer to remain relatively healthy as job prospects improve, energy prices fall from current levels and long-term interest rates remain low. The small decline in the ECRI Weekly Leading Index is also a positive considering the prior week's very strong gain.

Friday, January 28, 2005

Market Week in Review

S&P 500 1,171.36 +.30%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: The bears’ inability to send shares lower before the lifting of much uncertainty next week is a positive. Crude oil futures were unable to close above the psychologically important $50/bbl. level even in the face of cold weather, the possibility of extreme violence in Iraq, an OPEC meeting and a better-than-expected GDP report from China. Utility stocks made new highs for this cycle and the transports rebounded from recent losses. Outperformance by semiconductors was also a positive. Overall, there were enough positive events this last week to send shares higher under normal circumstances. However, rising apprehension ahead of the weekend held gains in check.

Weekly Scoreboard*

Indices
S&P 500 1,171.36 +.30%
Dow 10,427.20 +.33%
NASDAQ 2,035.83 +.08%
Russell 2000 613.00 +.31%
DJ Wilshire 5000 11,517.75 +.24%
S&P Equity Long/Short Index 1,010.66 +.13%
S&P Barra Growth 563.80 +.31%
S&P Barra Value 603.28 +.28%
Morgan Stanley Consumer 582.52 +.42%
Morgan Stanley Cyclical 745.53 +.11%
Morgan Stanley Technology 466.98 +.58%
Transports 3,545.94 +2.15%
Utilities 339.56 +2.37%
Put/Call .77 -7.23%
NYSE Arms 1.29 -22.75%
Volatility(VIX) 13.24 -7.8%
ISE Sentiment 179.00 +14.74%
AAII % Bulls 26.43 -21.48%
US Dollar 83.48 +.20%
CRB 284.18 unch.

Futures Spot Prices
Crude Oil 47.18 -3.02%
Unleaded Gasoline 130.82 +.67%
Natural Gas 6.26 +.14%
Heating Oil 133.80 -3.67%
Gold 428.90 -.14%
Base Metals 122.54 +1.23%
Copper 143.80 +.28%
10-year US Treasury Yield 4.13% -.10%
Average 30-year Mortgage Rate 5.66% -.18%

Leading Sectors
Airlines +2.59%
Semis +2.51%
Utilities +2.37%

Lagging Sectors
Telecom -1.38%
Internet -1.44%
Boxmakers -2.08%

*% Gain or loss for the week

Mid-day Report

Indices
S&P 500 1,168.36 -.53%
Dow 10,410.22 -.54%
NASDAQ 2,031.46 -.79%
Russell 2000 612.26 -.75%
DJ Wilshire 5000 11,494.34 -.49%
S&P Barra Growth 562.88 -.45%
S&P Barra Value 601.83 -.50%
Morgan Stanley Consumer 581.77 -.20%
Morgan Stanley Cyclical 744.59 -.44%
Morgan Stanley Technology 465.75 -.91%
Transports 3,529.12 -.71%
Utilities 337.62 -.54%
Put/Call .72 -14.29%
NYSE Arms 1.55 +68.48%
Volatility(VIX) 13.37 +.98%
ISE Sentiment 183.00 -.54%
US Dollar 83.55 +.14%
CRB 283.86 -.57%

Futures Spot Prices
Crude Oil 47.32 -3.05%
Unleaded Gasoline 131.40 -2.80%
Natural Gas 6.24 -1.84%
Heating Oil 134.50 -3.72%
Gold 426.90 -.35%
Base Metals 122.54 +1.21%
Copper 143.85 +.81%
10-year US Treasury Yield 4.13% -1.95%

Leading Sectors
Airlines +1.05%
Homebuilders +.76%
Disk Drives +.50%

Lagging Sectors
Semis -1.57%
Software -1.57%
Oil Service -1.85%

Market Movers
G +11.98% after Procter & Gamble agreed to buy it for $57 billion. PG -2.87%
SNDK +11.82% after beating 4Q estimates.
LAVA +17.05% after JP Morgan added it to Focus List, target $16.
MSTR +15.29% after beating 4Q estimates and multiple upgrades.
DV +13.85% after missing 2Q estimates, but Merrill Lynch upgrade to Neutral.
NATL +13.85% on strong demand for IPO.
ORCT +10.0% on continuing optimism over 4Q results.
KRON +7.4% after beating 1Q estimates and raising 2Q/05 estimates.
MCK +9.13% after beating 3Q estimates, reiterating forecast and Raymond James upgrade to Outperform.
OSTK -15.25% on profit-margin worries after beating 4Q estimates.
OSIS -12.95% after beating 2Q estimates and lowering 3Q/4Q outlook.
OVNT -12.83% after meeting 4Q estimates and lowering 1Q/05 guidance.
MIL -7.0% after missing 4Q estimates and Robert Baird downgrade to Neutral.
MRK -9.85% after am appeals court invalidated the patent on a version of the company’s osteoporosis drug Fosamax and US regulators opened an informal probe into the Vioxx recall.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
-Advance 4Q GDP rose 3.1% versus estimates of a 3.5% gain and a 4.0% increase in 3Q.
-Advance 4Q Personal Consumption rose 4.6% versus estimates of a 4.3% gain and a 5.1% increase in 3Q.
-4Q Employment Cost Index rose .7% versus estimates of a .8% increase and a .9% gain in 3Q.

Recommendations
-Goldman Sachs: Reiterated Outperform on CL, SII, WYNN, ADP, TPX, BC, PXD, KSS, MSFT and MUR. Reiterated Underperform on EW, TRB and MKL. Cut KEA to Underperform.
-Citi Smith Barney: Upgraded LMT to Buy, target $66. Upgraded TSM to Buy, target $10.60. Said to Buy UNFI ahead of quarter. Reiterated Buy on UPS, target $90. Reiterated Buy on CSCO, target $30. Reiterated Buy on IRF, target $50. Reiterated Sell on SNDK, target $22. Reiterated Buy on MRO, target $45. Reiterated Buy on AMGN, target $90. Reiterated Buy on INTU, target $54. Reiterated Buy on BC, target $54. Reiterated Buy on DOW, target $60. Reiterated Sell on GNTX, target $30. Reiterated Buy on TXT, target $85. Reiterated Buy on WFR, target $15. Reiterated Buy on MSFT, target $31. Citi reiterated Buy on FDRY, target $14. Reiterated Buy on SEBL, target $12. Reiterated Buy on FSLB, target $22.50. Reiterated Buy on SANM, target $9.50.
-JP Morgan: Rated SOLD Overweight.
-CSFB: Rated SOLD Outperform, target $18. Rated POM Outperform, target $23. Rated BBG Outperform, target $36. Reiterated Outperform on YELL.
-Legg Mason: Raised SRZ to Buy, target $54.
-Bear Stearns: Raised IBM to Outperform.
-Merrill Lunch: Raised BXP to Buy, target $64. Raised PKI to Buy, target $26. Removed PG from Focus 1 List.
-Prudential: Raised DWA to Overweight, target $41.
-Morgan Stanley: Raised PG to Overweight, target $64.
-CIBC: Cut MEOH to Sector Underperform, target $17.50.

Mid-day News
US stocks are lower mid-day on worries over slowing growth and violence in Iraq ahead of elections. Chief executives are declining offers to sit on boards of public companies because they see such positions as “too risky” and time consuming, the Wall Street Journal reported. Icelandic clothing brand 66 Degrees North has found success in the US retail market, since its launch in September by a Connecticut woman with no background in fashion, the Wall Street Journal reported. The UN Security Council should not delay on forcing Iran to stop violating international agreements on nuclear safeguards, said Jackie Sanders, President Bush’s envoy for nuclear non-proliferation. US mosques contain books and pamphlets that call non-Muslims “infidels” and encourage intolerance against Western culture, the Wall Street Journal reported, citing a study by human rights group Freedom Watch. The NASD says arbitration awards to investors jumped 20% last year to a high of $194 million, the Wall Street Journal reported. US membership in unions fell in 2004 to its lowest point in more than 60 years, the NY Times reported. Four labor unions have filed suit to prevent the Bush administration from implementing new rules at the Dept. of Homeland Security that would give managers more power to promote and give raises based on employee performance, the NY Times reported. Cendant may sell its Wright Express Corp. unit for $1.2 billion instead of spinning off the auto-fleet charge-card business in an IPO, the NY Post said. Canada’s Bank of Montreal is considering spending as much as $1.6 billion on acquisitions in the US, the Globe and Mail reported. Logan Airport’s airfares dropped 11.6% in the third quarter of 2004 from a year earlier, and are lower than they were in 1995, the Boston Globe reported. NYSE CEO John Thain said the exchange may open trading at 8:30 am, Bloomberg reported. San Francisco-are planning officials predict modest job growth through next year as the region recovers from losses related to the bursting of the technology bubble in 2000, the Chronicle reported. Libya tomorrow will pick the winners in its first drilling rights auction in 40 years, part of a plan to attract $30 billion of investments to double oil production this decade, Bloomberg said. Lehman Brothers said investors should exit bets on a US dollar drop against the euro in advance of an expected increase in the Fed’s benchmark rate next week, Bloomberg said. The US will become the world’s largest wine market by 2008, overtaking France, Germany and Italy in terms of the amount of wine sold, Bloomberg reported. Shareholders of Molson voted in favor of a $3.4 billion merger with Adolph Coors after the companies sweetened the offer twice to thwart investor opposition to the deal, Bloomberg said. Unilever, the European consumer products maker that cut annual forecasts for the first time last year, will fall farther behind Procter & Gamble after the US company buys more profitable Gillette for $57 billion, Bloomberg said. Merck said today that the US SEC has started a formal probe into the company’s recall of its Vioxx painkiller, Bloomberg reported. Merck’s patent for a once-a-week version of the osteoporosis drug Fosamax was invalidated by a US appeals court, opening the door to generic competition beginning in 2008, Bloomberg said. Crude oil is falling on signs OPEC will postpone additional production cuts, Bloomberg said. US 10-year T-notes are rising the most in seven weeks after a government report showed GDP slowed and inflation rose less than expected, Bloomberg said.

Bottom Line: The Portfolio is unchanged mid-day as gains in my internet longs and oil service shorts are offsetting losses in my networking and retail longs. I have not traded today and the Portfolio remains 100% net long. The tone of the market is weaker today as most sectors are falling, the advance/decline line is poor and volume is decent. On the positive side, energy prices are falling ahead of the possibility of extreme violence in Iraq, long-term interest rates are dropping, the ARMS index is spiking and I-Banks and homebuilders are outperforming. I continue to believe the major indices will rally further next week on an end to the uncertainty over the elections in Iraq, falling energy prices, low long-term interest rates, the Fed rate hike and comments, good earnings reports, a stabilizing US dollar, merger activity and an optimistic State of the Union address. I expect US stocks to rise from current levels into the close as shorts that have had exceptional months begin to cover ahead of the numerous market-moving events next week.

Friday Watch

Late-Night News
Asian indices are mostly higher on China United Telecom, the nation's second-biggest mobile-phone company, won't be broken up, China Securities Journal reported. Procter & Gamble is close to buying Gillette in a $55 billion stock-swap, the Wall Street Journal reported. US Secretary of Defense Rumsfeld and his British counterpart, Geoff Hoon, agreed on a strategy for withdrawing forces from Iraq, the London-based Guardian newspaper said. Iraqi interim Prime Minister Ayad Allawi may gain the most support in the National Assembly election Jan. 30 because he appeals to all sides of the nation's religious and ethnic divisions, according to interviews with voters and the latest opinion poll, Bloomberg reported. Israel and the Palestinian Authority have improved conditions between them and may be able to reach a "historic breakthrough" in their relations, Israeli Prime Minister Sharon said. About half of the 25 most popular stocks with short sellers on the Nasdaq Stock Market may become harder to bet against today due to Regulation SHO, Bloomberg reported. China's retail sales may rise about 13% this year to more than $724 billion, the Economic Information Daily said. Crude oil prices may decline next week amid speculation supply won't be disrupted by insurgents during Iraq's elections on Jan. 30, according to a Bloomberg survey. The US opened a national-security probe of International Business Machine's planned sale of its personal-computer business to China's Lenovo Group Ltd. after the companies failed to win clearance during an initial review, Bloomberg reported.

Late Recommendations
Goldman Sachs: Reiterated Outperform on GILD, PG, PCO, CL, GNW, UPS, MCK, DHR, NUE, CAT, DTV and TRI. Reiterated Underperform on MRO.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.33%.

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

Earnings of Note
Company/Estimate
ADM/.39
BEC/.98
CVX/1.40
HAL/.48
HON/.49
ITT/1.25
MMC/.28
MYG/.17
MCD/.46
MYL/.18
OSIP/-.71
PSFT/.21
SII/.57
TDW/.32
TRB/.70

Splits
None of note.

Economic Data
-Advance 4Q GDP estimated to rise 3.5% versus a 4% gain in 3Q.
-Advance 4Q Personal Consumption estimated to rise 4.3% versus a 5.1% increase in 3Q.
-Advance 4Q GDP Price Deflator estimated to rise 2.1% versus a 1.4% increase in 3Q.
-Employment Cost Index for 4Q estimated to rise .8% versus a .9% gain in 3Q.

BOTTOM LINE: I expect US equities to open modestly higher in the morning as optimism over earnings reports, merger activity, stabilizing oil prices and good economic reports offsets apprehension ahead of the Iraqi elections. The Portfolio is 100% net long heading into tomorrow.

Thursday, January 27, 2005

Thursday Close

Indices
S&P 500 1,174.55 +.04%
Dow 10,467.40 -.30%
NASDAQ 2,047.15 +.05%
Russell 2000 616.90 +.05%
DJ Wilshire 5000 11,550.59 +.05%
S&P Barra Growth 565.40 +.11%
S&P Barra Value 604.86 -.03%
Morgan Stanley Consumer 582.96 +.05%
Morgan Stanley Cyclical 747.90 -.05%
Morgan Stanley Technology 470.03 +.50%
Transports 3,554.12 +.47%
Utilities 339.44 +.61%
Put/Call .84 +5.0%
NYSE Arms .92 -19.30%
Volatility(VIX) 13.24 -1.49%
ISE Sentiment 184.00 -8.91%
US Dollar 83.36 -.08%
CRB 285.50 -.79%

Futures Spot Prices
Crude Oil 48.50 -.59%
Unleaded Gasoline 135.19 unch.
Natural Gas 6.29 -.96%
Heating Oil 139.03 -.47%
Gold 428.40 unch.
Base Metals 121.07 +.02%
Copper 142.75 +.04%
10-year US Treasury Yield 4.20% unch.

Leading Sectors
Oil Service +1.18%
Defense +1.17%
HMOs +1.10%

Lagging Sectors
Boxmakers -.84%
Homebuilders -.86%
Telecom -1.31%

After-hours Movers
SNDK +16.6% after beating 4Q estimates.
OSTK -13.1% on profit-margin worries after beating 4Q estimates.
MSTR +17.60% after beating 4Q estimates.
MCK +7.1% after beating 3Q estimates and reiterating forecast.
WDC +7.4% after beating 2Q estimates.
RHI +9.8% after beating 4Q estimates.
XRTX +10.2% after boosting 1Q estimates substantially.
TPX +5.2% after beating 4Q estimates and raising 05 guidance.
GILD +5.1% after beating 4Q estimates.
IRF -4.1% after missing 2Q revenue estimate and lowering 3Q guidance.

Detailed Market Summary
Market Wrap CNBC Video(bottom right)
Futures Recap
NASDAQ 100 After-hours Indicator
Real-time/After-hours Stock Quote

Afternoon Recommendations
-Goldman Sachs: Reiterated Outperform on GILD, MSFT, PG and MO. Reiterated Underperform on DJ, JBLU and RAI.
-Prudential Equity: Downgraded DJ to Underweight, target $36.
-Business Week: Kroger(KR) shares may rise as much as 39% within the next year as the No.1 US grocery store chain begins to sell non-food items with higher profit margins. Shares of Biosite(BSTE), a diagnostics company whose tests are used in half of US hospitals, could rise about $70 in a year. Arrowhead Research’s(ARWR) shares may reach $6 in a year.

After-hours News
US stocks finished mixed today as gains in energy-related stocks were offset by losses in homebuilders and telecom shares. After the close, the European Union will suspend its 18-month-old sanctions against Cuba next week, following moves by Fidel Castro’s government to renew contacts with all EU countries earlier this month, Agence France-Presse reported. Chinese central bank adviser Yu Yongding said now is the time for the People’s Bank of China to revalue the yuan, Dow Jones reported. Counterfeiting of brand-name products accounts for 5% to 7% of the global merchandise trade, or lost sales of as much as $512 billion last year, Business Week reported. Ahmad Chalabi, a prominent candidate in the Iraqi elections, told Reuters the country should be divided into three self-governing regions, including a Shiite Arab south containing oil fields. Wal-Mart’s expansion into financial services is worrying banks that fear they may not be able to compete with the world’s largest retailer, Business Week reported. Defibrillators made by companies including Medtronic and Guidant will get health insurance coverage for a third more heart-failure patients in the Medicare program, US health officials said. Private accounts should be set up as an addition to Social Security rather than a partial replacement, said Senator Ben Nelson of Nebraska, a key Democrat considering revisions to the retirement system, Bloomberg reported. Tribune co. and three television networks tomorrow plant to appeal a court ruling that blocked media companies from acquiring more local TV stations and newspapers, Bloomberg reported. President Bush will ask Congress for $3.2 billion in AIDS-related funding in his fiscal 2006 budget recommendation, maintaining a commitment to a five-year outlay of $15 billion, Bloomberg reported. Microsoft said second-quarter profit doubled on lower stock-based compensation costs, sales of Windows for corporate networks and the Xbox video console, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slight lower today as losses in my Internet and homebuilding longs more than offset gains in my restaurant and networking longs. I exited a couple of telecom and homebuilding longs in the afternoon and added a few new technology and retail longs, thus leaving the Portfolio 100% net long. One of my new longs is URBN and I am keeping a $39.25 stop-loss on this position. The tone of the market improved modestly on the close and stocks are responding well after-hours to positive news. I continue to believe that a tradable rally has begun and will likely intensify next week. I will likely add market exposure tomorrow on any extreme weakness related to the GDP report or fears related to the Iraqi elections.

Mid-day Report

Indices
S&P 500 1,172.82 -.11%
Dow 10,448.78 -.48%
NASDAQ 2,042.89 -.16%
Russell 2000 617.43 +.12%
DJ Wilshire 5000 11,533.60 -.09%
S&P Barra Growth 563.87 -.17%
S&P Barra Value 604.37 -.12%
Morgan Stanley Consumer 581.58 -.18%
Morgan Stanley Cyclical 745.87 -.33%
Morgan Stanley Technology 468.22 +.15%
Transports 3,536.99 -.01%
Utilities 338.30 +.27%
Put/Call .83 +3.75%
NYSE Arms .91 -20.18%
Volatility(VIX) 13.20 -1.79%
ISE Sentiment 205.00 +1.49%
US Dollar 83.43 +.16%
CRB 286.13 -.57%

Futures Spot Prices
Crude Oil 49.05 +.55%
Unleaded Gasoline 135.60 -.24%
Natural Gas 6.43 +.74%
Heating Oil 140.00 -.24%
Gold 426.40 -.14%
Base Metals 121.07 +.02%
Copper 142.60 -.66%
10-year US Treasury Yield 4.21% +.37%

Leading Sectors
HMOs +.91%
Defense +.88%
Hospitals +.46%

Lagging Sectors
Software -.81%
Boxmakers -.84%
Telecom -1.24%

Market Movers
VRSN +12.81% on profit-taking after beating 4Q estimates, missing whisper and Citi SmithBarney downgrade to Hold.
TZOO -9.0% on continued profit-taking.
BSTE -5.0% after beating 4Q estimates and Wachovia downgrade to Market Perform.
LSTR -7.95% after beating 4Q estimates and lowering 1Q outlook.
SWIR -36.0% after missing 4Q estimates, lowering 1Q outlook and multiple downgrades.
ORCT +38.9% after beating 4Q estimates and raising 05 guidance substantially.
OXPS +21.5% on strong demand for IPO.
GCOR +22.97% after Danisco A/S, whose products are used in half the world’s ice cream, agreed to buy Eastman Chemical’s 42% stake in it for $419 million.
HRS +14.6% after meeting 2Q estimates and raising 05 guidance.
AFFX +12.99% after beating 4Q estimates and lowering 1Q guidance.
GRU +11.74% after the Wall Street Journal reported it has developed an Internet search service that directly answers questions instead of providing a list of Web sites.
WBSN +7.2% after beating 4Q estimates and raising 1Q guidance.
GMR +9.98% after saying it will pay a dividend based on most of its cash flow starting in the second quarter of this year and Morgan Stanley upgrade to Overweight.
DRIV +9.18% after beating 4Q estimates and raising 1Q/05 guidance.
CL +5.21% after beating 4Q estimates and JP Morgan upgrade to Overweight.
DLX +7.97% after beating 4Q estimates, raising 1Q guidance and boosting dividend.
CVD +8.48% after beating 4Q estimates and reiterating 05 guidance.
DRCT -32.0% after cutting 4Q outlook and multiple downgrades.
CCMP -8.84% after missing 1Q estimates.
PHTN -11.85% after missing 1Q estimates and lowering 2Q guidance substantially.
NAVR -11.38% on profit-taking after beating 3Q estimates.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
-Durable Goods Orders for December rose .6% versus estimates of a .7% increase and a 1.8% gain in November.
-Durable Goods Less Transportation for December rose 2.1% versus estimates of a 1.3% rise and a .9% fall in November.
-Initial Jobless Claims for last week rose to 325K versus estimates of 332K and 318K the prior week.
-Continuing Claims for last week were 2840K versus estimates of 2683K and 2698K prior.

Recommendations
-Goldman Sachs: Reiterated Outperform on X, UPS, NUE, CAT, BC, DTV, SBC, CVD, CL and AMGN. Reiterated Underperform on T, ABY, ANTO, APU, FSS, KMG, AMCC and LSI.
-C: Raised C to Outperform, target $55.
-JP Morgan: Raised CL to Overweight.
-UBS: Raised GLW to Buy, target $14.
-Citi SmithBarney: Downgraded EAT to Sell, target $36.
-CSFB: Raised ABY to Outperform, target $8.
-Merrill Lynch: Rated KOMG Buy, target $22. Cut SWIR to Sell.
-CIBC: Raised EBAY to Sector Outperform, target $105.

Mid-day News
US stocks are modestly lower mid-day on rising concerns ahead of this weekend’s election in Iraq. China’s state assets regulator said it will make an announcement on the telecom industry tomorrow, amid speculation that the agency is considering breaking up China United Telecom, the nation’s second-biggest mobile-phone company, Bloomberg reported. Government agencies and local governments around the world are using the availability of Linux-based open-source software to force Microsoft to cut its prices, the Wall Street Journal reported. Comcast and major television networks including CBS, ABC, NBC and Fox remain unable to reach an agreement over video-on-demand for some of the most popular television shows, the Wall Street Journal reported. The Palestinian Authority banned its citizens from carrying weapons in the area it controls, the AP reported. The City of Port Gibson, Mississippi urged Entergy Corp. to build a nuclear reactor nearby, in contrast to some other municipalities that are trying to shut down their neighboring nuclear plants, the NY Times reported. Federal Reserve Governor Gramlich, a liberal Democrat who headed a Social Security advisory commission during the Clinton administration, says the US retirement system should be fixed now, before the need to do so becomes urgent, the Wall Street Journal reported. Computer Associates International CEO-elect Swainson expects the software industry to further consolidate after the combination of Oracle and PeopleSoft, CNBC reported. OAO Yukos Oil won’t export crude in February because it can’t pay export duties after its accounts were frozen, Bloomberg reported. US durable goods orders rose in December, helping produce the biggest annual increase in a decade for makers of appliances, autos and other long-lasting items, Bloomberg reported. Israel agreed “in principle” to withdraw from West Bank cities and give Palestinians policing authority over those areas, Reuters reported.

Bottom Line: The Portfolio is slightly lower mid-day on losses in my internet and homebuilding longs. I have not traded today, thus the Portfolio remains 100% net long. The tone of the market is not that bad today considering losses in the major indices. A number of sectors are higher, small-caps and tech are mostly unchanged and the advance/decline line is mildly negative. It is also a positive that oil is unable to penetrate the 50$/bbl. level ahead of the possibility of extreme violence in Iraq, further OPEC production cuts and continuing problems at OAO Yukos. As well, the AAII% Bulls fell 21.48% this week to 26.43%. This is the lowest level since the market began an exceptional run higher in February of 2003. I will look to add market exposure tomorrow on any further weakness related to rising apprehension ahead of the weekend. I expect US stocks to rise modestly from current levels into the close on short-covering, stable energy prices and optimism over earnings.

Thursday Watch

Late-Night News
Asian indices are mostly higher on gains in transportation and financial stocks in the region. As many as 25 European companies may be ready to leave the US stock exchanges due to the costs of complying with the Sarbanes-Oxley regulations, the London-based Times said. The Shanghai branch of China's central bank asked lenders to be more vigilant about loans after new mortgages increased by $12 billion in the city last year, the Oriental Morning Post reported. European subsidies for aircraft development must be ended to prevent conflict in the World Trade Organization, the Financial Times reported, citing Boeing Senior VP for Intl. Relations Pickering. Russia forgave Syria almost three quarters of its $9.8 billion debt as the former Soviet state seeks to revive its influence in the Middle East, Lebanon's Daily Star reported. Huawei Technologies, China's largest phone-equipment maker, won the contract to build a CDMA mobile network in Thailand, beating rivals Motorola and Ericsson, China Daily reported. GE, IBM and other companies are teaming up to sponsor a range of low-cost health insurance plans, the NY Times reported. Energy Transfer Partners LP, which owns more than 7,000 miles of natural-gas pipelines in the US, purchased pipelines and other assets in Texas formerly owned by Enron Corp. for about $1 billion, Bloomberg reported. A Saudi charity that has collected more than $100 million for Palestinians made payments to the relatives of suicide bombers through Arab Bank Plc, which has a branch on New York's Madison Avenue, according to a lawsuit. Copper prices may fall more than 7% in 2005 according to a recent Bloomberg survey of 22 analysts, the first annual drop in four years, as mining companies including Phelps Dodge boost production. SBC Communications is in discussions to acquire AT&T Corp. for more than $16 billion, the NY Times reported. US Fed officials will discuss next week whether they should set an explicit numerical target for inflation and, if so, what that should be, the Wall Street Journal said.

Late Recommendations
Goldman Sachs reiterated Outperform on AHC, MO, FSL, SBC, CVD, X and Underperform on MKL, RNWK.

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated unch.

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

Earnings of Note
Company/Estimate
AMGN/.61
ANDW/.09
APA/1.58
BAX/.56
BZH/4.36
BMY/.33
BRCM/.22
CAT/1.63
CL/.59
DOW/.71
EL/.57
GDT/.66
ITW/1.20
LMT/.74
MCK/.45
MSFT/.33
NE/.36
NVLS/.24
NUE/1.99
OSTK/.08
PD/3.53
PMCS/.01
RBK/.52
SNDK/.27
SEBL/.08
UPS/.76
VRTS/.25
VZ/.64
YELL/1.22

Splits
None of note.

Economic Data
-Durable Good Orders for December estimated to rise .7% versus a 1.4% increase in November.
-Durable Goods Less Transportation for December estimated to rise 1.3% versus a 1.4% fall in November.
-Initial Jobless Claims for last week are estimated to rise to 332K versus 319K the prior week.
-Continuing Claims are estimated to fall to 2683K versus 2694K prior.
-Help Wanted Index for December is estimated to rise to 37 versus 36 in November.

BOTTOM LINE: I expect US equities to open modestly higher in the morning on optimism over earnings reports, merger activity and good economic reports. The Portfolio is 100% net long heading into tomorrow.

Wednesday, January 26, 2005

Wednesday Close

Indices
S&P 500 1,174.07 +.48%
Dow 10,498.59 +.35%
NASDAQ 2,046.09 +1.29%
Russell 2000 616.57 +1.66%
DJ Wilshire 5000 11,544.35 +.61%
S&P Barra Growth 564.78 +.35%
S&P Barra Value 605.03 +.62%
Morgan Stanley Consumer 582.64 -.01%
Morgan Stanley Cyclical 748.27 +.36%
Morgan Stanley Technology 467.70 +1.94%
Transports 3,537.40 +.20%
Utilities 337.39 +1.69%
Put/Call .80 unch.
NYSE Arms 1.14 +35.71%
Volatility(VIX) 13.44 -4.41%
ISE Sentiment 202.00 +57.81%
US Dollar 83.30 -.82%
CRB 287.77 +.44%

Futures Spot Prices
Crude Oil 49.06 +.57%
Unleaded Gasoline 136.25 +.24%
Natural Gas 6.41 +.34%
Heating Oil 140.96 +.45%
Gold 426.70 -.05%
Base Metals 121.04 +1.30%
Copper 143.50 -.03%
10-year US Treasury Yield 4.19% +.09%

Leading Sectors
Semis +2.61%
Software +2.30%
Biotech +2.17%

Lagging Sectors
Foods +.04%
Restaurants -.03%
Boxmakers -.84%

After-hours Movers
SWIR -30.4% after missing 4Q estimates and lowering 1Q outlook.
VRSN -11.30% on profit-taking after beating 4Q estimates.
PHTN -13.66% after missing 1Q estimates and lowering 2Q guidance substantially.
OPEN -7.47% after announcing it intends to commence an offering of senior subordinated convertible notes.
NAVR -8.8% on profit-taking after beating 3Q estimates.
JDSU -6.94% after missing 2Q estimates and lowering 3Q outlook substantially.
GNSS -5.87% after missing 3Q revenue estimate and lowering 4Q guidance range.
NETL +20.37% on strong 4Q results.
DRIV +8.49% after beating 4Q estimates and raising 1Q/05 guidance.
SWFT +5.57% after substantially beating 4Q estimates.
RBAK +7.52% after beating 4Q estimates.
PSSI +4.59% after beating 3Q estimates and raising 05 guidance.
GMR +4.77% after saying it will pay a dividend based on most of its cash flow starting in the second quarter of this year.

Detailed Market Summary
Market Wrap CNBC Video(bottom right)
Futures Recap
NASDAQ 100 After-hours Indicator
Real-time/After-hours Stock Quote

Afternoon Recommendations
Goldman Sachs reiterated Outperform on N, GCI, COH, IBM and GILD. Goldman reiterated Underperform on AKS, ABY and NFB.

After-hours News
US stocks finished higher today, led by gains in technology and small-cap shares. China’s first priority is to broaden the exchange rate for its currency from the US dollar to a more flexible basket of currencies, said Fan Gang, director of the National Economic Research Institute in Beijing. The European Union may offer to train as many as 800 high-level civilian personnel, including administrators and judges, to build up Iraq’s institutions, the Financial Times reported. Crude oil fell for the first day in four after a government report showed an unexpectedly large rise in US inventories last week and OPEC’s president signaled that the group wouldn’t cut production, Bloomberg reported. Starbucks said first-quarter earnings rose 31% after it raised prices and added sandwiches and flavored coffees, Bloomberg reported.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my internet longs offset losses in my software shorts. I added a few new longs in the afternoon, thus leaving the Portfolio 100% net long. One of my new longs is FFIV and I am using a $47 stop-loss on this position. The tone of the market improved throughout the afternoon as tech and small-caps outperformed, the advance/decline line finished at its highs, almost all sectors participated, good news was rewarded and volume increased. While stocks may consolidate a bit on rising apprehension ahead of the weekend, I anticipate further gains next week on a relatively successful Iraqi election and increasing optimism over President’s Bush’s ability to pass meaningful reforms.

Mid-day Report

Indices
S&P 500 1,172.75 +.37%
Dow 10,497.18 +.34%
NASDAQ 2,034.01 +.70%
Russell 2000 610.31 +.63%
DJ Wilshire 5000 11,516.65 +.37%
S&P Barra Growth 564.96 +.38%
S&P Barra Value 603.87 +.43%
Morgan Stanley Consumer 582.99 +.05%
Morgan Stanley Cyclical 745.03 -.05%
Morgan Stanley Technology 465.25 +1.40%
Transports 3,524.67 -.15%
Utilities 336.20 +1.33%
Put/Call .87 +8.75%
NYSE Arms 1.16 +38.10%
Volatility(VIX) 13.45 -4.34%
ISE Sentiment 204.00 +59.38%
US Dollar 83.13 -1.02%
CRB 288.03 +.52%

Futures Spot Prices
Crude Oil 49.00 -1.19%
Unleaded Gasoline 135.35 +.67%
Natural Gas 6.42 +.27%
Heating Oil 141.80 -.34%
Gold 427.20 +1.21%
Base Metals 121.04 +1.30%
Copper 143.50 +.42%
10-year US Treasury Yield 4.17% -.33%

Leading Sectors
Semis +1.77%
Software +1.75%
Biotech +1.58%

Lagging Sectors
Iron/Steel -.17%
Oil Service -.67%
Boxmakers -.84%

Market Movers
FLEX +9.2% after beating 3Q estimates, raising 4Q/05 guidance and Southwest Securities upgrade to Long-Term Buy.
TXN +5.2% after beating 4Q estimates, raising 1Q guidance and raising stock buyback by $2B.
MHR +10.6% after Cimarex Energy said it agreed to acquire it for $1.5 billion in stock.
CPWR +20.8% after substantially beating 3Q estimates.
GFIG +20.7% on strong demand for IPO.
SGTL +16.1% after reporting strong 4Q results and giving positive 1Q guidance.
INSP +19.53% after beating 4Q estimates and raising 1Q/05 guidance.
PLB +19.33% after beating 1Q estimates and raising 05 guidance.
TSAI +17.18% after beating 1Q estimates and raising 05 forecast.
HOLX +17.53% after beating 1Q estimates.
SSNC +10.83% after beating 4Q estimates and raising 1Q/05 guidance.
IFIN +8.15% after beating 4Q estimates, making positive comments on 05 and raising dividend.
APPB +8.74% after better-than-expected January same-store-sales and Morgan Keegan upgrade to Outperform.
XEC -11.1% on MHR acquisition.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon

Economic Data
None of note.

Recommendations
-Goldman Sachs: Reiterated Outperform on SYK, MO, HEP, AIG, ALL, ENH, RE, BBBY, ACS, BE and SBC. Reiterated Underperform on ASH, UIS and INFA. Upgraded GNW to Outperform.
-CIBC: Downgraded IDR to Sector Underperform, target $21.
-JP Morgan: Cut FBN, LEXR to Underweight.
-Morgan Stanley: Cut PPP to Underweight.
-UBS: Raised THE to Buy, target $25.50.
-Bear Stearns: Rated GE Outperform, target $40.
-Merrill Lynch: Named DNA Focus 1 stock of the week. Raised EMC to Buy, target $15.50. Rated XRTX Buy, target $20.
-Prudential: Downgraded PPP to Underweight. Rated MCHP Overweight, target $29.
-CSFB: Raised COT to Outperform, target $31.
-Raymond James: Raised EAT to Strong Buy, target $46.50.

Mid-day News
US stocks are higher mid-day on strength in technology shares as a result of positive earnings reports. Insiders at Commercial Metals, a steelmaker and recycler, sold almost $28 million worth of stock since mid-December, the Wall Street Journal said. Research in Motion has seen its subscribers double in the past year, to more than two million, and some observers say the best times might still lie ahead, the Wall Street Journal reported. Wholesale electricity prices in some US Eastern states have dropped since four big Midwestern utilities joined a regional power market, the Wall Street Journal reported. Delta Air Lines’ move to cut fares has spread to business fares, lowering them by a third, even on routes that Delta doesn’t directly compete with other airlines, the Wall Street Journal reported. Bacardi will begin selling in April a flavored rum that it says has half the calories of regular rum or vodka, the NY Times reported. Real estate investment trust executives such as Vornado Realty Trust’s Roth are selling more shares as many stocks have reached or neared 52-week highs in the past three months, the Wall Street Journal reported. XM Satellite Radio and Sirius Satellite Radio are holding talks over a possible merger, the NY Post reported. IBM, Intel and six other companies agreed to back the use of a single technology standard to create a national health information network, the NY Times reported. NY Senator Clinton is taking centrist positions on issues such as religion and abortion, in what Republicans see as an effort to moderate her liberal image ahead of a possible presidential campaign in 2008, the Washington Times reported. Tyco International CEO Breen expects to make acquisitions toward the end of this year and double research and development for the company’s health-care unit, CNBC reported. Janus Capital Group plans to link the pay of its portfolio managers and other executives to the performance of the company’s mutual funds, the Rocky Mountain New reported. The Fed will stop raising its target interest rate between 2.5% and 3% to avoid slowing the economy, said Paul McCulley of PIMCO. Google added a Firefox Web browser programmer to its staff, raising speculation that the search-engine company may be building a browser to rival Internet Explorer, the LA Times reported. Oracle said profit will rise more than analysts expected next fiscal hear, helped by its $10.3 billion purchase of PeopleSoft, Bloomberg reported. The US Senate confirmed President Bush’s choice of Condoleezza Rice as secretary of state, Bloomberg said. A helicopter crash in western Iraq possibly caused by adverse weather killed 31 Marines, in the single deadliest incident suffered by the US military since the 2003 liberation of Iraq, Bloomberg reported.

Bottom Line: The Portfolio is slightly lower mid-day on losses in my software and semiconductor shorts. I exited a few shorts as they hit stop-losses and added a few new longs this morning, bringing the Portfolio to 75% net long. The tone of the market is better today and improving. The fact that oil is falling ahead of the possibility of extreme violence in Iraq is also a positive. It appears as though the tradable rally in the major indices has begun, barring an unforeseen catastrophic event in Iraq over the weekend. I expect US stocks to trade modestly higher into the close on short-covering, falling energy prices and optimism over earnings.

Wednesday Watch

Late-Night News
Asian indices are higher as the stocks of exporters gain in the region. Fantom Co.'s golf balls, equipped with radio transmitters for tracking, perform on par with products from Nike Inc. and rivals, Silicon Strategies reported. Taiwan's new premier won't push for controversial proposals, such as dropping references to China in the island's official name, China Times reported. Comcast Corp. and Time Warner Inc. may make a joint bid for Adelphia Communications Corp.'s cable assets after ruling out separate bids for other parts of the company, the Financial Times said. A new US tax law that encourages companies to repatriate profits from abroad has helped to send the US dollar to a two-month high against the euro, the Wall Street Journal reported. In a recent survey, PricewaterhouseCoopers LLP found that 91% of 1,391 CEOs around the globe were "very" or "somewhat" confident about the next 12 months. Pricewaterhouse called the figure "astonishing." Global economic growth will probably reach 4.2% this year following a 5% increase in 2004, which was the best since 1976, Bloomberg reported. McDonald's Corp. must face a suit by New York teenagers who claim the company hid the health risks of Chicken McNuggets and other foods and made them obese, an appeals court ruled. Merrill Lynch will soon agree to set up a venture with Huaan Securities, a representative from the Chinese brokerage said. Rambus Inc. filed a patent infringement lawsuit against Hynix Semiconductor, Infineon Technologies AG and two other companies, Bloomberg said. SAP AG forecast license revenue will increase 10-12% this year as it wins more business in the US and focuses on taking customers from Oracle Corp., Bloomberg reported. Indonesia's National Information Agency said the number of dead and missing from the Dec. 26 earthquake and tsunami increased to 229,593, Bloomberg reported. SK Telecom of South Korea will form a $400 million joint venture with Earthlink to offer mobile phone services in the US, the NY Times reported.

Late Recommendations
Goldman Sachs reiterated Outperform on SYK, ZION, DD, BLS, SLB, XRX and Underperform on CR, SLG, TLAB, PBG, AAII.

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated +.17%.
NASDAQ 100 indicated +.33%.

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

Earnings of Note
Company/Estimate
MO/1.06
BDK/1.57
CHIR/.10
COP/3.07
DBD/.89
DRIV/.35
ET/.22
LLY/.73
EK/.65
GCI/1.47
GD/1.63
HSY/.66
IMCL/.38
JDSU/-.01
SBC/.33
SIRI/-.16
SBUX/.34
VRSN/.20
WBSN/.31

Splits
CPO 2-for-1

Economic Data
None of note.

BOTTOM LINE: I expect US equities to open modestly higher in the morning on optimism over earnings reports and gains in Asia. I will closely monitor the quality of any rally before increasing market exposure. I still believe it is likely weakness will resurface ahead of the weekend. The Portfolio is market neutral heading into tomorrow.

Tuesday, January 25, 2005

Tuesday Close

Indices
S&P 500 1,168.41 +.40%
Dow 10,461.56 +.90%
NASDAQ 2,019.95 +.56%
Russell 2000 606.50 +.33%
DJ Wilshire 5000 11,474.14+.33%
S&P Barra Growth 562.80 +.66%
S&P Barra Value 601.31 +.15%
Morgan Stanley Consumer 582.71 +.71%
Morgan Stanley Cyclical 745.59 +.84%
Morgan Stanley Technology 458.82 +.55%
Transports 3,530.25 +2.18%
Utilities 331.79 -.77%
Put/Call .80 +9.59%
NYSE Arms .84 -33.86%
Volatility(VIX) 14.06 -4.03%
ISE Sentiment 128.00 -14.09%
US Dollar 83.99 +.90%
CRB 286.52 +.22%

Futures Spot Prices
Crude Oil 49.53 -.22%
Unleaded Gasoline 134.00 -.33%
Natural Gas 6.38 -.28%
Heating Oil 142.50 +.01%
Gold 421.90 -.05%
Base Metals 119.49 -1.21%
Copper 142.75 -.10%
10-year US Treasury Yield 4.19% +1.75%

Leading Sectors
Airlines +4.63%
Semis +1.78%
Drugs +1.15%

Lagging Sectors
Utilities -.77%
Boxmakers -.84%
Telecom -1.09%

After-hours Movers
INSP +17.0% after beating 4Q estimates and raising 1Q/05 guidance.
SGTL +13.5% after reporting strong 4Q results and giving positive 1Q guidance.
STK +9.94% after beating 4Q estimates.
CPWR +14.99% after substantially beating 3Q estimates.
ERTS +4.8% after beating 3Q estimates, reiterating 05 guidance and buying 19.9% of Ubisoft Entertainment.
CSGS +4.34% after beating 4Q estimates and raising 1Q outlook.
FLEX +4.5% after beating 3Q estimates and raising 4Q/05 guidance.
CYMI +6.18% after substantially beating 4Q estimates and giving positive 1Q outlook.
SNDK -5.78% after LEXR lowered guidance.
FLSH -5.02% on LEXR news.

Detailed Market Summary
Market Wrap CNBC Video(bottom right)
Futures Recap
NASDAQ 100 After-hours Indicator
Real-time/After-hours Stock Quote

Afternoon Recommendations
Goldman Sachs reiterated Outperform on EBAY, YHOO and GOOG.

After-hours News
US stocks finished higher today, spurred by positive consumer confidence and earnings reports. After the close, France should not introduce US-style class action lawsuits as they could harm its economy further and transfer money from good companies to lawyers, the Financial Times reported, citing US Chamber of Commerce President Thomas Donohue. Matthew Rose, CEO of Burlington Northern Santa Fe Corp., said he expects increased trade with Asia to drive growth at the second-biggest US railroad, CNBC reported. The US and UK will begin transferring control of large parts of Iraq to the nation’s security forces after the Jan. 30 national elections, the Financial Times reported, citing Tony Blair. Democrats in the US Senate lined up today to criticize President Bush’s national security adviser, Condoleezza Rice, ahead of the Republican-led body’s expected confirmation of her tomorrow as secretary of state, Bloomberg reported. The US FBI said today that a reported terrorist threat to Boston has “no credibility,” and it canceled its request for help from the public, Bloomberg said. China and Russia rejected a new US bid to impose UN sanctions on Sudan for failing to end assaults on villagers in Darfur, Bloomberg reported. Royal Dutch/Shell Group cut oil production in Nigeria by 35,000 barrels a day after protesters blocked access to two pumping stations in Abia state, Agence France-Presse reported. NY City fire officials said an arsonist caused a subway blaze Jan. 23 that shut down service on one line and crippled another, causing damage that transit systems managers said could take five years to fix, Bloomberg reported. China will assess first-quarter reports before deciding whether to rein in its accelerating economy with tougher investment curbs or higher interest rates, Bloomberg reported.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my software shorts were offset by losses in my oil service shorts. I did not trade in the afternoon, thus leaving the Portfolio market neutral. The tone of the market weakened throughout the day as the advance/decline line fell, finishing near its daily lows. Volume was lighter, measures of investor anxiety were mixed and a number of sectors declined. Today’s action leads me to believe a sustainable rally has not yet begun.

Mid-day Report

Indices
S&P 500 1,174.14 +.89%
Dow 10,509.00 +1.35%
NASDAQ 2,031.31 +1.13%
Russell 2000 608.29 +.62%
DJ Wilshire 5000 11,524.81 +.77%
S&P Barra Growth 565.48 +1.14%
S&P Barra Value 604.20 +.63%
Morgan Stanley Consumer 584.73 +1.05%
Morgan Stanley Cyclical 750.38+1.49%
Morgan Stanley Technology 461.85 +1.22%
Transports 3,547.03 +2.67%
Utilities 334.15 -.07%
Put/Call .80 +9.59%
NYSE Arms .74 -41.73%
Volatility(VIX) 13.96 -4.71%
ISE Sentiment 151.00 +1.34%
US Dollar 84.00 +.90%
CRB 285.34 -.19%

Futures Spot Prices
Crude Oil 48.80 -.02%
Unleaded Gasoline 132.00 +1.62%
Natural Gas 6.32 -2.41%
Heating Oil 140.65 +.24%
Gold 421.70 -1.26%
Base Metals 119.49 -1.21%
Copper 142.90 -.07%
10-year US Treasury Yield 4.19% +1.75%

Leading Sectors
Airlines +5.66%
Iron/Steel +2.09%
Semis +2.0%

Lagging Sectors
Foods -.29%
Telecom -.29%
Boxmakers -.84%

Market Movers
BEV +24.5% after saying that a group representing 8.1% of shares outstanding is interested in buying it for about $1.41 billion.
SIMG -24.04% after missing 4Q estimates and announcing the resignation of CEO Laub after less than 3 months on the job.
SLAB +15.6% after beating 4Q estimates, raising 1Q guidance and multiple upgrades.
ENR +14.53% after substantially beating 1Q estimates.
OSK +13.7% after substantially beating 1Q estimates and raising 05 outlook.
TZOO +8.58% on bounce from recent sell-off.
AVY +6.31% after beating 4Q estimates and raising guidance range for 1Q/05.
CRDN +10.7% on strong 4Q results.
X +5.93% after substantially beating 4Q estimates, making positive comments on 05 outlook and Bear Stearns upgrade to Outperform.
BNI +4.9% after beating 4Q estimates and raising 1Q guidance.
IMN +6.42% after meeting 4Q estimates and raising 05 guidance.
SNDA +6.29% on bounce from recent sell-off and strong Chinese GDP report.
FILE -11.5% after missing 4Q estimates and Friedman, Billings downgrade to Market Perform.
CAI -11.3% after meeting 2Q estimates, but lowering 3Q/4Q outlook and Jeffries downgrade to Hold.
SLE -7.01% after meeting 2Q estimates and lowering 3Q guidance.
PLMO -5.94% after saying CEO Bradley will resign.
MON -5.19% on Lehman Brothers downgrade to Underweight.
JDAS +8.91% after substantially beating 4Q estimates.
NFLX +8.5% after beating 4Q estimates and raising 1Q outlook.

Market Internals
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon
Market Pulse Video(bottom right)

Economic Data
Consumer Confidence for January rose to 103.4 versus estimates of 101.0 and 102.7 in December.
Existing Home Sales for December fell to 6.69M versus estimates of 6.80M and 6.92M in November.

Recommendations
-Goldman Sachs: Reiterated Outperform on X, MO, TRI, HMA, BLS, EMC and SLB. Reiterated Underperform on SGP, PBG, AKS and UIS.
-Citi SmithBarney: Raised YHOO to Buy, target $43 Raised MERQ to Buy, target $54.
-CSFB: Rated KMA Outperform, target $13. Rated IBI Outperform, target $21. Raised PPC to Outperform, target $30.
-JP Morgan: Raised VRNT to Overweight. Cut POT to Underweight.
-Morgan Stanley: Raised DRQ to Overweight, target $40. Raised ETN to Overweight, target $75. Rated AEA Underweight, target $17. Rated BXC Overweight, target $16.
-UBS: Raised RIMM to Buy, target $95.
-Legg Mason: Rated TJX Buy, target $32. Rated JOSB Buy, target $36. Rated MW Buy, target $40. Rated URBN Buy, target $50. Rated GPS Buy, target $26. Rated AEOS Buy, target $60. Raised PNFP to Buy, target $26.
-Thomas Weisel: Raised OPWV to Outperform.
-Banc of America: Rated SE Buy, target $28.
-Bear Stearns: Raised X to Outperform, target $63.
-Merrill Lynch: Rated IACI Buy, target $31. Rated HLF Buy, target $20.
-Prudential: Raised SAFC to Overweight, target $53.

Mid-day News
US stocks are sharply higher mid-day on better-than-expected economic data and earnings reports. US shopping mall vacancies declined to the lowest level in three-and-a-half years as retailers added space, the Wall Street Journal reported. Gillette has begun an aggressive campaign to advise consumers that “super heavy duty” AA batteries go dead faster than more expensive alkaline batteries, the Wall Street Journal reported. The US Congress is closer to passage of a bill limiting the growth of class-action lawsuits, which would shift many suits to federal courts and remove a legal tactic, the Wall Street Journal reported. The Social Security system is being strained by earlier retirements and longer life spans, USA Today reported. The Cleveland Clinic Foundation wants to revise rules governing how its scientist and physicians work with device makers and drugmakers, to ease conflicts of interest, the NY Times reported. OAO Yukos Oil stopped shipping crude abroad through pipelines starting Jan. 1 as the company struggled to maintain supplies to its refineries, Bloomberg said. Iraq’s Jan. 30 vote is the first step toward the gradual departure of coalition forces, interim Iraqi Prime Minister Allawi said. General Motors bonds may extend their rally after Lehman Brothers Holdings added a third ratings company to its calculation of creditworthiness, Bloomberg said. The National Association of Securities Dealers plans to sell $137.7 million of Nasdaq Stock Market shares, cutting its stake in the largest market place for exchange-listed companies by about a third, Bloomberg reported. Nickel, the best performer on the London Metal Exchange since 2003, may record its first annual drop in four years as buyers such as Wal-Mart and Ikea use cheaper alternatives in products ranging from coffee tables to desks and mirrors, Bloomberg reported. The US budget deficit will narrow to $368 billion this year from $412 billion last year, the US Congressional Budget Office said. Michael Leavitt won the endorsement of the US Senate Finance Committee as secretary of Health and Human Services on a voice vote, Bloomberg reported. The German government lowered its forecast for 05 economic growth for the third time in nine months, Bloomberg said. Goldman Sachs and Morgan Stanley agreed to an $80 million settlement with regulators over claims the firms improperly induced investors to buy shares of IPOs in 1999 and 2000, Bloomberg reported. US sales of previously owned houses fell 3.3% in December as the supply dropped to a record low. Sales for all of 2004 reached an all-time high, Bloomberg reported. US consumer confidence unexpectedly rose in January to a six-month high after the economy added more jobs and incomes grew, raising the odds that spending will spur the economy, Bloomberg said. US Treasury notes are falling, ending the longest rally for the 10-year security since August, after the Conference Board’s consumer sentiment index for January unexpectedly rose, Bloomberg said. The US Dollar is gaining against the euro and rose the most in three weeks versus the yen after the consumer confidence index climbed to the highest in six months, Bloomberg said.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my oil service and software shorts. I have not traded and the Portfolio remains market neutral. The tone of the market is better today. The fact that consumer confidence rose in the face of higher gas prices, increased violence in Iraq, domestic terrorism worries and falling stock prices is a big positive. The decline in the supply of houses for re-sale to an all-time low is also a positive for that sector and the economy. I would use any weakness in the homebuilding stocks related to a temporary spike in interest rates to accumulate shares. On the negative side, today’s rally is not very broad-based and volume is lighter than I would like. As well, measures of investor anxiety are mostly lower again. I expect US stocks to trade mixed-to-weaker into the close on rising energy prices and interest rates.