Monday Close

S&P 500 1,178.57 -.34%
NASDAQ 2,106.87 +.23%

Leading Sectors
Boxmakers +1.57%
HMOs +.84%
Wireless +.62%

Lagging Sectors
Oil Service -.98%
Retail -1.36%
Homebuilders -2.76%

Other
Crude Oil 49.65 -.22%
Natural Gas 7.84 unch.
Gold 455.40 -.09%
Base Metals 120.77 +.21%
U.S. Dollar 81.96 +.04%
10-Yr. T-note Yield 4.32% unch.
VIX 13.30 +3.99%
Put/Call .75 +8.70%
NYSE Arms 1.03 +15.73%

After-hours Movers
STGS +5.1% after saying it will be added to the S&P Small-cap 600 Index.
HOTT -8.3% after lowering 4Q estimates on disappointing November sales.

Recommendations
Goldman Sachs reiterated Outperform on DNA and ACN.

After-hours News
U.S. stocks finished mixed today as rising interest rates offset optimism over economic growth. After the close, Europe's population is expected to decline by 96 million between 2000 and 2050 despite projected immigration of 600,000 a year during the same period, the Financial Times said. The Arctic Ocean may have significant deposits of oil and gas in a ridge buried near the North Pole, the NY Times reported. Beijing city officials canceled a $3.5 million software order to Microsoft, bowing to complaints from domestic rivals, the Financial Times said. Perry Corp., an investment advisory firm, said it owns 26.6 million Mylan Labs shares and supports the company's acquisition of King Pharmaceuticals that billionaire financier Carl Icahn has tried to block, Bloomberg reported. Halliburton said a bankruptcy judge approved a $1.5 billion settlement of asbestos claims between two of its subsidiaries and insurers, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Chinese ADR, retail and telecom equipment longs more than offset gains in my security, internet and Indian ADR longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The market improved modestly into the afternoon as most stocks rose and technology outperformed. I continue to expect another rally in the near-term on better-than-expected economic reports, a rally in the dollar and lower energy prices.

Mid-day Report

S&P 500 1,178.23 -.37%
NASDAQ 2,103.23 +.07%

Leading Sectors
Boxmakers +1.50%
HMOs +.69%
Wireless +.51%

Lagging Sectors
Retail -1.13%
Oil Service -1.42%
Homebuilders -2.71%

Other
Crude Oil 49.80 +.73%
Natural Gas 7.92 -8.32%
Gold 455.90 +.97%
Base Metals 120.77 +.21%
U.S. Dollar 81.84 +.07%
10-Yr. T-note Yield 4.33% +1.93%
VIX 13.35 +4.38%
Put/Call .73 +5.80%
NYSE Arms .99 +11.24%

Market Movers
AAPL +4.88% after UBS/Merrill raised estimates and target on strong weekend sales.
WMT -3.5% after lowering November sales estimates.
CAAS +102.5% after being selected to supply pumps to two companies, including General Motor's joint venture in China.
KCI +5.6% after Merrill added it to Focus List saying profit may rise 25% next year and 28% in 2006 as the maker of therapeutic beds benefits from its devices to treat wounds.
NGPS +12.5% on no news.
INFY +4.5% on no news.
OSTK +4.2% after saying traffic to its web site increased 31% y-o-y over the holiday weekend and Legg Mason reiterated Buy, target $78.
IPAR +12.5% after increasing 05 outlook.
PARL +12.3% on IPAR news.
GLNG -13.5% on disappointing 3Q report.
KMRT -4.4% on WMT news.
PHM -3.8% on higher interest rates.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Outperform on TPX, UNH and AVP. Goldman reiterated Underperform on TWMC.
-Citi SmithBarney said RSH will show the biggest upside surprise when comp store sales are reported early next month. Citi also raised comp estimates at AEOS, PLCE and lowered them at HOTT. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on FON, target $27. Citi reiterated Buy on AMT, target $22.00. Citi reiterated Buy on SSI, target $70. Citi reiterated Buy on ALK, target $36. Citi cut MET to Sell, target $38. Citi cut TMK to Sell, target $55.
-JP Morgan cut EP to Underweight.
-Merrill reiterated Buy on AAPL, raised target to $78.
-UBS reiterated Buy on AAPL, raised target to $77. UBS downgraded BNN to Reduce, target $34.
-Prudential cut ROH to Underweight, target $42. Pru cut DD to Underweight, target $47. Pru raised BEN to Overweight, target $75. Pru raised AMG to Overweight, target $72.
-Bear Stearns rated THO Outperform, target $25.

Mid-day News
U.S. stocks are mixed mid-day as rising interest rates and profit-taking is offsetting optimism over economic growth. Many U.S. hospitals are shying away from letting doctors deliver babies vaginally if the woman has previously had a Caesarean section, partly because of fears of lawsuits if there are complications, the NY Times reported. U.S. teenagers, indulging more than ever in luxury goods, are now paying adult prices for their clothes as designer labels becoming increasingly important to them, the Washington Post reported. Liquid crystal display flat-panel tv sets will drop in price by as much as 30% starting next year, the NY Times reported. An English-language tv network specifically geared toward Muslims will begin broadcasting in North America tomorrow, the NY Times said. McDonald's, Dunkin' Donuts and other fast-food restaurant chains plan to offer so-called stored-value gift cards this holiday season to capitalize on their success with other retailers, USA Today reported. Amazon.com is focusing on routing customers to third-party Web sites to buy products rather than selling items itself, the LA Times reported. Moscow's arbitration court will hear an appeal from OAO Yukos Oil on Dec. 3 against the government's decision to sell Yuko's main oil-producing unit, Interfax reported. General-merchandise and apparel sales will increase 4% to 6% this holiday season, Diane Swonk, chief economist at Mesirow Financial, told CNBC. Saudi Arabia plans to expand output capacity by 14% to ease concern of potential shortages, said the nation's oil minister. The UN nuclear watchdog said that Iran has agreed to suspend all uranium enrichment activities, according to a draft resolution before the IAEA in Vienna, Bloomberg reported. BT Group Plc, the U.K.'s largest phone operator, created an entertainment division to offer movies and tv programs over the Internet, Bloomberg said. President Bush has picked Carlos Gutierrez, CEO of Kellogg, to replace Donald Evans as secretary of Commerce, Bloomberg reported. U.S. retail sales over the Web increased 40% y-o-y on Friday, according to ComScore Networks. UN Secretary-General Annan said he was upset to learn his son was still getting paid this year by a company under investigation for its role in the scandal-ridden UN oil-for-food program through which former Iraqi dictator Saddam Hussein illegally pocketed $21.3 billion, Bloomberg reported. The benchmark 10-year U.S. Treasury is falling, pushing its yield to a three-month high on better-than-expected holiday retail sales and recent declines in the dollar, Bloomberg said.

Bottom Line: The Portfolio is lower mid-day on losses in my Chinese ADR, retail and telecom equipment longs. I exited a few long positions as they hit stop-losses this morning, thus leaving the Portfolio 100% net long. Today's mixed performance by the major indices appears to be mostly a result of profit-taking rather than real concerns over fundamentals. The Morgan Stanley Retail Index(MVRX) has gained 21.7% since August lows. Most retailers did very well over the weekend, notwithstanding WMT's November results. Other low-end retailers such as TGT, JCP and KSS exceeded expectations. Technology and small-caps are outperforming today and breadth is healthy for the overall market. The 10-year T-note yield is still 60 basis points below the highs set in June. As well, it is good to see measures of investor anxiety rising. I expect U.S. stocks to rise modestly into the close on short-covering and bargain-hunting ahead of tomorrow's GDP, Consumer Confidence and Chicago Purchasing Manager reports.

Monday Watch

Earnings of Note
Company/Estimate
DCI/.33
OSIP/-1.17

Splits
None of note.

Economic Data
None of note.

Weekend Recommendations
Wall Street Week w/Fortune had guests that were negative on TPX and NFLX. Forbes on Fox had guests that were positive on MC, MEE, BP, mixed on SKS and negative on XRX. Cashin' In had guests that were positive on OEH, PWI, LSI, EDE, NOI and mixed on OSIP, SIRI, JPM. Bulls and Bears had guests that were positive on SNE, LEXR, AMX, TARO, MKL, QQQ, SIRI, PRAA, CRI and mixed on WTW. Barron's had negative comments on AUDC. Goldman Sachs reiterated Outperform on EBAY, DNA and Underperform on FISV. U.S. financial, health-care services and biotechnology stocks are among the favorite issues of Edward Keon Jr., chief investment strategist at Prudential Equity Group LLC, Barron's reported.

Weekend News
U.K. and German business groups will write to the U.S. SEC opposing the requirements of the Sarbanes-Oxley corporate governance law, the Financial Times reported. A two-night trip to New York from Manchester, England, to do Christmas gift shopping is cheaper than taking the train to London for a weekend to buy the same items, the Independent reported. The first stirrings of unrest have begun among the migrant workers who provide cheap labor to China's booming Pearl River Delta, which has drawn more than $50 billion in foreign investment the past five years, the Washington Post said. Colombia's largest rebel group targeted President Bush for assassination during his trip to the South American nation earlier this week, Reuters reported. The Iraqi government rejected calls for national elections to be delayed, sticking to its Jan. 30 poll date, the AP reported. Cendant Corp., the largest U.S. real estate and travel services company, will probably buy Ebookers Plc, Europe's largest online travel company, the Sunday Times reported. Researchers at the Idaho National Engineering and Environmental Laboratory and ceramics company Cerametec have found a more efficient way to produce pure hydrogen, which may be a step in weaning the U.S. off its dependence on oil, the NY Times reported. Alpaca breeding is increasing in popularity in the U.S. as a controlled market for breeding stock has caused prices for the animals to steadily rise, drawing former doctors and corporate executives to ranching, the NY Times reported. The DJIA may reach 40,000 by 2010, driven by technology and spending by people from the Baby Boom generation, author Harry Dent Jr. told Wall Street Week w/Fortune. China's inflation rate may slow to 3% next year, down from 5.3% in August, on slower growth in investment and exports, Xinhua news agency reported. E*Trade Financial will introduce a trading platform for futures contracts next year, the Financial Times reported. The decline of the dollar and the increase in oil prices haven't caused a "significant change" in the U.S. inflation outlook, the Fed's Poole said. Iraq, the fifth-largest oil producer in the Middle East, will spend more than $1 billion next year to increase oil output capacity by about 15% to 3.25 million barrels a day, Bloomberg reported. U.S. stock may build on their fourth-quarter gains in December as Microsoft's special dividend of $32 billion encourages investors to put more money into equities before year-end, Bloomberg said. Small businesses plan double-digit IT spending increases, CRN reported. Iraqi oil output was fairly steady at about 2 million barrels a day in the second and third quarters, despite frequent sabotage attempts, the Wall Street Journal reported.

Late-Night Trading
Asian indices are higher, +.25% to +1.25% on average.
S&P 500 indicated +.29%.
NASDAQ 100 indicated +.38%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning on gains in Asia, optimism over weekend retail sales, declining energy prices and a stabilizing dollar. The Portfolio is 125% net long heading into tomorrow.

Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Preliminary 3Q GDP(Tues.), Consumer Confidence(Tues.), Chicago Purchasing Manager(Tues.), Personal Income/Spending(Wed.), PCE Deflator Y-o-Y(Wed.), Construction Spending(Wed.), ISM Manufacturing/Prices Paid(Wed.), Fed's Beige Book(Wed.), Vehicle Sales(Wed.), Initial Jobless Claims(Thur.), Factory Orders(Thur.), Unemployment Rate(Fri.), Average Hourly Earnings(Fri.), Change in Non-farm Payrolls(Fri.), Average Weekly Hours(Fri.), and ISM Non-Manufacturing(Fri.). GDP, Consumer Confidence, Chicago Purchasing Manager, ISM Manufacturing, Change in Non-farm Payrolls and ISM Non-Manufacturing all have market-moving potential.

OSI Pharmaceuticals(OSIP-Mon.), Chico's FAS(CHS-Tues.), Omnivision Technologies(OVTI-Tues.), Neiman Marcus Group(NMG/B-Wed.) and Synopsys(SNPS-Wed.) are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The CSFB Tech Conference(Tues.-Fri.), The Homebuilding Industry Conference(Tues.-Wed.), Merrill Health Services Conference(Tues.), INTC mid-quarter update(Thur.), Fed's Bernanke speaking(Thur.), Fed's McTeer speaking(Fri.) and Fed's Santomero speaking(Fri.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, better-than-expected economic reports, strength in technology shares, more optimism, a rebound in the US dollar, declining energy prices, short-covering and bargain-hunting. The most important day of the year for retailers was Friday and it appears the holiday shopping season is off to a strong start. Research firm ShopperTrak said overall U.S. retail sales climbed 10.8% over last year and Visa, the No. 1 issuer of credit cards, said sales on its cards soared 15.5% from last year. The S&P 500 and Russell 2000 are at their highs for the year. The DJIA and NASDAQ will likely test their yearly highs this week. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,182.65 +1.07%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks finished moderately higher last week in another win for the bulls. It was the fourth weekly rise for the S&P 500 in 5 weeks. Gains were especially frustrating for the bears considering the decline in the dollar, rising energy prices and worries over inflation. Small-caps again outperformed as the Russell 2000 hit another ALL-TIME high and breadth was very healthy. Commodity-related stocks were the top-performers for the week, led by steel and oil service companies. Moreover, the AAII % Bulls fell 22.81% to 49.48%, which is big positive considering recent complacency. While perpetually negative pundits and analysts paint a bleak picture for U.S. stocks on inflation and profit fears, the overall technical picture of the market appears the healthiest to me since 1995.

Economic Week in Review

ECRI Weekly Leading Index 132.70 +.08%

Existing Home Sales for October were 6.75M versus estimates of 6.72M and 6.76M in September. "With low interest rates and an improving job market we're seeing some extraordinary numbers in housing," said the CEO of Foxtons North America, a real estate brokerage firm. October's sales were the fourth-highest ever, Bloomberg said. The median selling price of an existing home was $187,000 last month, up 8.8% from the same month last year. "As long as mortgage rates stay at about the 6-6.5% level, I think the housing market should be strong," said Bruce Harting, a senior analyst who covers mortgage companies at Lehman Brothers. Re-sales were the strongest in the South and West, rising 3.7% and 3.6% for the month respectively. While prices have increased, America's homeowners are not over-leveraged, according to the Homeownership Alliance. The latest Federal Reserve data show that mortgage payments accounted for 9.87% of disposable incomes in the second quarter of this year, down from over 10% in 1990-1992, Bloomberg said.

Durable Goods Orders for October fell .4% versus estimates of a .5% rise and an upwardly revised .9% gain in September. Durable Goods Orders Less Transportation for October fell .7% versus estimates of a .2% fall and an upwardly revised 2.8% increase in September. After the September revisions, the October dollar volume was close to estimates, Bloomberg reported. Shipments, which the government uses to calculate quarterly GDP, rose 3.1%, the biggest rise since March, Bloomberg said.

Initial Jobless Claims for last week were 323K versus estimates of 335K and 335K the prior week. Continuing Claims were 2755K versus estimates of 2795K and 2784K prior. The four-week moving average of claims dropped to a four-year low of 332,000. "Labor markets are improving, and we expect to see that reflected in payroll gains for November," said Gary Bigg, an economist at Banc of America Securities. A survey by the National Assoc. of Business Economists released on Nov. 22 showed economists expect the labor market to give a boost to the economy next year, with the unemployment rate falling to 5.2%, from its current 5.5%, Bloomberg reported. Moreover, economists project 2.2 million jobs will be created in 2005.

The Final Univ. of Mich. Consumer Confidence reading for November was 92.8 versus estimates of 96.0 and a prior forecast of 95.5. "With the election over, energy prices declining, and the labor market improving, we would have expected a more significant boost to attitudes," said Stephen Stanley, chief economist at RBS Greenwich Capital. However, the University's current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 104.7 from 104 in October, Bloomberg said. As well, the expectations index, based on optimism about the next one to five years, rose to 85.2 from 83.8 last month. "Based on the positive momentum over the past three weeks, Visa maintains an optimistic outlook for the holiday shopping season," said Wayne Best, senior vice president of strategic and economic analysis at Visa USA. Finally, the National Retail Federation is now projecting a fairly strong 4.5% gain in retail sales during the holiday season.

New Home Sales for October rose to 1226K versus estimates of 1200K and 1224K in September. This was the third fastest rate on record, Bloomberg said. The median price jumped to $221,800, up 14% from a year ago. The U.S. gained the most jobs in seven months during October and mortgage rates remain within a percentage point of an all-time low, helping boost sales, Bloomberg reported. "We are still seeing extremely strong traffic and demand," said Alan Levan, CEO of Levitt, a homebuilder based in Fort Lauderdale, Florida. Sales of new and existing homes will reach an all-time record this year, according to a forecast from the National Assoc. of Realtors. Sales were the strongest in the Northeast and West, rising 20% and 13% respectively.

Bottom Line: Overall, last week's economic data were mildly positive. The Weekly Leading Index has now risen 4 consecutive weeks since the election. Housing remains a pillar of strength for the U.S. economy and will remain so, barring an unexpected substantial rise in interest rates. The decline is Durable Goods Orders was a result of the significant upward revision to the prior month and is not of concern. The better jobless claims readings over the past few weeks suggest another good month for employment is in the offing. This should definitely result in better consumer confidence in the very near future, notwithstanding high energy prices. As well, stock market gains, less negativity by politicians and a strong housing market should also boost sentiment going forward. I continue to expect U.S. economic growth to surprise on the upside over the next few months. Data in December should confirm this view.