Sunday, October 31, 2004

Charts of the Week

2004 U.S. Presidential Winner

Click here for charts.

Bottom Line: The Iowa Electronic Markets show President Bush's chances of re-election at 54.8% versus the chances of a Kerry victory at 45.2%. Upon careful study of all the polls, underlying dynamics within the polls, the biased nature of some polls, Tradsports.com futures and the Iowa Electronic Markets, I have concluded that President Bush will receive 310 electoral votes to Senator Kerry's 228. Thus, President Bush should win re-election by a large enough margin to prevent any delay in the final outcome and substantially diminish the impact of the many lawsuits that are sure to follow. As a result, I expect the Dow Jones Industrial Average to rally 150-200 points on Wednesday.

Weekly Outlook

There are a number of important economic reports and significant corporate earnings reports scheduled for release this week. Economic reports include Personal Income(Mon.), Personal Spending(Mon.), PCE Deflator(Mon.), Construction Spending(Mon.), ISM Manufacturing(Mon.), Factory Orders(Wed.), ISM Non-Manufacturing(Wed.), Vehicle Sales(Wed.), Preliminary 3Q Non-farm Productivity(Thur.), Unit Labor Costs(Thur.), Initial Jobless Claims(Thur.), Unemployment Rate(Fri.), Change in Non-farm Payrolls(Fri.) and Consumer Credit(Fri.). Personal Spending, ISM Manufacturing, ISM Non-Manufacturing and Change in Non-farm Payrolls all have market-moving potential.

Cigna(CI-Mon.), Maxim Integrated(MXIM-Mon.), Tyco Intl.(TYC-Mon.), MBIA Inc.(MBI-Tues.), Fox Entertainment(FOX-Wed.), IAC/InterActiveCorp(IACI-Wed.), Qualcomm(QCOM-Wed.), Time Warner(TWX-Wed.), CVS Corp.(CVS-Thur.), XM Satellite Radio(XMSR-Thur.) 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 Morgan Stanley Software, Services, Internet & Networking Conference(Mon.), the U.S. Presidential Election(Tue.), Merrill Lynch Global Energy Conference(Wed.) and Chain Store Comp Sales Releases(Thur.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week sharply higher on strong economic reports, significantly diminishing domestic terrorism fears, no delay in the declaration of a winner in the election, an end to uncertainty over the direction of the country, subsiding negativity from the media and politicians, falling energy prices and good earnings reports. Equities will likely open mixed on Mon./Tues. mornings and move modestly higher by both day's end. I expect U.S. shares to gap higher on Wed. with the DJIA rising 100-250 points, depending on the various election outcomes I foresee. Stocks should continue moving modestly higher to end the week. My short-term trading indicators are giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,130.20 +3.15%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Market action last week was very positive as most stocks rose and volume increased. Recent gains, anxiety over the election and terrorism, worries over slowing demand from China and a spate of supply in the form of IPOs failed to send shares lower. Insurance and HMO stocks rebounded sharply after investors concluded that Spitzer's recent probe wouldn't permanently cripple the offending companies. 32 companies have made their public debuts this month, the best October for IPOs since 1999. Many have been extraordinarily successful. Moreover, it is a big positive that the overall market was able to absorb this new supply and still work higher over the course of the month. In my opinion, China's interest rate hike was more of a gesture than an escalation in the country's attempts to slow growth from current levels. However, the perception by speculators that Chinese demand for oil will slow should continue to help push energy prices lower. It is also healthy to finally see stocks with stellar earnings reports move substantially higher on the news. Finally, measures of investor anxiety were mixed on the week.

Saturday, October 30, 2004

Economic Week in Review

ECRI Weekly Leading Index 130.60 -.76%

Existing Home Sales for September rose to 6.75M, at the third-highest pace on record, versus estimates of 6.51M and 6.55M in August. The West and Northeast were the two strongest regions of the country. The three hurricanes that pummeled Florida kept U.S. sales from rising further in the South, the National Association of Realtors said. David Lereah, chief economist for the real-estate association, said September re-sales were down 20% to 30% in metropolitan areas of Florida that were affected by the hurricanes. Those sales should show up in the October report. The association continues to forecast that 2004 will be the best year ever for sales, Bloomberg said. "Real estate has been and will continue to be a pillar of the economy," said James Gillespie, president of Coldwell Banker Real Estate. The inventory of houses for sale fell to 4.4 months' supply. 69% of U.S. households owned their residence as of Sept.30, close to the all-time record of 69.2% set mid-year.

The Conference Board's Consumer Confidence reading for October fell to 92.8 versus estimates of 94.0 and a reading of 96.7 in September. The percentage of Americans that saw jobs as hard to get fell to 27.8%, Bloomberg reported. As well, the survey found the percentage of consumers planning to buy a car rose to 7.4% from 6.3% last month. While confidence has fallen in recent months, consumers' actions suggest confidence is strong as evidenced by near-record home sales and the highest auto sales in three years last month, Bloomberg said.

Durable Goods Orders for September rose .2% versus estimates of a .5% rise and a .6% fall in August. Durable Goods Less Transportation for September rose 1.7% versus estimates of a .3% increase and a 2.8% gain in August. Business investment in new equipment is accelerating this year amid record profits and low interest rates, Bloomberg reported. "The general economic improvement and the drive for more productivity is fueling demand for capital goods," said Stuart Hoffman, chief economist at PNC Financial. Moreover, bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 2.6% last month, the most since March. Orders for computers and electronic products rose 9.3% last month, the most since June 2000, Bloomberg reported. Communications equipment orders rocketed 35.6% higher. "The recovery is very broad-based and across all sectors we serve and all regions globally," said Lynn McPheeters, the CFO of Caterpillar Inc. Finally, some companies are replacing outdated equipment to take advantage of tax incentives that are set to expire at the end of the year, Bloomberg reported.

New Home Sales rose to 1206K in September, the third highest on record, versus estimates of 1150K and 1165K in August. "It's a remarkable performance," said Ethan Harris, chief economist at Lehman Brothers. Sales of new home this year will reach 1.164 million, surpassing last year's record, Bloomberg reported. "Traffic is up, signups are up and the country is doing extremely well," said Richard Dugas, CEO of Pulte Homes. Pulte, the third-largest homebuilder by stock market value, said earlier in the week its third-quarter profit rose 54% and that the backlog of homes ordered and awaiting delivery rose 23% to 20,400 units. The median price of a new home rose 3% from a year ago. The deceleration in price increases is a result of starter homes, houses priced less than $150,000, accounting for a greater percentage of the total, Bloomberg reported. New home sales in the Midwest rose led gains throughout the country with an increase of 12%, Bloomberg said. Even with Georgia reporting 12.14 inches of rain, the most ever for any September, and Florida experiencing significant rainfall throughout the month, sales rose 2.7% in the South. For the nation, September was the 13th wettest month on record, Bloomberg reported. Finally, the inventory of new homes for sale fell to a 4.1 months supply. "This underscores the very strong underlying sales pace," said Stephen Stanley, chief economist at RBS Greenwich Capital.

Initial Jobless Claims for last week were 350K versus estimates of 335K and 330K the prior week. Continuing Claims were 2823K versus estimates of 2818K and 2785K prior. The less volatile four-week moving-average fell to 343K from 349K. "This indicates that the labor markets remain fundamentally stable," said Steven Wood, President of Insight Economics. For the year so far, initial claims have averaged 344K compared to 402K in 2003, Bloomberg reported. Hiring "appeared to increase modestly," the Fed said in its recent 'beige book' report. Some districts reported "shortages" of skilled manufacturing workers, truck drivers and "upper-level" finance workers, Bloomberg reported. Finally, layoffs involving 50 or more workers are down 17% from the same period last year.

The advance 3Q GDP reading showed 3.7% growth versus estimates of 4.3% and 3.3% during 2Q. Advance 3Q Personal Consumption rose 4.6% versus estimates of 4.6% and a 1.6% rise in 2Q. The advance reading for the GDP Price Deflator rose 1.3% versus estimates of a 1.6% increase and a 3.2% gain in 2Q. The Employment Cost Index rose .9% in 3Q versus estimates of a 1.0% gain and a .9% increase in 2Q. Consumer spending grew at almost triple the pace of the second quarter, business spending rose, and a measure of inflation in the report fell to the lowest rate since 1962, Bloomberg reported.

The Final Univ. of Mich. Consumer Confidence reading for October rose to 91.7 versus estimates of 88.0 and a prior estimate of 87.5. 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, Bloomberg reported. When the university's sentiment index is greater than its long-term average of 88, the party in office tends to keep the White House, according to a research report issued last month by economist at Credit Suisse First Boston, Bloomberg reported.

The Chicago Purchasing Manager report for October rose to 68.5, the highest level in more than 16 years as orders and hiring increased, versus estimates of 59.0 and a reading of 61.9 in September. Readings higher than 50 mean growth, and October is the 18th month of uninterrupted expansion, Bloomberg said. "Solid gains in factory activity are due primarily to robust capital goods spending as well as spending on consumer durables and exports," said Steven Wood, chief economists at Insight Economics. Investors watch the Chicago report closely for clues about the strength of manufacturing and the overall U.S. economy, Bloomberg said. "The economy's performance in the third quarter was quite robust and the Chicago index suggests that continued into the fourth quarter," said Edward McKelvey, a senior economist at Goldman Sachs. The Chicago index of new orders rose in October to 79.4, the highest in 20 years, from 67.7 in September, Bloomberg reported. The NAPM employment index rose to 54.1, with a reading higher than 50 meaning more companies said they were hiring than firing, Bloomberg said. A gauge of inventories dropped to 51.8 from 64.7. The Federal Reserve Bank of Chicago says its region produces 40% of the nation's motor vehicles, 35% of the nation's steel and almost half of its farm equipment, making the region a major center for U.S. durable goods manufacturing, Bloomberg said.

Bottom Line: Overall, last week's economic data were very positive and bode well for future U.S. economic growth. Home sales remain exceptionally strong and multiple indicators show a high probability of acceleration into year-end. The Bears and pundits have been wrong about the so-called "home bubble" for several years and will continue to be wrong for the foreseeable future. While measures of consumer confidence have declined in recent months, consumers continue to show extraordinary confidence in their financial situation as evidenced by very strong home and auto purchases. Moreover, measures of the intentions of consumers to purchase big-ticket items continue to accelerate. Finally, the intense negativity perpetuated by the media, foreign officials and politicians in hopes of influencing the U.S. election should subside next month which will boost consumer sentiment greatly. Manufacturing activity is rebounding sharply and should continue to accelerate into year-end as companies seek to replace aging equipment before tax incentives expire. This will lead to an accelerated rate of hiring as companies struggle to meet rising production needs. Moreover, many other recent measures of hiring point to an improving labor market over the next couple of months. U.S. economic growth accelerated during the third quarter and should approach an extremely robust 5% during this quarter as hiring improves, production increases, corporate spending accelerates, energy prices drop, consumer spending increases and rebuilding in Florida takes hold. The 3.7% GDP growth during the third quarter was the highest quarterly growth rate for the U.S. economy before an incumbent President seeks re-election in 25 years. Finally, my prediction of 5% growth for the fourth quarter would result in the fastest 6 quarters of U.S. economic growth since the early 1980s.

Friday, October 29, 2004

Weekly Scoreboard*

Indices
S&P 500 1,130.20 +3.15%
Dow 10,027.47 +2.76%
NASDAQ 1,974.99 +3.12%
Russell 2000 583.79 +2.82%
S&P Equity Long/Short Index 980.34 +.95%
Put/Call .67 -9.46%
NYSE Arms .93 -26.77%
Volatility(VIX) 16.27 +6.48%
AAII % Bulls 42.31 -.40%
US Dollar 84.91 -.91%
CRB 283.70 -.99%

Futures Spot Prices
Gold 429.40 +.89%
Crude Oil 51.78 -6.11%
Unleaded Gasoline 132.85 -7.74%
Natural Gas 8.72 -2.62%
Heating Oil 146.41 -8.41%
Base Metals 116.11 +2.88%
10-year US Treasury Yield 4.02% +1.23%
Average 30-year Mortgage Rate 5.64% -.88%

Leading Sectors
Airlines +15.88%
Homebuilders +8.73%
HMOs +7.8%

Lagging Sectors
Commodity +.86%
Energy -1.08%
Oil Service -2.66%

*% Gain or loss for the week

***Alert***

There will not be a Mid-day Update today due to a scheduling conflict. I will publish the Weekly Scoreboard at its regularly scheduled time. I plan to take the Portfolio to 125% net long by the close.

Friday Watch

Earnings of Note
Company/Estimate
AVP/.34
ADM/.27
BMY/.39
CCU/.43
CVX/1.37
OS/1.60

Splits
None of note.

Economic Data
3Q Actual GDP estimated up 4.3% versus 3.3% in 2Q.
3Q Actual Personal Consumption estimated up 4.6% versus a 1.6% rise in 2Q.
3Q Actual GDP Price Deflator estimated up 1.6% versus a 3.2% gain in 2Q.
3Q Employment Cost Index estimated up 1.0% versus a .9% increase in 2Q.
Final Univ. of Mich. Consumer Confidence for October estimated at 88.0 versus a prior estimate of 87.5.
Chicago Purchasing Manager Index for October estimated at 59.0 versus 61.9 in September.

Recommendations
Goldman Sachs reiterated Outperform on AET, PHCC, PXD, SPG, LIZ, AMT, BHI and Underperform on UAL, CAN, DCLK, XOM. California Coastal Communities(CALC) shares are expected to rise as investors are attracted by land and properties owned by the builder and developer, Business Week reported. Wild Oats Markets(OATS), whose shares have dropped 55% this year, may be an acquisition target for a larger rival, Business Week said. NCR Corp.(NCR) shares my rise as high as $65 in twelve months, citing KeyBanc Capital analyst Matt Summerville, Business Week reported.

Late-Night News
Asian indices are modestly lower on concerns over slowing demand from China. A man identifying himself as an American member of al-Qaeda and speaking in English threatened new attacks that he said will cause U.S. streets to "run red with blood," in a videotape ABC News reported. Talk-show host Bill O'Reilly and Andrea Mackris, a Fox News producer, settled a complaint filed by O'Reilly accusing her and her lawyer of trying to extort $60 million from him and Fox before filing her lawsuit. All parties have agreed that there was no wrongdoing by O'Reilly, Mackris or her lawyer, CNN reported. AOL, Microsoft, Earthlink and Yahoo! sued dozens of junk e-mail senders in a second wave of lawsuits under a new U.S. law designed to curb spam, Bloomberg reported. China's first interest rate increase in nine years may cool its economy without damaging global growth, economists and international policy makers said.

Late-Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 indicated unch.
NASDAQ 100 indicated -.07%

BOTTOM LINE: I expect U.S. equities to open mixed in the morning and head modestly higher into the afternoon on a strong GDP report, better earnings and lower oil prices. However, the tightening of the election polls and terrorism fears before the weekend may stifle gains. The Portfolio is 100% net long heading into tomorrow.

Thursday, October 28, 2004

Thursday Close

S&P 500 1,127.44 +.18%
NASDAQ 1,975.74 +.29%

Leading Sectors
Airlines +4.25%
Retail +1.12%
Insurance +.98%

Lagging Sectors
Energy -1.74%
Oil Service -2.32%
Iron/Steel -2.50%

Other
Crude Oil 50.99 +.14%
Natural Gas 7.-.62%
Gold 425.40 -.16%
Base Metals 112.06 -.71%
U.S. Dollar 85.23 -.23%
10-Yr. T-note Yield 4.06% -.57%
VIX 15.39 -2.10%
Put/Call .68 unch.
NYSE Arms .97 +27.63%

After-hours Movers
CSTR +7.08% after beating 3Q estimates raising 4Q guidance.
APCC +20.0% after exceeding 3Q estimates.
OTEX +8.7% after beating 1Q estimates and raising 2Q/05 outlooks.
MFE +9.2% after beating 3Q estimates and raising 4Q oulook.
USPI -6.4% after meeting 3Q estimates and cutting 04/05 outlooks.

Recommendations
Goldman reiterated Outperform on UPS, SBC and Underperform on TSG, MKL, FRX.

After-hours News
U.S. stocks finished slightly higher today on optimism over lower oil prices, diminishing terrorism fears and better earnings reports. After the close, France said Yasser Arafat is expected to arrive in Paris tomorrow for medical treatment, Bloomberg reported. Crude oil futures had the biggest two-day decline in 19 months as Chinas' first interest-rate increase in nine years may reduce growth in fuel consumption, Bloomberg said. The race between President Bush and Senator Kerry may draw the largest turnout of any US presidential contest since 1968, according to a study of vote registrations, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today on declines in my steel and security longs. I did not trade in the afternoon and the Portfolio is still 100% net longs. The tone of the market was relatively positive today and action appeared to me to be a healthy consolidation after recent gains. The CRB Index and oil futures closed near their lows for the day which bode well for future declines. I continue to expect U.S. stocks to trade mixed tomorrow morning and begin moving higher later in the day.

Mid-day Update

S&P 500 1,127.71 +.21%
NASDAQ 1,972.64 +.13%


Leading Sectors
Airlines +2.75%
Insurance +1.17%
Retail +.77%

Lagging Sectors
Commodity -1.10%
Hospitals -1.38%
Iron/Steel -2.16%

Other
Crude Oil 52.32 -.27%
Natural Gas 8.88 +1.20%
Gold 426.70 +.23%
Base Metals 112.06 -.71%
U.S. Dollar 85.14 -.37%
10-Yr. T-note Yield 4.07% -.33%
VIX 15.62 -.64%
Put/Call .71 +4.41%
NYSE Arms .88 +15.79%

Market Movers
ASKJ -26.9% after meeting 3Q estimates, lowering 4Q revenue estimate slightly and multiple downgrades.
DWA +35.5% on strong demand for IPO.
DNDN +23.1% after the company said a prostate-cancer drug that had failed to prove a benefit for patients in an earlier study helped patients live longer in a follow-up analysis.
IMCL -9.3% after missing optimistic 3Q estimates.
CLMS +5.6% on strong demand for IPO.
FOXH +50.5% on strong demand for IPO.
BBW +28.3% on strong demand for IPO.
ARBA +24.4% after beating 4Q estimates, RBC Capital upgrade to Top Pick and announcing a large sale to PD.
CCMP +15.1% after beating 4Q estimates.
LONG +16.3% on strong demand for IPO.
KOMG +12.0% after beating 3Q estimates and raising 4Q outlook.
KSWS +12.2% after beating 3Q estimates, raising 4Q guidance and announcing 5M share increase in stock buyback.
SRCL +7.3% after beating 3Q estimates.
PLB -18.0% after lowering 4Q/05 outlooks.
PNRA -10.2% after meeting 3Q estimates, lowering 05 guidance and JP Morgan downgrade to Neutral.
INGR -10.7% after missing 3Q estimates.
FBN -13.3% after meeting 3Q estimates, but lowering 4Q forecast.
TEX -8.7% after beating 3Q estimates, raising 4Q forecast and Robert Baird downgrade to Neutral.

Economic Data
Initial Jobless Claims for last week were 350K versus estimates of 335K and 330K the prior week.
Continuing Claims were 2823K versus estimates of 2818K and 2785K prior.
Help Wanted Index for September was 36 versus estimates of 37 and 37 in August.

Recommendations
-Goldman Sachs reiterated Outperform on MDT, AET, PFE, NBP, SYMC, AMT. Goldman reiterated Underperform on LVLT, LSI. Goldman said to Buy steel stocks on weakness from Chinese interest rate hike announcement, favorites are STLD, NUE, X and CMC. Goldman downgraded CI to Underperform.
-Citi SmithBarney said to Buy BEAS ahead of quarter, target $11.50. Citi reiterated Buy on JCP, target $50. Citi reiterated Buy on CMCSK, target $34. Citi reiterated Buy on IRF, target $50. Citi reiterated Buy on QSFT, target $17. Citi reiterated Buy on PRE, target $69. Citi reiterated Sell on BA, target $40. Citi reiterated Buy on PHM, target $86. Citi reiterated Sell on COP, target $76. Citi reiterated Buy on EEFT, target $27. Citi reiterated Buy on TEX, target $52. Citi reiterated Buy on CTX, target $85. Citi reiterated Buy on MSFT, target $33. Citi reiterated Buy on ATH, target $116.
-UBS cut LPNT to Reduce, target $28.
-Legg Mason raised QSFT to Buy, target $18.
-JP Morgan raised PECS to Overweight.

Mid-day News
U.S. stocks are modestly higher mid-day as declining oil prices, soaring IPOs, diminishing domestic terrorism fears and earnings optimism are offsetting concerns over slowing demand from China. Ford Motor may expand production of its gas-electric hybrid Ford Escape sport-utility vehicles, as the company anticipates strong demand, the Wall Street Journal reported. BellSouth is expected to announce an agreement today to help sell ad packages on Google's Web sites, the Wall Street Journal reported. OAO Yukos Oil CFO Misamore said bankruptcy is "perhaps the best solution" for handling its tax debts from the Russian government, according to Le Monde. China raised its benchmark lending rate, for the first time in nine years, to 5.58%, Bloomberg reported. U.S. shares of raw-material producers are falling, led by Alcoa, on concern demand for commodities will slacken after China raised its benchmark lending rate, Bloomberg said. Crude oil futures fell to a three-week low in NY on speculation demand from China will slow, Bloomberg reported. Palestinian leader Yasser Arafat may be moved to a hospital in Ramallah or abroad as his deteriorating health raised the prospect of a power vacuum in the Palestinian Authority, Bloomberg said. United Nations records suggest Iraqi officials overstated the amount of explosives missing from a weapons depot and that 138 tons of the munitions may have disappeared before the U.S.-led coalition liberated Iraq, ABC News reported. The U.S.-led coalition has already found and is in the process of destroying more than 400,000 tons of explosives and weapons in Iraq, ABC said.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet and retail longs. I have not traded today and the Portfolio is still 100% net long. Market action today is good considering recent gains. Most measures of investor anxiety are rising, the CRB is falling and interest rates are declining which are all positives. As well, the market's strength in the face of so much new supply, in the form of IPOs, is also impressive. Finally, China's move to hike rates is a positive. Increasing commodity prices have been the only real source of inflation and this should quell those fears to an extent. Commodity prices will remain high, but have likely peaked for the intermediate-term. Commodity-related companies will still find the environment very profitable. I expect U.S. stocks to move modestly higher into the close on declining energy prices and short-covering.

Thursday Watch

Earnings of Note
Company/Estimate
AET/1.73
ANDW/.05
BHI/.39
CELL/.29
DOW/.62
CSX/.52
XOM/.87
G/.43
GP/.84
IMCL/.33
IM/.18
JBLU/.10
LIZ/1.01
MSO/-.47
MFE/.12
MHS/.52
PNRA/.28
PD/2.71
PTEN/.17
SOHU/.22
VZ/.64
VIA/.41

Splits
None of note.

Economic Data
Initial Jobless Claims for last week are estimated at 335K versus 329K the prior week.
Continuing Claims are estimated at 2818K versus 2798K prior.
Help Wanted Index for September estimated at 37 versus 37 in August.

Recommendations
Goldman Sachs reiterated Outperform on GILD, NEM, AHC, ROH, MET, ENH, MUR, BIIB and Underperform on VRTX, PYX, GSIC, MKL, NFX, KMG.

Late-Night News
Asian indices are sharply higher on optimism over falling oil prices and gains in the U.S. Delta Air Lines reached a tentative agreement with its pilots on pay reductions, averting a bankruptcy filing, the Wall Street Journal reported. Russian troops may have been responsible for taking 350 tons of explosives and munitions from Iraq on the eve of hostilities with the U.S.-led coalition, the Financial Times reported. London's Mittal family, days after agreeing to buy the U.S.-based International Steel Group for $4.5 billion, say they are interested in buying a steel company in Turkey, the Wall Street Journal reported. A videotape, purportedly from an American al-Qaeda operative, threatens a terrorist attack in the U.S. that would "dwarf" the Sept. 11, 2001, attacks, Fox News reported. DreamWorks Animation SKG, the creator of the "Shrek" and "Shark Tale" animated films, raised $812 million in an IPO to pay debt and to fund more movie making, Bloomberg reported. The Boston Red Sox won their first World Series title in 86 years, completing a four-game sweep of the St. Louis Cardinals with a 3-0 victory at Busch Stadium, Bloomberg said. President Bush plans three Michigan visits in the final six days of his campaign, trying to wrest the state from John Kerry, Bloomberg reported.

Late-Night Trading
Asian Indices are +1.0% to +2.0% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.17%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on a continuing fall in oil prices and gains in Asia. Stocks will likely trade mixed through the rest of the day as apprehensions rise ahead of the election. The Portfolio is 100% net long heading into tomorrow.

Wednesday, October 27, 2004

Wednesday Close

S&P 500 1,125.40 +1.29%
NASDAQ 1,969.99 +2.14%


Leading Sectors
Airlines +5.0%
I-Banks +3.86%
Semis +3.56%

Lagging Sectors
Commodity -1.52%
Energy -1.97%
Oil Service -3.0%

Other
Crude Oil 52.15 -.59%
Natural Gas 7.62 -9.24%
Gold 425.00 -.14%
Base Metals 112.86 +1.50%
U.S. Dollar 85.45 +.28%
10-Yr. T-note Yield 4.08% +2.07%
VIX 15.72 -4.09%
Put/Call .68 -8.11%
NYSE Arms .76 +35.71%

After-hours Movers
KOMG +12.0% after beating 3Q estimates and raising 4Q outlook.
SWIR +4.8% after beating 3Q estimates and raising 4Q outlook.
SRCL +4.1% after beating 3Q estimates.
ASKJ -17.8% after meeting 3Q estimates and lowering 4Q revenue estimate slightly.
AKAM -7.5% on disappointing 3Q results.
FWHT -6.7% on ASKJ report.
PHTN -5.8% after beating 4Q estimate, but disappointing 1Q guidance.
APPB -5.0% after meeting 3Q estimates and lowering 4Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on SYMC. Goldman reiterated Underperform on AG, FLYI and BA.

After-hours News
U.S. stocks fininish sharply higher today as oil prices fell and optimism over economic growth increased. After the close, over 60% of the world's largest 2,000 companies will begin to adopt so-called voice over internet protocol, or VOIP, in the next 2 years, the Financial Times reported. Yasser Arafat is unconscious and in "serious" condition at his compound in the West Bank town of Ramallah, CNN reported. Crude oil futures plunged almost 5% in NY, the biggest decline in five months, after an Energy Department report showed that U.S. inventories rose more than expected, Bloomberg said. Marsh & McLennan's former chief executive officer, Jeffrey Greenberg, exercised options to buy $15.5 million worth of stock on the day he resigned under pressure from NY Attorney General Eliot Spitzer.

BOTTOM LINE: The Portfolio finished substantially higher today, led by my wireless, Chinese/Russian ADR and internet longs. I exited an internet long in the afternoon as it hit my stop-loss and added CTRP long, thus leaving the Portfolio 100% net long. I am using $39.75 stop-loss on this position. Today was a very good day for the Bulls as volume rose and the advance/decline line finished at its highs for the day. It appears to me the market is beginning to anticipate the acceleration in U.S. economic growth during the fourth quarter I forecast a couple of months ago. Falling oil prices only add to my conviction. I expect stocks to consolidate recent gains over the next couple of days before moving modestly higher Friday afternoon. Monday and Tuesday should see further gains on a substantial decrease in domestic terrorism fears. Finally, stocks will likely see another substantial move upwards next Wed. and Thur. on an end to the negative Presidential campaign without terrorism. I do not expect a delay in the election outcome. I anticipate the popular vote will be relatively close, however the electoral gap will be such that impending lawsuits and accusations will look petty and ridiculous. It will be clear who won the Presidency by next Tues. night.

Mid-day Update

S&P 500 1,122.30 +1.01%
NASDAQ 1,964.08 +1.82%


Leading Sectors
Airlines +4.14%
Semis +2.95%
I-Banks +2.83%

Lagging Sectors
Commodity -1.40%
Energy -2.09%
Oil Service -3.14%

Other
Crude Oil 53.75 -2.66%
Natural Gas 8.12 -3.36%
Gold 425.60 -.44%
Base Metals 112.86 +1.50%
U.S. Dollar 85.33 +.14%
10-Yr. T-note Yield 4.05% +1.30%
VIX 16.02 -2.26%
Put/Call .71 -4.05
NYSE Arms .92 +64.29%

Market Movers
SINA +26.1% after beating 3Q estimates, raising 4Q guidance and multiple upgrades.
CAH +23.1% on better-than-expected 4Q earnings.
AAPL +4.1% on continued optimism over new iPod Photo.
QCOM +4.0% on optimism over upcoming earnings release.
MSTR +29.1% after substantially beating 3Q estimates, raising 4Q/05 outlooks.
LSCP +28.4% after beating 3Q estimates and raising 04/05 outlooks.
SYNT +22.2% after beating 3Q estimates substantially and raising 04 guidance.
FFIV +19.3% after beating 4Q estimates and raising 1Q guidance.
SHOP +14.9% on continuing strong demand for IPO.
TRMB +10.9% after beating 3Q estimates, lowering 4Q outlook and raising 04 guidance.
ISRG +17.2% on strong 3Q report.
ZMH +5.0% after beating 3Q estimates, raising 4Q guidance and reiterating 05 outlook.
CECO +14.5% after beating 3Q estimates and raising 4Q guidance.
AVID +7.6% on strong 3Q report.
LPNT +10.5% on strong 3Q report.
NLS -15.9% after meeting 3Q estimates and lowering 4Q guidance.
SKX -15.0% after beating 3Q estimates and lowering 4Q outlook.
NILE -17.1% after beating 3Q estimates and widening 4Q outlook.
ZBRA -9.1% after beating 3Q estimates and widening 4Q outlook.
FLS -11.9% after delaying its third-quarter results and downgrade to Sell by Hibernia Southcoast.
AFL -5.9% after meeting 3Q estimates and lowering 4Q outlook.

Economic Data
Durable Goods Orders rose .2% in September versus estimates of a .5% rise and a .3% decline in August.
Durable Goods Less Transportation rose 1.7% versus estimates of a .3% increase and a 2.8% gain in August.
New Home Sales for September were 1206K versus estimates of 1150K and 1165K in August.

Recommendations
-Goldman Sachs reiterated Outperform on AMGN, MDT, ATYT, COH, PG, NEM, AHC and GE. Goldman reiterated Underperform on FSS and AG. Goldman upgraded TMK to Outperform.
-Citi SmithBarney initiated FST with a Buy, target $38. Citi reiterated Buy on AAPL, target $60. Citi reiterated Buy on FFIV, target $45. Citi reiterated Buy on AV, target $20. Citi reiterated Buy on UTSI, target $26. Citi reiterated Buy on EOG, target $78. Citi reiterated Buyon BWA, target $50. Citi reiterated Buy on TLAB, target $11. Citi reiterated Buy on WFR, target $13. Citi reiterated Buy on FD, target $58. Citi reiterated Sell on AFL, target $40. Citi reiterated Buy on BNI, target $44.50. Citi reiterated Buy on GE, target $38. Citi reiterated Buy on PNR, target $43. Citi reiterated Buy on MRO, target $45. Citi reiterated Buy on MSTR, target $64. Citi reiterated Buy on VRTS, target $26. Citi reiterated Buy on TGT, target $50. Citi reiterated Buy on CHE, target $72. Citi reiterated Buy on AAI, target $13.
-Legg Mason raised CBMD to Buy, target $35.
-Bank of America raised GLW to Buy, target $15. Bank of America raised ZMH to Buy, target $84.
-Bear Stearns raised PHRM to Outperform.

Mid-day News
U.S. stocks are sharply higher mid-day on optimism over falling oil prices, better economic reports, stronger earnings reports, short-covering, diminishing terrorism fears and bargain-hunting. The U.S. craze for low-carb foods seems to be fading, the Wall Street Journal reported. Some Iraqi insurgents say recent anti-U.S. violence has been aimed at helping Senator Kerry defeat President Bush, in the belief that the U.S. will then lose its will to fight, the Washington Times reported. Pathmark, which operates supermarkets in New York, New Jersey and Pennsylvania, has begun talking with financial firms and competitors about a possible sale, the Deal.com reported. Rain in California has rotted some of the state's tomato crop, worsening a nationwide shortage brought about by hurricanes in Florida and a pest outbreak in Mexico, the AP reported. Red Herring magazine plans to publish twice-monthly issues in November and introduce a weekly edition by January, the San Francisco Chronicle reported. A group led by JP Morgan Chase agreed to buy U.K. drugmaker Warner Chilcott Plc for $3 billion, outbidding two other private equity firms, Bloomberg reported. Comcast reported a third-quarter profit as it added a record 549,000 high-speed Internet access customers, Bloomberg reported. U.S. orders for durable goods rose in September for the third time in four months, driven by demand for military equipment and computers, Bloomberg reported. U.S. new home sales unexpectedly rose in September to the third highest total on record, bolstered by lower mortgage rates and suggesting housing is helping spurt the economy, Bloomberg said. Crude oil futures are falling after an Energy Dept. report showed that U.S. stockpiles rose more than expected, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day, at its highs for the year, on strength in my wireless, internet and Chinese ADR longs. I have not traded today and the Portfolio is still 100% net long. I do believe the strong rally I forecasted for the fourth quarter has begun and that the lows for the year are in place. Technology is outperforming again today and should continue to strengthen into year-end. Many of these stocks are trading at very depressed levels after substantial declines in the 3rd quarter. Year-end budget flushes, capital equipment tax incentives, better-than-expected holiday sales and strengthening demand in China should also boost tech shares. Barring another significant decline in oil prices tomorrow, I expect U.S. stocks to trade mixed this afternoon and through tomorrow as apprehension increases ahead of the election. Another move higher will likely commence on Friday, spurred by a good GDP report and short-covering.

Wednesday Watch

Earnings of Note
Company/Estimate
BUD/.85
ASKJ/.25
ATH/1.65
BIIB/.35
BDK/1.32
BA/.40
CMCSA/.11
JDSU/.00
NEM/.25
NOC/.77
PG/.72
SIRI/-.12
THQI/-.20
ZBRA/.42

Splits
None of note.

Economic Data
Durable Goods Orders for September are estimated to have risen .5% versus a .3% fall in August.
Durable Goods Less Transportation are estimated to have risen .3% versus a 2.3% gain in August.
New Home Sales for September are estimated at 1150K versus 1184K in August.
Fed's Beige Book

Recommendations
Goldman Sachs reiterated Outperform on MUR, UDR, MET, LIZ, LMT, MERQ, BSX, RIG, DD, AMR and Underperform on QGENF, CNH, UAL, BA, MMC, TLAB.

Late-Night News
Asian indices are mostly higher on optimism over recent earnings reports in the region. Prime Minister Koizumi said Japan's troops won't leave Iraq, and the government will do all it can to secure the release of a Japanese man shown in a video being held by an armed group in the Middle Eastern country, state-run NHK tv reported. AU Optronics will use its new sixth-generation plant to produce 17-inch flat panel displays used in computer monitors, to cope with competition from South Korean makers, the Commercial Times reported. Delta Air Lines may file for bankruptcy court protection tomorrow if the company cannot agree on concessions with its pilot union, the Wall Street Journal reported. Robert Mondavi has attracted interest from at least 10 potential bidders, the Wall Street Journal reported. Nokia Oyj regained lost mobile-phone market share in the third quarter from the previous three months after the company cut prices and introduced cheaper models, Bloomberg said. GE will buy Australian Financial Investments Group for about $300 million to boost its share of that nation's mortgage market, Bloomberg reported. High-speed rail service between Tokyo and earthquake-hit Niigata prefecture was suspended after a magnitude 5.7 temblor struck the region, East Japan Railway said. OPEC President Yusgiantoro said the producer group has asked the U.S. to release oil from its strategic reserves to help lower oil prices, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.19%.
NASDAQ 100 indicated -.07%

BOTTOM LINE: I expect U.S. equities to open mixed in the morning and head modestly higher later in the day, led by technology shares, on short-covering, diminishing domestic terrorism fears, bargain-hunting and better earnings reports. The Portfolio is 100% net long heading into tomorrow.

Tuesday, October 26, 2004

***Alert***

There will not be a Tuesday Close due to a scheduling conflict. The Wednesday Watch will be posted at its regular time. Sorry for the inconvenience.

Mid-day Update

S&P 500 1,106.80 +1.09%
NASDAQ 1,921.38 +.38%


Leading Sectors
HMOs +4.4%
Insurance +4.25%
Airlines +3.60%

Lagging Sectors
Hospitals -.25%
Broadcasting -.32%
Disk Drives -.67%

Other
Crude Oil 54.55 +.02%
Natural Gas 8.16 +3.49%
Gold 426.40 -.81%
Base Metals 111.19 +.15%
U.S. Dollar 85.29 +.38%
10-Yr. T-note Yield 3.98% +.34%
VIX 16.07 -3.08%
Put/Call .73 unch.
NYSE Arms .61 -47.41%

Market Movers
DAL +27.2% after saying American Express agreed to provide as much as $600 million in financing, including $500 million to prepay for the airline's frequent-flier points.
FLEX -9.3% after missing 2Q estimates, lowering 3Q/4Q guidance and multiple downgrades.
QCOM -5.3% on Morgan Stanley downgrade to Underweight.
NVDA +12.7% after boosting 3Q sales estimate.
LCAV +15.0% after beating 3Q estimates substantially and raising 04/05 guidance.
HZO +16.2% after beating 4Q estimates substantially and reiterating 05 outlook.
SHOP +57.9% on strong demand for IPO.
COH +5.7% after beating 1Q estimates and raising 2Q/05 outlooks.
SEPR +5.7% after beating 3Q estimates.
EXBD +6.3% after beating 3Q estimates and raising 4Q/04 outlooks.
OMC +7.4% after beating 3Q estimates.
SLAB -18.6% after meeting 3Q estimates, lowering 4Q guidance substantially and multiple downgrades.
WIRE -18.6% on disappointing 3Q report.
TRMB -7.9% after beating 3Q estimates and lowering 4Q/04 outlooks.
TWP -8.1% after missing 3Q estimates and reiterating 04 outlook.
APOL -4.2% on Piper Jaffray downgrade to Market Perform.
OVNT -7.5% after missing 3Q estimates and lowering 4Q guidance.
DVA -8.4% after receiving a subpoena from U.S. prosecutors in NY for documents relating to their operations.
ATRS -7.3% after missing 3Q estimates, raising 4Q outlook and Jefferies downgrade to Hold.
AH -5.1% after announcing that it had priced at par its previously announced offering of $300 million in aggregate principal amount of 2.0% senior subordinated convertible notes.
CNCT -7.5% after beating 3Q estimates and lowering 4Q outlook.
*Insurance and HMO stocks up across the board on news that Spitzer would not pursue criminal charges against MMC.

Economic Data
Consumer Confidence for October fell to 92.8 versus estimates of 94.0 and a reading of 96.7 in September.

Recommendations
-Goldman Sachs reiterated Outperform on ENH, RIG, KO, IP, RE and AIG. Goldman reiterated Underperform on NFS, LVLT, AKS, RAI and MMC.
-Citi SmithBarney says to Buy IMCL for a trade into earnings on Thur., target $66. Citi also said to Buy HAIN on any weakness related to 1Q earnings, target $21. Citi reiterated Buy on KMB, target $72. Citi reiterated Buy on FLEX, target $17. Citi reiterated Buy on WLP, target $142. Citi reiterated Buy on DIS, target $30. Citi reiterated Buy on BWA, target $50. Citi reiterated Buy on VECO, target $26. Citi reiterated Buy on BJ, target $30. AMAT reiterated Buy on AMAT, target $22. Citi reiterated Buy on CMCSK, target $34. Citi reiterated Buy on SMTC, target $24. Citi reiterated Buy on INTX, target $18. Citi reiterated Buy on PHM, target $83.
-JP Morgan rated BBBY Overweight.
-Morgan Stanley downgraded QCOM to Underweight.
-Bank of America raised TRW to Buy, target $21. Bank of America downgraded SUP to Sell, target $18.

Mid-day News
U.S. stocks are higher mid-day, led by HMO and Insurance shares, after Democratic Attorney General Spitzer said he would not pursue criminal charges against Marsh & McLennan. Political action committees supporting Senator Kerry and his bid for the White House are outspending backers of President Bush by more than 4 to 1, the AP reported. U.S. retailers, preparing for the holiday sales season, are waiting longer than usual for merchandise shipped from Asia due to a backload of cargo ships, railroads and truck lines, the NY Times reported. An NBC News crew, embedded with the U.S. Army during the liberation of Iraq last year, reported that the 380 tons of explosives that were recently reported missing were already gone when troops arrived, CNN reported. Iraqi Prime Minister Allawi said today he has asked the United Nations to send troops to help guard the country's January elections from terrorist attack, Agence France-Presse reported. Afghanistan's interim President Hamid Karzai has won a majority of 55.4% of the votes in the final count of the country's first presidential election, the Afghan Election Web site said. Senator Kerry grants special access to top Democratic California fundraisers, letting them listen in on conference calls and visit his family on retreats, the LA Times reported. The fundraisers, often well-connected or celebrities, have helped bring in more than $102 million from Californians for Kerry and Democratic causes, a record for contributions from a single state, the newspaper said. Hewlett-Packard is testing ways of using wireless tracking technology, known as radio frequency identification or RFID, that's aimed at replacing bar codes, the San Jose Mercury News reported. Comcast may report a fifth consecutive quarterly profit after expanding its video-on-demand service in an effort to keep subscribers from leaving for satellite-TV, Bloomberg reported. Mittal's $4.5 billion acquisition of Intl. Steel Group may prompt a spree of deals as the steel industry consolidates to cut costs, Bloomberg said. Monsanto won European Union approval for one of its gene-modified corn varieties to be used in food as the EU seeks to expand the biotech market after a six-year moratorium and ease a transatlantic trade dispute, Bloomberg reported. A U.S appeals court lifted a ban on sales of rebuilt toner cartridges that compete with products made by Lexmark Intl., Bloomberg said. U.S. consumer confidence fell more-than-expected in October as both political parties engage in historically negative rhetoric, Bloomberg said. A divided U.S. SEC ordered hedge fund managers to register with the agency, subjecting the private investment partnerships to SEC oversight for the first time, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on strength in my internet, Russian telecom ADR and wireless longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is better today, however the advance/decline line is near even, technology stocks are underperforming and measures of investor anxiety are mostly lower. I expect U.S. stocks to trade mixed into the afternoon as political worries and domestic terrorism fears offset stabilizing energy prices and optimism over the MMC news.

Tuesday Watch

Earnings of Note
Company/Estimate
AKS/.54
ATVI/.09
AV/.18
AVID/.52
ABX/.04
NILE/.07
CTX/1.59
CECO/.28
CME/1.67
CTSH/.18
FFIV/.21
HAL/.36
LLL/.88
LMT/.65
MSTR/.51
RFMD/-.02
SINA/.28
TROW/.63
RIG/.05
VRTS/.21
WMS/.10

Splits
None of note.

Economic Data
Consumer Confidence for October estimated at 94.0 versus 96.8 in September.

Recommendations
Goldman Sachs reiterated Outperform on CIT, SII, ADP, AMT, VLTR and Underperform on VRTX.

Late-Night News
Asian indices are mixed as strength in Australia is being offset by weakness in Taiwan and China. Oracle's $7.7 billion takeover bid for Peoplesoft may today receive approval from the European Union's antitrust regulator, removing the last remaining regulatory obstacle, the Financial Times said. SLM Corp., the student-loan company known as Sallie Mae, is being investigated by the state of California for non-federally backed loans to students to for-profit career training schools, the Financial Times reported. News Corp. shareholders approved Rupert Murdoch's plan to move his media company to the U.S. from Australia, making it easier to raise money for expansion and allowing the stock to be added to the benchmark S&P 500 Index, Bloomberg reported.

Late-Night Trading
Asian Indices are -1.25% to +.50% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.21%

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on a weaker consumer confidence report. As I have said many times before, the constant barrage of negativity from the media and politicians is having an affect on consumer psychology. However, confidence should head higher in the intermediate-term as the election ends, domestic terrorism fears diminish and hiring improves. Stocks should attempt to rally later in the day on better earnings reports, declining energy prices, short-covering and bargain-hunting.

Monday, October 25, 2004

Monday Close

S&P 500 1,094.80 -.09%
NASDAQ 1,914.04 -.06%


Leading Sectors
Airlines +4.22%
Homebuilders +3.88%
Steel +3.61%

Lagging Sectors
HMOs -.64%
Restaurants -.80%
Biotech -1.27%

Other
Crude Oil 54.35 -1.49%
Natural Gas 7.92 -2.28%
Gold 430.10 +1.06%
Base Metals 111.02 -1.63%
U.S. Dollar 84.97 -1.05%
10-Yr. T-note Yield 3.97% -.10%
VIX 16.58 +8.51%
Put/Call .73 -1.35%
NYSE Arms 1.16 -8.66%

After-hours Movers
PHRM +5.3% after beating 3Q estimates and raising 04 outlook.
NVDA +11.7% after boosting 3Q sales estimate.
MMC +9.4% after CEO Greenberg resigned, 11 days after Spitzer probe was announced.
DAL +6.4% after saying American Express agreed to provide as much as $600 million in financing, including $500 million to prepay for the airline's frequent-flier points.
SLAB -20.7% after meeting 3Q estimates and lowering 4Q guidance substantially.
FLEX -7.5% after missing 2Q estimates and lowering 3Q/4Q guidance.
ATRS -7.1% after missing 3Q estimates and raising 4Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on KO, BC and BSX. Goldman reiterated Underperform on ASH.

After-hours News
U.S. stocks finished slightly lower today as continuing worries over high energy prices, politics and terrorism offset a strong housing report. After the close, Time Warner and Comcast will be allowed to bid together for assets of Adelphia Communications, the Wall Street Journal reported. Japan will take action to prevent a rapid appreciation of the yen as the U.S. dollar declines, Reuters reported. Pitney Bowes, the word's largest maker of postal meters and mailing equipment, said third-quarter profit rose 15% on lower costs and higher sales of software and services, Bloomberg said. American Express said quarterly profit climbed 14% to a record as customers spent more on travel and carried larger loan balances, Bloomberg reported. Boston's wins over St. Louis in the first two games of the World Series, televised by Fox, drew the highest tv ratings for the start of the World Series since 1996, Bloomberg said. Electronic Data Systems said it delayed the release of third-quarter earnings while it reviews the value of a contract with the U.S. Navy, Bloomberg said. Toyota Motor's U.S. auto-loan unit said it will restate financial results for the past three years, raising profit and revenue because some fees paid to dealers were accounted for incorrectly, Bloomberg said.

BOTTOM LINE: The Portfolio had its best day of the year today on substantial strength in my internet, security and steel longs. I did not trade in the afternoon, thus leaving the Portfolio's market exposure at 100% net long. Notwithstanding the small losses in the major indices, most stocks were higher on the day. The VIX is moving up ahead of the election which is also a positive. Any sell-off related to weaker-than-expected economic reports over the next few days should be bought as the U.S. economy is poised to accelerate on the conclusion of the election without terrorism.

Mid-day Update

S&P 500 1,094.30 -.13%
NASDAQ 1,915.61 +.02%


Leading Sectors
Airlines +4.13%
Iron/Steel +3.57%
Homebuilders +3.46%

Lagging Sectors
Restaurants -.62%
I-Banks -.64%
Biotech -1.41%

Other
Crude Oil 55.18 +.02%
Natural Gas 7.97 -1.67%
Gold 430.10 +1.03%
Base Metals 111.02 -1.63%
U.S. Dollar 85.0 -1.01%
10-Yr. T-note Yield 3.95% +-.48%
VIX 16.52 +8.12%
Put/Call .76 +2.70%
NYSE Arms 1.23 -3.15%

Market Movers
GOOG +5.5% on continuing optimism over last week's earnings report.
ONXX -27.2% after the company said it doesn't expect to begin selling an experimental kidney-cancer treatment until 2006.
TXU +13.4% after boosting 05 estimates substantially, announcing 50M share buyback and boosting dividend.
ISG +24.0% Mittal agreed to Buy the company for $4.5B, forming the world's largest steel company.
*Steel stocks up across the board on ISG deal.
ADP +5.5% after beating 1Q estimates.
VFC +7.1% after beating 3Q estimates, raising 4Q outlook and boosting dividend.
JBSS -28.6% on disappointing 1Q earnings.
CNF -6.1% after missing 3Q estimates and lowering 4Q guidance.
*Homebuilding stocks up across the board on strong existing home sales report.

Economic Data
Existing Home Sales for September were 6.75M versus estimates of 6.51M and 6.55M in August.

Recommendations
Goldman Sachs reiterated Outperform on NEM, VLTR, SII and PDG. Goldman reiterated Underperform on FISV, RAI and LSI. Citi SmithBarney upgraded semiconductor sector globally, favorites are INTC, ADI, FCS, IRF, LLTC, MCRL, MXIM, NSM, SMTC. Citi reiterated Buy on CTSH, target $40. Citi reiterated Buy on NE, target $57. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on PLCE, target $40. AIG raised to Buy at Deutsche Bank, target $69. SUP cut to Reduce at UBS, target $22. XL cut to Underweight at Morgan Stanley. OSTK raised to Buy at Legg Mason, target $69. CDX raised to Buy at Bank of America, target $31. ACE raised to Overweight at Morgan Stanley, target $41. IPCR raised to Overweight at JP Morgan. HCA cut to Underperform at CSFB, target $31. PHM raised to Outperform at CSFB, target $55. LRCX added to JP Morgan "Focus List", target $30.

Mid-day News
U.S. stocks are quietly mixed mid-day as a better-than-expected housing report is being offset by declining biotech shares. Delta Air is close to an agreement to give its pilots a big equity stake in return for cuts in pay and benefits, the Wall Street Journal reported. Barney New York plans to open 32 stores in the next five years, almost doubling its size, in hopes of finding a buyer for the company, the NY Post reported. AOL Music's Web site has become an important tool in the recording industry for promoting musicians and records, the NY Daily News said. Constellation Brands may face rivals in its bid to acquire California winemaker Robert Mondavi, the LA Times said. Applied Digital Solutions, which makes implantable chips to track people and pets, may face hurdles in selling chips that instantly provide patients' medical histories, Barron's reported. Deckers Outdoor's Ugg footwear remains in demand by retailers, even as fashion critics claim the sheepskin boots are out of style, the LA Times reported. U.S. Supreme Court Justice Rehnquist has been hospitalized for thyroid cancer, CNN reported. Ispat Intl. NV, part of the world's second-largest steelmaker, said it will buy LNM Holdings NV and then merge with Intl. Steel Group to create the world's largest steelmaker, Bloomberg reported. Violent crime in the U.S. declined 3% last year and has decreased 26% since 1994, according to the FBI's annual crime report. The European Union said it's ending sanctions on $4 billion of U.S. imports in about two months, Bloomberg reported. Norway's government intervened for the second time this year to forcibly end a labor conflict that threatened to shut down all oil and gas production from the world's third-largest crude exporter, Bloomberg said. The $866 billion hedge fund industry is making a last-ditch attempt to stop a U.S. SEC plan to impose new regulations on the private investment partnerships, Bloomberg reported. U.S. sales of previously owned houses rose in September to the third-highest pace on record, evidence that low borrowing costs were attracting buyers and helping sustain the economic expansion, Bloomberg said. RealClearPolitics.com has President Bush with an average national lead in the 3-way race for president of 3.1 percentage points in all major polls.

Bottom Line: The Portfolio is substantially higher mid-day on strength in my security, internet and telecom ADR longs. I added a few new longs this morning, bringing the Portfolio to 100% net long. One of my new longs is OS and I am using a $13.50 stop-loss on this position. The strong housing report is a very good sign for the U.S. economy and once again crushes the Bears hopes for a bursting of the so-called "housing bubble." I continue to expect the U.S. economy to grow around 4% for the 3rd quarter and accelerate to around 5% growth during the 4th quarter as election uncertainty lifts, oil falls in price and domestic terrorism fears diminish. I also believe technology shares will continue to outperform through year-end. It is probable that the major indices are very close or at a bottom for the year. I will look to add market exposure on any weakness through week's end.

Monday Watch

Earnings of Note
Company/Estimate
AFCI/.02
AXP/.69
BLS/.51
CNF/.77
EXBD/.37
EDS/.08
FLEX/.17
HLT/.13
INSP/.25
ISSX/.16
KMB/.90
K/.55
NBR/.46
PBI/.63
PHM/2.00
R/.79
DGX/1.27
ZMH/.53

Splits
CELG 2-for-1
PDCO 2-for-1

Economic Data
Existing Home Sales for September estimated at 6.51M versus 6.54M in August.

Weekend Recommendations
Wall Street Week w/Fortune had guests that were positive on GIS, CL, KO, FNM, GDW, BRK, RMK, MAT, FLDR, LNDC, MUR, CVX, MDX, IMDC,SYD and PDCO. Louis Rukeyser's Wall Street had guests that were positive on XOM, PFE, IBM, CMX, NFX, UNP, ADBL, PWN, PXP, VIP and LUKOY. Barron's had positive comments on WYE, DBD, NUHC, FNM, CMLS, COCO, LH, ESI, IACI and negative comments on PSUN, ARO, DKS. Goldman Sachs reiterated Outperform on UDR, ALL, SLB, IP, SPP, DTC, BBY, EBAY, DD, ROH, DOW, BC and ASN. Goldman reiterated Underperform on AVB, CYT, SIAL, CR and ATI.

Weekend News
Japan may extend loans to the Iraqi oil ministry to help fund oil and gas projects, the Middle East Economic Survey said. San Francisco transit police are for the first time patrolling the city's subway system with assault weapons and gas masks to deter potential terrorists as Election Day nears, the San Francisco Chronicle reported. President Bush may tap Ben Bernanke to replace Alan Greenspan as chairman of the U.S. Federal Reserve and John Kerry might nominate Alan Blinder if he is elected, Barron's said. Hamid Karzai has won the required majority of votes for outright victory in Afghanistan's presidential election, Agence France-Presse reported. Google is not developing a browser and won't enter any browser wars with Microsoft and Yahoo!, the Financial Times said. NY Democratic Attorney General Spitzer may bring a civil lawsuit against Aon Corp., the world's second largest insurance broker, for antitrust violations, the NY Times reported. Nu Skin Enterprises(NUS) expects its China sales to grow as much as 20-fold in three to five years, making the country its biggest international market, China Daily reported. Wal-Mart said U.S. sales at stores open at least a year are rising within its forecast of 2-4%, boosted by boys' and girls' wear and bedding, Bloomberg said. U.S. intelligence and law enforcement authorities said no direct evidence has been found to indicate plans for an election-related terrorist attack, Bloomberg said. The Fed can raise rates at a measured pace because U.S. economic growth is "solid" and rising energy costs haven't yet sparked concern about a broader acceleration of inflation, Fed Governor Susan Bies said. President Bush called on Congress to pass legislation he proposed to comply with guidelines set out by the federal commission studying the intelligence failures that led to the Sept. 11, 2001, attacks, Bloomberg reported. Northwestern Japan was jolted by aftershocks after a series of earthquakes killed 23 and injured more than 2,100, forcing thousands more to seek shelter in the deadliest temblor since 1995, Bloomberg reported. The creation of a U.S. insurance regulator is gaining support in Congress and among consumer groups after Spitzer disclosed his probe of improper sales practices, Bloomberg said.

Late-Night Trading
Asian indices are lower, -1.50% to -.50% on average.
S&P 500 indicated -.42%.
NASDAQ 100 indicated -.48%

BOTTOM LINE: I expect U.S. stocks to open modestly lower in the morning on weakness in Asia, worries over U.S. politics and high energy prices. The Portfolio is 75% net long heading into tomorrow.

Sunday, October 24, 2004

Chart of the Week

Dow Jones Transportation Average


Bottom Line: The Transportation Average reached a 5-year high last week and is now only 11.2% below its all-time high set May 12, 1999. Historically, this index is a leading indicator of economic growth. From 5/12/1999 through 3/8/2000 the index plummeted 40.6%, while the major indices rose, correctly predicting the most devastating broad market decline since the Great Depression and ensuing plunge in economic growth that began in early 2000. The Bears and many media pundits suggestion that high energy prices are pushing the U.S. economy towards recession do not correspond with the strength of this energy-intensive leading index.

Weekly Outlook

There are a number of important economic reports and significant corporate earnings reports scheduled for release this week. Economic reports include Existing Home Sales(Mon.), Consumer Confidence(Tues.), Durable Goods Orders(Wed.), New Home Sales(Wed.), Fed's Beige Book(Wed.), Initial Jobless Claims(Thur.), Continuing Claims(Thur.), 3Q Actual GDP(Fri.), 3Q Actual Personal Consumption(Fri.) and 3Q Actual Price Deflator(Fri.). Existing Home Sales, Consumer Confidence, New Home Sales, Initial Jobless Claims and 3Q Actual GDP all have market-moving potential.

Ryder Systems(R-Mon.), Pulte Homes(PHM-Mon.), DuPont(DD-Tues.), Procter & Gamble(PG-Wed.), Boeing(BA-Wed.), Sirius Satellite(SIRI-Wed.), Unilever(UL-Wed.), Martha Stewart Living(MSO-Thur.), JetBlue Airways(JBLU-Thur.) and Verizon(VZ-Thur.) 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 JP Morgan Small-cap Conference(Mon.), CSFB Building Products Conference(Wed.) and Prudential Technology Conference(Wed.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week modestly higher as shares head lower early in the week and then rebound towards week's end on diminishing domestic terrorism fears, optimism over future economic growth and anticipation of an end to the bitter political rhetoric. My short-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,095.74 -1.12%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Market action last week was mixed as HMO and telecom stocks led the S&P 500 and DJIA lower, while software and semiconductor shares boosted the NASDAQ. Last week was not good for the Bulls, however declines were relatively muted considering energy's continuing rise, a tightening of the Presidential polls, mixed earnings reports and steep declines in the HMO sector. Once again, Democratic NY Attorney General Spitzer's widening insurance probe resulted in major losses for unknowing investors and will undoubtedly lead to future job losses in the HMO industry. As I have stated before, executives should be held more personally liable for any illegal actions and the companies themselves less liable, to minimize job losses and investor pain. It is extremely unfair and is a significant burden on the U.S. economy to punish so many innocent people for the actions of a few rogue executives. On the positive side, interest rates fell again, most commodity prices stabilized, technology/small-caps stocks outperformed and the advance/decline line only fell modestly. Measures of investor anxiety were mixed on the week.

Saturday, October 23, 2004

Economic Week in Review

ECRI Weekly Leading Index 131.60 +.46%

The NAHB Housing Market Index for October rose to 72, the highest in a year, versus estimates of 68 and a reading of 67 in September. The index of optimism among U.S. homebuilders soared in October as mortgage rates hovered near a four-decade low, increasing the likelihood that construction will bolster economic growth, Bloomberg said. Readings higher than 50 mean more builders view conditions as good than poor. The group's index has exceeded 60 for 17 months in a row, Bloomberg reported. A gauge of market expectations for the next six months rose to 84 from 75, the highest level in 5 years. The increase in expectations was the largest in 13 years.

The Consumer Price Index for September rose .2% versus estimates of a .2% increase and a .1% gain in August. The CPI Ex Food & Energy for September rose .3% versus estimates of a .2% rise and a .1% increase in August. A 2.7% jump in the cost of hotel stays and other lodging away from home accounted for about three-fourths of the September increase in the core, the Labor Dept. said. Alan Greenspan said that while high crude oil prices are having an effect on the economy, they aren't high enough to spark inflation and slow growth like the U.S. experienced in prior energy shocks, Bloomberg said. Prices for new automobiles fell .2% and clothing/food prices were unchanged.

Housing Starts for September were 1898K versus estimates of 1950K and 2020K in August. Building Permits for September were 2005K versus estimates of 1950K and 1969K in August. The larger-than-expected decrease suggest the market my have cooled a bit after a buying surge in recent months. However, the pace through September was rapid enough for this year to be the best for home construction since 1978, Bloomberg reported. Some of the dip "likely reflects the impact of hurricanes Frances, Ivan and Jeanne, and will not persist," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Moreover, the 1.8% rise in building permits was the best showing in a few months, indicating construction will be sustained, Bloomberg said. Measured at an annual rate, construction grew 10.4% in the third quarter. "That implies the contribution of housing to GDP will be quite strong," said Gary Bigg, an economist at Bank of America Securities.

Initial Jobless Claims for last week were 329K versus estimates of 345K and 354K the prior week. Continuing Claims were 2798K versus estimates of 2840K and 2806K prior. "Employment is probably growing solidly," said James O'Sullivan, senior economist at UBS Securities. "The bottom line is that the claims numbers are pretty strong." "The job market is getting better and hiring is increasing the most in sales, accounting and healthcare," said Andrew McKelvey, chief executive of Monster Worldwide.

Leading Indicators for September fell .1% versus estimates of a .1% decline and a .3% decrease in August. "We have to get through this election cycle and then I think you will see the business community begin to make decisions on new capital investments and new hiring as we go into next year," said David Ratcliffe, CEO of Southern Co. and chairman of the Atlanta Federal Reserve Bank board. As well, hurricanes that struck the southeast during the month probably acted as a restraint on the leading indicators index because they limited hours worked and pushed up first-time jobless claims, economists said. "We do not view the recent declines in the LEI as signaling any sort of fundamental shift in economic activity," said David Resler, chief economist at Nomura Securities.

The Philadelphia Fed. Index rose to 28.5 in October versus estimates of 18.0 and a reading of 13.4 in September. The survey covers Delaware, eastern Pennsylvania and southern New Jersey. The index reached a 10-year high of 38.8 earlier this year and has exceeded 30 for four months this year, Bloomberg reported. Moreover, the percentage of firms reporting increases in business activity(40%) exceeded the percentage reporting decreases(11%) for the 17th straight month.

Bottom Line: Overall, last week's economic data were modestly positive. The better-than-expected readings for the Housing Market Index and Building Permits suggest housing, already strong, should accelerate into year-end. Core consumer prices continue to rise at a relatively moderate pace, keeping inflation in check. Declining prices for autos, electronics, phone services and clothing are mostly offsetting rising commodity and healthcare prices. Jobless claims are showing improvement in the labor market again after the temporary depressing effects from the record-setting hurricanes that ravaged Florida and other southern states. While the monthly Leading Indicators declined, the Weekly Leading Index rose and should begin heading higher during November as the negative effects from the U.S. election diminish. Measures of manufacturing activity remain high and should also show acceleration in November.

Friday, October 22, 2004

Weekly Scoreboard*

Indices
S&P 500 1,095.74 -1.12%
Dow 9,757.81 -1.77%
NASDAQ 1,915.14 +.19%
Russell 2000 567.78 -.29%
S&P Equity Long/Short Index 971.14 +.02%
Put/Call .74 -15.91%
NYSE Arms 1.27 -9.29%
Volatility(VIX) 15.28 +1.60%
AAII % Bulls 42.48 -4.99%
US Dollar 85.87 -1.47%
CRB 286.55 +.34%

Futures Spot Prices
Gold 425.60 +1.29%
Crude Oil 55.17 +2.26%
Unleaded Gasoline 143.76 +1.89%
Natural Gas 8.11 +20.79%
Heating Oil 159.44 +3.0%
Base Metals 112.86 -1.46%
10-year US Treasury Yield 3.98% -1.95%
Average 30-year Mortgage Rate 5.74% -1.37%

Leading Sectors
Semis +3.62%
I-Banks +2.95%
Software +2.88%

Lagging Sectors
Telecom -3.81%
Iron/Steel -5.59%
HMOs -8.15%

*% Gain or loss for the week

Mid-day Update

S&P 500 1,104.43 -.19%
NASDAQ 1,937.20 -.84%


Leading Sectors
HMOs +1.65%
Hospitals +1.55%
Utilities +1.0%

Lagging Sectors
Computer Services -1.23%
Telecom -1.35%
Semis -2.16%

Other
Crude Oil 55.29 +1.52%
Natural Gas 8.07 +4.85%
Gold 425.80 +.05%
Base Metals 112.86 -.86%
U.S. Dollar 85.95 -.09%
10-Yr. T-note Yield 4.0% +.24%
VIX 14.43 -.89%
Put/Call .64 -17.95%
NYSE Arms .85 -23.21%

Market Movers
BRCM -12.0% after beating 3Q estimates, lowering 4Q guidance and multiple downgrades.
GOOG +16.9% after beating 3Q revenue estimates substantially.
AMZN -11.4% after missing 3Q estimates and lowering 05 outlook.
ERICY -8.5% after beating 3Q estimates and raising 4Q outlook.
GILD -6.5% after beating 3Q estimates, but missing optimistic estimates.
MMC +5.2% on speculation CEO Greenberg may be forced to quit, clearing the way for settlement talks with Spitzer.
XXIA +29.1% after beating 3Q estimates and Needham upgrade to Strong Buy.
APTM +17.9% on strong 3Q results.
AFCO +12.2% after beating 1Q estimates and raising 2Q guidance.
MCK +11.23% after beating 2Q estimates substantially and JP Morgan upgrade to Overweight.
SYNA +14.0% after beating 1Q estimates and raising 2Q outlook.
TRDO +13.5% after beating 3Q estimates substantially, reiterating 4Q outlook and Morgan Keegan upgrade to Outperform.
OSTK +18.2% after beating 3Q estimates, optimism over auction biz and short-squeeze.
KAR +10.1% after beating 3Q estimates.
WEBX -18.6% after meeting 3Q estimates and lowering 4Q guidance.
EYE -12.3% after missing 3Q estimates and lowering 4Q outlook.
IFIN -14.6% after lowering 04 guidance and Hibernia Southcoast downgrade to Sell.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Underperform on CR, T, FISV and Outperform on KLAC, GILD, AMGN, XRX, GDT, SBC, HOT, SPG, MSFT, BAX. Citi SmithBarney initiated UTSI with a Buy, target $26. Citi reiterated Buy on BLS, target $32. Citi reiterated Buy on VZ, target $43. Citi reiterated Buy on MSFT, target $33. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on CEY, target $44. Citi reiterated Sell on MEDI, target $19. Citi reiterated Buy on FDRY, target $15. Citi reiterated Buy on TXT, target $78. Citi reiterated Buy on ITT, target $92. Citi reiterated Buy on ACS, target $70.

Mid-day News
U.S. stocks are modestly lower mid-day as the technology sector consolidates recent gains. The U.S. may seek to devalue the dollar against Asian currencies to ease trade deficits with China and other countries in the region, the NY Times reported. Iran's efforts to develop nuclear weapons and the capability of its missiles to reach Israel may prompt Israel to use preemptive military strikes, the LA Times said. Former U.S. President Bill Clinton wants to be secretary-general of the United Nations when Kofi Annan's term ends in 2006, UPI reported. President Bush is considering several changes to his cabinet if re-elected, including shifting National Security Adviser Condoleezza Rice to run the Defense Department, the Washington Post reported. Demand for homes prices at $1 million and above in the San Francisco Bay Area remained strong in the third quarter as people sold and traded up, the San Francisco Chronicle said. San Francisco city workers were forced to campaign for Gavin Newsom before he was elected mayor in 2003, and threatened with loss of pay if they didn't help, the San Francisco Chronicle reported. California received a shipment of 271,740 doses of flu vaccine yesterday and will begin distributing the new supply Monday to county health departments, the San Francisco Chronicle said. Nextel Communications said third-quarter sales rose 18% and it boosted its 2004 forecast, Bloomberg reported. HCA, the largest U.S. hospital chain, said third-quarter profit fell 26% as payment increases for each admission slowed and collections from uninsured patients declined, Bloomberg reported. Crude oil futures are rising in NY after the release of a report showing that the Chinese economy grew more than expected last quarter, Bloomberg said. Shares of Google surged as much as 26% after quarterly profit more than doubled and the company said the market for Internet advertising shows no signs of slowing, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as significant strength in my internet and security longs is offsetting weakness in my semi and semi-equipment longs. I have not traded and the Portfolio remains 125% net long. While the tone of the market is slightly negative today, most sectors are higher outside of technology. Consolidation of recent gains in tech is warranted and healthy. As well, the action in shares of Google will likely generate more interest by the public in the overall market. Finally, it appears that investors are not as fixated on the rising price of oil which is a big positive. I expect U.S. stocks to trade mixed into the close as short-covering and bargain-hunting offset rising energy prices.

Friday Watch

Earnings of Note
Company/Estimate
AEE/1.29
BLC/.30
FO/1.18
HCA/.48
JBHT/.55
NTE/.26
NANO/.14
NXTL/.38
PLUG/-.16
SLB/.53
SUP/.20
WY/1.40

Splits
None of note.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on DHR, MCK, TPX, UPS, PFE, ACS and Underperform on ELX, EW.

Late-Night News
Asian indices are higher on optimism over economic reports from Japan and China. New York State Attorney General Eliot Spitzer is considering criminal charges against William Gilman and other insurance brokerage executives from Marsh & McLennan, Business Week reported. George Economou, a Greek shipowner, plans to sell shares in a company that owns 15 so-called dry-bulk carriers on Nasdaq, Lloyd's List reported. New York Attorney General Spitzer has served subpoenas on four record companies as part of a probe into practices that may influence what songs are played on public radio, the NY Times said. 12,000 people, .04% of the 25.4 million Iraqi population, are part of the hard-core resistance in Iraq, the NY Times reported. Japan's services industry activity expanded in August as corporations increased spending on software and computer systems, Bloomberg reported. More than 62% of the estimated 8 million votes have been counted in Afghanistan with President Hamid Karzai leading with 56% of the vote, according to the election web site. China's industrial production grew 17% in the first nine months of the year, the government said in Beijing. China's economy expanded 9.5% in the first nine months of the year, the government said in Beijing, as lending restrictions curbed investment, Bloomberg reported. John Kerry took time to hunt geese in Ohio yesterday, hoping to attract the vote of sportsmen in the state, Bloomberg reported. BHP Billiton, the world's largest mining company, said it expects demand from China and India to keep commodity prices relatively high in the coming months, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated -.20%

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning and then rise later in the day, led by technology shares, on short-covering, bargain-hunting and better earnings reports. The Portfolio is 125% net long heading into tomorrow.

Thursday, October 21, 2004

Thursday Close

S&P 500 1,106.49 +.26%
NASDAQ 1,953.62 +1.07%


Leading Sectors
Airlines +4.21%
Semis +3.97%
Internet +3.22%

Lagging Sectors
Telecom -1.06%
HMOs -2.0%
Disk Drives -2.03%

Other
Crude Oil 54.47 unch.
Natural Gas 7.70 unch.
Gold 425.60 unch.
Base Metals 113.84 +1.05%
U.S. Dollar 86.09 +.08%
10-Yr. T-note Yield 3.99% +.38%
VIX 14.54 -2.09%
Put/Call .78 -10.34%
NYSE Arms 1.12 +.90%

After-hours Movers
GOOG +7.98% after beating 3Q revenue estimates substantially.
NAV -4.97% after saying the SEC requested information on its pension-fund accounting.
AMZN -8.94% after missing 3Q estimates and lowering 05 outlook.
BRCM -4.33% after beating 3Q estimates and lowering 4Q guidance.
SYNA +9.85% after beating 1Q estimates and raising 2Q outlook.
MCK +4.87% after beating 2Q estimates substantially.
WEBX -10.49% after meeting 3Q estimates and lowering 4Q guidance.

Recommendations
Goldman Sachs reiterated Outperform on IR, GLK, ALK and CAT. Goldman reiterated Underperform on SGP. Shares of Sysco(SYY), North America's largest food-service distributor, may rise about 30% when the U.S. economy improves and oil prices decline, Business Week reported. Mine Safety Appliances(MSA), which makes and sells body-protection gear in 120 countries, is expected to further benefit from spending on security, Business Week reported. Transocean(RIG), which specializes in drilling for oil in deep water and harsh environments, may see a boost in business because of higher oil prices, Business Week reported.

After-hours News
U.S. stocks finished mostly higher today on continuing strength in the technology sector. After the close, Oregon and other U.S. states may establish new rules meant to force insurance brokers to disclose fees they get for selling policies, following a decision by California to do so, Dow Jones reported. Microsoft said first-quarter profit rose 11% as sales of Windows corporate network software increased, Bloomberg said. Boeing said it has received a request from the SEC related to the way it accounts for pension and other retirement-benefit plans, Bloomberg said. Google said net income more than doubles to $52 million after sales of Web advertising rose, Bloomberg said. Intel canceled plans to develop new chips for large, flat-panel televisions, Bloomberg reported. Amazon said 2005 sales will trail analyst estimates, sending its shares lower after-hours, Bloomberg said. MedImmune will deliver another 1 million doses of its FluMist nasal spray flu vaccine to help ease a U.S. shortage, after restarting a Philadelphia plant, Bloomberg reported. Lehman Brothers, the most accurate forecaster of exchange rates in the third quarter, predicts the dollar will decline to $1.32 per euro in a year from $1.26 today, Bloomberg said.

BOTTOM LINE: The Portfolio finished substantially higher today on strength in my internet, semiconductor and software longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market improved throughout the day as volume increased and the advance/decline finished at its daily highs. While trading over the near-term could be choppy, I continue to believe stocks will begin moving meaningfully higher before the election and longer-term investors should use any weakness to build positions in favorite longs. I also still believe technology stocks will outperform throughout the quarter.

Mid-day Update

S&P 500 1,100.54 -.28%
NASDAQ 1,936.81 +.20%


Leading Sectors
Airlines +3.28%
Semis +2.48%
Software +2.25%

Lagging Sectors
Telecom -1.61%
HMOs -1.68%
Disk Drives -2.98%

Other
Crude Oil 54.40 -.02%
Natural Gas 7.82 +2.45%
Gold 424.90 +.02%
Base Metals 113.84 +1.05%
U.S. Dollar 85.97 -.44%
10-Yr. T-note Yield 3.98 -.05%
VIX 15.05 +1.28%
Put/Call .85 -2.30%
NYSE Arms 1.30 +17.12%

Market Movers
VRSN +18.7% after beating 3Q estimates, raising 4Q outlook and 05 guidance.
CTXS +12.9% after beating 3Q estimates and raising 4Q guidance.
ALTR +6.0% after beating 3Q estimates.
ALGN -32.0% after missing 3Q estimates.
EBAY +7.0% after beating 3Q estimates and giving positive guidance.
RST +23.7% after Blackstone Group LP agreed to buy it for about $1.25 billion.
AVCT +15.3% after beating 3Q estimates.
GOOG +4.7% on optimism over 3Q report after the close.
MHK +7.4% after beating 3Q estimates substantially and reiterating 4Q guidance.
LM +9.4% after beating 2Q estimates.
CAI +7.9% after beating 1Q estimates and raising 2Q outlook.
SYMC +7.5% after beating 2Q estimates, announcing 2-for-1 split and boosting stock buyback program.
MACR +12.7% after beating 2Q estimates and raising 3Q outlook.
CTXS +12.3% after beating 3Q estimates and raising 4Q guidance.
ALDN +12.8% after beating 3Q estimates and raising 4Q guidance.
WSH +7.3% after saying the company found no evidence of bid-rigging that rival Marsh & McLennan was accused of last week.
IMN -14.3% after missing 3Q estimates and lowering 4Q outlook.
DV -26.0% after missing 1Q estimates and multiple downgrades.
ADS -14.3% after missing 3Q estimates and lowering 04 outlook.
CDI -14.6% after missing 3Q estimates and multiple downgrades.
S -7.8% after missing 3Q estimates and lowering 04 outlook.
RARE -7.4% after meeting 3Q estimates and lowering 4Q and 1Q guidance.

Economic Data
Initial Jobless Claims for last week were 329K versus estimates of 345K and 354K the prior week.
Continuing Claims for last week were 2798K versus estimates of 2840K and 2806K prior.
Leading Indicators for September fell .1% versus estimates of a .1% decline and a .3% decrease in August.
Philly Fed. for October was XX.X versus estimates of 18.0 and a reading of 13.4 in September.

Recommendations
Goldman Sachs reiterated Outperform on AMGN, BAX, UST, UNH, UPS, CAT, SYMC, HOT, CIT, IR, SUN and Underperform on VRSN, S and SGP. Citi SmithBarney upgraded INTX to Buy, target $18. Citi upgraded EBAY to Buy, target $115. Citi reiterated Buy on AMGN, target $90. Citi reiterated Buy on BRCD, target $8.25. Citi reiterated Buy on EXTR, target $11. Citi reiterated Buy on PTV, target $27. Citi reiterated Buy on NWL, target $25. Citi reiterated Buy on DIS, target $30. Citi reiterated Buy on BG, target $50. Citi reiterated Buy on BK, target $37. Citi reiterated Buy on ACL, target $77. Citi reiterated Buy on JPM, target $46. Citi reiterated Buy on MOLXA, target $32. Citi reiterated Buy on TER, target $19. Citi reiterated Buy on RYL, target $125. STI raised to Buy at Bank of America, target $74. DVA rated Buy at Bank of America, target $38. RCI rated Buy at Bank of America, target $37. MNST raised to Overweight at Morgan Stanley. STZ raised to Buy at Legg Mason, target $46. CL raised to Buy at Merrill Lynch, target $50. TDS cut to Underweight at JP Morgan. USM cut to Underweight at JP Morgan. FSL rated Underweight at JP Morgan.

Mid-day News
U.S. stocks are quietly mixed mid-day as strength in the technology sector is being offset by continuing legal worries in the insurance industry. China's government is encouraging the country's companies to invest in Canada's resource industry to obtain raw materials needed to fuel its growth, the Globe and Mail reported. Wal-Mart Stores canceled an order for a book by Jon Stewart and the writers of "The Daily Show" after executives found it contained phony, naked pictures of U.S. Supreme Court justices, the AP reported. LA City Council approved an $11 billion proposal to update LA Intl. Airport by relocating runways, adding terminals and building a central passenger check-in facility, the LA Times said. Rents in San Francisco, which dropped for the past four years, are climbing as an improving job market boosts demand for apartments, the San Francisco Chronicle said. Massachusetts will add a type of hologram and other new features to driver licenses to thwart terrorists and identify theft, the Boston Globe reported. UPS, the world's largest package-delivery company, said third-third quarter net income rose 20% to $890 million, Bloomberg reported. U.K. Prime Minister Blair will redeploy 850 troops now in southern Iraq to a region controlled by U.S. forces, Bloomberg reported. Caterpillar said third-quarter net income more than doubled as global economic improvement helped sales of its mining trucks and excavators, Bloomberg reported. The number of Americans filing first-time jobless claims declined to the lowest level in six weeks, suggesting an improving labor market, Bloomberg said. Donald Trump's Trump Hotels & Casino Resorts said it will seek Chapter 11 bankruptcy protection as part of an agreement with bondholders to reduce debt by $400 million, Bloomberg reported. The Federal Reserve Bank of Philadelphia's gauge of manufacturing in the region rose to 28.5 in October, substantially above economists' expectations, from 13.4 the month before, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on strength in my internet, software and semi longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is positive today as most stocks are higher and volume is above average. As well, most measures of investor anxiety are rising, interest rates are falling and technology stocks continue to outperform. I continue to believe the recent consolidation in the major U.S. indices is a last chance for investors to acquire stocks at discount prices this year. Equities should begin to moving meaningfully higher next week and throughout the remainder of the quarter as investors begin to anticipate an acceleration of economic growth as a result of the conclusion of the election, diminishing domestic terrorism fears, corporate tax incentives, year-end budget flushes and low interest rates. These factors should allow most companies to substantially exceed recently lowered fourth quarter estimates.

Thursday Watch

Earnings of Note
Company/Estimate
ADVS/.02
AMZN/.17
AIG/.98
BRCM/.34
BEBE/.27
CAT/1.36
CLS/.08
CELG/.19
KO/.47
DECK/1.36
LLY/.68
GILD/.21
GOOG/.56
HYSL/.31
GDT/.60
IR/1.16
MSFT/.30
MCHP/.29
MYG/.18
KRB/.56
MRK/.71
MEDI/-0.21
MCK/.24
OSTK/-.20
PSFT/.14
TDW/.30
UPS/.72
XLNX/.23

Splits
None of note.

Economic Data
Initial Jobless Claims for last week estimated at 345K versus 352K the prior week.
Continuing Claims estimated at 2840K versus 2845K prior.
Leading Indicators for September estimated down .1% versus down .3% in August.
Philadelphia Fed. for October estimated at 18.0 versus 13.4 in September.

Recommendations
Goldman Sachs reiterated Outperform on ALL, FS, EBAY, HOT, MERQ, GLK, UTX and Underperform on OMI, RNWK, SLG, CVD, EK, AZR.

Late-Night News
Asian indices are mixed as strength in Taiwan is being offset by weakness in Japan. ID Biomedical said it is talking with the FDA about importing 1.2 million surplus doses of flu shots into the U.S. from Canada, Bloomberg reported. The U.K. will grant a U.S. request for 650 British troops to be redeployed in Iraq to an area south of Baghdad, the Financial Times reported. Donald Trump is planning to allow bondholders to take control of his Trump Hotels & Casino Resorts rather than take the private or seek investors, the Deal.com reported. STMicroelectronics NV, Europe's biggest semiconductor maker, said fourth-quarter sales may not rise from the third period, citing "uncertainty" in the market for mobile phones, Bloomberg said. Japanese exports accelerated in September, easing concern that record oil prices are curbing overseas demand for the nation's semiconductors, flat-panel screens and digital cameras, Bloomberg reported. Coca-Cola raised the average price of soft drinks last quarter, prompting consumers to switch to less costly PepsiCo drinks and store brands like Wal-Mart's Dr. Thunder, Bloomberg said.

Late-Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.28%

BOTTOM LINE: I expect U.S. equities to open higher in the morning, led by technology shares, on short-covering, bargain-hunting and better earnings reports. The Portfolio is 125% net long heading into tomorrow.

Wednesday, October 20, 2004

Wednesday Close

S&P 500 1,103.66 +.04%
NASDAQ 1,932.97 +.52%


Leading Sectors
Oil Service +3.35%
HMOs +2.72%
Energy +2.18%

Lagging Sectors
Internet -.77%
Banks -.80%
Airlines -1.23%

Other
Crude Oil 54.92 +3.06%
Natural Gas 7.62 +6.98%
Gold 425.00 +.05%
Base Metals 112.66 -.49%
U.S. Dollar 86.35 -.56%
10-Yr. T-note Yield 3.98% -1.29%
VIX 14.85 -1.85%
Put/Call .87 -6.45%
NYSE Arms 1.11 -18.38%

After-hours Movers
MERQ +4.54% after beating 3Q estimates and raising 4Q guidance.
VRSN +7.36% after beating 3Q estimates, raising 4Q outlook and 05 guidance.
MACR +7.55% after beating 2Q estimates and raising 3Q guidance.
TSRA +8.30% after beating 3Q estimates and raising 4Q outlook.
CTXS +8.56% after beating 3Q estimates and raising 4Q guidance.
DRIV +3.96% after beating 3Q estimates, raising 4Q, 04 and 05 outlooks.
EBAY +3.11% after beating 3Q estimates and giving positive guidance.
POWI -4.89% after beating 3Q estimates and lowering 4Q guidance.
ERES -19.79% after missing 3Q estimates, lowering 4Q and 05 outlooks.
EPIC -7.93% after beating 3Q estimates substantially and reiterating 4Q and 05 guidance.

Recommendations
Goldman Sachs reiterated Outperform on PFE, MERQ, SYMC, EBAY and AMGN. Goldman reiterated Underperform on TER and VRSN.

After-hours News
U.S. stocks finished modestly higher today on a late-afternoon rally, led by energy stocks and a rebound in healthcare shares. After the close, Walt Disney's ABC tv network won't broadcast the Miss America beauty pageant next year, leaving the contest without a network TV contract for the first time in 50 years, the AP reported. T-Online Intl. AG said it plans to develop a product to compete with Apple Computer's iPod music player, the Financial Times Deutschland said. Scientists say they've fine-tuned the map of the human genome and improved the understanding of the genetic roosts for disorders including breast cancer and diabetes, according to a study in the Oct. 21 issue of the journal Nature. The UN hasn't sent enough election experts to help prepare the country for voting planned for January to choose a new government, Iraqi Foreign Minister Zebari said. PeopleSoft's founder Duffield opposes a possible sale to Oracle and plans acquisitions to expand the company and increase its price tag, the Financial Times Deutschland said. The growing number of obese Americans and the rising cost of caring for them is responsible for 27% of the increases in health-care costs since 1987, according to a study in the journal Health Affairs. EBay said third-quarter earnings surged 77% as the number of listings rose and the company expanded its PayPal e-mail payment service in Europe, Bloomberg said. A Blackstone Group LP affiliate agreed to buy Boca Resorts, an owner of luxury resorts in Florida, for about $1.25 billion, Bloomberg reported.

BOTTOM LINE: The Portfolio finished modestly higher today as strength in my retail and semiconductor longs more than offset weakness in my wireless and Russian ADR longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market improved substantially throughout the day even as energy prices rose and earnings worries persisted. Today was likely very disappointing for the Bears and should spur further short-covering. If after-hours trading is any indication, tomorrow should be a good day for the Bulls.