Wednesday Watch

Late-Night News
Asian indices are mostly higher on gains in technology and commodity-related shares in the region. Delta Air Lines aims to get "within 10%" of the cost structure of low-cost carriers by 2006, the Financial Times said. Venezuelan President Chavez said he intends to sell the country's interests in eight US oil refineries owned through Citgo Petroleum, the Wall Street Journal reported. North Korea most likely sold the processed uranium, used in atomic weapons, to Libya that was confiscated nine months ago, the NY Times said. Nissan Motor and Hyundai Motor sold more cars and trucks in the US in January, giving Asian automakers a record share of the world's largest vehicle market, Bloomberg said. Aluminum and zinc prices will probably rise the most among base metals this year because of a lack of raw material and disruptions at refineries in China, Citigroup analysts said. Howard Dean, former Vermont governor and presidential candidate, appears to be on the verge of becoming the new leader of the Democratic National Committee after one of his opponents dropped out of the race, the NY Times said. President Bush's 40-minute state of the union address Wednesday night will equally focus on domestic and foreign issues, Bloomberg reported.

Late Recommendations
Goldman Sachs: Reiterated Outperform on DKS, AIG and UDR. Reiterated Underperform on OMI and UCL. Reiterated Outperform on GOOG, raised estimates 25% and increased implied value to $265.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.23%.

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

Earnings of Note
Company/Estimate
ATK/1.16
AMZN/.40
ALL/1.40
BUD/.39
BA/.05
CMI/2.08
DUK/.24
CVS/.55
HET/.66
LIN/.97
MERQ/.38
NOC/.81
PHM/3.05

Splits
MCRS 2-for-1
WWW 3-for-2

Economic Data
FOMC expected to raise the Fed Funds Rate 25 basis points to 2.50%.

BOTTOM LINE: I expect US equities to open modestly higher in the morning on strength in technology stocks and lower energy prices. Stocks may add to gains later in the day on optimism over the possibility of meaningful US reforms, short-covering, declining long-term interest rates, less hawkish Fed comments and strong earnings reports. The Portfolio is 100% net long heading into tomorrow.

Tuesday Close

Indices
S&P 500 1,189.41 +.69%
Dow 10,551.94 +.59%
NASDAQ 2,068.70 +.30%
Russell 2000 628.14 +.66%
DJ Wilshire 5000 11,709.38 +.71%
S&P Barra Growth 571.52 +.70%
S&P Barra Value 613.61 +.67%
Morgan Stanley Consumer 585.33 +.33%
Morgan Stanley Cyclical 760.30 +.85%
Morgan Stanley Technology 475.25 +.34%
Transports 3,605.73 +.20%
Utilities 345.40 +.56%
Put/Call .90 +32.35%
NYSE Arms .96 +9.09%
Volatility(VIX) 12.03 -6.16%
ISE Sentiment 181.00 +16.77%
US Dollar 83.45 -.14%
CRB 283.91 -.30%

Futures Spot Prices
Crude Oil 47.11 -.02%
Unleaded Gasoline 131.65 +.08%
Natural Gas 6.33 +.22%
Heating Oil 131.35 -.03%
Gold 422.80 -.02%
Base Metals 121.52 -1.09%
Copper 141.50 -.07%
10-year US Treasury Yield 4.13% +.24%

Leading Sectors
HMOs +2.50%
Gaming +2.22%
Energy +1.64%

Lagging Sectors
Computer Services -.03%
Restaurants -.28%
Internet -.64%

After-hours Movers
GOOG +9.61% after substantially beating 4Q estimates.
PACR +19.24% after beating 4Q estimates.
NWRE +14.35% after beating 2Q estimates and giving positive 05 guidance.
MFLX +7.94% after beating 1Q estimates and raising 2Q outlook.
ASKJ +4.83% on GOOG report.
NVDA +4.28% after boosting 4Q estimates substantially.
MNST -9.05% after beating 4Q estimates, lowering 1Q outlook and maintaining 05 guidance.
SFNT -5.03% after meeting 4Q estimates, lowering 1Q guidance and maintaining 05 outlook.
CLZR -17.36% after missing 2Q estimates and lowering 3Q guidance.

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

Afternoon Recommendations
-Goldman Sachs: Reiterated Outperform on RE, AGN, GOOG and IR. Reiterated Underperform on AG, DE and CNH.

After-hours News
US stocks finished modestly higher today on good earnings reports, mixed economic data and lower energy prices. After the close, the Medicare prescription-drug program will pay for Pfizer’s Viagra and other pharmaceuticals designed to improve sexual performance, the LA Times reported. Iraqi Kurds hold the balance of power in Iraq and “will be the arbiters of many key” political decisions, the Financial Times said. Techfaith Wireless Communication Technology, a mobile-phone design house founded by a group of former Motorola engineers, is planning a NASDAQ listing to raise $175 million in April, the South China Morning Post reported. Google said fourth-quarter profit rose sevenfold as it sold more advertising and attracted greater numbers of Web surfers to its sites, Bloomberg reported. The US disputed the central finding of a UN report yesterday that wouldn’t call the mass killings in Darfur, Sudan, genocide, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my internet, telecom and networking longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market improved modestly into the afternoon, however today’s overall performance was a bit disappointing for the bulls as volume was again light and the advance/decline line remained relatively weak. However, the market, and specifically internet stocks, is responding well to Google’s report after the close. I expect US stocks to continue heading modestly higher in the near-term on increased optimism, more dovish Fed comments, lower energy prices, increasing fund inflows, low long-term interest rates and strong earnings reports.

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Mid-day Report

Indices
S&P 500 1,187.92 +.56%
Dow 10,547.21 +.55%
NASDAQ 2,067.83 +.26%
Russell 2000 626.55 +.41%
DJ Wilshire 5000 11,693.44 +.57%
S&P Barra Growth 570.74 +.57%
S&P Barra Value 612.96 +.57%
Morgan Stanley Consumer 584.66 +.22%
Morgan Stanley Cyclical 759.05 +.68%
Morgan Stanley Technology 475.24 +.31%
Transports 3,607.73 +.26%
Utilities 344.78 +.38%
Put/Call .86 +26.47%
NYSE Arms .85 -3.41%
Volatility(VIX) 12.41 -3.20%
ISE Sentiment 173.00 +11.61%
US Dollar 83.56 -.01%
CRB 283.91 -.30%

Futures Spot Prices
Crude Oil 47.73 -.98%
Unleaded Gasoline 133.25 -1.12%
Natural Gas 6.34 +.38%
Heating Oil 133.10 -1.27%
Gold 422.40 -.40%
Base Metals 121.52 -1.09%
Copper 141.50 -1.39%
10-year US Treasury Yield 4.12% -.09%

Leading Sectors
HMOs +2.24%
Homebuilders +1.52%
Gaming +1.37%

Lagging Sectors
Restaurants -.35%
Broadcasting -.46%
Internet -.46%

Market Movers
ARBA -28.7% after missing 1Q estimates.
AXP +5.66% after saying it plans to spin off its 12,000-broker financial-advisory unit and Merrill Lynch upgrade to Buy.
CTMI +17.11% after substantially beating 1Q estimates, raising 2Q/05 guidance and Piper Jaffray upgrade to Outperform.
AGI +15.64% after missing 2Q estimates and making positive comments on rest of 05.
ZMH +8.62% after beating 4Q estimates and raising 05 guidance.
SRX +8.95% after beating 2Q estimates, raising 3Q/05 guidance and multiple upgrades.
VLO +7.66% after beating 4Q estimates substantially and raising 05 guidance.
JNC +10.8% after a Morningstar analyst said it may benefit from the sale of a 79% stake by St. Paul Travelers.
ASD +6.54% after beating 4Q estimates and raising 05 guidance.
SIE +5.24% after beating 4Q estimates and widening 05 guidance.
ISSX -9.93% after beating 4Q estimates and widening 1Q/05 guidance.
CME -10.43% after missing 4Q estimates and saying it is considering acquisitions.
MAN -9.74% after meeting 4Q estimates and lowering 1Q guidance.
RCL -5.34% after meeting 4Q estimates and lowering 1Q outlook.
WMS -9.86% after missing 2Q estimates and raising 3Q/05 guidance.
ATRS -7.44% on profit-taking after beating 4Q estimates.
VLTR -10.13% on profit-taking after beating 4Q estimates.

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

Economic Data
-Construction Spending for December rose 1.1% versus estimates of a .5% increase and an upwardly revised .3% gain in November.
-ISM Manufacturing for January fell to 56.4 versus estimates of 57.0 and a downwardly revised reading of 57.3 in December.
-ISM Prices Paid for January fell to 69.0 versus estimates of 71.5 and a reading of 72.0 in December.

Recommendations
-Goldman Sachs: Reiterated Outperform on MERQ, DIS, AVP, IR, TYC and BSX. Reiterated Underweight on Semi Equipment stocks.
-Citi SmithBarney: Reiterated Sell on XOM, target $47.50. Reiterated Sell on ONB, target $17. Reiterated Buy on KBH, target $141. Reiterated Sell on AFL, target $35. Reiterated Buy on WYE, target $45.
-Banc of America: Upgraded CNP to Buy, target $13. Upgraded BHE to Buy.
-UBS: Raised MCK to Buy, target $41.
-CIBC: Raised WYE to Sector Outperform, target $45. Raised WIND to Sector Outperform, target $16.
-Thomas Weisel: Raised FON to Outperform.
-Bear Stearns: Raised XOM to Outperform, target $60. Raised HHS to Outperform, target $30.
-Prudential: Raised N to Overweight, target $38.
-Merrill Lynch: Raised ARO to Buy, target $34.
-Raymond James: Rated CNF Strong Buy, target $57.

Mid-day News
US stocks are modestly higher mid-day on lower energy prices, more optimism and declining long-term interest rates. Medicare has started a pilot program to pay some physicians bonuses to curtail costs, the Wall Street Journal reported. United Technologies is close to an agreement to buy Boeing’s Rocketdyne rocket-engine unit, the Wall Street Journal reported. Sun Microsystems is expanding and modifying programs to sell computing services and software on a utility-style basis, the Wall Street Journal reported. Merrill Lynch will buy a $30 million minority stake in a Beijing real-estate project, marking the securities firm’s first investment in Chinese property, the Wall Street Journal reported. Hewlett-Packard says it’s developed a technology that could help to replace the transistor, the smallest building block of the computer, the Wall Street Journal reported. Home Depot will work with Mark Burnett, who created reality tv shows such as “Survivor” and “The Apprentice,” to develop programs to help with its branding image, the Wall Street Journal reported. Google has started giving out an award potentially valued at millions of dollars to employees who work on outstanding projects, the NY Times reported. Iraqi interim President Ghazi al-Yawar today said the withdrawal of US-led troops is being discussed, and that the country’s security problems won’t escalate into a civil war, Bloomberg reported. US construction spending rose 1.1% in December, more than expected, to $1.032 trillion at an annual rate, as residential, office and highway building increased, Bloomberg said. The growth rate of US manufacturing slowed for a second month in January, the ISM report showed. Ford Motor, Toyota Motor and Honda Motor’s US car and truck sales fell in January as buyers backed off after December’s industry rate was the highest in three years, Bloomberg reported. Shareholders of Adolph Coors approved a $3.4 billion merger with Canada’s Molson as the two family-controlled companies try to keep pace with larger rivals, Bloomberg reported.

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my internet and semiconductor longs. I exited a few technology longs this morning as they hit stop-losses, thus bringing the Portfolio to 100% net long. The tone of the market is modestly positive as the advance/decline line is mildly higher, most sectors are gaining and volume is better. However, measures of investor anxiety are mostly lower and some market leaders are weak. Energy prices will likely fall further tomorrow on the government inventory reports. I expect US stocks to rise modestly into the close on more optimism, short-covering and bargain-hunting ahead of the Fed rate decision, State of the Union and earnings reports.

Tuesday Watch

Late-Night News
Asian indices are mostly lower as gains in Australia are more than offset by losses in Korea and Hong Kong. InterContinental Hotels Group Plc may sell $1.9 billion worth of UK hotel assets to Lehman Brothers Holdings, the London-based Times said. US venture capitalists raised $17.6 billion from investors in 2004, exceeding the combined amount raised in the previous two years, the Financial Times said. China will add 43 million metric tons of new steel production capacity this year, the Shanghai Securities News reported. Motorola bought a stake in researcher T3G Technologies to help the company commercialize China's high-speed third-generation wireless service, the Beijing Times reported. Libya will offer 40 oil permits in March to attract companies that didn't receive licenses in last week's oil exploration auction, the Financial Times said. Time Warner's Warner Bros. International Cinemas has teamed up with a fourth partner in China to tap the growing market for movie entertainment, Xinhua News Agency said. General Motors, which may be forced to buy the 90% of Fiat Auto it doesn't already own, will settle with Fiat SpA to avoid a legal fight that would hurt both auto companies, Bloomberg reported. A court-appointed law professor filed a plan that would allow investors who lost money due to biased Wall Street research to share a $433 million settlement early next year, Bloomberg said. Vietnam should allow political and religious figures to express their views, the US State Department said after Vietnam announced an amnesty for prisoners, Bloomberg reported. Citigroup CEO Prince is withdrawing from insurance underwriting, seven years after his predecessor, Sanford Weill, said it was crucial to creating the world's largest financial-services firm, Bloomberg said. The Pentagon plans to assign as many as 10,000 US combat troops to Iraqi military units to serve as instructors and advisers in an effort to speed up and improve their training, said Lieutenant General Petraeus, the top US commander training Iraqi troops. Iraq plans to invest $3 billion in its oil industry this year to boost production by as much as 45% to 2.9 million barrels a day by Dec. 31, Al-Hayat reported. China may ease the yuan's fixed-exchange rate to the dollar by the end of June and manage the currency against a trade-weighted basket of currencies, Lehman Brothers' senior economist said.

Late Recommendations
Goldman Sachs: Reiterated Outperform on WAG, DO, RIG and CL. Reiterated Underperform on ATI, AVB and CVH.

Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.03%.

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

Earnings of Note
Company/Estimate
AVP/.61
BJS/.55
BSX/.48
CME/1.69
CB/1.97
EMR/.69
GP/.49
GOOG/.77
HCA/.66
IR/1.22
LLL/1.01
MXIM/.41
MBI/1.34
MGG/.44
MNST/.19
OSI/.57
RCL/-.03
THQI/1.15
TYC/.42
YUM/.72

Splits
None of note.

Economic Data
-Construction Spending for December is estimated to rise .5% versus a .4% decline in November.
-ISM Manufacturing for January is estimated to fall to 57.0 versus a reading of 57.3 in December.
-ISM Prices Paid for January is estimated to fall to 71.5 versus a reading of 72.0 in December.
-Total Vehicle Sales for January are estimated to fall to 16.2M versus sales of 18.4M in December.
-Domestic Vehicle Sales for January are estimated to fall to 13.1M versus sales of 14.7M in December.

BOTTOM LINE: I expect US equities to open mixed-to-lower on worries over slowing growth. However, stocks may rise later in the day on falling energy prices, more optimism, short-covering, declining long-term interest rates and strong earnings reports. The Portfolio is 125% net long heading into tomorrow.