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Tyco calming fears on call

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It has been seesaw market action this morning with stocks opening higher, then selling off below yesterday's lows, but now clawing their way back near unchanged levels as Tyco International (NYSE:TYC) holds a conference call with investors that looks to be going well. Shares of Tyco (TYC) jumped at the open to $25.60 and have been edging higher to the $27.50 level in morning trading.

Some preliminary notes from the conference call are as follows.

Tyco executives say that incremental costs and fees it will incur for recent decision to exit commercial paper market will be about $0.10-$0.15 per share. This will help "peg down" risk of continued weakness in electronics market at anywhere from $0.00 to $0.25 a share. TYC realizes this guidance could be interpreted as putting company below $3.70 per share guidance, but believes decision to exit commercial paper market is proper decision as it should help dispel rumors of TYC as being a liquidity crisis.

TYC says it has about $6 billion in cash now and notes it would be in a position where it will have $1.5 billion in cash 12 months from now after all debt repayments, assuming there is no sale of its plastics business, and no proceeds from potential IPOs.

TYC adds that it is NOT contemplating an IPO of its CIT business and is currently pursuing a spin-off directly to shareholders. The company continues to stress it does not have a liquidity crisis, that it does not have any debt contingent on its stock price, and that it doesn't need to access the financial markets to operate its business.

I (Jeff Bailey) would rather stay away from Tyco (TYC) unless looking at the stock with pure risk capital at this point. Even that from the bullish side would be followed with a stop below yesterday's low of $22.00, which was just below the bearish vertical count of $24 from our point/figure chart. If the company is "truthful" and will not disclose further surprises like this past weeks $8 billion in merger's not reported to individual investors, then the stock looks cheap based on valuation and should not trade under yesterday's low of $22. If it does, then the MARKET thinks different that those views expressed in today's conference call. I (Jeff Bailey) would rather sit on the sidelines at this point. Bears should have locked in some gains by now. Let the stock try and consolidate for better entry points and risk/reward assessment.

Banks under some pressure

I often talk about how important investor psychology is and this morning's news of an trader "disappearing" that was sideways in some trades at Allied Irish Bank (Ireland's largest bank) has investors worried that Allied Irish may not be the only bank where some traders are trying to "hide losses" in their books.

The S&P Banks Index (BIX.X) has recovered from earlier losses here at $596, but today's break of the $600 level has the banking stocks looking technically vulnerable to the $578 level and back into the lows found in September.

S&P Banks Index (BIX.X) Chart - Daily Interval

The S&P Banks Index (BIX.X) is comprised of regional and "super regional" banks. Index components can be found at www.cboe.com where this index option is listed. Components are ASO, BAC, BBT, BK, CMA, FBF, FITB, HBAN, KEY, MEL, NCC, NTRS, ONE, PNC, RGBK, SNV, SOTR, STI, UPC, USB, WB, WFC and ZION.

Jeff Bailey
Senior Market Technician
Option Investor

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