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Stocks mixed in early trading

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Stocks are mixed in early morning trading as our various sectors show gains ranging from up 2% to down 2% and once again look to be rather range bound.

Internet (INX.X) and Oil Service (OSX.X) stocks are showing sector weakness. When we say "mixed" we mean "mixed." Even within the Internet sector we see shares of AOL Time Warner (NYSE:AOL) $25.10 +3.33% trading higher after hitting a 52-week low earlier this week. Shares of Internet porthole Yahoo! Inc. (NASDAQ:YHOO) $15.43 -2.89% as this stock suffers through a decline from the $20 level that started over 3-weeks ago. On January 24th, Morgan Stanley replaced YHOO with Becton Dickinson (NYSE:BDX) in its model U.S. Portfolio, on belief that YHOO and its high beta had run its course near-term.

Sector strength is found in several banking stocks as the S&P Banks Index (BIX.X) $611.44 +2.09% and the KBW Banks Index (BKX.X) +2.26% got a boost this morning from Salomon Smith Barney. The firm feels the selling in the group was overdone and the post-Enron credit risks have already been factored into the stock prices and analyst's estimates. Salomon finds compelling risk/reward in J.P. Morgan (NYSE:JPM) $30.46 +3.43%, Bank of America (NYSE:BAC) $60.00 +1.95% and Bank One Corp. (NYSE:ONE) $36.00 +4.04% as these company's have the most upside under the scenario for an improving economic backdrop. Salomon felt that banks that are less sensitive to the economy are CF, MTB, FITB, WFC and SOV.

Wells Fargo Chart - $1 box

I went through the point/figure chart of the list from Salomon Smith Barney. They've evidently done some "fundamental" work so I'm doing some technical work. One stock that looks longer-term bullish that may coincide with Salomon are shares of Wells Fargo (NYSE:WFC). Here we see a recent "bearish signal reversed" chart pattern. This is characterized by a series of lower lows and lower highs and the trade at $45 in early January creates the pattern. We also see a break of downward trend at the $45 level, a trend that has been in place for over a year. With a bullish vertical count of $66, this stock does look attractive longer- term. I'd only be taking 1/4 position at this time and looking for some consolidation. A longer-term options trader that likes to play LEAPS, may want to look for entry on pullbacks near the $43 level.

Jeff Bailey
Senior Market Technician
Option Investor

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