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Major reversal in Adelphia

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Just when you think you've seen it all, things can change and they can change quickly. After reporting earnings/losses before the opening of trading this morning, shares of Adelphia Communications (NASDAQ:ADLAC) traded as high as $22.34, up more than 9% from yesterday's close, but things have made a turn for the worse and the stock has reversed course and now trades lower at $19.78 -3%.

I have seen no news, but in recent commentary we've felt there was a "rat" hiding under a rock and one has to wonder if something was perhaps uncovered in today's earnings report. Again, I have seen nothing hit the newswires to explain the current action, but I just about fell out of my trading chair when my computer set off a downside alert on a break of yesterday's low of $20.21. A break at $18.91 would violate the February 19th low and this could be the "doom" that longer-term bears perhaps holding previously profiled ADLAC January $20 puts (OFYMD) have been waiting for.

Adelphia Communications Chart - Daily Interval

Either I can't type fast enough or things are moving fast. I think the latter, but somebody has pulled the plug on their holdings in Adelphia Communications (ADLAC) in the past two hours as the stock has traded more than half of its BIG volume of 19 million in the last two hours and it's all been at the bid. With the stock breaking to news lows, I will have to roll down my retracement, but regression we've been monitoring gives us a near-term target of $14.50. The point/figure chart remains bearish with a vertical count of $5.00.

With no news out in the MARKETS at this point, I'm hesitant to recommend trading the underlying stock, but would rather trade the put options, where a trader can limit their risk to there underlying investment. With such extreme near-term volatility and uncertainty, I'd prefer to "buy time" and still like the longer-term Jan03 $20 puts (OFYMD) currently offered for $4.90. This is about the same price as first profiled back on February 15th.

What has me "believing" that something has cropped up in the latest quarter earnings is that "like stock" Cox Communications (NYSE:COX) $37.38 +1.57% is not showing the same type of action, so I don't think the ADLAC move is "group-related," but more stock specific.

New home sales slightly less than expected

New home sales were reported earlier this morning at 10:00 AM EST and showed a 5.3% gain to 875,000, which was slightly lower than the consensus level of 890,000. Many economists are saying that today's number is not a "major surprise" and still a healthy number.

The markets have not been all the responsive to the number, with the major market averages now trading in positive territory. The Dow Industrials (INDU) are holding onto a 94 point gain at 10,447, the S&P 500 is higher by 8 points at 1,146 and the NASDAQ Composite (COMPX) is up 4.5 points at 1,828.

Jeff Bailey
Senior Market Technician
Option Investor

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