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Stocks traded mixed

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The major market averages have been trading near the unchanged levels for the bulk of the session as the Dow Industrials hold onto a 7 point gain at 9,917, while the S&P 500 trades down just 3 points at 1,073 and the tech-heavy NASDAQ Composite holds on to a 3 point gain at 1,666.

Telecom stocks are under further selling pressure today as the Combined Telecom Index (IXTCX) trades at another 52-week low at 140 -1.6%. Shares of WorldCom (NASDAQ:WCOM) $2.77 -15.2% lead the most actively traded list with over 115 million shares changing hands. With a bearish vertical count from the point and figure chart of $0.00, or "not applicable," we remain cautious on the shares.

The bearish action in the telecom service stocks is also weighing on some of the "equipment" stocks as the Networking Index (NWX.X) traded down 1.5 points at $212. Earlier today in the 11:00 EST Update at OptionInvestor.com, we discussed how the Networking Index (NWX.X) had achieved a bearish vertical count of $220 from its $10-box and that bears in the sector should be snugging downs stops in the group to help try and assure profitability in their trades.

One has to wonder

Market technicians have to be wondering today if the bullishness found in recent months in the HMO Index (HMO.X) 618 +1.59% was solely attributed to strong earnings in the group, or if the MARKET has been playing a "consolidation" theme in recent months.

Today, Trigon Health (NYSE:TGH) $99.59 +18.2% have bulls in its stock a double-dose of "good news" after the company reported earnings of $1.14, which handily beat the consensus estimates among analysts looking for earnings of $1.11. The second dose of good news was that competitor Anthem Inc. (NYSE:ATH) $67.35 -4.7% said it had entered into a definitive agreement to buy Trigon (TGH) for approximately $4 billion in cash/stock. Terms of the deal call for TGH holders to receive $30.00 in cash and 1.062 shares of Anthem (ATH) common stock, bringing the per share value of the deal to roughly $105.10.

Trigon Health Chart - $1 box

We've profiled shares of TCH as bullish in recent months. However, today's "good news" is reason we think to sell the stock. While the longer-term bullish vertical count to $118 is yet to be achieved, the good fortune in such a short amount of time leaved a more unfavorable risk/reward trade going forward. We think it is now best if subscriber's holding longer-term position reduce some risk from their accounts and book full or at least partial positions and perhaps rotate some gains to other names in the sector where risk/reward is more favorable on a longer-term basis and their bullish vertical counts.

Who knows? Perhaps other names with lofty vertical counts are also candidates for potential acquisition targets. Stick with the technicals and let things play out as we have been doing. Honor your stops and do NOT over leverage to the group.

Jeff Bailey
Senior Market Technician
Option Investor

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