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Merrill pays $100 million

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Merrill Lynch (NYSE:MER) $44.26 +2.02% reached a settlement with New York state Attorney General Eliot Spitzer today in which the investment firm apologized to the investment public and will pay $100 million in fines. The company also promised to insulate its analysts from their investment banking division.

The settlement by Merrill Lynch (MER) has the brokerage sector getting a very mixed reaction from investors as the Securities Broker Dealer Index (XBD.X) 478.73 -0.21% trades near unchanged levels.

Securities Broker Dealer Index Chart - Daily Interval

Brokerage stocks as depicted by the XBD.X are hovering near unchanged levels. A break above the 50-day MA at 491 could have the group testing downward trend and 80.9% retracement of 511. Today's settlement by Merrill Lynch (MER) represents neither admission or wrongdoing or liability. Of the $100 million settlement, $48 million of the civil payment will go to New York state, while the remaining $52 million will be paid to other states to settle the matter.

Difficult to say....

It's difficult to say that Merrill's settlement with the New York Attorney General has much to do with today's stock price action. While the major market averages trade near their session lows, it would be difficult to argue that the Biotech Index's (BTK.X) 401.62 -2.36% decline has anything to do with today's settlement.

The NYSE Composite (NYA.X) 578.72 -0.25% is currently showing negative breadth with decliners outpacing advancers by a 3 to 2 margin. NASDAQ Composite (COMPX) 1,637 -1.63% breadth is also negative by a 7 to 4 margin.

Some divergence in Gold and Treasuries

We're starting to see some divergence between the Gold/Silver Index (XAU.X) 83.93 +0.90% as gold stocks continue to break to new 52-week highs, while Treasuries do see some fractional buying as YIELDs edge lower. This type of action is usually indicative of a MARKET that is concerned about some type of financial issue in the MARKETS (perhaps MER's settlement and implied wrongdoing), but not indicative of a "fear of inflation."

There has been some "rumor" today that a rating agency may downgrade Qwest's (NYSE:Q) $5.02 -5.10% debt to "junk" status near-term, and this may weigh on some of the regional telecom stocks and even those telecom equipment makers that rely on Qwest's telecom equipment orders.

Telecom equipment giants Lucent (NYSE:LU) $4.77 -3.4% and Nortel Networks (NYSE:NT) $2.80 +8.10% look to trying to close their recent price gaps relative to each other. In March, we noted that NT "looked pricey" near the $5.50 level as LU traded lower on relative price amount. Now we've seen a "flip" of that where LU now looks to trade at a relative premium near-term.

Jeff Bailey
Senior Market Technician
Option Investor

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