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Stock mixed as final hour approaches

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The major market averages had battled back to show some positive gains, but have slipped back into negative territory just as former ImClone Systems (NASDAQ:IMCL) $8.90 +13.6% CEO Sam Waksal exerted his 5th amendment rights during his Congressional hearing in regards to recent allegations of insider trading.

The news broadcast of Mr. Waksal seemed to be a reminder of the Enron hearings and looks to have sucked some of the air out of the early afternoon attempts at a rally.

Despite this morning's economic data which showed a -0.9% decline in retail sales for May, the Retail HOLDRS (AMEX:RTH) $91.85 -1.32% have been able to hold above this weeks lows, but remain suspect on the recent trading below a flat 200-day moving average. Past action and lower trading in this security hints that some of the "bad news" released this morning regarding retail sales may have already been factored into things, but we're monitoring things closely here to get a feel for the MARKET's perception of how the consumer may be spending going forward.

Retail HOLDRS (AMEX:RTH) - Daily Interval

The retailers are weak today and it looks like the MARKET may have factored in this morning's report ahead of time. From here, traders should be monitoring this weeks low of $91.15. Should that level be violated to the downside, then we become more concerned regarding the MARKET's perception of how the consumer is doing going forward. A break back above the $95 level would be a sign of strength.

The retailing stocks are a good sector to at least monitor as it relates to the MARKET voting on bullishness or bearishness on the consumer. As mentioned in the past, the consumer has remained strong and willing to spend despite the slower economic environment.

While the recent declines in the RTH have not been as steep as some of the broader market averages, it would be a bearish sign on the economic front should the RTH break much below the 61.8% retracement level of $89.13.

The retracement bracket show marks the closing highs of 05/22/01 to the closing low of 09/21/01, just after the terrorist attacks last fall.

While today's -1.32% decline is a sign of weakness, it may not be as sharp a decline as some may have thought might take place.

Jeff Bailey
Senior Market Technician
Option Investor

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