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Jury award has tobacco under pressure

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"Big tobacco" stocks are under some selling pressure again today after a jury awarded $5.5 million in compensatory damages last week to a flight attendant claiming exposure to environmental tobacco smoke, which allegedly (and the jury agreed) caused her chronic sinusitis. Philip Morris (NYSE:MO) $49.04 -6.85% was the defendant in the case and has said it would appeal the verdict.

Other stocks with tobacco exposure have RJ Reynolds (NYSE:RJR) $56.21 -8.5%, Loews Carolina (NYSE:CG) $28.15 -7.4% and UST Inc. (NYSE:UST) $36.00 -0.96 seeing selling.

Philip Morris (MO) is a Dow Industrials component and losses there are putting further pressure on the Dow, which currently trades down 100 points at 9,153. Also weighing on this often quoted and closely watched market average are shares of drug giant Merck (NYSE:MRK) $47.95 -4.09% and computer bellwether Hewlett-Packard (NYSE:HPQ) $15.87 -3.4%.

On Friday, the Wall Street Journal reported that Merck (MRK) and its Medco Pharmacy-benefits unit have boosted their reported revenues by billions of dollars in 2001 alone, by booking co- payments, an accounting practice not used by competitors AdvancePCS (NSADAQ:ADVP) $25.36 -1.55% and Express Scripts (NASDAQ:ESRX) $52.72 -4.02%, which use a more conservative accounting method. The accounting treatment was disclosed to investors for the first time in an SEC filing in April in preparation for an initial public offering of stock in Medco. The article noted that Caremark RX Inc. (NYSE:CMX) $16.03 -7.55% also includes co-payments when calculating revenues.

Semiconductors/Biotech try to buck the trend

In today's 11:00 intra-day update, we mentioned some "bond talk" from the Treasury markets may have hinted that some asset allocations were taking place away from Treasuries and into stocks near-term and since that time, the Semiconductor Index (SOX.X) 387 +1.83% has tried to extend earlier gains. Getting into the act are the biotechs as the Biotech Index (BTK.X) 340 +1.10% with a fractional gain.

Earlier gains in the Gold/Silver Index (XAU.X) 78.96 +1.08% have been given back after the sector once posted a 3% intra-day gain. Current intra-day action looks like there may have been some short-covering in the early part of the session in precious metals stocks, as the August Gold futures (gc02q) $326.60 +0.46% have been trading at current levels for most of the session and stocks may have gotten a little ahead of the commodity futures themselves on an intraday basis.

It is noteworthy that the decline in the U.S. Dollar Index (dx00y) 107.64 -0.47%, is just about directly inverse in percentage terms to today's rise in August Gold futures (gc02q) $326.60 +0.46% and both have been tracking inverse very closely today. This may become a near-term observation that may dictate trading action in the coming sessions.

Jeff Bailey
Senior Market Technician
Option Investor

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