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Stocks stable after lower open

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Stocks have stabilized off their early morning lows, but the bulk of the sectors we follow on a daily basis are painted red. Only the HMO Index (HMO.X) 568 +1%, Utility Index (UTY.X) 277 +0.7%, Networking Index (NWX.X) 120 +0.11% and Drug Index (DRG.X) 303 +0.06% show gains.

Sector losers not surprising have the Airline Index (XAL.X) 48.19 -5.56% leading sector losers after this weekend's news that US Airways (NYSE:U) $0.50 -79.59% would seek bankruptcy protection. Also exhibiting weakness is index component UAL Corporation (NYSE:UAL) $4.25 -18.2% after a Wall Street Journal article speculates that UAL may eventually follow US Airways' move into bankruptcy as UAL's quest for a $1.8 billion federal loan guarantee is encountering resistance from federal regulators and competitors. While any loans given to UAL would be "conventional," as it relates to interest rate terms from lenders, the federal loan guarantee would perhaps give lenders greater comfort in knowing the loans would be government backed instead of UAL backed.

Electronic Data Systems (NYSE:EDS) $34.81 -4.10% has come under some selling pressure in the last hour on thought that the company's July 2001 acquiring of airline infrastructure outsourcing business of Sabre Holding for $676 million, which has contracts with American Airlines and US Airways, may have EDS' total balance sheet exposure to US Air at $140 million.

A quick look at the intra-day internals has breadth negative on both the NYSE and NASDAQ. At the NYSE, decliners outnumber advancers by a 2 to 1 margin and new lows outnumber new highs at 42 to 17. At the NASDAQ, breadth has decliners outnumbering advancers by a 9 to 5 margin, with 80 stocks hitting new lows versus 13 stocks achieving new highs.

One notable laggard in the communications equipment sector which we talked about last week in our intraday commentary at 11:00 http://members.OptionInvestor.com/intraday/080902_2.asp is shares of Brocade Communication (NASDAQ:BRCD) $14.53 -5.4%, which is expected to report earnings Wednesday after the close of trading. Analysts are looking for the company to report earnings of $0.08 a share, compared to year-ago EPS of $0.05.

On Friday, "like stock" to Brocade had shares of Emulex (NYSE:ELX) $14.06 -7.92% getting pounded lower after the company reported EPS that were inline with expectations, but the company guided lower on future quarter revenues. Today's action in BRCD hints that bulls may be jittery ahead of Wednesday's earnings for Brocade.

Jeff Bailey
Senior Market Technician
Option Investor

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