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Mixed data, mixed stock action

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This morning's stronger than expected durable goods data had stocks opening higher at the open, but those gains turned into losses after August's consumer confidence report showed a decline to 93.5 from Junes revised 97.4 reading.

This has the broader market averages trading lower, but off their session lows. Currently, the Dow Industrials (INDU) 8,900 trade down 18 points (-0.2%), the S&P 500 (SPX.X) 943 is down 4 points (-0.42%), NASDAQ Composite (COMPX) 1,373 is off 18 points (-1.33) and smaller caps as depicted by the Russell 2000 Index (RUT.X) 405 is down 2.7 points (-0.66%).

Sector weakness is found in the Morgan Stanley Health Providers Index (RXH.X) 321 -4.5% after index component Healthsouth (NYSE:HRC) $6.90 -42% gapped lower after the company said it would spin off its surgery center division in part due to unfavorable developments in outpatient therapy reimbursements. Selling is heavy with over 16 million shares traded as the company said it would not give further earnings guidance for the remainder of 2002 and 2003 to analysts.

Mid-morning, Merrill Lynch cut HRC earnings estimates for 2002 to $0.87 from $1.14 and 2003 EPS estimates to $1.00 from $1.30 after the company lowered EBITDA forecast by $175 million, citing changes in Medicare reimbursements for outpatient therapy services. Merrill said if found the size of the shortfall surprising, given that traditional outpatient therapy clinics typically only generate about 7-9% of HRC revenues from Medicare. Merrill now believes that most of the shortfall must be related to outpatient therapy services provided as part of the company's inpatient rehabilitation business.

Sector weakness continues to be found in the semiconductor sector as depicted by the Semiconductor Index (SOX.X) 326 -3%, after Reuters reported that Intel's (NASDAQ:INTC) $17.38 -4.13% CEO Craig Barret told a news conference that the company sees modest growth in Q3 over Q2 and that it hasn't seen much improvement in the computing environment because companies are not investing. In a separate interview with Bloomberg television, Barrett indicated that he was not confident a holiday season uptick would materialize this year.

Treasuries across the major maturities are seeing selling after this morning durable goods data with the 5-year YIELD ($FVX.X) jumping to 3.35% and benchmark 10-year YIELD ($TNX.X) higher at 4.268%.

Breadth is positive at the NYSE with gainers outnumbering advancers by a 16 to 13 margin, while breadth is negative at the NASDAQ with decliners outpacing advancing issues by a 9 to 5 margin.

The big board has 34 stocks hitting new 52-week highs versus just 6 stocks hitting new lows (HRC being a new low), while NASDAQ has 22 stocks hitting new highs versus 31 stocks at new lows.

Jeff Bailey
Senior Market Technician
Option Investor

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