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Mixed bag with Networking not working

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Investors and traders that have been with us over the last couple of years have seen the "networking not working" theme from past comments as the Networking Index (NWX.X) 115 -3.4% is today's sector loser in what has been mixed trading this morning. Telecom equipment maker Lucent (NYSE:LU) $1.46 -12% are the "culprit" after once again slashing EPS and revenue guidance. For many telecom-equipment observers, this is becoming a bedtime story that is beginning to put me to sleep.

The Dow Industrials (INDU) 8,285 -1.11% is off 93 points, with the bulk of the loss here attributed to Honeywell Intl. (NYSE:HON) $24.08 -15%, which in turn has put some selling pressure on other industrial-based names like Alcoa (NYSE:AA) $21.35 -6.3%, Caterpillar (NYSE:CAT) $40.30 -4.8% and United Technologies (NYSE:UTX) $59.03 -3.38%.

After a lower open in the S&P 500 Index (SPX.X) 884 -0.24% and a morning low of 877, the SPX attempted a rally back to the 909 level, but found willing sellers at the somewhat trending lower 50-day SMA of 903.

Computer technology stocks got a boost from last night's earnings from Adobe Systems (NASDAQ:ADBE) $20.57 +11.49% after the company beat estimates that had been lowered after the software maker had previously warned of a short-fall on July 31. Action today depicts near-term short-covering in other segments of technology by traders not wanting to risk some handsome gains found recent weeks. Despite some bullishness found in ADBE, which has been brutally beaten down since this spring's highs near $40, the GSTI Software Index (GSO.X) 94.15 -2.82% shows a loss. Sector bellwether Microsoft (NASDAQ:MSFT) $47.23 +0.16% trades with a marginal gain.

Breadth is slightly negative after 1.5 hours of trading with 4 stocks declining versus 3 gaining at the big board, while decliners have the upper hand on advancing issues at the NASDAQ by a narrow 5 to 4 margin.

Marked deterioration is seen in the new highs versus new lows category as bulls sit on the sidelines. On the NYSE we see just 13 stocks hitting new 52-week highs compared to 60 stocks hitting new lows. While the bottom continues to fall out at the NASDAQ with 96 stocks at new 52-week lows versus just 13 stocks at new highs.

Look for some rather defensive trading into the weekend as my thoughts are that traders aren't going to be looking to take on new bullish positions ahead of the weekend considering this week's heightened "Code Orange."

Short-term bears that find some handsome gains near the close, may think about taking some partial profits. Thinking here is that if there isn't an attack on Iraq, or any type of terrorist activity, markets may get a bounce on Monday morning. Again... just a thought for short-term traders.

Jeff Bailey
Senior Market Technician
Option Investor


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