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Consumer stabilizing, but business still lackluster

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Stocks did edge into positive territory, but have pulled back to their lows of the session after early morning economic data showed a business environment that continues to struggle as inventories rise marginally and production wanes to avoid stockpile buildup.

Yesterday's better than expected retail sales numbers got some marginal confirmation from a modestly higher than Michigan sentiment reading of 85, which was above economist's forecast of 81.5 for November. That number got a bullish response going in equities, but has faded rather quickly.

Sector strength has gold stocks as depicted by the Gold/Silver Index (XAU.X) 67.16 +1.45% recouping part of yesterday's declines, while the HMO.X 285 +0.85% tries to build on a 3-day recover after weekly declines from the 600 level. I'd look for some formidable near-term resistance in the HMO index with converging 21, 50 and 200-day SMA's all near the 550 level.

Retailers as depicted by the Retail HOLDRS (AMEX:RTH) $75.65 +0.53% see modest gains today after the Michigan sentiment numbers, with shares of Kohls (NYSE:KSS) $65.87 +3.39%, which we mentioned as a bullish looking retailer in yesterday's market monitor, looking to now challenge a starting to round lower 200- day SMA of $67.88.

Technology sectors are showing marginal losses on the heels of a semiconductor downgrade by Merrill Lynch, with the Semiconductor Index (SOX.X) 311 -2.54% and Fiber Optic Index (FOP.X) 43.28 -3.11% pacing declines.

The GSTI Software Index (GSO.X) 106 -1.57% has been a rather "quiet" sector in recent weeks, never showing leadership to the upside or downside with market strength or weakness and hints of contentment among traders. Shares of Veritas Software (NASDAQ:VRTS) $16.08 -12% trade lower in reaction to disclosure in yesterday's 10-Q filing that it has received subpoenas from the SEC. The company said, "In response to subpoenas issued by the Securities and Exchange Commission in the investigation entitled In the Matter of AOL/Time Warner, we are furnishing information to the SEC, including information relating to transactions we entered into with AOL in September of 2000." According to VRTS, the transactions involved a $50 million software license and services sale to AOL and a $20 million advertising services purchase from AOL.

Shares of Dow component General Electric (NYSE:GE) $23.49 -3% continue to trade very much against the Dow and perhaps one of the 5-weakest components on a technical level since our bearish comments in late August as a stock for bears to feed on from the $31.95 level and 08/28/02 09:00 Update.

Today's downgrade of GE by JP Morgan to "underweight" from "neutral", saying they expect to see a "very messy" Q4 result, and investor questions on earnings growth, the credibility of forecasts, and the GECS questions are likely to remain a concern for the stock in the next few months; cuts 2003 est to $1.60 from $1.70 (well below consensus of $1.71) weigh on the stock today. This has shorter-term bears eyeballing the stock to fill a gap lower to $22.60, should the stock break Wednesday support of $23.46.

Jeff Bailey

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