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Stocks shrug off weaker housing data

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After a modestly lower open for the major indexes, stocks look to have shrugged off this morning's weaker than expected housing starts data, which many felt may have been a short-term aberration due to colder than expected weather in October.

Technology stocks are back on the hot burner with the Semiconductor Index (SOX.X) 326.90 +4.65% and Fiber Optic (FOP.X) 46.65 +5% leading technology gains.

In a morning call, Soundview gave a boost to the semiconductor equipment stocks saying the firm believes there is more evidence building that the first quarter of 2003 could be the turning point for renewed order growth for the semiconductor equipment industry. That call has given a boost to semi-equipment giant Applied Materials (NASDAQ:AMAT) $15.88 +5.41% along with other players KLA-Tencor (NASDAQ:KLAC) $38.51 +4.67% and Novellus (NASDAQ:NVLS) $33.35 +4.67%. "Smaller" cap names mentioned in Soundview's list of "favorites" have Rudolph Technologies (NASDAQ:RTEC) $17.30 +4.97%, Teradyne (NYSE:TER) $13.51 +6.79% and Lam Research (NASDAQ:LRCX) $13.64 +5.57% also showing gains.

Despite the weaker housing starts numbers, the Dow Jones US Home Construction Index (DJUSHB) 293 -0.18%, has battled back from an earlier 5-point, or -1.8% decline, with both 21-day SMA and 50- day SMA providing near-term resistance at 304. Sector bulls are looking for support near 280.

Shares of Syncor International (NASDAQ:SCOR) $23.12 -5.28%, which has been profiled as bearish from the $20 level are pulling back from a recent rally high near $26 after reporting last night that a special committee did find that questionable payments had been made over a substantial period of time to customers in Taiwan.

Over the past five years, payments to state-owned facilities and certain of their employees appear to have totaled an estimated $500,000. The committee has also found questionable payments and other transactions at Syncor operations in at least six other countries. Syncor disclosed that the special committee also is investigating certain limited aspects of Syncor's domestic U.S. operations. At this time, Syncor is in advanced discussions with the SEC staff concerning resolution of the potential claims that the SEC may have against Syncor regarding the matters that are the subject of the investigation.

The alleged wrongdoings were first discovered by Cardinal Health (NYSE:CAH) $65.35 +1%, under due diligence investigation after CAH had announced its intentions to acquire SCOR. Certain provisions in the acquisition agreement now become suspect to the merger going through, however Prudential still places a 50-75% odds that CAH will complete the acquisition of SCOR, though the firm believes the wildcard of the deal falling through with the investigation into SCOR's U.S. operations.

Syncor also said it had accrued $2.5 million for estimated potential fines and other penalties, but said it could not assure that the reserve would be enough to pay penalties actually imposed by the SEC, the DOJ (Department of Justice) or any other government authorities.

In a separate statement release Tuesday evening, Syncor reported a third-quarter loss of $28.5 million, or $1.04 per share, compared with a profit of $7.8 million, or 29 cents per share a year ago.

Before a $31.3 million after-tax asset impairment charge for its Comprehensive Medical Imaging unit, which is up for sale, Syncor recorded a profit of $11.6 million for the quarter.

Net sales from continuing operations rose to $192.2 million from $149.8 million.

It has been my (Jeff Bailey) observations that when company's agree to acquisition, it is often times the view of the acquired company that competitive threats often give reason for a that company to merge with a larger partner and look to combine synergies. The MARKET often times understands this, but should the deals fall through, then investors can turn bearish on the company that was to be acquired, as concerns about those competitive threats then weigh on the shares.

In last night's market monitor, I suggested that those traders still holding previously profile puts, continue to hold those puts. Stops could be placed on underlying positions just above current trading at $27.00, which would be a triple-top buy signal. With the bearish vertical count of $4.00, I do think the potential for the merger to fall through, along with potentially severe fines, could leave SCOR, which is currently unprofitable at the bottom line, vulnerable to lower prices. I will disclose that I currently hold a bearish position in SCOR in the January $20 puts.

Jeff Bailey

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