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Profit taking and short covering

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As trading nears the final 45-minute of what has been a rather negative session, today's action continues to show that of profit taking by bulls along with some profit taking by bears.

Sectors that have shown substantial gains in recent weeks are leading today's declines, with the Biotechnology Index (BTK.X) 362 -4.3%, Fiber Optic (FOP.X) 55.25 -4% along with Networking (NWX.X) 154 -3.9% extending their intra-day losses. The CBOE Internet Index (INX.X) 105.95 has given back a 3% gain to now trade unchanged and action here hints that buyers are going to step back and see if things can't get a little cheaper.

On the strength side of things, its yesterday's weakness in the HMO Index (HMO.X) 479 +3.48% and Morgan Stanley Health Providers Index (RXH.X) 274 +1.54% that finds buyers.

The offset between recent strength and weakness when compared to today's action sums up the thoughts of profit taking by both bulls and bears.

One sector that has remained rather "pegged" near a level and rather sideways in the past 5 sessions has been the retailing group. With little profits at risk by bulls or bears, here's a group that shows some relative strength on an intra-day basis with the Retail HOLDRs (AMEX:RTH) 74.06 -0.79% and S&P Retail Index (RLX.X) 283.98 -1.1% showing minimal loss compared to the broader S&P 500 Index (SPX.X) 916.87 -1.74%. While the retailers trade lower with a negative broader market tone, today's action hints that its traders with some recent bullish and bearish profits that are more likely to be active in today's market.

Shares of specialty retailer and marketer of adjustable firmness beds Select Comfort (NASDAQ:SCSS) $9.15 +10% is an obscure NASDAQ name that trades a new 52-week high. While many stocks holding handsome gains find sellers on what looks to be profit taking, today's 52-week high despite the stock trading as low as $0.50 in May of last year and finding support at $4.00 this past summer, has the stock armed with a longer-term bullish vertical count of $19.25. Technical action and resilience today may indeed hint that bulls have a much higher price target in store. First sign of weakness on the point and figure chart would come with a trade at $19.25.

It has been a slow "news" session today, especially considering the final release of GDP data and new home sales. While the preliminary GDP had pretty much been run over with a fine toothed comb, I would have thought economists or equity analysts would have had something to say as it relates to things they saw that might have "fit" or "diverged" from bullish and bearish economic scenarios.

One of the few "economic" type calls was Prudential maintaining their "overweight" position on the broad line retail group, saying consumer spending should benefit from a number of catalysts, including continued modest growth in real income, significant increases in money supply, reduced interest rates, stable initial claims from unemployment, and the prospect of further tax cuts driven by the Republican party. Prudential said their favorite growth names in the sector were TGT, FDO, WMT, JWN, DLTR and HD. Value picks were limited to S and FD. Prudential maintained that they would avoid the wholesale clubs.

One stock getting hammered to the downside once again are shares of electric and gas utility service provider El Paso Corporation (NYSE:EP) $8.66 -18.91% after Moody's downgraded the company's debt to "junk" citing El Paso's weak cash flows and uncertain prospects for their improvement near-term, the likelihood that capital expenditures will continue to exceed cash flow from operations and that the company will have to rely on asset sales to meet the shortfall and further reduce its debt, and that these higher levels of debt are currently too high relative to the company's current cash flow. Moody's also cited that there may be "execution risks" related to El Paso's efforts to scale back and refocus its merchant energy activities.

Jeff Bailey

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