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Micron has chips falling where they may

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Disappointing losses from DRAM chip manufacturer Micron Technology (NYSE:MU) $13.28 has the stock falling 15% to $11.20 over the New York ECNs and dragging other chip-makers lower and weighing on stock futures. Micron reported a loss of $0.32 per share for its recently completed first-quarter, which was well below analysts estimates for a loss of $0.23 per share.

Biotech MedImmune (NASDAQ:MEDI) $24.99, which was halted for trading yesterday ahead of its FDA panel vote on its drug FluMist, trades higher at $28.55 after winning FDA panel approval for its nasal-spray flue vaccine. After yesterday's close, the company said it won approval for treatment of people between the ages of 5 to 49, but did not have enough data for treatment of patients 50 or older.

Insurance provider Conseco filed for Chapter 11 bankruptcy, marking the third largest bankruptcy in U.S. history (behind WorldCom and Enron). The Carmel, Indiana-based company has about $6.5 billion in debt and $52 billion in assets.

S&P futures (sp03h) currently trade lower by 4.8 points at 897.50, NASDAQ futures (nd03h) are down 14.5 points at 1,031.50 and Dow futures (dj03h) are off just 33 points at 8,485.

Fair value for the S&P 500 today is $0.00. That price will not change during the session. HL Camp & Company has their computers set for program buying at $0.25 and set for program selling at $-1.98. Fair value for the NASDAQ-100 today is $4.50.

In recent weeks I've mentioned and profiled the retailing group as bullish with the Retail HOLDRS (AMEX:RTH) $71.43, but some technicals have developed here which are worthy of note. One stock that has been mentioned as a potential bearish trading candidate in recent sessions had Costco Wholesale (NASDAQ:COST) $27.71 triggering the triple-bottom sell signal we were monitoring for yesterday, and has this technically weak retailer looking to lead the sector lower.

Costco Wholesale (COST) - $1 box

In recent week's, I profiled a bullish trade in the Retail HOLDRs (AMEX:RTH) $71.43, while also keeping a "bearish eye" on COST should it break $28 and trigger a triple-bottom "sell signal." Yesterday, not only did COST see its p/f chart give a "sell signal," but Dorsey/Wright's Retail Bullish % (BPRETA) reversed into O's and "bull correction" status, which is a defensive posture in the retailers.

Since I can't show you Dorsey's Retail sector bullish %, I've found www.stockcharts.com S&P Consumer Discretionary Bullish % ($BPDISC) to look and track very closely to Dorsey's retail sector bullish %. Sure enough, this sector bullish %, which undoubtedly holds some retailing stocks has also reversed into O's. However, the reading here is "bear confirmed" as the recent level of bullishness (X's) didn't quite get above the Bullish % level in late August. This action tells us that the retailers may now be as "risky" for bulls as it was in September (red 9).

S&P Consumer Discretionary Bullish % ($BPDISC) - 2% box

Even the terminology "consumer discretionary" tells us there are some retailers in www.stockcharts.com S&P Consumer Discretionary Bullish % ($BPDISC) and here we see some "confirming" internal weakness. Stockcharts.com's bullish % never quite reached the needed 58% level to achieve the "bull confirmed" reading, while Dorsey's Retail bullish % did. However, both look very similar on a historical basis and make for a pretty close match. Analysis is that defensive action needs to be planned and should immediately assess risk to 30% bullish right now.

Now comes the painful part and my bullish profile for 1/4 or 1/2 bullish positions in the Retail HOLDRS (AMEX:RTH) $71.43 January $75 calls from mid-November near $75. At that time, the Retail Bullish % from Dorsey/Wright was "bull alert" and eventually reached "bull confirmed" in late November-early December (red C) on a p/f chart.

Retail HOLDRS (AMEX:RTH) - $1 box

I profiled partial positions in the RTH near $74.25 with the scenario that the holiday shopping season would be beneficial to the group. In early November, the bullish % was turning higher, and the RTH had recently pulled back to support at $71 and started reversing higher at the opening of trading after economic data showed a better than expected weekly jobless claims report.

I didn't realize it at the time, but OptionInvestor.com had actually been in a BEARISH trade in the RTH at the time. Well, as you can see, the RTH did work its way to a recent high of $79, but other than a strong "day after Thanksgiving" shopping day, there's been little positive news in the group.

I paid $4.20 per RTH Jan. $75 call ($4.20 was my risk to a stop of $70 when profiled), and they are currently bid $1.20. Currently the RTH hasn't "told" me to sell as it hasn't traded $71. The question for every trader now is..."is it worth the $1.20 ($120 per contract) to wait things out until expiration, or salvage what's left as the bullish % warn of internal weakening?

Are things so "bad" for the economy that not even the retailers can trade bullish in the strongest time of year? If so, what does that portend for other parts of the economy? It's been noted that the CONSUMER has been holding up the economy and NOT corporate spending.

My "plan" for the Jan $75 calls was to hold to expiration. I risked $4.20 per contract, which was little different than buying 100 shares of RTH at $74.25, stop $70, thus risking $4.25. However, with the bullish % reversing, and January expiration nearing, my risk profile and trade management allows me (not everyone) to look for some type of rally to sell into.

Now, with that in mind. If looking short/put Costco (COST) which is obviously looking like the "tail of the snake" and a retailer that leads weakness, I might also look to trade a partial position short/put to start out with. If the bugger simply wants to plummet lower, then fine, a bearish trader has claimed his/her stake. But just as the RTH rallied from current levels not long ago, I think a trader at least "understands" the potential for some type of bounce near-term and can implement some trade management. If COST is going to $18, I think there should be some time to leg into positions.

Are you trading some retailing stocks? If so, try using some of the observations above. Then tie the different time frames together with the stocks you're trading or have on your watch list.

Jeff Bailey

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