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Operator, get me 911

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The major indexes are holding gains as we finish the first 90- minutes of trading. Well... except for the Dow Industrials (INDU) 8,296 -0.27%, which sheds 21 points, as Dow component and telecom service giant AT&T (NYSE:T) $19.90 -21% becomes the second stock in consecutive sessions to have investors distancing themselves from a Dow component that gives little bullish outlook for near-term growth prospects.

Just minutes before the opening bell, AT&T (T) reported a Q4 loss of $0.79 cents a share, which was well below the consensus estimates for a $0.40 per share loss. Analyst's polled by Multex said they had included charges of $0.20 for DSL impairment and employee reduction related charges, but were uncertain as to why T reported a much wider than expected loss. AT&T said revenues in the latest quarter fell 8.6% year-over-year to $9.28 billion versus, which was actually above analyst's estimates for $9.17 billion. The meeting of revenues, but steeper than expected losses is what appears to have investors so concerned regarding this morning's report from AT&T. Analysts are currently wondering if they missed something from previous DSL impairment and employee reduction charges, or if there is something else amiss a "Ma Bell."

This has also presented a case of "dueling analysts" as J.P. Morgan quickly called 911 and downgraded the stock to "neutral" from "outperform" based on AT&T's poor outlook for 2003, and does not believe that market share gains will be able to offset declines in fundamentals and a lack of economic recovery. J.P. Morgan estimates fair value at $18-$19, and despite the sharp sell off at the open, the firm is looking for lower entry points.

Conversely, Goldman Sachs upped AT&T to "outperform" from "inline." I haven't seen Goldman's "reasons" for this rating upgrade, but do note that on May 31, 2002, Goldman Sachs was one of the underwriters for AT&T's $2.5 billion equity offering last summer. J.P. Morgan was also listed as an underwriter for that offering.

Per last night's Index Trader Wrap, this morning's action among Dow components has two components giving reversing point and figure sell signals (CAT $44 and T $21). While T was not one of the stocks we talked about, I did go through the 30 components and didn't think T was "in play" for triggering a sell signal today. American Express (NYSE:AXP) $34.43 -1.85% came within a penny of $34.00, with a session low trade of $34.01, and hints that there's a buyer just above that level right now. However, the two reversing sell signals has the very narrow Dow Industrials Bullish % ($BPINDU) seeing a net loss of 6.66% in the bullish %, and now has the Dow Bullish % ($BPINDU) in "bear confirmed" status. This internal weakness now dictates a more defensive posture, and I begin assessing further downside to 30% bullish levels, which would be deemed longer-term oversold. One might envision such a level of bullishness with various scenarios of either "war with Iraq" or economic uncertainty at play.

Jeff Bailey

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