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AOL off 13% after announcing record non-cash charge

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In what has had more "twists" than a good soap opera, the past merger between media giant Time Warner and internet giant America Online sees their marriage on shaky ground after the combined entity and stock of AOL Time Warner (NYSE:AOL) $12.05 -13.68% suffering a setback after the worlds largest media and Internet company said it was taking a record $45.5 billion charge to account for the declining value of the America Online asset.

The $45 billion charge to goodwill was much larger than most had expected. David Joyce, an analyst with Guzman & Company had projected the combined entity to write-down $10 to $20 billion.

The $45 billion charge left AOL with a Q4 loss of $44.9 billion, or $10.04 per share, compared to its loss a year-ago of $1.8 billion.

While AOL's larger than expected write-down to goodwill has investors once again looking to rid themselves of the stock, the news was apparently "bad enough" to have Ted Turner, vice- chairman resigning his post.

Gartner Inc. analyst Eric Paulak said, Turner "has been sick of the company for a while and he's been looking for excuses to either take his money elswhere, or to move into other areas."

I (Jeff Bailey) can't remember what Saturday Night Live character made the statement, "baseball has been very, very, good to me," but that line probably is rolling off of Mr. Turner's tongue, or at least having been thought by Mr. Turner in recent months in regards to his ownership of the Atlanta Braves.

Since the combination of AOL Time Warner, Mr. Turner along with other investors have seen AOL's stock price tumble from a split- adjusted price of $71 after the January 2000 merger to a low of $8.70 this past summer.

Market action today has been rather mixed as the major indexes have been trading either side of break even. We've seen a couple of "buy programs" from the morning premium execution levels at today's S&P 500 Index (SPX.X) 860.50 -0.44% daily pivot of 860, but that's been about the most "excitement" or observation of interest that I've been able to make.

That combined with a range-bound session in the QQQ between $25.10 and $25.38, which were levels identified in last night's Index Trader Wrap from WEEKLY pivot analysis levels and retracement technique used there, have really had the QQQ range- bound.

Should I see this morning's lows in the SPX and QQQ taken out on a 5-minute closing basis of 857 and $25.02, I'd be alert to an extension of trend lower.

I'm "focusing" lower in this update, as earlier bearishness in Treasuries has now been reversed to modest buying as the major maturities have seen their YIELDS slip back into the red after being green earlier.

In this morning's market monitor I've made some observations regarding shares of Hotels.com (NASDAQ:ROOM) $40.76 -2.29% which was a stock discussed as bearish in last week's market monitor, and Expedia (NASDAQ:EXPE) $61.10 -2.92% (also on OI's bearish watch list), which I had mentioned as a bearish trade in yesterday's market monitor. Both stocks are seeing some good downside action again today after a Wall Street Journal article mentioned that some of the U.S.'s largest hotel chains are about to roll out an web site that will offer discount hotel rooms. The site is expected to be called Travelweb.com and controlled by MAR, HOT, HLT, SXC and Hyatt.

For those following or using the daily, weekly and monthly pivot analysis formulas, this morning we noted that early session support of $60.75 has been seen at EXPE's WEEKLY S2 level of $60.74 and most likely a level today that sees some market maker- type of support to provide liquidity to sellers that don't like today's news. I would argue that most institutions probably "knew" the news was coming as I'm sure an analyst in the hotel/leisure sector probably mentioned these developments after talking to executives at the major hotel chains and may have had his/her firms traders taking some type of defensive action in ROOM and EXPE. Perhaps it was that type of "defensive action" which had the charts of ROOM and EXPE getting our attention for weakness.

As it relates to ROOM and EXPE, I'm also keeping an eye on the Airline Index (XAL.X) 34.63 +0.52%. Yesterday I commented on this group in the 11:00 EST Update, as it was just retracing 61.8% of its October low to November high recovery at 33.68. I'm looking for sector resistance here at 50% retracement of 36.02 and would think a leg lower could be sign not only of further sector weakness, but may also spill over to interpretation of the MARKET's perception that air travel along with ticketing and hotel accommodations may not be very robust in the coming months.

Jeff Bailey

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