MORE GO SHORT OPINION ARCHIVES: 4

BTY (BRITISH TELECOM PLC):  BTY provides local and long distance services in the U.K. and international services to and from the U.K. The shares rose to a record high of 149 last week after the company announced a global alliance with ATT that will combine the 2 companies international operations into a $10 billion a year joint venture.  The new venture's size will give it an advantage over smaller startups, but we don't think this alone justifies the shares excessive runup on the news. The BT-ATT venture will be competing against other large global consortiums that also possess the size to effectively compete for new business. We see the choice of ATT as a partner as a negative. Both BT and ATT have spent much of this decade struggling to defend market share in their home markets as they shed the bloated corporate structures left over from their monopoly days.  We believe that the leaner, less bureaucratic structure of rival global consortiums will prove to be a serious challenge for the BT-ATT alliance to overcome. BTY continues to face harsh operating conditions in its home UK market. Nimble rivals like Colt Telecom and Energis are proving to be serious threats to BT's share of the key business market. Domestic revenues continue to be hurt by rate cuts. BTY's second quarter profits declined 17.9% as higher interest costs and the startup of new cellular joint ventures bit into profits. British Telecom shares, trading on a forward PE of 23.2, are currently extremely overvalued based on underlying fundamentals and growth prospects. The rampant investor enthusiasm for the telecom sector has taken a hit in the past few days, as evidenced by sharp falls in the shares of Vodafone, Engergis, and Colt Telecom. We expect sentiment to return to levels that more closely reflect industry fundamentals. This fall in sentiment will exert a strong downward pressure on British telecom industry shares over the coming months. Technically, the outlook for BTY shares has turned negative. Distribution has begun to take place in the shares, and money flow has turned negative. Stochastics and MACD exhibited strong divergences with price during the recent 2 month runup from 102 to 149, and both have turned down. ADX has given a sell confirmation, turning down from an overbought 51. We look for BTY shares to find their first downside support around the 50% retracement level at the 115-120 level. Our 6 month downside target for the shares is near May's lows at the 200 day moving average level of 100-102.  

AXP (AMERICAN EXPRESS): Take over rumors, better than expected earnings, and a favorable climate for financial stocks have turned AXP shares into star performers this year, rising from a January low of 78 to a mid July high of 118. We believe that a slowing U.S. economy and a stock market correction will dim investor's ardor for the financial sector. AXP shares are especially at risk. A slowing economy will hit consumers hard, leading to increases in credit card loss rates. A falling stock market will slow the growth of financial services and inflows into mutual funds, leading to lower growth rates for AXP's financial services business. Consumers, who have a record percentage of their assets in the stock market, will be hard hit during a serious market correction. We expect this to have a negative affect on AXP's travel related services as investors cut back on spending and concentrate on trying to rescue their dwindling nest eggs. The takeover premium built into AXP shares will dissipate as a falling stock market  lessens the ability of company's to use their stock as takeover currency.The valuation of AXP shares, at 20 times next year's earnings estimates, leaves no room for a change in the bull market/growing economy scenario that has prevailed during the 1990's. We look for the financials to be harder hit then the rest of the market during either a market correction or a period of slow economic growth. The technical outlook for AXP shares has already turned  negative. Insiders have been net sellers all year. Distribution is taking place as the smart money sells to people eager to get a piece of last year's trend. OBV and Money Flow both showed strong negative divergences during the recent highs. Both indicators have turned strongly to the downside. The shares have fallen below both their 21 and 55 day moving averages. We look for AXP to find first downside support at the 88-90 level. A bottom for the shares should occur around the 75-78 level last seen in January. Trading at 2.8 times sales, and 5.8 times book value, we rate American Express a strong short. 

CSCO (CISCO SYSTEMS):  Valuation levels and the stock's ominous technical picture have caused us to turn negative on analyst darling CSCO. We view Cisco's current share price as 20-25% above fair value. A sharp slowdown in European economies later this year will negatively impact the tech sector which has relied on European growth to counteract negative Asian growth. We also look for increased competition from Lucent Technologies and Northern Telecom to lead to price drops for network equipment and a slowing of margin growth among the networking stocks. We believe that the current fundamentals for CSCO do not warrant the stock's current valuation level of 12 times sales and a  P/E of 39 times next years earnings. It is the stock's current technical picture, however, which has caused us to institute short positions in CSCO. Money flow and the R.S.I. have shown a strong negative divergence with price since the stock hit   104 on July 21st. A double top  pattern is forming  on the stock's chart. This forming double top signal is particularly ominous because the latest leg up has occurred on decreased volume. We look for the stock to break lower and find its first downside support in the 88-92 level. Fibonacci support at 84-85 should hold. After a decline to this level, we expect the shares to trade in a range of 75 to 85 until the end of the year. 

It is the technical outlook for the company's shares that has us the most concerned however.  A double top has formed on the company's chart. This is a very negative sign (witness the downward price action that occurred after double tops formed in the Dow Industrials this year or the oil service stocks last year). Strong divergences in RSI and MACD occurred on the second peak. Weekly ADX has turned down from an overbought 42 to confirm the downward move. We look for a decline to the 46-48 range in the shares of Wal-Mart over the coming months.

The shares technical patterns already reflect a coming downturn. A double top has formed on the share's chart. Distribution has been taking place as the smart money sells to investors late to the game.  OBV showed a negative divergence with price on the second top.  Money flow is in a steep downtrend. Weekly RSI and MACD are both in downtrends.  %R has given a sell confirmation. Weekly ADX has turned down and fallen below 40.  The shares recent attempt at a rally was stopped by strong Gann resistance at 60-61. We expect the shares to find their first downside support around 50. We look for the shares to bottom in the 40-45 range in the late fall.

The technical outlook for PFE shares has been deteriorating since its late April peak.  Weekly money flow has been in a downtrend since late Spring. Insider selling has been heavy over the last few months.  A double top occurred in April-July, with strong negative divergences occurring in OBV and RSI on the second peak.   The stock closed Friday at its 200 week moving average.  We expect the shares to find their first downside support at 86.  Our year end target is in the 70-75 a share range.

We expect trading volumes accross the brokerage industry to decline for a period after the market completes its fall, as they historically have in bear markets. Witness the sharp declines in trading volume seen in southeast Asia and Japan after these markets declined.  It is the retail sector of the industry that historically has experienced the sharpest contraction in trading volume at  the bottom.  It is for this reason that we believe current estimates will prove to be too high for SCH. We expect the P/E ratio on these shares to contract to a slightly below market multiple when the market bottoms.

The underlying technicals of the drug group have been weakening since August, and this week investors finally applied selling pressure to the stocks.  The underlying technicals for SGP are among the weaker of the drug stocks. A double top is forming on SGP's chart and the stock has completed an Elliott Wave 5 up pattern.  Weekly MACD and RSI both showed strong negative divergences with price action on the second top.  Distribution has been taking place since late July. OBV and Money Flow  exhibited negative divergences on the second top, and both are in strong downtrends.  We look for the first downside support to be in the 80-85 range. Our 3 to 6 month downside target is 70.   We would consider the stock as an attractive long term purchase candidate in the 65 to 70 range, but at current levels the stock is unattractive.