Schaeffer's Street Chatter Highlights the Following Stocks: Echelon, Martha Stewart Living Omnimedia, USG Corp.

CINCINNATI -- Today's "Street Chatter" from Schaeffer's Investment Research focuses on: Echelon (Nasdaq:ELON), Martha Stewart Living Omnimedia (NYSE:MSO), USG Corp. (NYSE:USG). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Street Chatter:

1. According to Hoover's, Echelon (NASDAQ:ELON) designs systems and software that link and automate industrial equipment, building environments, and devices ranging from light switches to conveyor belts. Its open-source operating system, LonWorks Network Services, lets equipment interact through local networks and the Internet. Echelon's hardware -- transceivers, routers, network interfaces -- can sense, monitor, and control such equipment as automatic doors, security systems, and railcars. Last night, the company reported a second-quarter profit of four cents per share compared to its 16-cent loss for the same period a year ago. However, revenue for the quarter fell to $28.3 million versus last year's sales of $31.1 million. The security gapped lower this morning on heavy trading, tagging it lowest level since April 2001. Since early September, the stock has declined under resistance at its 10-week and 20-week moving averages. The shares are also battling resistance at their 10-month trendline.

Options activity is relatively light on this security, with only 4,600 contracts in open interest for the front three months of options. Looking at the stock's Schaeffer's put/call open interest ratio, we find the current reading of 0.44 in the middle of all those taken over the past year. This ratio would indicate a level of complacency among speculators. On the other hand, short sellers continue to bet against the security. With more than three million shares sold short, it would take roughly 29 days for traders to cover these positions at the stock's average daily trading volume. However, with the security down more than 15 percent today, short sellers have little reason to rush out and buy back their shares. Adding to the pessimistic sentiment backdrop, one brokerage firm downgraded the equity this morning from "strong buy" to "neutral." Prior to today's activity, one brokerage firm rated the stock a "strong buy" and one gave it a "hold." With staunch overhead resistance pressuring the shares, it is likely ELON will continue on its decline.

Click the following link to see the Weekly Chart of ELON Since July 2003 With 10-Week and 20-Week Moving Averages:

http://www.schaeffersresearch.com/wire?ID=10609 .

2. The domestic doyenne of beautiful living appeared in court this morning. After a brief statement, Martha Stewart was sentenced to five months in jail, five months of house arrest, two years of probation, and fined $30,000 for her conviction of lying about her reason for the sale of her shares of ImClone Systems. As if sighing in relief that the two-year ordeal is finally over, shares of Martha Stewart Living Omnimedia (NYSE:MSO) have soared more than 22 percent in trading this afternoon. Following Stewart's conviction in March, the shares went on to tumble by more than 24 percent to hit a May low, but have continued to languish under resistance at their 10-week moving average over the past couple of months. Yet today's news has popped the security back above its short-, intermediate-, and long-term trendlines.

Heading into today's court session, investors were extremely pessimistic toward the shares. The stock's SOIR of 0.77 was higher than 69 percent of all those taken over the past 52 weeks. Furthermore, short interest continued to creep higher to its current perch of 5.9 million shares. With a short-interest ratio of 13.72, the stock could continue to rally as these bearish bets unwind. Wall Street is also giving MSO the cold shoulder, as all four analysts following the firm rate it a "strong sell." Any upgrades from this group could also boost the security higher.

Looking ahead, MSO is slated to report earnings on August 9. The Street is expecting a loss of 31 cents per share compared to its two-cent profit for the same period a year ago. Historically, the company has missed the consensus estimate twice and surpassed it three times over the past five quarters.

Click the following link to see the Weekly Chart of MSO Since February 2004 With 10-Week and 20-Week Moving Averages:

http://www.schaeffersresearch.com/wire?ID=10609 .

3. USG Corp. (NYSE:USG) keeps builders in business. According to Hoover's, USG makes gypsum wallboard, ready-mixed joint compounds, DUROCK cement board, underlayment, and ceiling grids and tiles. The company owns 15 gypsum mines in North America. Its Gypsum Transportation subsidiary operates a fleet of ocean vessels that moves gypsum from USG's mines to its manufacturing plants; subsidiary L&W Supply distributes gypsum wallboard to contractors and builders. The company delivers more than 10 billion sq. ft. of wallboard annually. Technically speaking, the security has rallied roughly 49 percent from its May 10 low of 12.30 along the steadfast support of its 10-day and 20-day moving averages. USG is also enjoying the support of its 10-month and 20-month trendlines. The stock is currently battling resistance in the 19-20 area, which has capped the security's rally attempts for the past year.

Despite the stock's rally higher, investors remain skeptical of the firm. The stock's SOIR checks in at 0.65 and is higher than 85 percent of all those taken over the past year. What's more, the number of USG shares sold short increased by four percent in June to 11 million, a new two-year high. At the stock's average daily trading volume, it would take more than 14 days to cover these pessimistic positions. This accumulation of shorted shares could easily fuel a rally in the stock.

According to Zacks, the USG is due to step into the earnings confessional on July 27. The Street is expecting a profit of $1.50 per share for the previous quarter, more than doubling its profit 72 cents per share for the same period a year ago. A positive report could also help to boost the security through overhead resistance.

Click the following link to see the Weekly Chart of USG Since February 2003 With 10-Week and 20-Week Moving Averages:

http://www.schaeffersresearch.com/wire?ID=10609 .

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .