Traders Spin the Fundamentals

The stock market was all over the map today. The Bulls made a solid attempt in the afternoon but were thwarted and gave up the ghost into the close. Clearly we were disappointed and surprised by the lack of oomph from the Bovines. The afternoon rally that we were expecting, although it got off the ground, was faded fast and furious.

After the bell Intel (INTC), Yahoo (YHOO), and Motorola (MOT) reported. MOT results were strong which is a good indication of end user demand. YHOO seemed good enough as well. INTC reported better than expected revenues and earnings with strength across the board. The stock was up initially after-hours but faded sharply when the company indicated that inventory builds are appearing in their larger clients.

Clearly market players are selling first and asking questions later as INTC is down -2% after-hours. Does the increase in inventories portend softening expectations for end user PC demand? With worldwide PC units shipped (announced on this past Monday) to be up approximately 17%, we doubt the softening spin. Rather, in conjunction with strong end user demand from the likes of MOT; could it be that OEM's (Original equipment Manufacturers) are actually preparing for increased demand? Only after other proxies of end user demand are reported during the next couple of weeks will we have confirmation.

INTC is always wrongly perceived as a good bellwether for consumer demand. They are also notorious for pulling the rug out from under the market as they radically shift their views of the world. Remember, they receive their industry sales forecasting data much later than the likes of Hewlett-Packard (HPQ), MOT, etc. Let's not forget who is on the front line with the consumer.

If You Held a Taser to Our Head:
However, perception is reality. Should traders uniformly interpret the INTC news as technology sales softening then the market will clearly want to retest last weeks lows. We will only know if this will occur by judging any bounce in technology stocks over the next couple of days. Tepid relief rallies will be invitations for the Bears to force the retest. Nimble traders should use any strength of that nature to lighten up some of their exposure. Your Friendly Neighborhood Kcap Team would also use that type of strength to slightly and temporarily decrease our Bullish posture. However, a strong Bullish reversal over the next couple of days would keep us fully invested.

Buckle up your seatbelt, the next couple of days will be very volatile.

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