WHAT DO YOU MEAN AMD Had Pricing Pressure…GOSH????? 10-18-06

Good Evening.

Apparently, the "sell the news" phenomenon is gaining some traction. When the DOW finally crossed over 12,000 it was quickly faded. Even the good news names, such as IBM, sold off throughout the day closing near their lows. In addition to this concerning aspect of today's market action, the SOX is showing severe cracks since recently touching its 200-DMA.

After the bell AMD is down sharply which should further pressure the Semiconductor complex tomorrow. Why anyone is so surprised that AMD is suffering due to lower prices from its war with INTC is beyond us. Funny thing about market participants, they have an uncanny ability to ignore the obvious for weeks and then suddenly act all at once. They are equally adept at reacting over and over again on the same news. This is a strange world indeed and human nature is an oddity!

EBAY has also reported decent numbers but offered disappointing guidance. Despite the stock looking higher after hours, we expect a fade to the downside over the next couple of days in its shares. Other disappointers were CTXS and JNPR's guidance, the former being down approximately 12% after hours. The star of the evening is AAPL…what… another shock! iMac sales were stronger than expected at 1.6million and iPod sales were at the high end of the range. However, their guidance was much lower than expected but AAPL seems to be getting a free pass from Wall St. on that issue. The stock is looking up nicely after hours but we are skeptical of its sustainability at this juncture. Participants need to remember that despite AAPL spreading so much love over the past year or so; eventually, Wall St. will abruptly turn its back on the relationship. This will happen at the slightest hint that AAPL may only remain a niche player. In other words, this is a great stock to own but only in small size due to the inevitable falling out of bed that can be expected (based on history). Remember, when AAPL falls out of bed it sounds like a piano hit the floor. Put that in your iPod!

If You Held a Taser to Our Head:
The Bulls were relieved that the CPI did not confirm yesterday's strong PPI advance. Unfortunately for them, the 0.2% reading on core CPI did not dismiss the prospect of inflation being an issue. While the Fed is likely to continue jawboning, the next hawkish economic report can yield fears of future rate hikes as opposed to the hope of rate cuts that have helped fuel the recent rally. Little by little, all of the "glass half full attributes" that the market has been celebrating over the past month or two are coming unglued, and hardly any equity players are noticing.

We will be posting again next week.

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