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Market Update 070221
http://biz.yahoo.com/mu/update.html

4:20 pm : In similar fashion to yesterday's mixed finish, investors were again split as to whether or not stocks at current levels are overbought.

With so many different indices, from the Dow Industrials and Transportation averages to the S&P 400 MidCap and Russell 2000, hitting records, it's easy to see why some on Wall Street remain concerned that the market is getting ahead of itself.

That's especially true since continued market gains require an expansion in the P/E multiple, which typically is associated with an improving earnings growth outlook or declining interest rates. However, it remains to be seen if the Fed will ease anytime soon while earnings growth for the S&P 500 is expected to slow to near 5% in Q1, and perhaps 7% for Q2 and Q3.

Aside from an encouraging outlook from Analog Devices (ADI 36.59 +3.27) renewing growth prospects for some semiconductor stocks (e.g. TXN +2.3%, MXIM +7.8%, LLTC +9.8% and NSM +6.4%), which helped Technology provide some decent leadership, the bulk of notable reports making headlines today confirmed that profits are decelerating.

JC Penney (JCP 83.65 -2.70) posted record results, but Q4 earnings fell 13% from a year ago and management guided Q1 EPS below consensus estimates. Aside from JCP's report providing an excuse to lock in retail gains, weakness among homebuilders also weighed on the Consumer Discretionary sector. Toll Brothers (TOL 31.69 -1.17) posted a 67% drop in quarterly earnings.

Of the six sectors losing ground, Industrials turned in the worst performance. After hitting an all-time high yesterday, Deere & Co (DE 112.85 -3.10) succumbed to the most aggressive of profit-taking efforts. Transportation, also a day removed from reaching historic highs, was another sector sore sport as oil prices surging 1.4% to close near $61/bbl provided a reason to take some money off the table.

Crude for April delivery tacked a 1.4% advance onto yesterday's 2.0% gain after the Energy Dept. reported much larger than expected drawdowns in gasoline and distillate supplies. Oil got an added boost following reports that Iran failed to suspend its nuclear enrichment activity by the February 21 deadline.

Per usual, the Energy sector took notice of crude's climb, halving its year-to-date decline with a 1.0% gain. However, with oil above $60/bbl potentially bringing the commodity's inflationary characteristics back into focus among policy makers, Energy's leadership was not enough to act as an offset.

Dow component Exxon Mobil (XOM 75.00 +0.22), which as the most influential S&P 500 constituent accounts for 23% of the weighting in Energy, only closed up 0.3%. DJ30 -52.39 DJTA -0.3% DJUA +0.4% NASDAQ +6.52 NQ100 +0.4% SOX +2.8% SP400 -0.2% SP500 -1.25 XOI +0.6% NASDAQ Dec/Adv/Vol 1343/1651/2.03 bln NYSE Dec/Adv/Vol 1753/1477/1.40 bln

3:30 pm : Sellers remain in control of the action going into the close as the Dow continues to outpace the S&P 500 and Nasdaq to the downside. Of its 30 components, 26 are trading lower. General Motors (GM 34.70 -0.67) is pacing the way as shareholders continue to show their disapproval of a possible Chrysler acquisition.

Since oil makes up 60% of the costs for chemical companies, and DuPont (DD 52.43 -0.58) closed at a multi-year high yesterday, it isn't surprising to see it also among today's laggards. Crude for April delivery closed up 1.4% near $61/bbl. DJ30 -71.78 NASDAQ -1.18 SP500 -3.57 NASDAQ Dec/Adv/Vol 1592/1385/1.68 bln NYSE Dec/Adv/Vol 1973/1273/1.16 bln

3:00 pm : The indices finally break out of their narrow afternoon ranges; but to the dismay of the bulls, it's to the downside. The tech sector slipping back into negative territory has removed what little support the market was trying to muster amid broad-based consolidation efforts.

On a positive tech note, at least for networking stocks, Alcatel-Lucent (ALU 13.27 +0.20) is now up 1.5% (after being down as much as 1.4% earlier) following reports that Microsoft (MSFT 29.20 -0.15) must pay ALU $1.52 bln for infringing on its MP3 patent. However, since Lucent (post merger) is no longer an S&P 500 component, the stock's rebound is having minimal impact on the broader market. DJ30 -73.96 NASDAQ -5.22 SP500 -4.12 NASDAQ Dec/Adv/Vol 1727/1231/1.53 bln NYSE Dec/Adv/Vol 2013/1219/1.04 bln

10:30 am : The major averages are now trading in split fashion as stocks spike lower within the last 30 minutes. While reports that Iran failed to suspend its nuclear enrichment activity by the February 21 deadline surfaced right around the same as the market's downturn, it remains unclear if that has been the catalyst since there has been no subsequent safe-haven buying in Treasuries or oil prices.

It is worth noting, though, that technical breakdowns may be contributing factors since the Dow and Nasdaq have both ran into notable resistance at respective levels of 12760 and 2530. DJ30 -7.93 NASDAQ +2.39 SP500 +0.14 NASDAQ Dec/Adv/Vol 1269/1405/400 mln NYSE Dec/Adv/Vol 1151/1736/224 mln

10:00 am : The indices are extending their reach to the upside, spearheaded by strength across the board in Technology (+0.7%). While a settlement between Apple (AAPL 90.21 +1.01) and Cisco Systems (CSCO 27.45 0.07) over use of the iPhone name continues to top the tech headlines, the real story is in the semiconductor space. Not only did Analog Devices (ADI 35.45 +2.13) post a sequential revenue increase in a seasonally weak quarter, but orders beginning to strengthen again in January and management issuing some encouraging guidance based on improving business conditions have renewed optimism about the tech sector's growth prospects.

The news has helped vault shares of competitor Texas Instruments (TXN 31.92 +0.94) more than 3% while the likelihood of a bottoming in National Semiconductor's (NSM 25.41 +1.76) current quarter has prompted Morgan Stanley to upgrade NSM. ADI shares are up 6.4% and Semiconductors (+2.1%) currently ranks as today's best performing S&P industry group. DJ30 +18.67 NASDAQ +12.97 SOX +1.8% SP500 +3.81 NASDAQ Dec/Adv/Vol 1129/1329/168 mln NYSE Dec/Adv/Vol 1138/1342/74 mln

09:40 am : As expected, stocks open modestly higher. While there isn't much in the way of specific market-moving news to impact the underlying tone, the market's buoyancy in the face of oil prices above $60/bbl oil following a surprisingly worrisome read on consumer inflation yesterday has carried over into this morning's action.

However, even though the focus on the positive fundamentals has kept the upward trend of the past seven months in place, the market's ability to hold off the much anticipated correction/consolidation talks doesn't mean that such a threat isn't still looming, especially with so many indices near record levels.

DJ30 +14.84 NASDAQ +7.37 SP500 +1.95 NASDAQ Vol 86 mln NYSE Vol 42 mln

09:15 am : S&P futures vs fair value: +2.5. Nasdaq futures vs fair value: +5.5.

09:00 am : S&P futures vs fair value: +2.4. Nasdaq futures vs fair value: +5.2. Still shaping up to be a decent start for stocks as the futures market continues to trade above fair value. While the Dow looks to get back on track after its five-day winning streak was snapped, the Nasdaq is poised to attract even more buying interest. Apple (AAPL) and Cisco Systems (CSCO) finally ending a trademark battle over the use of the iPhone name are providing a floor of support while the primarily tech-heavy Composite will also get a boost from a grocer. Whole Foods (WFMI) is surging nearly 8% in pre-market action as investors applaud its $565 mln bid for rival Wild Oats Markets (OATS).

08:32 am : S&P futures vs fair value: +2.8. Nasdaq futures vs fair value: +6.5. The stage remains set for stocks to open on an upbeat note as investors embrace the latest read on labor conditions. Initial claims fell 27K to 332K (consensus 325K), suggesting the prior read was just a one week aberration. The data, which were compiled during the same week as the crucial monthly payrolls report, suggest a resilient job market will continue to lift wages and stimulate consumer spending.