Sector Investing

[ReturntoSender]

MIDDAY ACTION, Apr. 6
By Jody Osborne, Optionetics.com
4/6/2004 12:45:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10189

Profit taking develops on Wall Street, with an earnings warning from Nokia (NOK) providing a reason to sell. Today’s selling is not particularly heavy given the recent strength the major market indices have shown. The tech sector is seeing the largest declines, but after rising in seven of the last nine sessions, the selling is rather light.

Economic news was on the positive side Tuesday, with job cut announcements falling to a nine month low and retail sales rising slightly last week. On Thursday, traders will get more information about retail sales when data is released for March. Economists are expecting strong results for the month, possible exceeding February’s gain of 6.7 percent. The Challenger Report showed that job cut announcements fell to 68,034 in March, from 77K in February. This news coincides with other jobs data showing that this laggard in the economy is coming around.

Nokia has created much of the selling Tuesday after warning that sales would fall short of expectations. Previously, Nokia expected sales growth of 3 to 7 percent, but now the maker of handsets expects a decline in sales of 2 percent. As a result of this negative news, the stock has fallen 17 percent. The news has also had an impact on other tech companies in the sector and has put a damper on the chip sector as well. The Philly Semiconductor Index ($SOX) is down nearly three percent in midday trading.

Earnings season will officially kick off after the bell Tuesday when Dow ($INDU) component Alcoa (AA) announces. Later this week, General Electric (GE) and Yahoo (YHOO) will also report earnings. Yahoo was downgraded by Schwab SoundView today to “Neutral” from “Outperform.” Schwab is worried that Yahoo Japan is overvalued and this creates risk for Yahoo shares.

Overall, it is not surprising to see some profit taking after such a strong move higher the past few weeks. Expectations have become rather high for the economy and first quarter earnings and sometimes this can be overdone to the upside. Nonetheless, things are starting to turn for the better in the economy and traders want to be on the right side when stocks make their move. Even so, it might be difficult for the major market indices to break to new highs in the near term unless earnings are extremely strong and future employment data shows similar results as March’s report.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site