Bears finally awake, with stocks falling on disappointing earnings and economic news. The major market indices are off more than one percent in midday trading, with the Nasdaq ($COMPQ) leading the decline. Shares of Internet stocks are falling hard on Thursday, with Yahoo (YHOO) declining after announcing earnings last night. Weekly jobless claims data and June retail sales data is also creating some concern for traders.
For the second straight session, the S&P Retail Index ($RLX) is down, falling more than two percent in midday trading Thursday. The Bank of Tokyo-Mitsubishi announced that chain store sales rose 2.4 percent in June, slightly higher than expectations. Nonetheless, retail stocks are under pressure, with sales higher because of promotions. On top of this, several retailers announced earnings warnings this morning. Those warning included J.C. Penny (JCP), Kohl’s (KSS) and TJX Companies (TJX). Wal-Mart (WMT) didn’t warn, but did state that inventories continue to be above plan, which is the main reason retailers are using so many promotions.
Jobless claims rose by 5,000 in the latest week, with the prior week figure also revised higher. This is not a good sign for the economy, as a rebound in job market is needed for a sustained recovery. Nonetheless, jobless claims have remained above 400K since mid-February. After falling for three straight weeks, jobless claims have now moved higher for the last two.
The CBOE GSTI Internet Index ($GIN) is down 3.5 percent this afternoon, led by a 7 percent decline in shares of Yahoo. The Internet portal announced earnings last night that were inline with analyst estimates. Nonetheless, traders were expecting much stronger results. After rising sharply during 2003, Yahoo needed to really impress traders for the buying to continue. Even so, Yahoo continues to show improvement and this is a good sign for the sector. Yahoo is a good example of buying the rumor and selling the news, which might occur with many stocks this earnings season.
Overall, the bulls have had a strong hold on the stock market, with each decline almost immediately met with buying. We’ll see if the bulls can pull stocks out of the doldrums later today or on Friday. One thing to watch is the S&P 500 ($SPX), which has fallen back below 1,000 on Thursday. The SPX moved above this key level in mid-June, but was not able to hold it through the end of the week. Technicians believe the SPX needs to close the week above this level in order to move higher in the short-term.
Jody Osborne Senior Staff Writer & Options Strategist Optionetics.com ~ Your Options Education Site
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