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Technology Weakness Leads

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Following a decent gap lower this morning, due in part to the poor reception of news on the Bush administration's choice for a new Treasury Secretary, stocks are bouncing around near their lows of the session.

John Snow, chairman of CSX corporation is President Bush's choice to fill the slot being vacated by Paul O'Neill. Rather than bolster the financial markets, we've seen a pretty good slide this morning, with scant signs of a bounce. Leading the way lower are the sexy Technology sectors, with the Semiconductor index (SOX.X) off 4.5% and trading right at the $317 support level. This is the first time the index has flirted with this support level since November 20th. Look for next support in the $310-312 area.

Adding to weakness in the Technology arena are the Networking index (NWX.X), -5.20% at $138.57 and the Wireless Telecom index (YLS.X), -3.90% at $55.92. All of this weakness despite news from Taiwan Semiconductor (NYSE:TSM), which said net sales rose by a healthy 32% in November due to sustained seasonal demand. It is interesting to note that even though a large part of the gains is rumored to have come from QCOM orders for new phones, shares of the company are softer by -3.60%, once again trading below the $40 level. Technology bellwether Microsoft (NASDAQ:MSFT) is off by -2.00% at $54.37, leading the GSTI Software index (GSO.X) lower by -3.40%.

Another interesting pocket of weakness this morning is IBM, which is once again closing in on the $80 level, which is just below the critical $80 support level. Part of the stock's weakness today can likely be attributed to a BofA Securities valuation downgrade from Buy to Market Perform. Following an almost 50% rise from its October lows, the firm says the stock is now trading near the high end of its historical valuation range. IBM is currently weaker by -2.40% at $80.30.

Signals continue to be mixed on the Retail front in what is normally the strongest part of the year for consumer spending. While JC Penny (NYSE:JCP) announced this morning that its same store sales are running ahead of its December plan, Walmart (NYSE:WMT) threw cold water on that positive sentiment, stating that its sales last week came in at the low end of the retailer's 3-5% growth target. As of this writing, JCP is hugging the flatline at $23.04, while WMT is off by nearly a dollar, trading at $52.14.

While some retracement of the market's recent gains was in order after 8 consecutive positive weeks, continued weakness today seems to have more to do with uncertainty in Washington and the ongoing Iraq situation, which seems set to heat up in the days and weeks ahead. Taken together, these factors have the markets probing towards last week's lows despite the positive seasonality factor.

Mark Phillips

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