Market Takes Pessimistic Turn

It's not the news that matters, it's how the market reacts to the news that matters. -- Ancient Wall Street proverb.

On Wednesday, bulls took solace as the stock market mainly shrugged off news of a higher-than-expected CPI report, the Bank of Japan's somewhat surprising rate hike and even a harsh sell-on-the-news reaction to Hewlett-Packard's (HPQ Quote) earnings, as detailed in my podcast.

On Thursday, conversely, bulls were hard-pressed to find much to cheer about outside of the chip sector. Major averages ended mixed despite better-than-expected earnings from Newmont Mining (NEM Quote), news of a Cisco (CSCO Quote)-Apple (AAPL Quote) détente over the iPhone moniker, and the Whole Foods (WFMI Quote) buyout of Wild Oats (OATS Quote).

Whole Foods and Wild Oats each soared on their merger, and positive comments from Analog Devices (ADI Quote) gave a boost to the chip sector. Analog Devices rose more than 10%, while Linear Technology (LLTC Quote) and Maxim Integrated Products (MXIM Quote) soared as well. The Philadelphia Stock Exchange Semiconductor Index climbed 2.5%.

But just as the Whole Foods-Wild Oats deal didn't spur more "who's next" speculation, neither did the chip rally spur a significant tech advance, much less a broader market advance. The Dow Jones Industrial Average fell 52 points to 12,686, while the S&P 500 slid 1.25 to 1456. Buoyed by the chips, the Nasdaq Composite did manage to rise 6.5 to 2525, its highest level in six years.

A 52-point drop in the Dow is no big deal, much less a 1.25-point decline in the S&P. But Thursday's session was noteworthy since chip stocks are a key bellwether for the tech sector and the favorite "tell" of many momentum players.

That being the case, the lack of broader "pin action" in the wake of the chip rally could be a sign of a market ready to rest after a big run.

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