TheStreet.com 21 Falls on Yahoo!'s Weakness - TheStreet

TheStreet.com 21 Falls on Yahoo!'s Weakness

Kohl's is the only component of the new index to end the day higher.
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Reality descended on the TheStreet.com 21 index Thursday as shares of component

Yahoo!

(YHOO)

once again proved that trees don't grow to heaven.

The TSC 21, a newly created proxy designed to be a leading indicator of the economy's direction for the rest of the year and beyond, shed 12.51 points, or 1.2%, to 1007.49. The move compared with a 1.4% drop in the

S&P 500

to 989.67. Only one of the 21 components in the index ended the day higher.

The biggest skid among the TSC 21 was registered by Yahoo!, which by all accounts posted solid earnings after the close of trading Wednesday. The Internet media company's earnings matched expectations, and revenue topped expectations. Online advertising showed strength, and CEO Terry Semel said Yahoo!'s engine is "operating on all cylinders." However, the stock had a reality check, and shares fell 7.5% to $32.56. Yahoo! shares have soared 115% so far this year.

"The market has run up a lot heading into earnings, and maybe too much. There's a lot of optimism out there, and people are looking for strong second half in terms of economic growth," said Giri Cherukuri, head trader at OakBrook Investments. "I think people were a little overly optimistic about Yahoo! They posted strong earnings, strong revenue growth and boosted targets. That's all you can expect, really. But people obviously expected more."

Elsewhere, shares of big-store retailer Kohl's made a late-day recovery and was the TSC 21's lone bright spot, gaining 1.8% to $54.98. Earlier, the retailer cut its second-quarter earnings expectations 30 cents to 32 cents a share, below analysts' estimates of 39 cents a share. "We have been very aggressive on pricing all quarter to clear our seasonal merchandise and be appropriately positioned for back-to-school in August," said CEO Larry Montgomery.

But shares reversed direction late in the day, after Fahnestock maintained its buy rating on Kohl's, saying the shares may reach as high as $80 with the first hint of operating improvement, which will likely occur during the back-to-school season.

Analyst comments couldn't help other components, however.

Continental

(CAL) - Get Report

shares dropped 1.2%, to $15.01, despite positive comments from CSFB, which raised earnings estimates by 20% across the entire industry. CSFB's Jim Higgins expressed concerns that the revenue picture may fade, but he said cost cuts would be enough to improve business conditions.

"Technically it looked like we were at top of the range and needed to come down a bit," said Barry Gramma, a trader at Puglisi & Co. "Everyone is bullish, but I think that we're going to be down for a while or go sideways, but then I think we'll come back -- I just don't know when."

The index was assigned an opening value of 1000, based on the closing prices of the 21 components' share prices on July 3. After three straight negative sessions, it is now up a mere 0.75% since its creation.

We've selected 21 companies that are extraordinarily suited to serve as a reality check for the rally. The 21 companies represent a diverse range of industries, but unlike indices designed to represent the broader market, such as the Dow Jones Industrial Average or the S&P 500, TheStreet.com 21 doesn't represent every sector of the economy. Our goal in choosing TheStreet.com 21 was to select stocks that were hypersensitive to the times. If the economic landscape truly has improved, TheStreet.com 21 should reflect it first, and rise accordingly. If the economy is stalling, the index will decline -- a harbinger of bad news to come. Click here to read more about the index, and click here to view the entire chart of TheStreet.com 21 components, including the reasons for their inclusion.

What do you think about the TheStreet.com 21 index? Email us at twocents@thestreet.com