Securities Research Services

Wednesday, October 18, 2006

Waiting on the CPI Reaction

Yesterday's PPI numbers gave the market a shake, but by the end of the day the Dow and S&P had almost fully recovered as dip buyers remained aggressive. A crack in the market's armor showed, however, as the QQQQ and semiconductor sectors reacted more harshly to the higher than expected inflation numbers. Likewise, the tech sector failed to make the same strong recovery that the blue chips were able to carve out. We are still projecting the rally in the blue chip sector will stay in tact for the next couple of weeks (and perhaps up through the November 7 elections). Tech, while not likely to turn into a downtrend just yet, will probably start to lag as it did last spring. Today's CPI numbers, if as inflationary or more so than yesterday's PPI, have the potential to knock the QQQQ back to support near $41.

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