Ever hear about a company that reported a 96% increase in quarterly earnings, but whose stock dropped 10% in value on the news?

Well, that's exactly what happened last week with Intel. The world's biggest computer chip maker reported last Tuesday that its second-quarter profit nearly doubled.

Did Intel's stock price tank because analysts were expecting higher earnings? No. The general expectations amongst analysts were for a profit of $0.27 a share and Intel hit that number right on. Aside from lowering its gross margin outlook for the remainder of 2004 to 60% from 62% and slightly higher inventory levels, there was really no "bad" news from the company.

The problems for Intel really started earlier in the week when Merrill Lynch downgraded its opinion on semiconductor companies, including Intel. Then, following Intel's earnings news, Prudential Securities cut its rating on the stock to neutral from overweight. Morgan Stanley too was quick to change its rating on the stock to equal weight from overweight.

Why Intel stock got hit so hard on "good" earnings, we will never know. I've been in this business all my life. And if there is one thing I have learned through the years, it is that the market responds to news for its own reasons... reasons that we may never understand and reasons we may only understand months after the fact.

The bottom line lies in a very nervous stock market where there are few buyers and few sellers, as the light trading volume indicates. Intel has been an immensely positive stock market story. And the stock market loves growth. Now that Intel may be maturing (as evidenced by declining margins and rising inventories), the market could be taking a "wait-and-see" attitude.

I could go on hypothesizing all day. But the reality is, the market tanked Intel because it simply doesn't like what it sees ahead for Intel and the others... and soon we'll find out what exactly the market didn't like. Remember, the stock market is a leading indicator, not a lagging one. We need to listen to what it's telling us in terms of stock price action.