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Stocks Drop In Rising Volume

Stocks fell in rising volume on Tuesday amid concerns about earnings of cyclical companies and more anthrax worries.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 11 to 174, and the Nasdaq dropped 53 to 1880. The S&P 500 lost 8 to 1142, and the Dow declined 75 to 9901. Volume rose to 1.32 billion shares on the NYSE, and 1.98 billion on the Nasdaq. Decliners led 16 to 14 on the NYSE, and 22 to 13 on the Nasdaq.

After the close, Analog Devices fell after topping estimates but warning. Chip stocks got some good news after the close with a better-than-expected Semiconductor Equipment Book-to-Bill report.

During the day, IBM , up .40 to 115.40, was one of the few tech stocks to escape the selling on news that the company had gained sever market share.

Neoforma soared 32% on WR Hambrecht comments that the stock could double in price. Loudcloud surged on a better than expected loss.

Microsoft , off 1.14 to 65.40, settled 100 private lawsuits at an estimated cost of about $1.1 billion.

High-flyers fell anywhere from 7%-11%, among them Emulex , Brocade , Check Point , Ciena , VeriSign , QLogic , and Broadcom .

Some technical comments on the market: Note: We include charts in the technical market commentary. If you can't get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

A sharp pullback in rising volume; not the greatest sign for the market, but most of all for tech stocks. The SOX (first chart), the semiconductor index, broke its uptrend from the September lows today, and the lower trendline of what looks like a bearish rising wedge. If the index is going to recover that line, it needs to do it quickly; it should be at 505-510 tomorrow. Tonight's better-than-expected Semiconductor Equipment Book-to-Bill report could help. The Nasdaq 100 (second chart) broke its uptrend out of the October 31 lows; a move below 1528 would set up a test with critical support at about 1500. 1580 is strong resistance. The Nasdaq (third chart) also broke its October 31 trendline. First support is the gap at 1840-1876, and first resistance will be that broken trendline around 1900 tomorrow. Critical support is 1770-1793. For the Dow (fourth chart), support is 9875-9893, then 9800. Resistance is 9977 and then 10,093-10,120. The S&P (fifth chart) has support at 1142 and then 1130-1135, and resistance at 1155 and 1160-1164. One technician, Don Sew, is getting pretty reliable signals that this rally could top out within the next week, if it hasn't already. Elliotticians still see room for one more pop higher, however, potentially to about 2100 on the Nasdaq. The key will likely be that 505-510 level on the SOX; if it can recover that, tech stocks should head higher. One point in the bears' favor here is that the put-call ratio barely budged today (0.59, up from 0.53 yesterday) for the first time in the current rally; it may take more downside to shake out complacency. Another worrisome sign is the steep sell-off in treasuries - if that money doesn't start going into stocks soon, the bond market sell-off is bearish. One plus for the old economy stocks is the bullish "three white soldiers" candlestick patterns in the cyclicals and transports (sixth and seventh charts), which could provide support and potential further upside for old economy stocks. All in all, the picture is of a rally that could top out relatively soon. Potential cycle turns are Friday-Monday and December 2-5, but the cycle picture doesn't turn strongly bearish until mid-December.

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