Stocks Sell-off On Near-record Volume

Stocks fell sharply across the board on near-record volume on earnings warnings from Gateway and Altera, but the market recovered to close off its worst levels.

The ISDEX fell 9 to 403, and the Nasdaq lost 108 to 2598, both new 52-week lows. The S&P 500 dropped 26 to 1314, and the Dow lost 214 to 10,414. Volume surged to 1.51 billion shares on the NYSE and 2.7 billion on the Nasdaq. Decliners led by 18 to 9 on the NYSE and 27 to 13 on the Nasdaq. A much weaker than expected report from the Chicago purchasing managers raised fears of a recession. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Ariba gained 4 to 61 3/4 after trading as low as 51 3/4. Co-founder and CFO Edward Kinsey resigned and was replaced by Robert Calderoni from adhesive firm Avery Dennison . Commerce One dropped 2 3/16 to 28 13/16, closing beneath 29 support, but i2 rose 6 3/16 to 96 5/8.

Cisco dropped 3 1/4 to 48 on rumors that it was returning excess inventory to manufacturers, raising concerns that demand was slackening.

Communications chip companies sold off on the warning from Altera , which lost 1 15/16 to 24. Broadcom gained 2 1/2 to 97 1/2, but PMC-Sierra fell 11 1/4 to 92 1/4, and Vitesse declined 6 1/16 to 43 1/8.

Juniper Networks bucked the trend, rising 9 3/4 to 125 1/2 after announcing an alliance with Ericsson to develop mobile Internet routing products.

Tut Systems dropped 3 9/16 to 7 1/8 on an earnings warning. Stratos Lightwave slipped 7/8 to 15 7/8 despite beating earnings estimates.

Brocade Communications' better-than-expected earnings helped storage stocks. Brocade surged 14 1/4 to 168, EMC gained 1 3/16 to 74 3/8, Veritas rose 9 9/16 to 97 9/16, and Emulex gained 5 15/16 to 116 7/16.

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The Nasdaq reached our downside target of 2530 today, duplicating its 41% descent from 5132-3026 from its second peak at 4289. A good point for a rally, and the high volume could make it good for more than that. We'll see what develops. If 2530 doesn't hold, the 1990 logarithmic trendline at 2300-2400 isn't too far from here.

The Philadelphia Semiconductor Index continued its descent toward 400 two days after closing below the lower boundary (600) of a 200-point descending triangle by more than the required 2%. However, we do not expect the SOX to hit that number immediately, given that the apex of the pattern is still some time away. A close above 625 would negate the SOX's breakdown.

The ISDEX continues to trade below its broken support line, leading us to believe that it may still have some downside ahead. Based on the size of the broken pattern, the ISDEX could have downside to 320-370; the selling stopped at 381 today. The index has strong support at 375-400. A move above 480 would be a real positive for Net stocks.

The S&P 500 negated its fallin