Stocks Plunge Again

Stocks plunged Friday on a report that consumer confidence may be stabilizing, as traders worried that the Fed won't cut rates as much as hoped next Tuesday. The Producer Price Index showed that inflation is tame, however.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 12 to 212, and the Nasdaq lost 49 to 1890. The S&P 500 fell 23 to 1150, and the Dow plummeted 207 to 9823. Volume surged to 1.55 billion shares on the NYSE, and 2.07 billion on the Nasdaq. Decliners led 20 to 9 on the NYSE, and 25 to 10 on the Nasdaq. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

The Producer Price Index for February came in weaker than expected, giving the Fed room to cut rates, but the Michigan Consumer Sentiment survey continued to show firming in consumer confidence, which Fed Chairman Alan Greenspan has said is key to avoiding recession. The Fed funds futures are pricing in a 100% chance of a 50 basis point rate cut on Tuesday, and a 60% chance of a 75 basis point cut.

Earnings warnings continued to pour in from technology companies. Oracle slipped 11/16 to 14 after matching lowered estimates of 10 cents a share and predicting flat growth next quarter. B2B stocks got hit after Oracle's application software sales came in lower than expected, and Robertson Stephens downgraded the group. i2 lost 11/16 to 17 1/8, Ariba fell 15/16 to 10 1/8, and Commerce One lost 1.06 to 9.10.

Adobe surged 3 5/8 to 28 5/8 after beating estimates but guiding future estimates lower. Compaq , off .50 to 18, and Computer Sciences , which plunged 21.40 to 32.70, also issued earnings warnings.

Nuance plunged 7 9/16 to 9 7/16 on an earnings warning. Speechworks fell 4 13/16 to 7 1/2.

eBay lost 2 3/8 to 32 1/4 despite Goldman Sachs reiterating Recommended List and saying the company should beat estimates.

Check Point continued to come under pressure, losing 5 1/4 to 57 15/16.

Some technical comments on the market: Note: We are now including 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

The Nasdaq found support today at what could be its lower bullish falling wedge boundary, using closes only, so we'll continue to call that pattern in play (first chart). The Nasdaq 100 also has a lower wedge trendline around today's lows (second chart), although that index could fall a little further and maintain that line. Today's low of 1877 on the Nasdaq corresponds with pretty stubborn resistance from mid-1998 in the 1850-1870 range (third chart), so that makes for a pretty important level. The next support level below 1850 would likely be 1770. The Nasdaq 100 broke a bear flag yesterday (fourth chart), with about 300 points of potential downside; not a pretty pattern. However, given that the last decline on the Nasdaq indexes may have been an exhaustion move, that bear flag might not work out. We hope. To the upside, the Nasdaq needs to clear 2028, the July 1998 high, fill a down gap at 2042-2053, and get back above 2070, the redrawn 1990 logarithmic trendline. After that, the upper boundary of that falling wedge is around 2100, and next resistance after that is 2252. We are still expecting a significant turn in the market next week. One smart cycle watcher got his first monthly buy signal on the Nasdaq 100 today since October 1998, and is also getting a weekly buy signal. As he put it, if the market doesn't rally even a little next week, it's in "deep doo doo." Either way, a significant moment for the market is at hand. One good sign is that the put-call ratio closed at 1.06 today, its highest level since October 1998, when it closed at 1.11. The key will be the market's reaction to whatever the Fed does on Tuesday. Traders are hoping for a 75 basis point rate cut; a 50 basis point cut could be viewed as a disappointment. Watch the market's reaction for a day or two, not the news itself. Given all the oversold readings, the market is set up for some sort of rally.

The S&P 500 found support just below 1150 today, probably for no other reason than the attraction of a nice round number. The S&P doesn't have another strong support on the charts until 1125. Below 1125, 1060 is the next support, but 1000 is the next strong support. To the upside, there is resistance at 1160, 1171, 1191 (the July 1998 high) and 1198. The index must take out 1214-1215 to be restored to technical health, a level that marked the index's recent breakdown.

The Dow may be finding support at its linear 1994 trendline (first chart), but broke support at 9900 and 9850. Next support is 9800, then 9750, 9650, 9350 and 9200. (We should note that the Nasdaq may also be holding its 1994 linear trendline, but that the S&P 500 has clearly broken its 1994 line.) To the upside, 10,000 is first resistance, but the Dow must get back above 10,300 to be restored to health. The Transports got battered again today, a big negative because of their importance to the health of the economy as a whole.

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