Another Manic Monday

Stocks fell Monday on a warning from Sears and the continued shutdown of West Coast ports.

The Nasdaq fell 20 to 1119, yet another new low, the S&P 500 lost 15 to 785, 10 points above the July low, and the Dow dropped 105 to 7422, another new low for that index. Volume declined to 1.56 billion shares on the NYSE, and 1.4 billion on the Nasdaq. Decliners led 25 to 7 on the NYSE, and 24 to 9 on the Nasdaq. Downside volume was 83% on the NYSE, and 72% on the Nasdaq.

Microsoft , Dell , Intel and IBM managed to finish up on the day. Intel said it sees a PC recovery beginning early next year.

Yahoo slipped 2.8% ahead of earnings after the close on Wednesday.

Oracle lost 6% on lukewarm comments from the company.

WebMethods gained 7.6% after reaffirming guidance.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the story link at the top of the newsletter.

The indexes are all deeply oversold and could bounce strongly at any time, but the lack of capitulation, as measured by 90% downside days, remains frustrating, if not worrisome. The average number of 90% downside days at major bottoms has been five; the NYSE has put in one in this leg down and the Nasdaq none. On the plus side, the VIX (first chart below), the options volatility index, is approaching the 50-60 level that indicates a healthy level of fear. A spike up to 57, combined with an equity-only put-call ratio above 1.0, would be potentially bullish, particularly if it comes with a 90% downside day. We continue to view Wednesday as a potential cycle turn date, with a low on that date potentially bullish. Also on the plus side is that this bottom is coming on lower volume than the July bottom; major bottoms tend to be formed on lower volume. However, the seasonal cycle remains potentially weak for another month or so, so hopefully during that time a stronger bottom can be formed. But for now, we’d have to begin to give the benefit of the doubt to the bulls, particularly if the next couple of days are down. The bearish alternative would place us still in the wave 4 consolidation before the final wave down, but that alternative is getting a little stretched here. The Dow (second chart) is just above its 1998 low of 7380; if that goes, 7100-7161 seems likely. A move above 7532 could target 7800. The Nasdaq (third chart) has very strong support in the 1050-1084 range, although buyers could be found at 1100. A move above 1130 could target 1160. The S&P (fourth chart) has strong support at 775 (750 and 700 are potential supports below that), and 800-805 is resistance. The SOX (fifth chart), the semiconductor index, is at very strong support in the 217-220 range. 180-200 would be the next support zone below that.






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