Bulls Battered Again

Downgrades and lowered estimates led to yet another sell-off on Wall Street on Wednesday.

The Nasdaq lost 15 to 1114, the S&P 500 dropped 21 to 776, and the Dow fell 215 to 7286. Volume declined to 1.84 billion shares on the NYSE, and 1.76 billion on the Nasdaq. Decliners led 28 to 4 on the NYSE, and 25 to 8 on the Nasdaq. Downside volume was 85% on the NYSE, and 50% on the Nasdaq.

After the close, Yahoo rose after beating estimates and raising guidance. Redback , Rambus and Sonus also topped estimates.

During the day, Cisco gained 7% on an upgrade.

Siebel rose 12% on takeover rumors.

Broadcom gained 4% on positive analyst comments.

Adobe lost 9% on possible competition from Microsoft .

Corning rose 12% after reaffirming guidance.

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

Despite closing in on our downside target of 6912-7161 on the Dow, the market has shown few signs of a major bottom, including the 90% downside days that have marked every major bottom of the last 70 years. There is still time to put in a lasting bottom between now and November 8, when the cycles turn positive, but it’s also possible that the market could put in only an intermediate term bottom this month. That would likely produce a very good bounce – but would also raise the possibility of a four-year cycle low failing to hold for the first time since 1930. Should the market produce a new low next year by more than 1% on a closing basis, much lower lows would become likely. Hopefully the market can generate the level of capitulation we would like to see this month; the technical and economic picture would be greatly improved by a washout here. But there are a number of positives to build on for a bottom to form here: three straight -1100 TICKs on the NYSE (the TICK reached -1300 today), more bears than bulls in the weekly Investors Intelligence survey (a nice swing from even to 39-31 this week), and a very high VIX (the options volatility index, first chart below) are three such positives. A VIX of 57 coupled with a closing equity-only put-call ratio of 1.0 and some 90% downside days would cement a lasting bottom in our opinion. Let’s hope traders and investors begin to fear the month of October like they used to. The Dow (second and third charts below) looks to be somewhere in wave 5 of 5 down, which means the market is setting up for some kind of bottom soon. The target remains 6912-7161. The Dow today stopped just above the 7272-7277 level that marks the .382 retracement of the 1932 low, and 7288 also marks a partial fill of the October 27-28, 1997 gap (it would fill completely at 7161). Resistance is 7400-7450 and 7700; a move above 7700 would break the downtrend. The S&P (fourth chart) held its July low of 775.68 today. Below that, 750 and 734 are possible targets, 785 and 800 are resistance, and a move above 825 would break the downtrend. The Nasdaq (fifth chart) has support at 1109, 1100, 1050-1084 and 1000, resistance is 1140 and 1160, and a move above 1180 would break the downtrend.






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