Hewlett-Packard Sinks Stocks

Warnings from Dow components Hewlett-Packard and JP Morgan Chase dragged stocks lower on Wednesday. An unusually pessimistic speech from Federal Reserve Governor Laurence Meyer also soured traders’ mood.

The ISDEX http://www.wsrn.com/apps/ISDEX/ slipped 2 to 266, and the Nasdaq declined 15 to 2217. The S&P 500 lost 13 to 1270, and the Dow dropped 105 to 11,070. Volume declined to 1.25 billion shares on the NYSE, and 1.75 billion on the Nasdaq. Decliners led 18 to 11 on the NYSE, and 21 to 15 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.

Hewlett-Packard lost 1.34 to 28.71 after saying that the IT spending slowdown is spreading beyond the U.S. and Europe. The company said it is implementing additional cost-cutting measures to try to meet estimates.

Sun Microsystems rose .62 to 17.64 on positive comments from Goldman Sachs, but CS First Boston said Sun’s business has dropped off again after pciking up the first two weeks in May.

Research in Motion lost 3.51 to 34.49 on CIBC WorldMarkets comments that AOL may seek another manufacturer to build its Mobitex device because of cost issues.

Traders awaited Intel’s first-ever mid-quarter update tomorrow night. Salomon Smith Barney analyst Jonathan Joseph was cautiously optimistic ahead of the meeting, and the stock climbed .19 to 29.92.

Ciena slipped .12 to 59.45 despite reaffirming its earnings guidance.

GoTo.com lost 2.94 to 23.70 on news that the company filed to sell 7.5 million shares and a Merrill Lynch downgrade based on valuation. As we said yesterday, the 23.31 area should now be support if the company’s breakout two days ago was for real.

Priceline.com surged 1.47 to 6.92 on investments from two Hong Kong firms.

SonicWall surged 2.21 to 19.96 on a deal with Cisco .

Tellabs dropped 2.52 to 31.62, just above its recent low of 31.23, after CS First Boston said the company faces near-term risk because of time needed to work down Titan 5500 inventories.

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Given the lower volume, today’s decline probably qualifies as nothing more than a breather after the recent run-up. But today and tomorrow are a cycle turn window, so if the decline continues and volume picks up, short-term direction is likely down. 1200 on the S&P 500 and 2000 on the Nasdaq remain our lines in the sand; above those levels, the market looks okay, and below those levels, a retest of the lows becomes likely. The Nasdaq and Nasdaq 100 (first and second charts) are forming clear lower trendlines for the first time in this rally, and they could be forming bearish rising wedges (converging upper and lower trendlines). However, any significant decline should be some time off, and 2150 should be support on the Nasdaq for now. The Dow (third chart) is holding above 11,000 resistance and its main downtrend line, but it needs to take out 11,400 resistance on this run. The S&P 500 (fourth chart) held the important 1265 level, the neckline of a potential inverted head-and-shoulders bottom, and its September downtrend line, both positive signs. The Nasdaq (fifth chart) is struggling at critical 2252 resistance. 2200 is first support, and then 2150. The semiconductor stocks held up well today, a good sign, but we’ll see how they’re doing after Intel’s update after the close tomorrow.

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