Japanese Bank Worries Send Investors Running For Cover

Blue chips led the market south on Wednesday, as concern about the health of Japanese banks sent stocks plunging.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 10 to 230, and the Nasdaq lost 42 to 1972. The S&P 500 dropped 30 to 1166, and the Dow plunged 317 to 9973 after ratings firm Fitch questioned the financial health of 19 Japanese banks. Traders began pricing in the possibility of a 75-basis point rate cut next week by the Fed. Volume rose slightly to 1.38 billion shares on the NYSE, and 2.13 billion on the Nasdaq. Decliners led advancers 23 to 7 on the NYSE, and 27 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.

JDS Uniphase added 1/8 to 24 9/16 on rumors of a contract win from Nortel .

Juniper Networks lost 1 11/16 to 56 15/16. The company came in first in a test of core routers recently, and Cisco came in second. A Cisco press release claiming that Cisco had won the test served to remind traders of Juniper’s win, since the company and sponsor of the test both called on Cisco to correct the press release. Cisco lost 1 1/8 to 20 1/4. Cisco CEO John Chambers said yesterday that some other than Cisco may dominate the space, a comments traders took to mean Juniper, which has been stealing market share from Cisco.

Check Point held up fairly well, losing 1 1/16 to 69.

Travelocity was unchanged at 15 1/8 on news of a mobile offering with Yahoo , which lost 13/16 to 15 1/4.

Stronger than expected earnings didn’t help Comverse , which lost 3 1/8 to 66 7/8 on a Goldman Sachs downgrade based on valuation concerns. Openwave lost 1.31 to 30.15.

BroadVision fell 7/16 to 5 23/32 despite a three-year deal with ABN Amro.

AOL Time Warner lost .66 to 40.04 despite positive comments from Merrill Lynch.

CMGI slipped 21/32 to 3 1/4 on a revenue warning.

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

As we said yesterday, until the Dow gets back above 10,300, the S&P 500 above 1215, and the Nasdaq above 2070, any rally will be little more than a retest of recent breakdowns. That said, we’re seeing some positive signs in the Nasdaq here, if nowhere else at the moment. The Nasdaq closed above its open of 1948.56, indicating some buying pressure, the opposite of what we had at 2200-2250 last week, when the market closed at or below the open on two strong gaps up. The index formed a small gap at 1924-1930 on the open yesterday that acted as support today; that could be another good sign for techs if that gap doesn’t fill by Friday. The Nasdaq held the lower trendline of what could be a bullish falling wedge (first chart) yesterday, with the lower line touching on the December and January closing lows; that lower line is declining at 5 points or so a day, so we’ll place it at 1907 for tomorrow. A break below 1890 would negate that pattern. The next strong support on the index is at about 1850-1870 (second chart). To the upside, first resistance is 2029, and above that, the Nasdaq must get back above 2070, the redrawn 19

90 logarithmic trendline. After that, the upper boundary of that falling wedge is around 2100, and next resistance after that is 2252. If the Nasdaq can take out that upper wedge boundary and close above 2252, a bottom is likely in, and the index could be headed for about 2900, the point where the upper trendline on the wedge began.

The large-cap Nasdaq 100 is sending some mixed signals here: it is forming the same bullish falling wedge as the Nasdaq in the daily chart (first chart), but could also forming a bear flag in the intraday chart (second chart). We’ll keep an eye on which one wins out. We should also note that Cisco was as oversold at 18 3/8 two days ago as Microsoft and Dell were at their lows on January 2-3, and Microsoft and Dell have gone nowhere near those levels since then. A hopeful sign for techs. However, after spiking yesterday above the important 1.0 level, the put-call ratio came down today, not a good sign because high fear levels aren’t holding. There could be a little more pain, but we should get a turn in the next week or so.

The S&P 500 is back below 1191, the July 1998 high, and 1171, yesterday’s low, and doesn’t have another strong support on the charts until 1125. To the upside, the index must take out 1214-1215, an important level that marked the index’s recent breakdown. But 1171-1198 could give the index trouble first.

The Dow broke critical support at 10,300 yesterday, and has taken out a lot of support since then. Next supports are 9850, then 9650, 9350 and 9200. To the upside, the index must get back above 10,300. After 10,300, 10,450-10,500 is next resistance, and then 10,600-10,700. The Transports are getting crushed again, a big negative because of their importance to the health of the economy as a whole, but the Dow is becoming very oversold and is due for a bounce in the next day or two.

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