Market Rocked By Broad Sell-off

Stocks plunged in rising volume on Tuesday, as the NYSE and the Nasdaq recorded 90% downside days, heavy selling that has historically marked the beginning of capitulation.

A weaker than expected manufacturing reading contributed to the sell-off, as did heavy selling in Europe and Japan, which hit a new 18-year low.

The Nasdaq fell 51 to 1263, the S&P 500 lost 38 to 878, and the Dow plunged 355 to 8308. Volume surged to 1.3 billion shares on the NYSE, and 1.39 billion on the Nasdaq. Decliners trounced advancers 25 to 7 on the NYSE, and 25 to 8 on the Nasdaq.

After the close, Fairchild Semi warned. Dow Jones reported that EMC and Dell will team on a low-end storage product.

During the day, Intel fell 5% ahead of the company’s mid-quarter update on Thursday. Lehman Brothers said it expects the company to guide lower.

KLA-Tencor fell 5% on a warning.

EMC lost 6% despite reaffirming guidance.

Sun Microsystems hit a new 52-week low.

Verity dropped 10% on a warning.

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.

Could today’s 90% downside days on the NYSE and the Nasdaq be the beginning of the long-awaited capitulation leg down? If so, this leg down could last anywhere from one month to several months. Historically, major bottoms have tended to occur after a string of 90% downside volume days, according to landmark research by Paul Desmond of Lowry’s Reports. How will we know when this phase of the bear is over? It’s easy, according to Desmond; just wait for a 90% upside day, the reverse of the selling intensity on the way down. Potential downside targets, arrived at by measuring the market’s August peak from previous tops, range from 5900-7200 on the Dow, but we’ll focus more on looking for when a reversal occurs than holding to a set target. In the short-term, the market is oversold and could bounce soon. Using the bear flag the Dow formed on Thursday and Friday (see first chart below), that bounce could occur in the 8191-8257 range. Below that, 8050 is next support (see chart below), and resistance is 8350, 8500, 8600 and 8785. The Nasdaq (third chart) is sitting right on critical 1263 support. Below that, 1192-1205 could provide some support, but new lows would become the odds play on a close below 1263. 1290-1302 should now be very tough resistance. The S&P (fourth chart) is sitting right above 875 support. Below that, 854, 844 and 833 are support, and 900 and 915 are resistance. Today was the second high-volume sell-off, or distribution day, in a week, and coupled with the high negative TICK on the NYSE (-1,017 at the low), is evidence that momentum may have turned back down.




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