Rally Runs Out Of Steam

An expanded investigation into Citigroup and more downgrades to chip stocks sent stocks lower on Friday.

The Nasdaq fell 42 to 1380, the S&P 500 lost 21 to 940, and the Dow dropped 180 to 8872. Volume fell to 1.07 billion shares on the NYSE, and 1.5 billion on the Nasdaq. Decliners led 21 to 10 on the NYSE, and 22 to 11 on the Nasdaq.

Intel fell 6% after Bear Stearns said the company’s quarter is tracking at the low end of estimates, and Applied Materials fell on negative comments about chip equipment stocks.

Novell and Marvell soared on better than expected results.

Tech Data lost 3% after beating estimates but guiding lower.

AOL fell 9% on reports of write-offs and more investigations.

In an echo of the good old days, CMGI soared 32% – to 77 cents.

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.

Some sort of correction has likely started, but it’s too soon to get a sense of how strong a trend it is likely to be. If volume and negative ticks begin to pick up to the downside in the next few days, it could be a strong one. With a market lacking in leadership, as evidenced by the lack of new highs, and excessive equity call buying, this has the potential to be a top of some significance. The S&P and Wilshire 5000 (first two charts below) are back below the necklines of massive head and shoulders tops. It’s surprising that those necklines didn’t hold as support for more than a few minutes today; it took three days to push above them. The Nasdaq (third chart below) formed a bearish evening star reversal pattern today, a pattern that has marked many tops in the market over the last 2 1/2 years. 1411.75, today’s open, should now be tough resistance. Support is 1365 and 1355, and 1335 is critical. For the S&P (fourth chart), critical support is 935, and resistance is 951 and 970. The S&P 100 (fifth chart) is also forming a bearish rising wedge, and almost any move down on Monday would break it. The Dow (fifth chart) has critical support at about 8830, and 9000 and 9100 are resistance.

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