September Is The Cruelest Month

September added to its record as the worst month for stocks, as an earnings warning from Apple Computer capped off a month in which the Nasdaq lost 12%.

The ISDEX lost 24 to 753, and the Nasdaq dropped 105 to 3672, the S&P 500 declined 21 to 1436, and the Dow dropped 173 to 10,650. Volume declined slightly to 1.17 billion shares on the NYSE and 1.97 billion on the Nasdaq. Advancers edged decliners on the NYSE, but decliners led 21 to 19 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site.

Wireless handheld device makers rallied on better-than-expected earnings from Research In Motion , which soared 16 5/16 to 99 3/4. Handspring fell 6 3/8 to 70 after trading as high as 81 1/4, but Palm added 13/16 to 52 15/16. InfoSpace gained 1 1/16 to 31.

Net Perceptions plummeted 7 5/8 to 4 7/8 after warning that third-quarter losses will exceed estimates of a 13-cent loss by 9 to 19 cents. dropped 7/32 to 25/32 after warning that revenues will be about half of what Wall Street expected.

America Online slipped 1/4 to 54 1/8 on news that the European Commission may approve its merger with Time Warner – if the companies drop the $20 billion merger between Time Warner and EMI.

Looksmart slipped 15/16 to 11 3/16 after announcing the $20 million acquisition of Zeal Media, which allows users to categorize Web site descriptions.

i2 Technologies lost 5 13/32 to 187 3/32 after trading as high as 198 7/8 on a First Union Buy rating and $230 price target. Commerce One lost 1 1/2 to 78 after trading as high as 84 1/8.

Telecom equipment stocks also suffered. Bellwether Cisco Systems fell 4 3/16 to 55 1/4, its low earlier this week. Juniper Networks lost 9 1/16 to 218 15/16 despite positive analyst comments. The stock traded as high as 235.

Some technical comments on the market: Note: We will now be including charts with the technical market commentary; just click on the links in the story below to go to them. If you have trouble accessing the charts via the e-mail newsletter version, try this link:

Well, we said yesterday that we weren’t sure whether this rally would turn out to be more than a bounce, and so far the results aren’t encouraging. However, despite the magnitude of Apple’s warning, breadth was pretty good and volume declined from yesterday. Besides, the PC sector hasn’t been a market leader in quite some time. If the real leaders like Corning, Juniper or Ariba begin to warn or disappoint, then we’d have signs of real trouble.

We’ll focus on the S&P 500, which seems to be dictating the action here. For the second time this week, the index was rejected at its broken May trendline (the upper black line. Also note that critical support, the lower line around 1420 that represents the April trendline, was pierced slightly two days ago; never a good thing). This repeated rejection at a broken uptrend line reinforces the fact the index’s current trend is down. To negate that, the index needs to get above 1460 and that broken trendline, which will continue to rise. The S&P 500 also fell back below its downtrend line that began earlier this month. Also not looking good, in that same chart, is the

40-point trading range the S&P has formed between 1420 and 1460. That’s called a rectangle, and it normally is a continuation pattern, meaning the stock or index continues in the direction it was headed before the consolidation. In this case, that direction is down, and a clean break of 1420 would likely carry the S&P to 1380 (the size of the consolidation), a move that would likely lead to a clean break of critical support on the other indexes: 3500 on the Nasdaq and 10,575 on the Dow. On the other hand, continuation patterns can sometimes act as reversals (remember Ariba’s breakout out of a rectangle at about 80 a few months ago), hence the importance of breaking 1460 to the upside. That would carry the S&P to 1500. So 1420 and 1460 are our critical levels here, and will likely dictate market direction.

There is one sign of a temporary bottom here, and for now it is completely speculative: the large-cap S&P 100 may be forming an inverse head-and-shoulders pattern in the 60-minute chart. Every rally since May has begun with one of the major indexes forming such a pattern. However, two requirements must be met for the pattern to be completed: the S&P 100 cannot go much lower, and the bottom isn’t in place until the black neckline around 775 is broken to the upside. Something to keep an eye on for Monday.

The Dow turned back right at its downtrend line at about 10,850 yesterday. If the Dow can get above 10,900, the old industrials could have room to run. To the downside, critical support on the Dow is the October 1998 trendline. That line is just under 10,600 now, so a move below last week’s low of 10,575 would be a big negative.

The Nasdaq finished just above its downtrend line from the start of the month yesterday, and fell back below that level today. A move above 3800 would be a good sign on the Nasdaq, and above that is 3859, the 38% retracement level of the 4259-3614 decline. Critical support is the October 1998 trendline around 3600. Lower than 3600, and that trendline would be broken for the first time since the May lows. Below that, critical support is the August bottom of 3521; lower than that, and the Nasdaq could be headed for trouble. The ISDEX closed right on 750 support. Next resistance is in the 787-800 range. Above that, two recent rallies have peaked around the 50% retracement level at 850. The selling on the ISDEX stopped just below 740 twice this week, above the May uptrend line at about 725, the ISDEX’s critical support level.

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