S&P 500 Joins Bear Market

The S&P 500 closed 20% below its all-time high for the first time since the crash of 1987 on Monday, as stocks plunged on cautious comments from Cisco Systems and an earnings warning from Ericsson.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 21 to 228, and the Nasdaq dropped 128 to 1923, adding to its worst-ever bear market. The S&P 500 plunged 53 to 1180, 22.7% below its closing high of 1527, and the Dow plummeted 436 to 10,208, breaking critical 10,300 support. Volume rose to 1.23 billion shares on the NYSE, and 2.13 billion on the Nasdaq. Decliners swamped advancers by 24 to 6 on the NYSE, and 31 to 7 on the Nasdaq. Down volume swamped up volume by 20 to 1 on the Nasdaq and 10 to 1 on the NYSE, signs that investors may be throwing in the towel. 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.

Cisco fell 1 13/16 to 18 13/16. After the close on Friday, CEO John Chambers said the company has no earnings visibility, a tactic that has so far helped the company avoid issuing an explicit earnings warning. Several analysts complied by lowering estimates on Cisco. Ericsson plunged 1 3/4 to 6 5/8 on its own earnings warning.

Optical and networking stocks were hit by negative comments and downgrades by analysts. Ciena , on of the highest flyers in the sector, plunged 11 3/8 to 53 3/4. Juniper lost 5 5/16 to 49 9/16. Corning fell 3.58 to 23.43.

eBay lost 2 3/4 to 31 1/4, as investors ignored an alliance with Microsoft B2B stocks were strong early, but faded as the selling intensified. webMethods , down 1 13/16 to 23 7/8, and i2 , off 1/2 to 19, announced an alliance. Ariba lost 5/16 to 11 3/16, and Commerce One lost 20 cents to 10.80, as the Nasdaq began its three-week transition to decimal trading.

Check Point lost 2 3/8 to 64 3/8 after trading up at one point.

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The Nasdaq met its downside target of 1950 based on its break of a bear flag at 2200 on Thursday (first chart). The index ended the day at the lower trendline of what could be a falling wedge (second chart), with the lower line touching on the December and January closing lows; that lower lines declining at 5 points or so a day, so we’ll place it at 1917 for tomorrow. The next strong support on the index isn’t until around 1800 (third chart); there’s a gap at 1771 on the weekly chart in that area too. The Nasdaq is due to turn up in the next day or two, and the last couple of down days look like potential exhaustion gaps, meaning sellers could be about to run out of steam. Maybe. We’ll see what happens tomorrow when margin calls go out. To the upside, the upper boundary of that falling wedge is around 2100, and next resistance after that is 2252.

The S&P 500 broke critical 1214 support today, and also took out 1190, the July 1998 high. Next strong support is 1125, and to the upside, resistance can be found at 1214 and then in the 1230-1240 range. Below 1125, and we’re not so sure that the final stop for this bear market won’t be the 1984 trendlines, at 1000 on the S&P 500, 1400 on the Nasdaq, and 8,300 on the Dow.

The Dow broke critical support at 10,300, a break that could lead to a retest of the index’s lows in the 9600-9700 area, although 10,100-10,200 or so could also provide support. To the upside, 10,300 is first resistance, then 10,450-10,500, and then 10,600-10,700. GE continues to fall after breaking down recently.

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