S&P 500 Nears Official Bear Market

The S&P 500 traded perilously close to bear market territory on Thursday, as the year-old bear market in technology and Internet stocks again threatened to engulf the broader market.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 12 to 262, and the Nasdaq lost 76 to 2074. The S&P 500 dropped 24 to 1215.55; a close of 1221.88 or lower would place the index officially in bear market territory for the first time since October 1990. The Dow plunged 180 to 10,310. Volume rose to 530 million shares on the NYSE, and 910 million on the Nasdaq. Decliners led 17 to 11 on the NYSE, and 23 to 9 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.

The National Association of Purchasing Management survey came in at 41.9% for February, slightly less than estimates, and still in a range historically associated with recession.

It was another tough day for communications chip companies. Applied Micro fell 2 1/2 to 24 1/2 on an earnings warning. Broadcom dropped 6 7/8 to 42 3/8 after one of its largest customers, 3Com , warned.

TIBCO Software , off 2 9/16 to 10 15/16, continued to suffer after Goldman Sachs cut estimates on the company.

VeriSign rose 1 13/16 to 49 1/2 after announcing an agreement with ICANN to operate the registry for .com, .net and .org names for four additional years.

Travelocity plunged 7 3/4 to 14 1/2 and Expedia fell 3 to 12 5/8 on analyst downgrades after some airlines eliminated some Internet commissions.

Ariba lost 1 to 15 1/2, yet another new low, the day after an uninspiring analyst meeting. Commerce One lost 1 1/4 to 16 3/16, and i2 dropped 2 5/16 to 24 9/16.

Cisco continued to set new 52-week lows, losing 1 3/16 to 22 1/2.

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

The market appears to be at a bounce-or-break point here: 10,292.32 on the Dow and 1215.44 on the S&P 500 must hold, or the selling will likely begin to spread. Given the oversold indicators, particularly on the Nasdaq, we’re likely to get a bounce soon.

The Nasdaq may be trying to reform its 1990 logarithmic trendline around 2070 or so; we’ll include a link here, since the chart is too big to post here: http://cache.wsrn.com/images/AHT/compx90301.gif. That line appears to be providing support, but the index has been headed straight down since breaking its true 1990 trendline at 2388 10 days ago. The 2028 level was also the July 1998 peak (first chart below); old tops make good bottoms, and that was a major peak for the Nasdaq. To the upside the Nasdaq needs to clear 2250-2300 to restore any amount of health to the index (second chart below). Note in that chart that the lowest of three trendlines from September may be providing support here.

The S&P 500 has also been under pressure since breaking down out of a bear flag or pennant two days ago (first chart).

If the recent bottom at 1215.44 can’t hold, the index could be head for 1160-1170. To the upside, the S&P must get back above 1275, the early January low and the September downtrend line (both levels in the second chart below).

The Dow is one again testing 10,300 support; a close below 10,292 could lead to a retest of the index’s lows in the 9600-9700 area, although 10,200 or so could also provide support. To the upside, the Dow must get back above 10,650 to have a positive bias. One negative sign: the Dow Transports are getting killed today, and are trading well below 2900. It’s going to be hard to get an all-clear signal under Dow Theory unless the Transports can get back above 3000.

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