Stocks Fall On Warnings, Manufacturing Data

The stock market ended its worst quarter since 1987 on a down note on Monday, weighed down by a warning from Wal-Mart and the first decline in manufacturing in eight months. Stocks pared their losses later in the day on hope for more Fed rate cuts.

The Dow ended lower for the sixth straight month, a streak bested only by 8-9 month stretches in 1966 and 1942.

The Nasdaq dropped 27 to 1172, the S&P 500 fell 12 to 815, and the Dow lost 109 to 7591. Volume rose to 1.75 billion shares on the NYSE, and 1.67 billion on the Nasdaq. Decliners led 17 to 14 on the NYSE, and 18 to 15 on the Nasdaq. Downside volume was 68% on the NYSE, and 80% on the Nasdaq.

After the close, Pericom and Harmonic warned.

During the day, Cisco fell 6% to a new 52-week low.

Amazon fell 6% on rumors that the company will warn.

Overture gained 7% on an expanded pact with MSN.

eBay dropped 8% on a downgrade.

Dell lost 3% ahead of a two-day analyst meeting.

EMC fell 8% on a patent infringement suit filed by HP and potential competition from Sun .

Extreme Networks gained 9% despite warning.

Advanced Fibre gained 4.7% on a positive Barron’s story.

Optelecom hit a new 52-week high.

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.

If wave v of 5 down has begun in the Dow (first chart below), the index should be headed for the 6950-7152 area. That area should produce a very good bounce, particularly if our count of 5 waves down is complete at that level, and would also fill the October 27, 1997 gap at 7161. With any luck, we’ll get a couple of 90% downside days by then too, but the lack of that level of capitulation here would throw into question the durability of any bottom. 7666 is first resistance, and then 7807. Above that level, 8000-8051 could come into play. The 7380-7450 area, the 1998 lows, could provide some support. The Nasdaq (second chart) may yet be headed for 1050-1084 support. 1192-1206 is first resistance, and 1239-1251 is critical resistance. The S&P (third chart) found support at 800 in the critical 775-807 support zone. Below that, 700 looks like the next good support. Resistance is 830-839, 857 and 870. Finally, as an aside, the decline in home mortgage rates appears to be slowing despite continued new lows in 10-year treasury bonds. With spreads on mortgage securities already very low and mortgage rates near 40-50 year lows, we’d be surprised if mortgage rates can go much lower than they already are, even if the Fed continues to lower rates, as it likely will. The flight to safety in government bonds won’t benefit risk capital (mortgages) forever. That said, we’ll gladly join the refinancing queue if we turn out to be wrong. Just a thought for those of you considering other aspects of personal finance.




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