Stocks Plunge On Accounting Concerns, Gerstner Resignation

Stocks plunged Tuesday on continued accounting concerns and news that IBM CEO Louis Gerstner will step down.

President Bush will deliver his State of the Union speech tonight, and investors will be watching fourth-quarter GDP and the Fed’s decision on interest rates tomorrow; no rate change is expected.

The ISDEX fell 4 to 177, and the Nasdaq lost 50 to 1892. The S&P 500 dropped 32 to 1100, and the Dow plunged 247 to 9618. Volume soared to 1.77 billion shares on the NYSE, and 1.86 billion on the Nasdaq. Decliners led by 21 to 9 on the NYSE, and 24 to 11 on the Nasdaq.

After the close, Veritas fell despite topping estimates. Advanced Fibre matched estimates, Digital Insight beat estimates, Newport matched estimates but warned, and RealNetworks met estimates.

During the day, the broad market was led lower by accounting concerns at Tyco and PNC Financial . The banking index plunged 5%.

WorldCom fell 13% on debt and other concerns.

IBM fell 5% to 103 on news that Gerstner will be replaced by company President Samuel Palmisano, even though the move has been expected for months.

Texas Instruments rose 5% on better than expected results.

Expedia surged 10% on its earnings report, and Ticketmaster gained 4%.

UTStarcom fell 10% despite topping estimates.

Sun fell 4% on a Neutral rating from Merrill Lynch.

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.

Well, there is certainly no doubt that the Dow (first chart) was forming a bear flag the last few days. When 9850 support went today, the index fell hard and fast. We would look for the next leg down to take the Dow to 8900-9300, based on any number of technical measurements. However, the market may well bounce soon, based on a high closing TRIN reading and a huge jump in the VIX, the options volatility index. It’s too early to say whether this is the start of a major new leg down, however; even if the Dow declines all the way to 8900, it could still be just a correction. The real test will be if the market launches a third leg down after that; if it does, then much lower lows are likely. Until that happens, the 8900-9300 area should probably be viewed as a buying opportunity, since it is likely to produce at least a sharp rally. What form that rally takes will be the key. Longer term, it is likely that a significant low will occur in the stock market this year, based on the four-year cycle. Also, no major bear market has ever ended in a high-volume one-day reversal, which is one more reason to expect that the September lows will be broken at some point. Sentiment has certainly been indicative of a major top for some time, but again, wait for the appearance of a third leg down before assuming that a new bear leg down has begun. The Dow has support at 9600 and 9500, and 9700 should now be tough resistance. A strong break above 9700 would be a sign that the Dow could go higher. The S&P (second chart) broke critical 1110-1114 support today, but held the 1098 level. Below 1098, 1055 looks like the next downside target. 1114-1117 is critical resistance. The Nasdaq (third chart) held 1880 support again today. 1860 is next support, and then 1800. 1916-1920 is first resistance, and 1938 and 1965 are critical resistance levels.

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