Storage Stocks Slammed

Storage stocks were battered Friday on a warning from Emulex.

The Nasdaq lost 10 to 1306, the S&P 500 climbed 3 to 908, and the Dow gained 33 to 8745. Volume fell to 1.25 billion shares on the NYSE, and 1.33 billion on the Nasdaq, one of the lowest volume days of the year for the Nasdaq. Advancers led 17 to 14 on the NYSE, but decliners led 18 to 14 on the Nasdaq.

Emulex plunged 34% on a warning. Brocade fell 11% and QLogic fell 8%. 34.55 and 33.17 are critical support levels for QLGC.

Applied Materials lost 3% on speculation that Intel may cut capital spending.

WorldCom doubled its estimates of accounting fraud at the company to $7 billion, and Motorola and Scientific-Atlanta were questioned about transactions with Adelphia.

Palm continued to fall on news that it will lose its S&P 500 listing.

Vitesse also continued to lose ground.

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.

The Nasdaq (first chart below) may be the only index to break its May downtrend line so far, but we sure don’t like the looks of it here. Volume is very low for a breakout, and the index is threatening to fall back into that downtrend. 1285-1290 is critical support for Monday. Also, today’s action – a doji within yesterday’s up day – is a bearish harami cross, suggesting short-term weakness. And the intraday chart (second chart) is a clear bearish rising wedge regardless of how you draw the lines. Also, the index has not threatened to negate its bearish “three black crows” from last week, unlike the Dow and S&P (third and fourth charts), which are threatening to do just that, forming the opposite pattern this week, called three white soldiers. However, the Dow and S&P were stopped at their May downtrend lines today, and formed dojis, indecision candlesticks that can lead to a reversal, and stochastics are overbought too. Resistance is 8800 and 8897-8927 on the Dow, and 914 on the S&P. Above those levels the bulls have room to run. Critical support is 8300-8350 on the Dow and 865-870 on the S&P, although a trip back to the 8000-8100 level on the Dow and 843-853 level on the S&P is possible if this is a double-top. Weighing all the evidence, we’d have to bet on a pullback next week, and new lows may come sooner than later for the Nasdaq. And finally, we are seeing a level of volatility in the market not seen since the aftermath of the 1987 crash. This could be a bottoming process for the Dow and S&P, but be careful out there. Volatility can surprise to the downside too.



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