Sun Sets On Stocks

An earnings warning from Sun Microsystems and evidence that consumers are reigning in their spending sent stocks sharply lower on Thursday.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 5 to a new low of 157, and the Nasdaq dropped 51 to 1791. The S&P 500 declined 19 to 1129, and the Dow lost 171 to 9,919. Volume surged to 1.17 billion shares on the NYSE, and 1.73 billion on the Nasdaq. Decliners led 20 to 10 on the NYSE, and 23 to 12 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.

After the close, Novellus slipped after becoming the latest tech company to warn. Rambus rose after reaffirming guidance.

During the day, news that personal income (0.5%) rose much faster than personal spending (0.1%) renewed fears that consumers are reigning in their spending.

Sun plunged 2.35 to 11.08 on a dismal outlook. Corning dropped 2.55 to 12.05 on a warning and more layoffs, and Altera declined .36 to 27.59 on its outlook.

But Tech Data soared 5.05 to 38.40 on better than expected results and a positive preannouncement.

Microsoft plunged 3.40 to 56.85 on news that European antitrust regulators are expanding their investigation to see if the company illegally linked its Media Player to the Windows operating system. The news was little help to Real Networks , which lost .23 to 6.73.

Oracle fell 1.28 to 12.07 on negative comments from Banc of America.

Homestore.com and eBay bounced from their recent sell-offs.

Loudcloud rose .33 to 2.53 on a better than expected loss.

BroadVision , down .31 to 1.51, will be dropped from the S&P 500 less than a year after being added to the index.

Some technical comments on the market: Note: We include 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

We’re going to focus on Japanese candlesticks and moving averages today, because there are some significant negatives developing in both of them. First, the Dow and the S&P 500 (first and second charts) formed a candlestick pattern the last three days called “three black crows,” a very reliable bearish pattern that appeared a few times in the September-April decline, and is making its first appearance in the current decline. If selling doesn’t resume right away tomorrow, the indexes should go no higher than 10,200 and 1156, respectively, on any rally before selling resumes. First support is 9869 on the Dow and 1125 on the S&P. Another day or two down should give the market room to bounce, but a retest of the 1080-1100 lows on the S&P appears to be a given at this point. The Dow (third chart) looks like it will join the Nasdaq and S&P in a monthly close below the 40-month moving average tomorrow unless it can close the day above 10,170. Its the first time since the bull market began in 1982 that the index could close below the line, a significant negative. Resistance on the Nasdaq (fourth chart) is 1811-1817, and 1777 is critical support. The Nasdaq 100 (not pictured) broke its 1990 trendline at 1468 today, the last index to break its 1990 trendline. Finally, the VIX, the options volatility index (fifth chart), closed above its 200-day moving average for the first time since early May and formed the opposite pattern of the three black crows, the “three white soldiers.” It looks like the indexes are beginning a strong downtrend at the same time that volatility, or fear, is beginning a strong uptrend. The good news is that that combination will eventually produce capitulation.

Special report: For a free introduction to technical chart patterns and an overview of last year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.