Traders Pan Greenspan Testimony

Traders voiced their disappointment on Wednesday after Fed Chairman Alan Greenspan doused hopes for another intermeeting rate cut.

The ISDEX fell 13 to 274, and the Nasdaq lost 55 to 2151, another new closing low. The S&P 500 dropped 18 to 1239, and the Dow fell 146 to 10,490. Volume rose to 1.18 billion shares on the NYSE, and 2.06 billion on the Nasdaq. Decliners led 16 to 13 on the NYSE, and 22 to 14 on the Nasdaq. For earnings reports, visit our earnings calendar at and reported earnings at For after hours quotes and news, visit our after hours trading site at

Greenspan took a more cautious tone toward the economy than he did in his optimistic testimony two weeks ago, but he left the impression that the Fed will likely wait until the March 20 meeting before cutting rates again. The Fed funds futures dropped hopes of an intermeeting rate cut on the news, but are still pricing in a 100% chance of a 50 basis point cut on March 20.

Altera , off 3/16 to 23 3/16, issued an earnings warning that hit other communications chip companies hard. Broadcom fell 4 1/16 to 49 9/16, PMC-Sierra dropped 4 3/16 to 33 3/4, and Applied Micro lost 3 11/16 to 26 5/8. lost 1 13/16 to 9 15/16 on rumors that the company may file for bankruptcy protection. The rumors were disputed, but it didn’t stop traders from believing them.

Avanex plunged 4 7/16 to 19 1/2 on an earnings warning. Juniper fell to a new 52-week low at 57 1/2, but recovered to trade up 53/64 to 63 11/16 on a CE Unterberg Towbin comment that the stock was fairly valued based on 2001 estimates of $1.08. Cisco lost 7/16 to a new 52-week low of 23 9/16 after being turned back at its previous support of $25.

Yahoo found buyers, rising 3/8 to 23 13/16.

B2B stocks continued to come under pressure. Ariba slipped 27/32 to 16 13/32, i2 lost 11/16 to 26 7/8, and Commerce One declined 1 1/2 to 17 3/8.

Even Check Point Software , one of the strongest Net stocks, was battered, falling 9 1/2 to 64.

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:

The S&P 500 broke out of bear flag or pennant yesterday (first chart), but is so far holding support at 1235. Interestingly, if you measure that pattern from the February 21 consolidation, you get a downside target of 1235; if you measure it from 1320, where the index began a straight shot down, you get a target of 1160-1170, so we’ll set 1235 as critical support. The index could still find support around the recent lows of 1215-1220, but 1235 seems like a good line in the sand to us. 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 good news is the Nasdaq is once again extremely oversold. The bad news is that hasn’t made for much of a rally as of late, but we expect one to start in the next 1-2 days anyway. The Nasdaq is holding around its previous lows of 2150,

but looks pretty weak to us. 2050 is the next strong support below that, and should produce a rally of some substance if we get that low. Also, the Nasdaq 100 has a strong support at 1865; that should coincide with about 2100 on the Nasdaq. To the upside, there are absolutely no buyers north of 2300; hopefully they’ll step in soon now that the market has thrown its rate cut tantrum. 2300 is also where the middle of three downtrend lines from September can be found, adding to the resistance at that level (first chart). Semiconductor stocks continued to get hit hard, a bad sign for the Nasdaq, but they’re holding their recent lows. And finally, the Nasdaq closed below its 1990 logarithmic trendline at 2388 for the first time on a monthly basis today (second chart). It’s still possible that the index could reform that line at about 2050, but there sure isn’t much left of the 1990s bull market.

The Dow broke 10,600 support after being unable to close above 10,650 resistance, and closed just under 10,500 support. 10,300 is strong support, but the Dow could go as low as 10,200 without a major technical breakdown. Critical resistance is 11,000; the Dow Transports must get back above 3000 and stay there, and the Dow must close above 11,007 to get an all clear signal under Dow Theory.

Finally, a quick look at the treasury yield curve, which remains inverted at the low end. Three-month yields are still higher than six-month, one-year, two-year and five-year yields, telling us that interest rates are still too high. One more 50 basis point rate cut should be enough to restore the yield curve to health; if that happens, the market should be able to begin a sustainable advance.

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