USA today

Quick digest...consensus remains things will get worse!

After a roller coaster ride on the stock market this afternoon, the major indices finished mixed. In late day trading, the Dow Jones Industrial Average flipped above and below 9500, but closed up 30 to 9515. The Nasdaq Composite Index was stuck below the 1650 watermark, ending down 34 to 1639.

Despite today's gains on the Dow, most Wall Street pros agree that until the earnings picture brightens, the stock market outlook will darken. Furthermore, experts were skeptical of today's advance on the blue-chip index, as buying is typically met with selling in a bear market environment.

On the heels of yesterday's major selloff, traders said that investors lacked conviction about today's market. "People are figuring out how to rotate in and out of stocks," said Jim Volk, co-director of institutional trading at D.A. Davidson earlier in the day. "The markets aren't in disarray today, but they're going down."

Trading volume was light this afternoon, as apparently many investors decided to sit this session out. According to Volk, much of today's movement was the result of program trading, or computer-driven buying and selling of groups of stocks by institutions.

"It's nothing but a trading turn," said Todd Clark, head of listed trading at W.R. Hambrecht earlier this afternoon. "The market is very quiet, which doesn't bode well for this bounce." Clark further attributed today's gains to short covering, meaning the accelerated buying of stocks that had been shorted by investors.

Looking at the sectors swinging today, the Philadelphia Stock Exchange Semiconductor Index closed down 5.5%, after trading up at one point this afternoon. Earlier today, the Semiconductor Industry Association reported that chip sales in February declined 6.9% from January. Over the past few weeks, the chip sector has been hit hard amidst an uncertain earnings outlook. Shares of Intel (INTC:Nasdaq - news), a bellwether for the industry, closed off 9.5% to $22.63.

More bad news about earnings hit the market after the closing bell yesterday. The latest round of pre-announcements was centered on the software sector, where some Wall Street experts see room for stock prices to fall further. But on the heels of yesterday's carnage that hit both software and non-software names, the culprits were trading off of their Tuesday lows.

Among the companies to warn on Tuesday night, electronic commerce software manufacturer Commerce One (CMRC:Nasdaq - news), soared 7% to $6, Rational Software (RATL:Nasdaq - news) gained 3.6% to $14.44 and Sybase (SYBS:Nasdaq - news) traded higher by 5.8% to $13.69.

In a speech before the Senate Finance Committee this morning, Federal Reserve chairman Alan Greenspan said that the slowing U.S. economy poses a risk to free trade.

Elsewhere in the tech sector, shares of Lucent (LU:NYSE - news) bounced back from steep losses this morning, after the telecommunications company said that bankruptcy rumors were "absolutely false." Down 23.2% at one point this morning, the one-time highflier closed behind 13.6% to $6.78.


NEW YORK (CBS.MW) - In a day of wild swings that saw the Dow Industrials register triple-digit gains and losses, the major averages ended mixed as investors contended with another heavy round of profit warnings.

In the end, the Dow managed to squeak out a gain thanks to advances in many of its cyclical components. But the blue-chip barometer's upside was capped by large losses in financial stocks as well as a plunge in Intel.

The Nasdaq again ended at levels not seen since October 1998 in a third straight session of losses. The index is now down a breathtaking 68 percent from its all-time high reached in March 2000.

"When you get close to a bottom, the market tends to display this kind of volatility. Until you get companies to say the outlook is improving, we won't stage any meaningful rally," observed Peter Cardillo, chief strategist and director of research at Westfalia Investments.

In sector action, chip stocks led technology on the downside, sending the Philly Semiconductor Index down 5.6 percent after climbing almost 1 percent earlier in the day. The broad market felt the pinch in the financial, biotech and utility sectors while oil service, gold, chemical, airline and cyclical issues climbed. View latest market stats.

The Dow Jones Industrials Average ($DJ: news, msgs, alerts) rose 29.71 points, or 0.3 percent, to 9,515.42 after climbing as much as 140 points in intraday action and falling as much as 110 points. Gaining the most ground were shares of Alcoa, Caterpillar, DuPont, General Motors, Merck and Philip Morris. Ending on the downside were shares of Intel, American Express, Citigroup, J.P. Morgan and Microsoft.

The Dow briefly dipped into bear territory early in the session -- falling 20 percent from its all-time high of 11,750 reached in January 2000 to 9,375.

"While the Dow had entered official bear territory, it successfully avoided slipping meaningfully below it. Keeping in mind that market bottoms are a process and not an event, the sharp rebound from bear market territory is important in one major respect: market bottoms often occur only after successful re-tests of major lows [and the Dow] possibly put in a higher low. [And] Wednesday's drop did not push the Dow close to its March 22 intraday low," commented Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.

The Nasdaq Composite ($COMPQ: news, msgs, alerts) fell 34.20 points, or 2 percent, to 1,638.80 while the Nasdaq 100 Index ($NDX: news, msgs, alerts) gave up 28.30 points, or 2 percent, to 1,370.75.

Among the Nasdaq's big-cap tech stocks, Intel, Cisco Systems, Sun Microsystems, Oracle, JDS Uniphase and Qualcomm all reached fresh 52-week lows in intraday action.

"I think we're seeing panic selling. In my 40 years in the business, I've never seen such a swing like this one. There has been tremendous damage here," remarked Marvin Roffman, a principal with the Philadelphia money management firm of Roffman Miller & Associates.

The Standard & Poor's 500 Index ($SPX: news, msgs, alerts) shed 0.3 percent while the Russell 2000 Index ($RUT: news, msgs, alerts) of small-capitalization stocks dropped 0.3 percent.

Volume was solid at 1.43 billion on the NYSE and at 2.45 billion on the Nasdaq Stock Market. Market breadth was mixed, with losers matching winners on the NYSE while decliners bested advancers by 22 to 15 on the Nasdaq.

See After Hours for post-market trading activity.

The discounting process

One strategist said the market continues to discount bad news, a painful process that has been taking place over the past months.

"We are now at the stage where we are double and triple discounting more of the same. We think it is hard to stand back and remove the emotion, which is why it's difficult to buy bottoms and sell tops," commented Elizabeth Mackay, Bear Stearns' chief strategist.

"We think a year from now, we could look back and say that the market was oversold, pessimism was rampant, we had enormous cash buildups are on the sidelines, the Fed was easing - why didn't we buy? Bottom line, because prices are going lower and [there's the] fear factor," Mackay concluded in a note to clients Tuesday morning.

"Since a lot of tech companies finalize sales in the last days of any given quarter, it's not surprising to see these warnings crop up right now. The only surprising part of [the recent tech news] was probably the magnitude of the earnings warnings. IT spending is falling like a rock," commented Louis Navellier of the Navellier Performance Funds.

"There are very few sectors that are immune from selling right now. Many investors are still selling stocks to pay for last year's realized capital gains. In addition, the margin investors are selling whatever they can, even their good stocks, to meet margin requirements. The best equities to invest in right now are the recession resistant stocks that have low-to-moderate price-to-earnings ratios. The current hot spots are consumer-related stocks, oil and gas stocks, and the independent power producers," Navellier added.

Tech may be oversold - but where's the bottom?

Merrill Lynch's global technology strategist Steve Milunovich said that while tech is oversold, it has not helped the sector stage any kind of recovery.

"There have been a lot of [negative] pre-announcements, particularly in the software space. Earnings are going much lower than analysts thought possible [and] we are being reminded that tech is cyclical. The depth of the problem appears to be the real surprise. IT spending can be turned off on a dime," Milunovich said in a note to clients Wednesday.

He expects poor business conditions to continue for the next six to nine months but believes the situation can improve very rapidly once obstacles are cleared.

"Valuations remain fairly high, which is one of the reasons we have been cautious. What do you do? We recommend a defensive stance in the near term. In our view, the most defensive sectors are computer services, hardware and the supply chain -- connectors, distributors and EMS. From a sector standpoint, we think storage, software and semiconductors will likely lead us out," the Merrill strategist concluded.

The Americans are at it again, DOW up 390 points at 20.30 hours. The volatility continues and a massive gain today. It will be interesting to see US futures tomorrow.

If the US market made moderate gains and left something for tomorrow then things could be better. But, as usual its all or nothing with the US. Guess what US traders will do tomorrow?

Maybe I am wrong, perhaps this is a genuine bottom? What do you think? I wonder why I am so sceptical. I can't for the life of me understand why?

probably a massive sell-off......who knows- they are a law all unto themselves.
Just watching Bloomberg US TV. Dell Corporation issued positive news to say they expect earnings to meet expectations. Could be an extension of the traders rally. I tend to go with you on this call Martin but you never can tell in the old US of A. I have been a BIG BEAR for months now, you probably noticed. I don't think we are out of the woods yet mate.

A law unto themselves they are!