Something to Think About
Tech Dive Gets Serious as Support Levels Snap Like Twigs
By Justin Lahart / Street.Com
Associate Editor
10/2/00 6:31 PM ET
Before today, it was possible to have a sort of laissez-faire attitude toward the slump in tech stocks.
Sure, the Nasdaq Composite Index had fallen more than 10% on the month, and sure, there had been a bevy of companies warning that their third-quarter numbers would not be up to snuff; this was nothing more than normal, consolidating action. Earnings warnings going into earnings season are the norm, after all, and for stocks to come down a bit before the real reports come out is quite natural.
But today the Nasdaq finished down 2.8% at 3568, below its closing lows of the summer, and that has got the market in a tizzy. Technical analysts have put their protractors to the Nasdaq chart, gotten out their slide rules, checked everything against the periodic table and proclaimed that there is more to go. Many had been looking at the Aug. 2 close of 3658 as a support level for the index, and now that that's been broken, they reckon there's further down to go.
"We definitely have the momentum going here in the wrong direction," says Robert Dickey, managing director of technical analysis at Dain Rauscher Wessels in Minneapolis. "We've got some key stocks breaking lower again -- Intel's at a lower low, Microsoft's under 60."
When technicians talk about support levels, they are talking about areas where buyers have come into the market in the past. On Aug. 3, after the Nasdaq took an early morning dip below the Aug. 2 close, buyers emerged in force, sending the Nasdaq up 100 points on heavy volume. When the level gets breached, particularly if its importance has been well-advertised (as it has in this case), it's a sign to the market that the old bargain-hunters aren't there anymore.
Now technicians are watching the Nasdaq's intraday Aug. 3 low of 3521, an area that may lend temporary support but, because it is an intraday and not a closing low, perhaps little more than that.
"I think they'll try to bounce it off that level," says Richard Dickson, technical analyst at Scott & Stringfellow in Richmond, Va. "I don't think they'll succeed. It will be a weak bounce, and then we'll start testing the lows we hit in April and May." Adding to Dickson's negativity was tech's inability to make much of any bounce off of Friday's big selloff. It was a brief foray into the green this morning, and then red all day.
... Makes Old Levels Newly Important
The Nasdaq's rocky past six months
In Chicago traders were watching the Nasdaq 100 futures, which were telling an equally grim tale. The December contract fell 92.5 to close at 3528.5 -- its lowest close since June 1.
"Technically, you broke down below the lower end of the range," says Fuji Futures market strategist Holly Liss. "Once you broke below there, you hit some sell stops [levels many investors set to trigger automatic selling] that just accelerated the move. You could easily trade down to 3400 within the next couple of weeks. Easily."
Yet Liss points out that all this worry about technical levels and what have you comes with a pretty big caveat. Plenty of people are worried about it being October; plenty of people are worried that there will be more earnings warnings before earnings season kicks off in earnest next week. Plenty of people are scared outright. But once the earnings come in, things could turn around, blown support levels or not. Companies are so good at keeping the expectations bar low that when they do report earnings, they will likely top estimates.
In a bit of a reversal, says Liss, "It could be something like sell the rumor, buy the fact." |
