Chartists see bleak outlook for U.S. stock market
Friday September 7, 3:24 pm Eastern Time
By Doris Frankel
CHICAGO, Sept 7 (Reuters) - The bears are mauling the U.S. stock market, and a bottom to the decline appears
nowhere in sight, chart-watchers said on Friday.
Worries about corporate earnings and Friday's grim U.S. employment data, which showed joblessness at a
four-year high, shook two broad-based Wall Street indexes to their lowest levels since April.
``The signature of the bear has been all over the Standard & Poor's 500 cash index and the Nasdaq Composite
Index for over a year, and this is simply the next leg in the ongoing process to cure the excesses of the last 16-year
bull market,'' said Hans Kashyap, president of Analytics Research Corp.
By midafternoon, the Nasdaq Composite Index (^IXIC - news) bounced off its intraday low at 1,676.42,
recovering to 1,697.75, a drop of 7.89 points. The tech-laden index is inching closer to its 2-1/2-year low of
1,638.80 set in early April.
The S&P 500 was down 14.92 at 1,091.48, a drop of about 1.35 percent, in mid-afternoon trading, after touching
an earlier low at 1,082.12. The drop pierced its 2-1/2-year closing low of 1,103.25 reached on April 4. The broad
S&P 500 index (^SPX - news) tracks the performance of the biggest American companies.
``The last time we closed under this 1,103.25 level was Oct. 30, 1998, when the S&Ps settled at 1,098.65,'' said
Price Headley, president of BigTrends.com.
``The bulls are pegging their hopes right now on this retest of the March-April intraday lows of 1,081 (for) the
S&P 500 index and 1,619 for the Nasdaq Composite, hoping that (a bounce off those levels) will prop the market
up,'' Kashyap said. But he said that still might not indicate a solid bottom was in place.
Kashyap said a significant break below these levels would clear the way for further losses over the intermediate
term -- down to 980 for the S&P 500 index, and 1,350 for the Nasdaq Composite. Those levels have not been
seen since October 1998 and October 1999, respectively.
The Nasdaq Composite -- a price-weighted index whose value is based on the total market value of 5,000 stocks
-- has crashed through several chart support levels including 1,750 and then 1,700 since violating the key floor of
1,800 made Sept. 4.
``As we make new lows, the main challenge in the current market environment is that earnings preannouncements
are due over the next several weeks and can be expected to forecast continuing weakness,'' said Headley.
``A bottom will not be reached until stocks stop bleeding on this continued stream of bad news,'' he added.
The week's bloodletting was not over on Wall Street as stocks again dipped into the red on Friday after the U.S.
unemployment rate jumped near half a percent to 4.9 percent.
``The main problem this week is that not only have we broken below support levels in the market, but volumes
have picked up too,'' said Nick Glydon, a technical analyst at JP Morgan.
``In the summer, the trend was down, but you did not know whether to believe it as the volume was not there, but
now volume has picked up and the trend is still down. This is a clear signal that we are in a bear trend,'' Glydon
said.
Headley, along with other technicians, expects a short-term bounce in all the major market indexes followed by
another leg to the downside.
``Price-only oscillators are deeply oversold, thus a short covering rally could unfold at any time,'' said Paul
Cherney, chief market analyst at Standard & Poor's. ``However, they typically last only one to four trade days.''
Oscillators are technical indicators that measure the extent of the market's overbought or oversold status.
Headley expects a true stock market bottom by mid-October as the bulk of the third-quarter earnings reports start
to roll in, and when expectations should be sufficiently low to see some positive surprises when earnings are
released.
``At that point, we are expecting the Nasdaq Composite to have reached the 1,500 mark and be positioned for a
rally back first to 1,800 and then to 2,000,'' Headley said. ``We expect the S&Ps to have reached the 1,000 level
and be positioned for a rally back to 1,100 and then then to 1,150.'' |
