One day after Nasdaq ($COMPQ) breaks support, the Dow ($INDU) follows suit. The Dow gave up 160.07 points on Wednesday, a 1.53 percent decline, to 10,296.89. The S&P 500 ($SPX) also fell sharply, losing 1.46 percent to 1,123.89. The Naz continued to move further below 2K, giving up 31.01 points to 1,964.15. Volume was very strong, with the NYSE trading 1.64 billion shares and the Naz trading 2.14 billion shares. Market breadth was negative by an 8-to-24 and 7-to-25 margin on the Big Board and Naz respectively.
Ironically, today’s large declines came on the four year anniversary of the Nasdaq’s high at 5,028. Even after strong gains in 2003, this tech index is still more than 40 percent below its all-time high. The Dow has held up much better the last few months than the Naz, but this blue chip index fell below its two and a half month support at 10,400. Not only was support broken, but it was on strong volume. Unfortunately for the bulls, the Naz tends to lead the market and its underperformance of late finally took a toll on the Dow and SPX. After three days of selling on Wall Street, the Dow and Naz are now negative for the year, with the SPX holding on to minor gains at the moment.
Proctor & Gamble (PG) bucked the downtrend Wednesday, with the stock rising 2.97 percent on the session. The company announced late Tuesday that it would best earnings estimates in the quarter and it raised its dividend and announced a 2-for-1 stock split. The only other Dow component to gain ground on Wednesday was Altria (MO). The worst performing Dow stock was Alcoa (AA), which fell 4.07 percent.
Despite the large drop for tech stocks, Cisco (CSCO) systems finished the session with a mild gain. The networking giant benefited from positive comments at Salomon Smith Barney. The hardware sector in general fared better than the broader tech sector. International Data Corp [IDC] released the results of a survey showing that PC shipments would grow by about 11 percent in 2004 and 2005. This helped computer stocks, with the CBOE GSTI Hardware Index ($GHA) down just 0.39 percent.
It will be interesting to see how trading fares on Thursday. It wouldn’t surprise me to see the Dow test the 10,400 level, but ultimately falling back from this level. Now that the Dow and Naz have broken support, it seems likely that the SPX will follow along.
Jody Osborne Senior Staff Writer & Options Strategist Optionetics.com ~ Your Options Education Site
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