Markets Slip Lower, Hackers Reach New Lows

The Nasdaq succumbed to reality Wednesday, if only for a day. Although Tuesday's production numbers inspired a huge rally that poured over into Wednesday, the tech stocks were running out of steam after a 678 point run from the 1/31 low of 3748. An early rally in the Nasdaq was stymied by the action in the DOW. Once again the Industrials slipped below the 200 day moving average and losses quickly accelerated, dragging the Nasdaq lower. The tech stocks were due for some technical retracement after Tuesday's trading left an open gap in an already tired market. That gap is still wide open below Wednesday's close, 40 points below our current level, at 4322.

Wednesday's top news story was, of course, the continued hacker activity. The list of big name sites being hit is growing, now including Yahoo, Amazon, Ebay, Buy.com, CNN.com, E-trade, Datek Online and ZD Net. FBI officials held a news conference, basically stating that they have no suspect or motive for the attack. Despite an expressed concern by news reporters that the attacks were dragging down the market, stocks of the companies attacked were relatively unaffected. Every story has a silver lining though. Traders sought out Internet security providers and jumped in heavily. Many stocks in the industry posted double- digit gains. ISS Group's CEO appeared on CNBC after the market Thursday, touting his firm's ability to thwart "denial of service" attacks. Shares of ISSX tacked-on another 10 points in after- hours trading. Remember the China stocks, the Linux stocks and the B2B stocks? Sounds like another theme rally has begun.

The DOW continued lower on interest rate fears and worsening technicals. The index closed near support at 10,700, after losing 258 points to close at 10,699. We don't consider the close to be an official violation of support, but Thursday morning more selling is likely. Next stop on this downward trend is support at 10,650. Under that, this thing could slip down to 10,500 before buyers become interested once again. Market internals reflected the slide. Decliners led advancing issues 2 to 1 on big board volume of 1.0 billion shares traded.

The Nasdaq posted a lower close after 7 consecutive days of gains. Techs posted a failed rally on initial follow through from Tuesday's 106-point day. The index gapped open, trading to a high of 4460 before the sell off began. Buyers stepped in several times at the 4400 level, only to be met with renewed selling interest. The market closed at 4363, down 64 points. Volume was again heavy at 1.78 billion shares traded. Declining issues led advancers 23 to 18.

Broader market indices closed lower Wednesday. The S&P 500 lost 2.1%, the Russell 2000 index closed 0.27% lower and the Wilshire Small Cap index retraced 0.18%.

Individual sectors were down across the board today, most posting losses of 1 to 2 percent. Particularly weak were Biotechs, Internets and Banking stocks.

The bond market traded lower Wednesday, spurred by comments from Treasury secretary Lawrence Summers after he testified before Congress. He told reporters that the treasury department would "continue to use the entirety of the yield curve as a way of holding down our borrowing". Traders interpreted his comments as an indication that supply would not slow as much as thought. Pressuring the bond is a flood of corporate offerings, as well as new treasury issues. Wednesday, the Treasury issued $10 billion in new ten-year notes. Thursday, $10 billion in new 30-year notes will be offered, all as part of the Treasury's quarterly refunding. The 30-yr bond yield now stands at 6.31%, up 81 basis points. The yield on the 10-yr treasury is 6.67%, up 70 basis points.

Company News:

Hopes that tech leader Cisco Systems would support the Nasdaq slipped away, despite excellent earnings and a 2 for 1 split announcement. Shares of the Company opened at the day's high of $135, then steadily traded lower to close at $128.81, finishing +$3.00 for the day. The stock was the most actively traded on the market Wednesday, with 53.9 million shares trading hands.

Technicians and engineers at Boeing Co. (BA) walked off the job Wednesday after negotiations between union and management reps failed. The Society for Professional Engineering Employees (SPEEA) represents over 22,000 employees at the company. BA experienced a third consecutive day of heavy selling, losing 1.81 points to close at $39.00

The Board of Directors at Broadvision (BVSN) declared a 3 for 1 split Wednesday morning. The announcement was previously expected with earnings on January 26th. When the Company didn't announce, the stock sold off sharply. Turns out they were waiting for Tuesday's board meeting. BVSN closed at $170.06 Wednesday, up $17.81.

Internet security stocks traded higher across the board on news of the recent hacker activity. Theme trading developed in the following stocks: Verisign (VRSN) +5.38, Checkpoint Software (CHKP) +7.94, Axent Technologies (AXNT) +5.00, ISS Group (ISSX) +7.88, SonicWall (SNWL) +10.50, WatchGuard Technologies (WGRD) +15.50 and Network-1 Security (NSSI) +5.44.

Sun Microsystems (SUNW) bucked Wednesday's market after the Company's CFO told analysts that they are projecting a 25% increase in revenues. The Company is an industry leader in web server production. The stock posted a textbook breakout, gaining 4.56 points to close at $91.56 on huge volume.

Thursday's action:

Earnings scheduled for Thursday release include MTC and NSOL before the market; DELL, ITVU and TQNT after the market. ITVU is also a split candidate.

Thursday's market is poised to move lower, at least initially. A market that begins the week strong and gradually moves lower is a negative indication, so traders are likely to be hesitant on the bullish side. Both the Nasdaq and the DOW accelerated losses into the close, indicating that some carryover selling pressure is likely. The DOW has support 50 points below current levels, at 10,650. The Nasdaq has support at 4321. The outlook for the two indices couldn't be more different. If the DOW breaks support, it could signal a move lower to 10,500. A bounce up could find resistance at 10,700. If the Nasdaq should break support, it will likely be met with renewed buying at the 4300 level. Keep in mind that the DOW is in a downtrend, the Nasdaq is in an uptrend. This means that Wednesday's trading action was a continuation of the trend for the DOW. The Nasdaq for its part was due for some profit-taking. Some consolidation at or near 4300 would form a base for a sustainable uptrend.

Good luck and good trading.

Steve Pekarek
Asst. Editor