Today was a Good News, Bad News kind of Day.

We may as well take our medicine first. So, to get the bad news out of the way, the market was down big, really big. However, the good news is that it puts us closer to the bottom. What's more, the news after the market closed looks good.

Here's the lowdown.

The Dow Jones Industrial Average (INDU) actually opened up and climbed almost 50 points to 10,460, but then headed south in a big way, trading just north of 10,000 for the rest of the day. When it was finally over, the INDU closed down 379.21 points, or 3.64 percent, to 10,034.58 on 1.3 billion shares traded on the NYSE. The INDU closed just 10 points off its low and experienced its fifth largest one-day point drop ever. Trading curbs were in place most of the day, preventing program trading and limiting price movement.

As for the other major market barometer, the NASDAQ Composite Index (COMPX) opened up almost 80 points at 3,241 and moved up another eight points before also heading south. The COMPX closed down 93.81, or 2.96 percent, to 3,073.90 on 2.1 billion shares.

Needles to say, breadth stunk. Decliners thumped advancing issues on the NYSE almost 3:1 (2136/765) and on the COMPX 30:11 (2967/1126).

The most active stock on the NYSE was Home Depot (HD), which traded down $13.94, or 28.5 percent, to $35.06 on 66.6 million shares. This morning, HD warned it needed shelter, as its earnings were squeezed by higher material costs and dropping prices due to a slowing economy. This follows a similar warning last week from HD's competitor Lowe's (LOW), which sank another $3.25 today to $37.81 in sympathy. Many other retailers sank as well.

Motorola (MOT) also fell $1.25 to $20.19 on heavy volume today, as it was downgraded by Prudential and CS First Boston on fears of slower mobile phone sales.

Banks suffered a major withdrawal, as analysts raised worries about portfolio valuations and fears of loan defaults. Citigroup (C) and J.P. Morgan (JPM), both INDU components, dropped. Citigroup closed down $2.75 to $46.75 on 28.4 million shares, while JPM dropped $10.38 to 136.43 on above average volume.

Over on the COMPX, Intel (INTC) was atop the most active list, gaining $1.75 to $37.12 on volume of 99.7 million shares, double average daily volume. Cisco (CSCO), WorldCom (WCOM) and Microsoft (MSFT) were also among the most active, with more than a point loss each.

Investors had a lot on their plates today. The good news before the market opened was that overseas market stabilized overnight and most Bourses closed up. Several companies also made positive earnings announcements. Corning (GLW) said last night that it expected to again beat estimates when it announces in about two weeks. Also last night, Applied Micro Circuits (AMCC) announced earnings of $0.26 per share, which beat the consensus estimate of $0.23. A lot of good it did. AMCC closed at $164,00 for a loss of $3.73.

Advanced Micro Devices (AMD) also announced blowout earnings of $0.64 per share compared to estimates of $0.62 and last year's earnings of $0.36. Shares of AMD closed up $0.38 to $22.13.

During the day General Motors (GM) posted earnings that beat estimates. GM reported earnings of $ 1.55 per share that beat estimates of $ 1.54. GM also said it may spin off its subsidiary and tracking stock GM-Hughes (GMH).

After the close tonight, Veritas Software (VRTS) beat estimates of $0.14 per share with $0.16 cents per share on revenues up 73% from the year-ago period to 317.2 million.

PMC Sierra (PMCS) announced earnings after the bell that beat estimates. PMCS grew revenue by 140% from $82.5 million to $198.1 million. EPS came in at $0.31, beating the $0.26 estimate. PMCS closed the regular session up only $0.75 to $158.43.

Despite the rash of big-name announcements, earnings took a backseat to world news in the financial markets. Oil spiked to $ 35.65 a barrel on new tensions in the mid-east. Gold also rose to $279.10 an ounce in a flight to safety.

In the Mid-East, fighting intensified between Israeli forces and Palestinian settlers. News of a bombing of the USS Cole, a USN Destroyer, by a Zodiac boat loaded with explosives in Yemen drove the dollar and British Pound higher along with oil. Conversely, the Euro sank again wiping out recent gains. In the attack, five sailors died and a dozen are still missing. The administration said it would consider retaliation when it determined who was responsible. In response, oil traders hiked prices in fear of a slowdown in shipments from the region. Some also feared that Iraq might attempt to use oil to negotiate its position.

The obvious question traders have been asking is, "Are we there yet? Unfortunately, the bullish consensus is still relatively high and rising, as more people speculate on a bottom and recommend buying. This actually delays the bottom, as it pushes off the capitulation we need to flush out all the sellers. Also, we have yet to see big margin calls that will finally bring us near the end. However, the current crisis could force these sales over the next few days and enable us to finally bottom.

Seasonality is also on everyone's minds. Enough studies have been done to show the market moves best in the six months between October and May. Like any other market theory, when everybody knows it, it doesn't work anymore. There are many unresolved issues still on the horizon, including the election, future Fed policy, the depth of earnings slowdowns and rollout of new technologies. The first three issues are well known; the final one is not. We are currently between generations of technology. Intel has a new chip, the 786, to be released soon, along with the components and software that will go with it. The new CDMA mobile phone technology is only beginning to be deployed. Software applications are migrating to a totally web-based operating system and away from the PC. The post-PC era will drive the next major bull market.

Below is a two-year chart of the COMPX with a trend line connecting the lows. We have now penetrated that line indicating we may still be going lower. We have reached a critical point. A turn here that is sustained is needed. Next long-term support is in the vicinity of 2,800, and 2,500 after that. We could be in that vicinity soon.

Trade smart and keep your powder dry.

Maris Eshleman
Research Analyst

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