Slump Day: What to Make of Wednesday

SAN FRANCISCO -- Any way you slice it, Wednesday was not a good day for those hoping Tuesday's setback would prove an isolated event.

Most notably (as if you hadn't already noticed) the Nasdaq Composite fell 2.9% to 4055.64. The Comp's closing level is significant because it represents a breach of the index's short-term upward trend, according to various sources.

One, Richard Williams, market analyst at Jefferies, said 4060 represented the Comp's "bullish support line" and penetration thereof "suggests more downside to come."

Willams does not see a major debacle in the offing (he thinks that'll come after the November elections, when inflation reignites). Judging by the market's "predictable cycle of turns," the analyst said the Comp's run from late May until this week suggests "four to eight weeks of pullback" are in the offing.

He offered 3580 as the next key level of support for the Comp, or nearly 12% down from Wednesday's closing level. For the S&P 500, he views 1390 -- or 6.1% below Wednesday's close -- as a key near-term support. "If that breaks," he says, "it tells you it's going to be a bigger correction" that could augur another visit to 1300 for the index.

Willams conceded the Comp could rebound Thursday, which could negate the significance of Wednesday's decline. Plus, his comments came before some positive postclose news such as earnings from IBM (IBM Quote - Cramer on IBM - Stock Picks) and Extreme Networks (EXTR Quote - Cramer on EXTR - Stock Picks), renewed merger speculation involving VoiceStream Wireless (VSTR Quote - Cramer on VSTR - Stock Picks) and Deutsche Telecom (DT Quote - Cramer on DT - Stock Picks), as well as JDS Uniphase's (JDSU Quote - Cramer on JDSU - Stock Picks) selection to be added into the S&P 500.

Each of the aforementioned could provide a salutary effect for trading Thursday, something this market could certainly use right about now. Late Wednesday, Nasdaq 100 futures were up about 21 points in Globex trading.

Another bit of good news (for those long) comes from John Bollinger, president of Equity Trader.com in Manhattan Beach, Calif. The veteran technician did not deny the Comp breached some significant short-term levels Wednesday but also said it doesn't much matter.

While (heaven forbid) not trying to downplay the significance of the Comp, Bollinger noted other indices that have been leaders suffered less damage. Specifically, the Value Line Arithmetic Index and S&P Midcap Index have not even returned to their respective breakout levels, much less broken short-term trendlines, he said.

"I think cracking that short-term trendline on the Nasdaq is part of the puzzle," Bollinger said. "It probably inflicts some damage, shakes some money out, and scares some people, but it sets the stage for the next rally."

Notice he said the "next" rally. Meaning we can officially declare the last one over.

Qualcomm Conundrum

Speaking of rallies being over, Qualcomm (QCOM Quote - Cramer on QCOM - Stock Picks) reported earnings after the close Wednesday as well. (OK, that's a low blow at the once high-flying Qualcomm, whose shares are down 64% in 2000.)

The company reported fiscal third-quarter earnings of 27 cents a share, in line with expectations. Revenue totaled $714 million, which was a bit below the consensus estimate. Not surprisingly then, Qualcomm shares were down in after-hours trading (meanwhile, the names mentioned above were uniformly higher).

In the company's conference call Wednesday evening, Qualcomm officials addressed some of the issues that have been hounding the company (and its stock) of late.

Chairman and CEO Irwin Jacobs acknowledged that the end of handset subsidies in South Korea negatively impacted sales in the company's CDMA (code division multiple access) chip segment, where revenue fell 15% from the prior year to $338 million.

"However, CDMA makes excellent progress as the industry looks to wireless Internet access," which benefits the licensing business, Jacobs said. Indeed, third-quarter licensing revenue rose 35% year over year to $174 million.

Another point Jacobs stressed is that Qualcomm "wins" regardless of whether CDMA or WCDMA ("wideband" CDMA) emerges as the industry standard; the company plans on receiving the same royalty payments for its contributions to WCDMA as it does with CDMA.

"Others may charge royalties on their contribution [but] we'll charge the same royalty rates for any flavor of CDMA," he said.

If that sounds familiar, it's because that's been the company's long-standing position. The problem is Qualcomm offered no insight into when standards will be finalized for the next generation WCDMA; a "limited launch" by Japan's NTT early next year will be based on the 1999 version, Jacobs said.

There are myriad other issues to discuss -- both positive and negative -- but the old clock on the wall (and my editor) says they'll have to wait for another day.

Delays in standardization for WCDMA are an issue for "the whole industry," according to Bear Stearns analyst Wojtek Uzdelewicz. One risk is that another vendor -- Nokia (NOK Quote - Cramer on NOK - Stock Picks) being the most likely candidate -- could gain a competitive advantage and force Qualcomm to cross-license its technology, the analyst said.

Jacobs acknowledged Qualcomm has already signed deals to cross-license other vendors' technologies and hinted more announcements will be forthcoming.

Bottom line: A lot of the near-term uncertainty that's been surrounding the stock isn't going away.

The good news is much of that is already priced into Qualcomm shares. The bad news is there wasn't much in the company's quarterly report or conference call to reinvigorate this erstwhile poster child for momentum investing.