Highway to Hades

SAN FRANCISCO -- The world did not end Wednesday, but investors could be forgiven for making reservations for Armageddon.

The Nasdaq Composite had its toes hanging over the edge of the depths of Hades at midafternoon, when it traded as low as 3367.06, or just above its April 14 closing low of 3321.29. A bounce from the intraday low sent the tech-beleaguered index above 3480, but the final 60 minutes proved hellish for those long. The Comp closed down about 200 points, or 5.6%, to 3384.73. The Dow shed 1.6% to 10,367.68 while the S&P 500 lost 2.1% to 1383.05.

There were plenty of excuses (and we all know what they're like) for this latest downdraft, namely the Salomon Smith Barney downgrade of Motorola (MOT), which fell 16.7%, and Intel's (INTC) motherboard recall, which siphoned 10.9% off the chipmaker's stock. Then there was Cisco (CSCO), which declined another 7.8% despite an impressive third-quarter earnings report.

"They're throwing out the good names with the bad," said Timothy Heekin, director of equity trading at Thomas Weisel Partners, who compared the session with April 14. "Taking apart stocks like that makes me nervous."

There's plenty of nervousness on Wall Street these days, but not -- according to a variety of sources -- panic "People are saving their powder for what they perceive to be a capitulation," Heekin said, chalking up the decline to a lack of buying rather than aggressive selling.

But what happens if, like tomorrow, the capitulation never comes?

People are howling in pain after what has been an admittedly harsh, but short-lived downturn by historic standards. After all, we're only two months removed from the Comp's all-time high and approximately one month from the recent lows. Traditionally, a bear market has been a prolonged, protracted period of declining stock prices.

I'm not predicting we've entered, or are about to enter such a period. Nor is it my job to make such prognostications.

Scott Bleier, chief investment strategist at Prime Charter, is paid to make such calls. Eschewing the "bear market" label, he called what's going on "a correction commensurate with the action we saw for the six months previous."

The continued depressed volume shows a lack of conviction among investors, on both up and down days, he noted. Indeed, although the activity increased Wednesday, volumes of 981.7 million on the Big Board and 1.55 billion in over-the-counter trading still trailed the year-to-date daily averages of 1 billion and 1.67 billion, respectively.

But Bleier does not foresee the quick recovery so many investors are nervously, impatiently awaiting.

The strategist predicted the Comp will break its perceived bottom around 3320 in the near-term. But it will then confound the technical analysts by rallying from that point, instead of breaking down further. Similarly, it will falter as it gets to the higher end of its trading range around 4000.

In other words, a series of "false breakouts and breakdowns" will occur and frustrate a lot of investors, Bleier said, suggesting that the trend could last through the summer. "The only thing that will turn this market is time."

So if Bleier is right, time is on your side. Even if the market feels like goat's head soup right now.

Views from the Buy Side, Redux

When I spoke in mid-March with Robert Christian, chief investment officer at Wilmington Trust, a mutual fund family with over $20 billion in assets under management, he was pretty sanguine about the outlook for stocks. This, despite having taken some hits in names like Protein Design Labs (PDLI).

Wednesday, he was less favorably disposed.

Like many, the fund manager underestimated the strength of the economy and the threat of inflation. Like few, he's willing to admit it.

"It seems to be more clear now the economy is still growing way too fast," Christian said. "As a result, is seems clear the path of short-term interest rates is upward. The chances of the Fed raising rates by 50 basis points next week are very good [and] I don't think that's the end."

Combine that with the overvaluation of stocks, especially (do I have to say it?) techs, and the fund manager says the market was like a car traveling at 140 mph that suddenly had a deer run into its path.

The Nasdaq "is still careening down the highway and trying to figuring out how to make the car stop," he said.

Despite the gruesome analogy (and stock charts), Christian is not selling out of growth favorites such as Protein Design Labs, JDS Uniphase (JDSU) and Amgen (AMGN).

"We still like long-term fundamentals," he explained.

However, Christian isn't looking to add to those positions despite the proverbial "bargains" created by the declines. Instead, he's putting new money to work in so-called value names such as ExxonMobil (XOM), Conoco (COC.B), and Johnson & Johnson (JNJ).

If he's a proxy for other fund managers (and most tend to think along the same lines), the "good" news is that the institutions in general remain focused on equities and haven't made across-the-board sales in their tech favorites despite the declines.

The bad news is (do I have to say it?) -- institutions haven't made across the board sales.

P.S.

Loads of email in response to last night's piece.

Unfortunately, the overwhelming majority of it was in response to the original headline, which was a reference to the movie Animal House in which John Belushi incorrectly refers to the Germans bombing Pearl Harbor.

Sorry for any confusion (although I didn't -- and usually don't -- write the headlines).

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