Stocks Ready to Bounce After Three-Day Drop

Stocks look set for some bounce this morning.

At 9:05 a.m. EDT, the S&P 500 futures were up 4 points, about 6 points above fair value and an indication of some buying pressure for the early going. The Nasdaq 100 futures were 31 points higher, indicating some elastic bounce in large-cap tech stocks at the open.

After three days of losses last week, stocks may have been looking a little oversold, said Bryan Piskorowski, market analyst at Prudential Securities.

"We have a bit of an oversold condition, and we're looking at a bit of a bounce this morning," said Piskorowski.

The Nasdaq Composite Index closed Friday down 148.10, or 4.2%, to 3390.61, while the Dow Jones Industrial Average lost 150.43, or 1.4%, to 10,626.85 and the S&P 500 dropped 30.26, or 2.11% 1406.95.

But how they'll bounce and how long the bounce will last are different matters.

"Sustabinability and follow-through haven't really been there," Piskorowski added. "We're pretty much penned in by the jobs data which won't come in until June. We'll probably have sloppy and choppy trade until then."

So volatility and anemic volume will probably be around for a while as jitters over the direction of the economy and interest rates still abound. The Fed's 50-basis point interest rate increase to 6.5% last week didn't settle anyone's mind about how many more hikes are in store for the market, and investors won't get many clues this week.

Revised first-quarter gross domestic product comes out on Thursday, but it's a rear-window number and is unlikely to affect the Fed's next decision. That same day, Fed boss Alan Greenspan will address the National Association of Urban Bankers, but he won't probably have much to say about interest rates until he sees more evidence from data that the economy has slowed substantially. Friday brings the durable goods orders, a secondary report.

In any case, the market seems to have mixed feelings about what current volume levels mean. Some say they could be an indication of a bear market, while others say they aren't really so low when compared to last year. While volume has continually hit new lows for the year in recent action, it hasn't been much lighter than its strongest days in 1999. The high volume experienced in March was just part of a megarally and shouldn't be expected to become the norm, they say.

Still others say that low volume could temper volatility. Without volume, it's difficult to make money off momentum trading. At the very least, current levels should force investors to be more selective in their investment choices, instilling some rationality into the market. For more on what recent volume levels mean, see Justin Lahart's recent story.

In the meantime, investors will want to watch IPO lock-ups and quiet periods expirations today. On an otherwise quiet Monday, PNV's(PNVN Quote) lockup terminates and Software Technologies'(STCS Quote) and ON Semiconductor's(ONNN Quote) respective quiet periods end. While sudden increases in float can hurt stock prices, they can also raise a stock's liquidity, making it more attractive to investment funds.

Earnings reports continue to trickle in today, including Fluor(FLR Quote) and Novell(NOVL Quote).

The Treasury market was moving higher this morning, and the 10-year note was up 4/32 to 100 4/32 and yielding 6.479%.

The large European bourses were narrowly mixed near midsession. The Paris CAC fell 12.65, or 0.20%, to 6183.40, while Frankfurt's Xetra Dax was off 20.07, or 0.29%, to 6968.96. Across the Channel, London's FTSE was up 42.2, or 0.70%, to 6087.6.

The euro was trading up at $0.8996.

Meanwhile, Germany is studying the possibility of delaying a recently proposed merger between Frankfurt's and London's exchanges.

All major Asian markets except China tumbled overnight following the Nasdaq's woes Friday.

In Hong Kong, the Hang Seng closed down 337.53, or 2.33%, to 14140.73.

In Tokyo, stocks fell to their lowest levels in almost a year, and the benchmark Nikkei was off 472.16, or 2.80%, to 16,386.01.

The greenback fell slightly against the yen and fetched 106.96 yen. The dollar was lately trading higher at 107.23.

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For a look at stocks in the preopen news, see Stocks to Watch, published separately.