Comeback Try Leaves Bulls All Wet

Blue-chips have bounced from early lows but techs continue to falter.
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Upside earnings and sideways indices. What else is new?

After a cool morning dip, two of the Big Three proxies were toweling off around break-even. The

Dow Jones Industrial Average

was down 14 to 10,897 after trading as low as 10,832. The

S&P 500

was off 2 to 1355 after trading as low as 1346.

But the

Nasdaq Composite Index

was still in the deep end, off 38.42 to 2654 as technology remained investors' favorite whipping sector. The Comp's fraternal high-growth benchmark,

TheStreet.com Internet Sector

index, was down 17.62, or 3% to 574. The small-cap

Russell 2000

was down 3.57 to 444.81.

It's tempting to call the market's recent action a correction, but even at its worst levels this morning -- of around 2640.50 -- the Nasdaq was down "just" 7.8% from it all-time closing high. Meanwhile, the Dow remains comfortably above the 10,088 mark that would dictate a 10% "correction" from its all-time closing high.

Consolidations, meanwhile, can be a good thing, a necessary part of a child's or index's healthy growth. But they can sometimes be a lot bloodier, as

Delbert Grady

reminded us in

The Shining

.

Robert Dickey

, managing director of technical analysis at

Dain Rauscher Wessels

, sees the market's downtrend as the milder sort.

"There's a fear of a letdown from earnings season -- the numbers are impressive, but not a surprise," Dickey said. "When you get what's expected, the market exhales and turns the other way. And here we go again on the

Fed

watch. People are fading ahead of the next Fed meeting, and will probably rally it

the market into" that event.

"With earnings, people buy the rumor and sell the news," he said. "And they do the opposite with the Fed meetings. Right now, we're seeing selling on earnings news and selling on Fed rumors."

Dickey sees stocks stuck in this pattern until we get close to the next

Federal Open Market Committee

meeting on August 24th.

Add to all of this the recent upturn of the

Chicago Board Options Exchange's Volatility Index

, or the VIX, which measures implied volatility in the options market; the index was lately up 4.7% to 24.87.

"That's got everybody spooked," Dickey conceded. "The low VIX implied way too much complacency. The VIX works as a sentiment indicator, and sentiment was too bullish, meaning everybody had already bought. The available cash was pretty much depleted. Now we need a cash buildup."

Dickey wasn't drawing any comparisons to last July, when a sharp upswing in the VIX from similarly low levels was attended by that summer's notorious selloff. "I'm not sure how far to take all this." He said the Dow could go as low as 10,500, the Nasdaq to 2,400. "It'll take two-to-three weeks to wring the tree out. If the indices broke under those levels, I'd get worried. But I'm not expecting that."

The extreme thinness of the few and short-lived rallies the market has put together lately don't help its prognosis. "Advance/Decline lines have been generally unsupportive of the market," Dickey said. "Transports and utilities have been in poor shape. These are all red flags."

However, the latter were faring better thus far today; the

Dow Jones Transportation Average

was up 0.1% and the

Dow Jones Utility Average

was higher by 0.4%.

Decliners were topping advancers 1,828 to 984 on the

New York Stock Exchange

with 432.8 million shares changing hands. There were 21 new 52-week highs against 62 new lows. In

Nasdaq Stock Market

action, advancers were trailing decliners 2,409 to 1,204 on 463.9 million shares. There were 47 new highs and 44 new lows.

Meanwhile, the

S&P 500

futures market was giving off mixed short-term signals. "The market held when it needed to this morning," said

Kevin O'Brien

, a futures trader at

Prudential Securities

. He noted that the September contract bounced off the 1353.10 level before hitting resistance in the 1364 area. If it breaks through that level, he said, the futures could see the low 1370s.

But O'Brien still likes the short side for now. "I've been telling people, don't cover a hedge if you're short. We haven't hit a bottom yet." He listed 1345 as major support.

Monday's Midday Watchlist

By Heather Moore
Staff Reporter

Host Marriott Services

(HMS)

was flying 5 13/16, or 59.6%, to 15 9/16 on word Italy's

Autogrill

is acquiring the company for $529 million in cash. Late Friday, Host Marriott posted second-quarter earnings of 19 cents a share, a nickel above the three-analyst

First Call

estimate and above the year-ago 17 cents.

Mergers, acquisitions and joint ventures

Cable & Wireless Communications

(CWZ)

was off 1/2 to 54 5/8 after agreeing to sell

CWC ConsumerCo

, its consumer cable telephone, Internet and TV operations, to

France Telecom

(FTE)

-backed

NTL

(NTLI)

. France Telecom, which was up 3 5/16 to 73 1/2, has agreed to invest a total of $5.5 billion in NTL, which was down 2 3/4 to 96 1/16.

Shire Pharmaceuticals

(SHPGY)

was down 2 1/16, or 7.8%, to 24 1/2 after agreeing to buy

Roberts Pharmaceutical

(RPC)

in a deal valued at $1 billion. Roberts was up 1 3/8, or 5.5%, to 26 3/8.

Earnings/revenue reports and previews

Seacor Smit

(CKH) - Get Report

was down 3 1/4, or 6.1%, to 50 1/2 after late Friday posting second-quarter earnings of 53 cents a share, including special items. The six-analyst forecast called for operating earnings of 85 cents vs. the year-ago $1.58.

In other earnings news:

Analyst actions

Goldman Sachs

lifted

Circuit City

(CC) - Get Report

to market outperformer from performer. The stock did neither, remaining relatively flat for much of the morning. Lately, it was up 5/16 to 45 1/16.

Commerce One

(CMRC)

was slipping 4 3/16, or 7.5%, to 51 3/8 even after

Credit Suisse First Boston

initiated coverage of the start-up with a buy and

U.S. Bancorp Piper Jaffray

started coverage with a strong buy.

E-Loan

(EELN)

was down 3 1/16, or 5.7%, to 50 9/16 even after

Morgan Stanley Dean Witter

upgraded it to outperform from neutral and two other analysts initiated coverage. Goldman began coverage with a market outperformer and

Donaldson Lufkin & Jenrette

began with a buy.

Expeditors International of Washington

(EXPD) - Get Report

traveled to strong buy from neutral at U.S. Bancorp Piper Jaffray, and lately was up 1 3/8, or 5.1%, to 28 1/2.

Miscellany

IBM

(IBM) - Get Report

was down 1/2 to 124 5/16 after unveiling

IBM Enterprise Storage Server

(code-named "Shark"), a new generation of enterprise disk storage systems.