Heading Straight for Brick Wall, Nasdaq Hits Brakes Right Before the Crash

The day was pretty ugly, but looked a lot worse 30 minutes before the close.
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Get out of the way, the train is off the tracks!

What was looking merely like a depressing decline for tech stocks turned into a full-blown meltdown on the

Nasdaq Composite Index

, which at one point dropped 289 points, and closed at 4458.15, more than 11% off its all-time closing high.

Selling by investors to get ugly performers off the books before quarter-end turned into a technical breakdown, as the Comp dropped through key technical support levels before bouncing off its lows in the last half-hour of trading. The negativity spread like a disease to the

Dow Jones Industrial Average

, which also finished in the red after amassing a 100-point gain earlier in the day.

"This is like, breaking windows and stuff -- it's the opposite of window dressing," said Art Hogan, chief market analyst at

Jefferies

.

Only the Nasdaq's last-gasp rebound prevented this from being the worst one-day point loss in the tech-heavy index's history. As such, the index has lost 10% of its value in the last three days alone, and today's 186.38-point drop ranks as the fifth-worst on the history of the index.

And, with the exception of the eventual technical breakdown late in the day, investors and strategists had very few reasons to explain the massive decline in the tech sector. Most linked it to momentum: investors were thrilled to pile into high-flying technology stocks on the way up, and just the same, when the stocks are collapsing, they're eager to run screaming.

"This is just a momentum-driven market at this point, and it's the same momentum that took us up with no legitimate reason," said Todd Gold, technical strategist at

Gruntal

.

That desire is magnified with the end of the quarter coming. In a way, this week's action could be viewed as the chickens of December 1999 coming home to roost.

In December, investors ravenously bought up anything that had anything to do with technology, boosting stocks like

Qualcomm

(QCOM) - Get Report

to 40% gains in a matter of days. Qualcomm lost 7.5% of its value today, dropping 11 7/8 to finish at 145 1/4. The stock is down nearly 35 points from its all-time high.

Early in the day, however, this activity seemed innocent enough, an extension of the trend launched earlier this week. Investors were taking profits in stocks that had performed spectacularly well in the last four months, and putting it in undervalued nontech stocks, as well as in large-cap blue chips that (supposedly) provide a modicum of safety.

But that pattern turned ugly in the afternoon, and suddenly nearly every tech stock was treated like the smelly kid in the playground. "Everyone wants to show at the end of the quarter that they were a seller," said John Manahan, head trader at

Brown Brothers Harriman

. "It's just snowballing here."

The rolling stone gathered a lot more moss when the Comp busted through the 4500 level, a nice round number that technical strategists pointed to as support. The Nasdaq's recent intraday low of 4455, reached on March 16, was also viewed as support -- and that was taken out a few minutes later, accelerating the selling.

The index is now officially in correction mode, having dropped more than 10% from its all-time high reached earlier this month.

Strategists pointed to a number of other smaller factors that took the luster off the technology sector, including Tuesday's comments from

Goldman Sachs'

strategist Abby Joseph Cohen, who said she no longer recommends investors overweight in technology stocks.

Hedge fund manager

Julian Robertson's

decision to close his

Tiger Management

family of funds was also cited as a factor, even though it acknowledged that Robertson eschewed the very style that's rocking the market of late.

These factors are what generated the overall decline in the Dow industrials, which were victimized by profit-taking and some sympathy selling from those putting the screws to the tech sector. Not surprisingly, the top victims among the Dow stocks were tech names

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

, which lost 3% each today.

"Nobody wants to stand in front of a train wreck, and people pulled any bids they had out there," said Ned Collins, executive vice president of U.S. stocks at

Daiwa Securities

.

Since technology accounts for about 35% of the market capitalization of the

S&P 500

, that index was down also, losing 20 to 1487.92. The

Russell 2000

lost another 2% of its value, falling 11.42 to 531.57. Volatility and the threat of higher interest rates have been hurting these stocks nearly all month.

Still, some couldn't help but find a silver lining or two. For one, the support shown in the market, and its ability to close above that technical level of 4455 indicated that investors remain willing to come in and buy the market when stocks take a beating.

Secondly, with earnings season approaching, Hogan believes the market will be worrying less about valuation, now that investors have taken more than a pound of flesh in the last two days.

"I don't know that anyone would argue that the last two days was a healthy corrective action," said Hogan. "It's probably good that this has happened pretty quickly, and we've gotten our medicine behind us and maybe we can focus on earnings."

The Nasdaq's most active was

Cisco

(CSCO) - Get Report

, which lost 2 7/16 to 73 5/8 on 65 million shares.

Semiconductors were trashed.

Motorola

(MOT)

lost 7% to 144,

Micron Technology

(MU) - Get Report

dropped 10% and

Applied Materials

(AMAT) - Get Report

shed 4% to 93.

Software companies were big losers today also, led by

Oracle

(ORCL) - Get Report

, which dropped 5%, and

Citrix Systems

(CTXS) - Get Report

, which fell 16%.

TheStreet.com Internet Sector

index was trounced today, losing 2.5% of its value to 1095.34.

Excite@Home

(ATHM) - Get Report

lost 12% of its value, while

RealNetworks

(RNWK) - Get Report

dropped 4%.

TheStreet.com E-Finance Index

shed 4.6%.

The

Nasdaq Biotechnology Index

fell 5%.

"These stocks went up so much, that there were no support levels when we come down," said Gold.

The NYSE's most active was Dow component

Philip Morris

(MO) - Get Report

, which added 2 1/8 to 21 1/4 on 27 million shares. Tobacco stocks as a whole were stronger, as the

American Stock Exchange Tobacco Index

tacked on 3.7%.

Commodities stocks were generally stronger. The

American Stock Exchange Natural Gas Index

added 3.8%, the

American Stock Exchange Oil & Gas Index

rose 3% and the

Philadelphia Stock Exchange Forest & Paper Products Index

finished up 1.8%.

The

S&P Retail Index

gained 1%.

Circuit City

(CC) - Get Report

, which reached an all-time closing high of 61 today, gained 10% and

Bed Bath & Beyond

(BBBY) - Get Report

gained 30% to close at 43 5/8.

Food stocks were also higher.

Nabisco

(NGH)

moved up strong after financier

Carl Icahn

announced he was increasing his stake in the company to 40%. The stock closed up 26% to 11 3/4.

ConAgra

(CAG) - Get Report

gained 10% and

Quaker Oats

(OAT)

rose 6%.

The

Dow Jones Transportation Average

lost 0.4%, while the

Dow Jones Utilities Average

shed 0.3%.

The Treasury market, meanwhile, was stronger. The 10-year note rose 24/32 to 103 10/32, dropping the yield to 6.048%. The 30-year Treasury bond gained 1 12/32 to 105 7/32, dropping the yield to 5.878%.

Market Internals

Breadth was fair on the NYSE on strong volume, and putrid on the Nasdaq.

New York Stock Exchange

: 1,555 advancers, 1,446 decliners, 1.18 billion shares. 81 new highs, 53 new lows.

Nasdaq Stock Market

: 1,185 advancers, 3,122 decliners, 1.88 billion shares. 38 new highs, 172 new lows.