The bears were munching greedily on the market this morning, having added the blue-chip

Dow to their trough of stock-market fodder.

Just 10 minutes into the morning's trading, the blue-chip index crossed below the 9378 mark and into bear market territory -- defined as 20% off of a proxy's highs. And it was heading lower as the morning progressed. Just two weeks ago, the Dow was at 10,858.


S&P 500 continued to drop further into bear territory, as did the

Nasdaq after giving up its opening gains.

Volatility in the

S&P 500 spiked to 38.2 this morning. That's a two-year high, but it's still shy of the highs hit in the bear-market selloff of 1998, when it surged over 50. Volatility often spikes when fear is rampant and stocks are nearing

capitulation -- a momentous selloff marked by high volatility, high volume and intense fear, which usually sends stocks so low they form a "bottom" and buyers come back in.

Chip stocks and PC-makers continued rising this morning, however, and even a bunch of tech stocks that were hit by bad news were up. Software giant and Dow component


(MSFT) - Get Report

was rising despite a negative note out of

Goldman Sachs

this morning. Most analog and mixed-signal chipmakers were also moving higher even though

Lehman Brothers

issued a

negative outlook on the sector, basically saying the stocks are at least 50% overvalued.

Biotech, drugs, financials and retailers were the absolute pits, as was pretty much everything else. The

Nasdaq Biotechnology Index

was off 9.1%. Breadth stunk like an old fish sandwich, with decliners beating advancers by 23 to 4 on the

New York Stock Exchange and by 24 to 7 on the Nasdaq.

Based on earnings preannouncements in the PC sector, Goldman analyst

Rick Sherlund said he expects Microsoft to miss fiscal third-quarter consensus revenue estimates of $6.2 billion, but to make its own targets. Sherlund now sees the company coming in with revenue that's down 10% from the previous quarter. Worse, the analyst forecasts flat to down earnings for each of the next four quarters and flat earnings for fiscal 2002. That's bad news for an economy that is still hoping corporate profits will turnaround in the second half of this year.

Sherlund tempered his report by saying, "We believe investors may become more positive on the stock if, indeed, much of the bad news is now out." Investors have knocked the stuffing out of Microsoft over the past 16 months, leaving it $60 lower to around $50 a share. Microsoft was up 3% to $51.56.

The Nasdaq is now 64% off its high -- hit last March 10 -- while the S&P 500 is down 27% from its high. The

Federal Reserve's rate-cut disappointment on Tuesday hasn't boosted sentiment much. The market was hoping the Fed would chop rates by 75 basis points, but instead it got a reduction of just half a percentage point. Fed chairman

Greenspan and his team have now dropped interest rates by a full 1.5% since Jan. 3, putting short-term rates at 5%.

After weeks of aggressive selling in the stock market, some market pros have begun saying stocks look very oversold and are due for a bounce. All the bad news is finally out, they say. But that is probably optimistic. There has been little indication of when the economy or the corporate earnings picture will turn around, and until that becomes clear it's hard to know how to value stocks. If earnings forecasts continue to slog lower with the force that they have in the past six months, stocks may take another beating.

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