The software giant's woes doomed the technology sector from the opening bell, and though the
Nasdaq Composite Index
bounced impressively in the last half-hour of trading, the gains came on low volume, and the picture remains bleak.
Nasdaq Composite Index
finished the day down 161.24, or 4.4%, to 3,482.64, the tenth-worst point loss in history, but for most of the day, it looked much worse. The negative drag from Microsoft hurt the
Dow Jones Industrial Average
, but it was resilient, finishing up 62.05 to 10,906.10. The
, under pressure from its tech components, lost 4.63 to 1429.91. The
dropped 13.3 or 2.76%, to 468.54.
Microsoft warned last Thursday that its earnings for coming quarters would fall short of expectations. Published reports indicated that the company is potentially facing forced divestiture of some of its applications.
The stock, the Nasdaq's most active, spent the day in Davy Jones' locker, closing down 12 1/8 to 66 5/8, a 15.4% decline on 151 million shares.
But on a broader basis, investors this morning took their anguish and used it on technology companies with little direct connection to the software giant. Internet stocks of all types were slammed, and the most speculative names -- those that make up
TheStreet.com New Tech 30
-- were treated the worst, plunging 15.7%.
This session served as another warning to those that have persisted in playing the momentum game in the Nasdaq, buying and selling quickly and helping to boost the prices of stocks that many deemed unsustainable. Now, the sellers are in charge.
"You've trained investors to buy on the dip, and for the first time in a while, they're getting hurt by doing that," said Tony Dwyer, chief market strategist at
. "It changes the psychology of the marketplace. Instead of buying on the dip, they're selling on the rally, and for last three weeks that's what's worked."
In the last half-hour of trading, after having dropped 298 points, the Nasdaq Composite staged a dramatic recovery, bouncing nearly 150 points after spending most of the session struggling with declines of nearly 200 points. Some of that bounce was due to meager volume -- just 1.5 billion shares changed hands today -- but it's also the result of bottom-fishers doing what's been serving them for several years now.
"When the Comp got down around 300, I think the bargain hunters came in, and they shaved 150 points off of it," said Tony Cecin -- manager of Nasdaq trading at
U.S. Bancorp Piper Jaffray
. "The reality is, if you go down on little to no volume, it's easy to bring it back for the same reason."
However, the Comp in one day managed to give up a good portion of what it regained last week after the April 14
selloff. The Nasdaq is now 31% off its all-time closing high of 5048.62, and today's retching eroded the enthusiasm for a steady recovery in the index that last week generated.
"Guys who look at the charts are going to say the Nasdaq put in a perfect double-bottom, and that's going to allow the Nasdaq to rally to maybe 3700, but it's not going to get people whole," said Scott Bleier, chief investment strategist at
. "That's going to be a trading bounce -- that's what we have in store for us -- but the Nasdaq is in its own private hell."
The Circles of Hell
Indeed, the percentage decline in the various technology sectors maps out a bit like Dante's
. The first circle of virtuous pagans is occupied by the computer box makers; the
Philadelphia Stock Exchange Computer Box Makers
dropped 1.7% today.
They're frequently identified as "New-Old Economy" companies, like Dow component
, which dropped 5%, and
, which lost 3.8% today.
Drop down a level and you've got well-liked semiconductor names contained in the
Philadelphia Stock Exchange Semiconductor Index
, which lost 3% today, led by the likes of
, down 5.4%, and
, which dropped 1.9%.
Down another circle lies telecommunications companies -- the
Nasdaq Telecommunications Index
shed 5.3% today, thanks to the likes of
Level 3 Communications
, which fell 7%, and
, which dropped 8.5% today.
Near the bottom ranks the Internet, which exhibited a pattern similar to the pouring of sewage out of the windows in Medieval Europe.
TheStreet.com Internet Sector
index shed 4.4%, but many companies performed worse. The
American Stock Exchange Internet Index
lost 5.7% as
lost 6.8% of its value,
dropped 7% and
In the maw of the beast, then, would be the New Tech 30, stocks that are traded more on expectation that they would go higher. The New Tech 30 was led into the abyss by the likes of
, which dropped 24% to 82 1/2, and
, which fell 10%.
For some investment managers, this isn't complicated -- stuff is still too expensive.
"We find many issues to be expensive from a fundamental standpoint, particularly in the tech space," said Robert Cummisford, portfolio manager of the
Kent Small Company Growth Fund
. "We're seeing some rotation into the value-oriented stocks, but that's more on the large side than the small side."
Evidence of that was confirmed by the lousy internals on the
New York Stock Exchange
. Strength existed in small pockets on the NYSE, particularly in the retailers, the largest capitalized financial stocks, a handful of the banks, utilities, pharmaceuticals and chemical stocks. The poor breadth (losers beat winners 4-to-3 on the NYSE), low volume and concentrated buying indicated a middling day in terms of investor interest in buying.
S&P Retail Index
rose 2%, led by the likes of Dow components
, as well as other recognized chains such as
Several Dow components had a stellar day, including
, both of which beat earnings estimates. AmEx gained 7 1/16 to 150 1/16, while Merck rose 2 3/16 to 71 15/16. Other well-worn financials such as
rose, gaining 3 1/16 and 2 3/8.
American Stock Exchange Broker/Dealer Index
finished marginally higher, gaining 0.66%. The
S&P Chemical Index
Dow Jones Transportation Average
dropped 1%, while the
Dow Jones Utilities Average
Breadth was poor on low volume.
New York Stock Exchange
: 1,267 advancers, 1,671 decliners, 871 million shares. 22 new highs, 59 new lows.
Nasdaq Stock Market
: 1,247 advancers, 2,969 decliners, 1.51 billion shares. 22 new highs, 151 new lows.