Beginning of the Mend

Yeah, it was a painful day, but some see it as just a release of recent market excess.
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Perspective, Anyone?

SAN FRANCISCO -- A few quick thoughts on today's pretty

gruesome setback, which was highlighted by the biggest-ever point decline for the

Nasdaq Composite Index

.

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The main catalysts for today's carnage have been widely discussed, so I don't think anyone should be shocked by the action. But (for the record), the most prominent reasons include fears of additional rate hikes by the

Federal Reserve

this year and growing concern the Fed will tighten by 50 basis points at its February meeting (heightened by traders' rising anxiety about Friday's

employment report

). Also, investors who didn't want to sell in 1999 for fear of incurring capital gains are now unencumbered by tax concerns.

Additionally, there's a sense that some sellers were simply trying to get ahead of a correction many think is overdue following the outrageous gains produced by major averages, especially the Comp, in 1999. In case you'd forgotten already (or haven't had a dose of

Prudential Securities'

Larry Wachtel of late), please recall the Nasdaq rose 85.6% (!) last year, while the

Dow Jones Industrial Average

gained 25.2% and the

S&P 500

rose 19.5%.

"I would get excited if down 229 occurred on a backdrop that the Nasdaq was up 4% to 5% last year," said Ned Riley, chief investment strategist at

State Street Global Advisors

in Boston. "Considering it was up 85% in 1999, down 229 is less meaningful."

Last year, of course, culminated stellar gains by major proxies in the 1990s, led by the Nasdaq, which rose nearly 795% for the decade.

Riley, who recently joined State Street from

Private Bank of BankBoston

, where he had been generally cautious in recent months, eschewed the temptation to say "I told you so" after today's decline.

The "price charts of many tech stocks, regardless of the correction today, are still up two-, three- and, in some cases, fourfold in

just the last six months," he noted. "In the context of one day, it's quite grand. But from whence they've come, it's not a significant move yet."

Beyond the full-year view, market players favoring a broader perspective on today's decline recalled the nearly uninterrupted progress stock averages enjoyed from their mid-October lows. The Nasdaq rose 51.2% from

Oct. 15 through

yesterday's record close. Meanwhile, the Dow and S&P 500 -- which got a jump-start on today's selloff yesterday -- rose 14.7% and 17.8%, respectively, from Oct. 15 through the all-time highs they established on

Dec. 31.

Traditionally, a one-third "retracement" of a rally is not usual, technical analysts say, regardless of how unusually large said rally might be.

Even if the Nasdaq fell 20% from its all-time high of 4131.15, it would still be about 16% higher than its 200-day moving average of 2840, said a flabbergasted Greg Nie, chief technical analyst at

First Union Securities

in Chicago.

"The Comp had it to give," Nie said. He said the average's near-46% rise above its 200-day moving average yesterday "blew away its previous peak. It was extended like never before."

The Road Ahead

By putting today's downturn in the context of the market's recent past, I'm not trying to belittle the selloff, which was pretty harsh and no doubt painful for those long. But I don't think it's the "beginning of the end" as some contend.

First, volume was heavy but not overwhelming, suggesting we haven't seen the whites of investors' eyes yet. While that could suggest the "panic" is yet to come, it also means investors still retain buying power and will be willing to use it should more dips emerge in the coming days and weeks.

Second, a trader who's been "loading up" on short positions in the past week called today to say "you can start squaring up on the buy side" when the S&P 500 futures approach 1410 to 1415.

The futures settled down at 1412.20 today on the

Chicago Mercantile Exchange

. How they perform overnight in the

Globex

session (they were down fractionally at last check) and how international markets fare will, obviously, be keys to tomorrow's session. But rest assured some professional traders are already hooking into technical re-entry points.

There was "some" technical damage done today but "not enough for me to feel that the right call on the market is a big change in direction and lots more to come," Nie said, reflecting a generally bullish attitude he has expressed in recent months. The technician said the market is even "a little oversold" on a very short-term basis, arguing "we could get a bounce started as early as tomorrow" if the bond market stays cooperative (not that falling bond yields helped equities today).

Bob Basel, director of listed trading at

Salomon Smith Barney

was a bit more skeptical, predicting equity investors are "definitely in for some volatile times going forward."

However, "I don't see

today as the beginning of the end," Basel said. "Maybe there's a little more to go on the downside, but I still think there's a fair amount of cash on the sidelines. Techs had a good hit today but they were due for some kind of breather."

Another "breather" like today's might put some investors on respirators, but the bottom line is the majority of market players are accepting today's decline as a natural outcome of recent excesses. Perhaps those espousing such views will prove to be Wall Street's version of

Nero, but those who've cried wolf in recent years have seen tons of potential profits go out to pasture.

Postscript

I like the new "new age"

Ameritrade

(AMTD) - Get Report

commercial ... at least I did the first 72 times I saw it today.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.