Market Has That Blah Feeling

Greenspan's speech got a yawn, and cheer over Iraq faded in the face of bad corporate news.
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Greenspan spoke and the financial markets

mainly shrugged. Iraq agreed to the United Nations resolution on disarmament and the markets rejoiced, but proved unable to sustain the enthusiasm.

Revelations of a Justice Department inquiry into

Merck's

(MRK) - Get Report

marketing practices helped spur an afternoon slide in major averages. The impact of Merck's news echoed Tuesday's session, when an afternoon warning by

Philip Morris

(MO) - Get Report

contributed to a late-day slide, as did the outperformance of tech proxies.

The

Dow Jones Industrial Average

closed up 0.1% to 8398.49 after having traded as high as 8493.51 and as low as 8298.68. The

S&P 500

ended off 0.1% to 882.50 vs. its earlier high of 892.51 and low of 872.05. Meanwhile, the

Nasdaq Composite

continued its streak of relative outperformance, rising 0.9% to 1361.30 vs. its intraday best of 1371.70 and low of 1334.10.

The price of the benchmark 10-year Treasury note rose 2/32 to 101 10/32, its yield dipping to 3.84%.

Iraqi Maneuvers Top Greenspan's

Stock proxies hit their lows of the session shortly after

Federal Reserve

chairman Alan Greenspan's

Congressional testimony, although many traders saw the address as largely a non-event. Greenspan said there is a "very large degree of uncertainty" regarding the economy, but "no evidence ... at least up to the moment, that it is accelerating on the downside."

Shortly thereafter, at around 10:15 a.m. EST, wire services began reporting news of Iraq's acceptance of the U.N. resolution, which prompted an upward spike in shares until about noontime on Wall Street. The gains then slowly evaporated until about 3 p.m., when some buying interest did re-emerge to help lift stock proxies off their worst levels of the session.

Merck was the biggest negative influence on the Dow, falling 3.7%. Most of the drugmaker's decline came in the final hour of trading following the release of its quarterly filing with the

Securities and Exchange Commission

, which revealed the Justice Department probe. Late Tuesday,

Schering-Plough

(SGP)

revealed it also has received subpoenas from the U.S. Attorney for Massachusetts related to its marketing practices. Schering-Plough's stock fell 4% Wednesday while the Amex Pharmaceutical Index lost 1.8%.

In addition to big pharma, major averages were restrained by financial stocks.

Most notable were

Citigroup

(C) - Get Report

, which fell 3.8%.

The Wall Street Journal

reported former star analyst Jack Grubman claims to have been pressured by CEO Sandy Weill to upgrade

AT&T

(T) - Get Report

in 2000.

Other sectors weighing on shares included retailers, notably

Sears

(S) - Get Report

, which fell 7.5% after a Goldman Sachs downgrade, as well as energy names. In reaction to the Iraqi acceptance of the U.N. resolution, the price of oil fell 2.7% to $25.19 while the Amex Oil & Gas Index dipped 2.1% and the Philadelphia Stock Exchange Oil Service Index fell 3.2%.

Aiding the indices were names such as

Wal-Mart

(WMT) - Get Report

, which rose 2% after posting better-than-expected earnings, as well as modest but definitive strength in big-cap tech names such as

Dell

(DELL) - Get Report

,

Microsoft

(MSFT) - Get Report

Cisco

(CSCO) - Get Report

and

Intel

(INTC) - Get Report

. The Nasdaq 100 and Merrill Lynch High-Tech 100 each rose about 1% while the Philadelphia Stock Exchange Semiconductor Index gained 0.4%.

After the close of trading,

Applied Materials

(AMAT) - Get Report

reported a fiscal fourth-quarter profit of 9 cents per share, at the high end of analysts' expectations and reversing a loss in the prior year. Applied Materials shares, which slid 2.5% to $14.70 in the regular hours session, initially traded as high as $14.78 in after-hours trading but quickly reversed and were lately trading below $14.60.

Where market breadth favored declining stocks 16 to 15 in Big Board trading, where 1.4 billion shares traded, breadth was essentially even in over-the-counter activity, where 1.4 billion shares were exchanged.

Abandon (Bull) Ship

With the market sputtering -- both intraday Wednesday and for the past few days -- it's interesting to note that some folks are starting to abandon the optimism. Among them, Bernie Schaeffer of Schaeffer's Investment Research in Cincinnati.

Schaeffer adopted a short-term bullish stance in

late October, but on Tuesday wrote: "I feel that the potential risks are once again outweighing the potential rewards."

The veteran technician cited a series of indicators in making this assessment.

The rally reaching some "logical termination and/or resistance levels," including a 20% rally from the October lows to levels which roughly coincided with the Sept. 11 tops for the major averages.

The market's negative reaction to both the Republican sweep and the Fed's 50-basis-point rate cut last week.

Evidence of rising optimism (a contrarian indicator), including the 21-day moving average of the Chicago Board Option Exchange equity put/call ratio, which has fallen to around 0.66 from its October peak of nearly 0.80. Also, bullish sentiment in the Investors Intelligence survey rose to 49% last week from 28% in early October while bearish sentiment fell to 29% from 43%. (On Wednesday, Investors Intelligence reported bullish sentiment rose to 50.6% for the latest week while bears fell to 28.1%.)

The Dow having broken below its 20-day moving average of around 8400. After the rally off the July lows, the Dow broke its 20-day moving average on Aug. 29 then unsuccessfully retested the level on Sept. 11 "after which the wheels fell off," Schaeffer recalled.

"I may well be wrong in abandoning the bullish short-term case so quickly, and my objectivity could be compromised by my long-term bearish views," Schaeffer concluded, suggesting a Dow rally to above 9000 would cause him to rethink his outlook once again. "Be that as it may, I'm not liking what I'm seeing and the real risks of a potential meltdown have never evaporated."

A notable sidebar to this is that Schaeffer believes there's greatest risk in the 25 largest market-cap names, which he'd avoid and possibly short. He does see opportunities from the long side "in some of the beaten down single-digit tech names," although they should be viewed as "speculative trades for your discretionary capital."

Schaeffer didn't name names. Still, one wonders if the folks who've lately been aggressively buying a host of previously beaten-down tech names are indeed merely speculating with "discretionary capital," or are once again betting on something more substantial from the sector.

JRaess: 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 invites you to send your feedback to

Aaron L. Task. JRaess: 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 invites you to send your feedback to

Aaron L. Task.