Updated from 4:06 p.m. EDTStocks plunged Tuesday as profit warnings from the tech sector battered the Nasdaq to its largest loss since early March, while the broader markets also broke below key technical levels, spurred by higher crude oil prices. The Nasdaq lost 43.23 points, or 2.15%, to 1963.43; the Dow fell 63.49 points, or 0.62%, to 10,219.34; and the S&P 500 closed down 9.19 points, or 0.82%, to 1116.19. The 10-year Treasury note was down 5/32 in price to yield 4.48%, while the dollar was higher against the yen and virtually even against the euro. Ken Tower, chief market strategist at CyberTrader, said the session's action showed a clear technical breakdown of the last month's trading range for the Dow and the S&P. "What's really clear is that the correction that started in January is not over," he said. "The rally since the March low was not the second leg of the bull market. Now it appears that, at least on the Dow and the S&P, we are going to go back down to the May lows and test them." However, Tower said a spike in put buying among options traders showed strong bearish sentiment, which he views as a positive. "The contrarian view would be that because there is so much negative sentiment displayed in the put/call trading today, that suggests a limited downside move." The negativity stemmed largely from a continuation of the earnings warning parade, with Veritas ( VRTS) lowering its second-quarter earnings and revenue guidance, citing weakness in U.S. enterprise sales. It now expects second-quarter earnings of 17 cents to 19 cents a share on revenue of $475 million to $485 million, having previously expected second-quarter earnings of 21 cents to 23 cents a share on revenue of $490 million to $505 million. Its stock closed down $9.55, or 36%, to $17.
"The Veritas release was a strange one," said Michael Sheldon, chief market strategist at Spencer Clarke. "Their license sales really tanked." Also, Conexant ( CNXT), which said weak demand for its WiFi chips would leave third-quarter revenue about $40 million below estimates. The company also lowered its earnings forecast to 2 cents a share, about half the consensus estimate. The stock closed down $1.77 cents, or 43.4%, to $2.31. Sheldon pointed out that the major indices broke through some key, technical support levels. The Nasdaq fell through its 200- and 50-day moving averages in the morning at around 1978 and was challenging its June lows. Meanwhile, the S&P was below its 50-day moving average at 1119, and at a 50% retracement of its recent rally at 1122. The Dow also fell below its 50-day moving average. The heavy selling was concentrated in technology, with the Philadelphia Semiconductor Index closing down 4%, the Amex Network Index losing 3.7%, and the CBOE Software Index dropping over 5%. Elsewhere, the Amex Airline Index showed a decline of 2.9%, biotech stocks lost 1.5%, and gold stocks were down 0.7%. On the economic front, the Institute for Supply Management said its index measuring economic activity in the services sector came in well below expectations in June. The index fell to 59.9 from the 65.2 logged in May after economists had predicted a smaller slowdown to 63. Despite the drop, any reading over 50 on the ISM index signals economic expansion. Crude oil prices were sharply higher as officials in Iraq searched for the cause of weekend pipeline damage that has effectively halved the country's daily output. Nymex crude for August delivery closed up $1.26, or 3.3%, to $39.65, a one-month high. Supply pressures were being aggravated by a warning from Russia's Yukos outfit that the company might be forced to cut exports because of a domestic tax dispute, Bloomberg reported.
Also in Iraq, a car bomb exploded Tuesday in a town northeast of Baghdad, killing 13 people who were attending a wake for the victims of a previous attack, according the Associated Press. The U.S. military reported that three Marines were killed while on duty in Western Iraq on Monday, and the brother of Wassef Ali Hassoun, a Marine held captive by an Iraqi militant group, said Hassoun is alive and has been released. In a new development in the run-up to November's presidential election, a prospect that has weighed heavily on the markets, the presumptive Democratic nominee, John Kerry, chose his former opponent from the primary season, Sen. John Edwards of North Carolina, as his running mate. Edwards could give Kerry a boost in key southern states in his bid to unseat President Bush, widely viewed as the markets' preferred winner on Wall Street. "This announcement probably did not go over well in some circles," said Bill Rhodes, chief investment strategist at Rhodes Analytics. "Edwards is very popular within his party, so I think he's a good choice from that standpoint. But there are people in the business community who don't like what he stands for. He is a trial lawyer and has stood for less open trade." In other earnings warnings Tuesday, Micromuse ( MUSE) said it expects its third-quarter revenue to miss analyst targets, citing longer sales cycles from delayed transactions during the period. Its shares closed off $1.30, or 20.1%, to $5.17. Shares of Intel ( INTC) fell after Lehman Brothers cut its estimate for the chipmaker's third-quarter earnings. While Lehman expects Intel to nail its just-completed second quarter, the brokerage said lackluster demand for personal computers could hurt its September period. Lehman dropped its earnings estimate by a penny to 30 cents a share and lowered its price target to $33 from $35. The stock closed down 22 cents, or 0.8%, to $26.11.
Meanwhile, Amgen ( AMGN) fell after CSFB cut its investment rating to neutral from outperform and dropped its price target to $62 from $77. The brokerage cited a lack of near-term catalysts for the biotech giant and said next year's earnings picture is cloudy, given the possibility of Medicare reform. The stock closed off $1.17, or 2.1%, to $54.03. Overseas stocks closed mostly lower, with London's FTSE 100 down 0.7% to 4371 and Germany's Xetra DAX losing 1.3% to 3945. In Asia, Japan's Nikkei fell 0.6% to 3952, while Hong Kong's Hang Seng rose 0.3% to 12,284. Before Wednesday's opening bell, Accenture ( ACN) is expected to report first-quarter profits of 37 cents a share, up from last year's 28 cents a share. After the close, second-quarter earnings releases are due out from Yahoo! ( YHOO), expected to report profits of 8 cents a share, up from last year's 4 cents a share; Alcoa ( AA), expected to say it earned 47 cents a share, up from last year's 27 cents a share; and Genentech ( DNA), expected to report earning of 19 cents a share, up from last year's 16 cents a share.
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