A sustainable bottom keeps eluding investors seemingly too eager to put money back into the stock market after the recent selloff.

Wednesday morning was no exception. Heavy selling pressure was again experienced overnight after Apple's ( AAPL) sales fell short of expectations. Anticipating an Apple-induced swoon, bottom-fishers were there at the opening of trading but quickly got swept under by more deep-sea currents.

The Nasdaq Composite, after rising slightly to 2064 at the open, again took the lead to the downside. The tech-heavy index was recently down 1% at 2041.46

Semiconductor stocks were once more hit, this time after a downgrade of Intel ( INTC) by Prudential, which also was bearish on the sector as a whole.

Only investors that had sought refuge in defensive stocks, such as pharmaceuticals, were able to stay above water. Pfizer ( PFE), for one, was up 2.4% recently, after a U.K. court decision upheld the patent on its cholesterol-fighting drug Lipitor.

But Pfizer's gain wasn't enough to keep the Dow Jones Industrial Average above water. The blue-chip index was recently down 0.2% at 10,237, weighed down by a 2% decline in shares of Intel and a 1% decline in IBM ( IBM).

As for the broader market, the same lack of sector leadership remained in place with two key sectors -- energy and homebuilding -- under pressure. The S&P 500 was recently down 0.4% at 1180.11. The Amex Oil index was down 1.7%, even though crude oil was gaining 57 cents to $64.10 per barrel. The Philadelphia Stock Exchange Housing Sector index was down 1.7%. Homebuilding star KB Home ( KBH) fell 0.7% after reaching a marketing deal with Martha Stewart Living Omnimedia ( MSO), which was down 4% in recent action.

It didn't help housing stock (and the market in general) that Federal Reserve governor Susan Bies reminded the market of the Fed's concerns about increased risk-taking in real estate lending, which the central bank is monitoring more closely. "When property values rise and the loan business grows increasingly competitive, bank supervisors tend to worry that more aggressive underwriting may set the stage for future deterioration in credit quality," Bies said in a speech.

Separately, Fed Chairman Alan Greenspan repeated what he had said in late September that the U.S. economy had enough flexibility to withstand different shocks, including surging energy prices. "The flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for oil and natural gas that we have experienced over the past two years," Greenspan said.

The remarks put more pressure on bond prices, which have been on a clear downtrend since last week, when Fed officials indicated they were more concerned about risks of inflation than risks to growth. The benchmark 10-year Treasury bond was recently down 6/32 in price while its yield, which moves inversely, rose to 4.42%.

Nor was there was any reason to cheer for equities investors as Greenspan's remarks all but confirmed that the Fed will continue to lift interest rates for the foreseeable future.

How Low Can You Go?

Beyond the surface catalysts for the selling, the stock market has clearly been heading down since October's arrival, with every rally effort met by a deluge of sellers.

The key question for investors is how much far down will the market go and/or how long will this last?

Eager bulls are crying out that oversold readings are already flashing, but trend watchers say there hasn't been a convincing capitulation on the part of bulls; arguably, this is a necessary step for the market to get rid of excess optimism and start afresh at lower levels.

For instance, the American Association of Individual Investors' latest survey of investor sentiment showed that 50% of respondents were still bullish as of last Thursday.

The action since last week has been "brutal," major stock indices have broken important technical levels and semiconductor stocks "have had a lot of that hot air taken out of their sails," observed veteran market watcher Don Hays. However, there is only anecdotal evidence of panic selling so far.

"This is almost always necessary to get the healthy and necessary fear started," Hays wrote. "It has been our guess that this will not come all of a sudden, and we probably have a few more weeks before it occurs in full."

Richard Dickson, technical analyst at Lowry's Research, also says there is a strong chance of a rebound sometime next week. However, he's still undecided about whether he will recommend buying or selling into it.

"What I'm watching for are how far down we go on those oversold readings. If we get, what's called a 'mega oversold reading,' such as we had in early 2000, this would signal that a rebound is the last gasp of this bull market," Dickson says.

Should the S&P 500 and the Dow break through their April lows -- 1137 and 10,012 respectively -- "this would have real implications pointing to high chances that a bear market has emerged," he says.
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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