Another day, another hammering. Tech stocks, which have been weak all month, dived again Wednesday, showing that prices have further to go before hitting bottom. According to several market watchers, including market guru Woody Dorsey, such a bottom could be close at hand, perhaps as soon as Friday or Monday. No rebound was to be found Wednesday, to the dismay of early bargain-hunters. Heavy selling pressure was again experienced after Apple's ( AAPL) quarterly sales fell short of expectations. Daring investors who bought the early dip found themselves awash in red by the close. The Nasdaq Composite, after rising slighty to 2064 at the open, again took the lead to the downside. The tech-heavy index lost another 1.15% to close at 2037.47. Semiconductor stocks were hit once more, this time after a downgrade of Intel ( INTC) by Prudential, which also was bearish on the sector as a whole. Investors that sought refuge in defensive stocks, such as pharmaceuticals, were among the few able to stay above water. Pfizer ( PFE), for one, was up 2.39% recently, after a U.K. court decision upheld the patent on its cholesterol-fighting drug Lipitor. But defensive issues weren't enough to keep the Dow Jones Industrial Average afloat. The blue-chip index lost 35 points, or 0.35%, at 10,216.91, weighed down by declines in Intel, IBM ( IBM), American Express ( AXP) and McDonald's ( MCD). As for the broader market, it continued to suffer from a lack of sector leadership as two key market leaders -- energy and homebuilders -- remained in a funk. The S&P 500 finished 0.61% lower at 1177.68. The Amex oil index fell 2%, even though crude oil gained 59 cents to $64.12 per barrel. The Philadelphia housing sector index finished down 1.6%. Even homebuilding star KB Home ( KBH) fell 0.6% after reaching a marketing deal with Martha Stewart Living ( MSO), which closed nearly 4% lower.
It didn't help that Federal Reserve governor Susan Bies reminded the market of the Fed's concerns about "increased risk-taking" in real estate lending. "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 remarks he had made 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 pressure on bond prices, which already have been on a downtrend since last week, when Fed officials indicated they were more concerned about inflation than risks to growth. The benchmark 10-year Treasury bond fell 14/32 in price while its yield, which moves inversely, rose to 4.45%. The rising yield of the 10-year, used to benchmark mortgage rates, also fueled further weakness in housing stocks. Nor was there was any reason to cheer for equities investors at large, as Greenspan's remarks all but confirmed that the Fed will continue to lift interest rates for the foreseeable future. But amid all the doom and gloom, is there any relief in sight for stocks? Yes, according to Dorsey, founder of Market Semiotics. "We're a few days away from a trading bounce which could last two to three weeks," he says. The September consumer price index, which will be released Friday, could provide a catalyst by signaling that recent inflation fears have been overblown. Alternately, it could heighten those fears and trigger enough panic-selling to provoke a rebound.
There is, however, more bad news for the bulls. The bounce will be seen as a good opportunity to sell positions, Dorsey says, because a bear market has now clearly revealed itself -- witness the heavy selling pressure experienced since last week -- and will last through 2006. Actually, Dorsey says that a bear market had started in early August. As
mentioned here on Aug. 19, Dorsey had predicted that the S&P has made its 2005 high at 1245.03 on Aug. 3. The main reason why the broad-market index had rebounded in September (though it never made it past the August high) was that energy shares kept rising through that month. Now, however, rising energy prices finally have been associated with inflation, which is bad for the economy and the broader market. "Something has changed in the market over the past few weeks. We have entered a different phase in the psychology of the market. There's been a discernible mood shift," Dorsey says. The price of crude oil, he says, will likely test the high $50s and be a positive catalyst for the broad market from mid-October onwards. "But beyond November, there won't be a year-end rally, as many had expected." Energy shares, while they've corrected along with crude oil prices, have continued on the downside even as oil had somewhat of a bounce over the past few sessions. "Energy markets are going to stay strong, but for energy shares there's not going to be the same dynamic relation as before." And that alone could be enough to put the nail in the coffin of the bull market of the past few years. To view Mike Marino's video take on today's market, click here .