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Dow Below 10,000

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Investor psychology has been dealt a blow by the Dow dropping below 10,000, and a sell off has ensued.

Dow Jones Industrial Average Daily Chart

Today's 170-point drop is only a 1.68% move, but it has adversely affected traders' mindset. Technically, 9,970 was better support since it was the top of the April double bottom and a 61.8% retracement level, but the Dow has blown through that level and continues to fall. IBM and Microsoft are leading the freefall.

IBM Daily Chart

After topping in June, IBM had been consolidating around the 200- day moving average, while the 50-day slowly tried to push prices lower. Today it succeeded by dropping IBM $4.63. That puts big blue below this year's up trend. IBM was trying not give up 50% of this year's gains, but has done so by dropping below $100. Perhaps $95 can offer support. With the rate of decline this past hour, IBM might need that support level today.

Microsoft Daily Chart

Microsoft (MSFT) has also suffered some technical damage today by dropping $3.14. With moving averages and the up trend gone, Microsoft was trying to cling to support at $59. Much like the Dow, this was the top of Microsoft's double bottom pattern and 61.8% retracement level. The April low is $8 away, but that looks like the next level of solid support. Some of Microsoft's woes stems from the European commission broadening its antitrust case to include practices to dominate the low-end server market.

Jeffrey Canavan

Qualcomm good short as sellers come to table

I think current levels for Qualcomm (NASDAQ:QCOM) at the $60 level make for an attractive short in the technology/telecom arena. Stock with lofty valuations that are rolling over look to be suspects to longs liquidating their positions and bears are showing up in numbers. Current action in QCOM looks similar to that found in early June just prior to a large 4-session drop from $60 to $50.

Qualcomm Chart - last 10 months

The current market environment is one in which shares of Qualcomm (QCOM) become susceptible to lack of bids by market makers. I think market makers will be on the defensive here as they begin to get hit with sell orders. Looking for market makers to be pairing back inventories and protecting to the $57.45 and $54.24 levels. These then become the bearish traders target. Traders not willing to take potential heat to the $65 level can manage their trading account with 1/2 positions. Should a real good market wash out occur and the stock trade $49-$50 and 19% retracement, this play may help protect an account that is overly long where stops were not honored. The point/figure chart would give a triple bottom sell signal and break bullish support trend with a trade at $60. Very similar to what we saw with Minnesota Mining (NYSE:MMM) in yesterday's commentary at 12:00 EST at $108.23.

Jeff Bailey
Senior Market Technician

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