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Breaking News

Nasdaq Plummets into Bear Territory

Aired April 4, 2000 - 1:42 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

PATRICIA SABGA, CNN ANCHOR: Our market coverage continues on CNNfn. We would also like to welcome our CNN viewers. Right now, the Nasdaq composite is off 332 at 3890. That is, however, well off the lows of the session. The Nasdaq composite had lost as much as 13 percent so far today.

BILL TUCKER, CNN ANCHOR: In fact, it is now well into bear territory, completely more than 20 percent off its highs, those highs just hit back in early March, on March 10th at 5048. The Dow also selling off very strongly today, had been down over 500 point, we have seen a big comeback in the Dow 30 stocks.

But we're going to focus for now on the Nasdaq and bring in Charles Molineaux. Charles has been covering the market for better than a year and a half now.

And Charles, what can you tell us? Give us some color and feel about what is going on in this market.

CHARLES MOLINEAUX, CNN CORRESPONDENT: Well, it's interesting what we're seeing right now is that we're actually seeing something of a pick back up in the Nasdaq, I mean as if a decline of 323 points isn't already catastrophic. But look at it this way, we're already up to the 3900 level, and considering where we had come.

We crossed over a very important point within the past couple of hours and that was 3881. That was the low that the Nasdaq hit back in October, a major consideration. This is not as if we're seeing a whole lot of investors moving back in to buy on the dips. But there's obviously some of that taking place.

Now there are a couple of reasons why the strategists looking at this market are not expecting a big bounce back up of any kind because we have actually seen the market has broken through a whole series of major technical levels, below which you will not expect to see a significant fast recovery as we have seen.

Now, as has traditionally happened with these technology stocks and we have said it time and time again is that investors have been conditioned to buy on the dips. They have forced the Nasdaq up to a series of records, 16 record highs on the Nasdaq year to date. Every time we saw a correction or a sell-off take place, the buyers moved back in and boosted the market back up again and were rewarded. Not this time. Why? Well, a couple of reasons. Number one, foremost, as we have seen this develop, the panic selling has kicked in, panic selling combined with margin selling. Some investors who had gotten into some very speculative stocks saw major percentage losses in those names, were forced to sell not only their positions in those stocks, but perhaps in some major names like Cisco, Oracle, Intel, Microsoft -- well, Microsoft of course, but these stocks have shown new weaknesses not necessarily because of weaknesses associated with those stocks, but investors who had done margin buying in other names now forced to cover their positions and are unloading positions in much more stable companies, like the big caps, which have started to participate in the sell-off yesterday and then continue to do so today. So that is not a very good sign.

However, a couple of other considerations. I have been talking to some of the major strategists, for example, Joe Battipaglia (ph) over at Gruntal, and he is reluctant to call this a bear market. Yes, we are down by more than 20 percent, however, he says, a bear market is also a matter of duration, not just percentage. And as we pointed out a couple of times, formulating that for a bear market are things that the market has generally come to accept over the years but not necessarily 100 percent pinned down.

In fact, repeatedly, when we refer to a correction or a bear market, the terminology used is "generally considered." This is generally considered to be a correction, this is generally considered to be a bear market.

And he says that a bear market is also a function of time. What we have seen happen is an extremely fast sell off in a market where we have become accustomed to seeing extremely fast sell-offs. And that what we're seeing is selling that is rapid, indiscriminate and deep. And as Joe Battipaglia puts it, this can exhaust itself fairly quickly. he sees this market moving out of what would be considered a bear market range into something more reasonable. He is still calling, regardless of the fact that we're now down by more than 20 percent from the Nasdaq's records, a correction. He still insists upon calling it a correction from the Nasdaq's 100 percent run upward from its position of 12 months ago.

James Awad (ph) over at Awad Asset Management is also looking for some sort of a turn to take place. This is the capitulation, incredible selling going on over a short period of time. Again, we're looking at the Nasdaq 5000 only three weeks ago, and already we're now down to a dramatic level below that point. But over the next couple of days, you are going to see some buying creep in, not this weakness is something that is going to exhaust itself. Because we have more margin selling ahead.

We also have something else, which is going to cause still more weakness in this market, as he sees it, and that is mutual fund redemptions because a lot of these technology funds are taking a major hit over the last week and a half, in particular obviously yesterday and today. Investors are going to start pulling their money out of that. That is going to cause still more selling. However, the bottom, he sees it, as in sight. Now the level he had picked as a bottom for this market was around 3500; 3590 would represent a 62 percent retracement of the market's movement upward since early October. Now of course, we did see the 50 percent retracement of the rally from the October lows, we do go pass down below the 3800 level, however we are now back above that point. So we may have seen something of a technical bounce there.

Again, a number of the technical formula don't work really well when we are seeing the Nasdaq falling off with such dramatic gains that it has seen since October.

We do, however, have another major milestone at the Nasdaq if we see it descend to might -- might find some sort of support and that is the 200 day moving average. That represents a pretty significant drop all the way down to 3435. We have come nowhere near it, but at some point investors are going to start trying to move back in again, as some of these strategists see it.

It is trying to catch a falling knife, but James Awad says, over the next week or so, if you see investors start to move again, those investors could look really good six months from now. But we are not going to see any rapid recovery. The selling could very much continue.

SABGA: OK, well, thank you very much, Charles Molineaux, who has been covering the market for us for about a year and a half with his perspective on the Nasdaq.

Once again, let's recap the Nasdaq for you. It is off 326 points at 3896, that is well off the session lows. The Nasdaq composite index had been down as much as 13 percent earlier in the session.

TUCKER: One place the money is going today, taking a look at the credit markets. While Charges was bringing us up to speed there, we got a nice rally in the 30-year bond and the 10-year note under way. Better than a point there, meaning interest rates, of course, are falling on those Treasury issues. Currently, the 30-year issue is showing an interest rate of 5.72. The 10-year note, which a lot of home mortgages are pegged to these days is showing a yield of 5.82. So we have a dramatic rally in the credit markets.

SABGA: So we are seeing that flight to safety happen. And Rhonda also mentioned that she has seen money fly into gold today as well.

TUCKER: Of all places.

SABGA: Of all places.

TUCKER: Well, market coverage will continue. We have got to take some breaks. We'll be back.

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