Nasdaq tests its bottom

But a drop might not be all
bad for the Nasdaq, which has
waffled since April

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By Amy Baldwin
Associated Press

NEW YORK >> The Nasdaq composite index appears poised to go where market analysts figured and investors feared it would -- down to its low.

But a drop might not be all bad for the Nasdaq, which has waffled around 2,000 since April.

"The market has been hovering at the low end of the range, unable to put in any real kind of bounce. It looks like we might need to go a little further down," said Scott Bleier, chief investment strategist at Prime Charter, of the tech-focused index.

It's normal for the major stock indexes to drop back to their most recent lows _ which for the Nasdaq was 1,619.58, reached during trading on April 4 -- before heading higher again. If the Nasdaq doesn't crash below that level -- and no one expects that it will -- investors could get a psychological lift that will get them buying, and help send the Nasdaq climbing again.

The recent performance of the Nasdaq, which fell below 2,000 for much of the past week, has only frustrated investors who are looking for the technology sector to lead the overall market higher.

The Nasdaq "has been blocking and tackling and struggling. But it has never tested that low," said Larry Wachtel, market analyst for Prudential Securities. "The process has been tedious."

Initially the Nasdaq appeared unrattled by the grim second-quarter earnings reports and profit warnings for the third quarter that began hitting Wall Street in mid-July. It managed to hang onto the 2,000 level, which encouraged analysts, particularly in the face of a profit warning from Microsoft and an announcement from Intel that business is so tough it can't make projections.

By this past week, however, the Nasdaq had a tougher time dealing with disappointing news, including a revenue warning Thursday from Hewlett-Packard, a wider-than-expected loss Tuesday from Lucent Technologies and a revenue warning Monday from Amazon.com.

The Nasdaq's lackluster performance has been particularly tiresome because the tech sector has come to represent the entire market. As it soared and crumbled, so did the rest of the market and investors' commitments to Wall Street.

"Tech continues to be the bad guy," Wachtel said.

While the tech decline that began last year has rightfully soured investors, analysts say it's unfair to base the entire market's performance on technology.

Stocks outside of technology _ drug makers, bankers, manufacturers and retailers, have fared much better than computer and chip makers, Internet providers and networking manufacturers.

But "most people don't realize it, because it isn't reflected in the indexes," said Gary Kaltbaum, market technician for Investors' Edge Partners. Kaltbaum noted that technology comprises about 30 percent of the Standard & Poor's 500 index, Wall Street's broadest measure. And, four of the Dow's 30 stocks are tech bellwethers: Intel, Microsoft, IBM and Hewlett-Packard, all of which have come out with disappointing news in recent weeks.

But analysts remain optimistic about the Nasdaq, and in turn the overall market. They say stocks stand to benefit eventually from the six interest rate cuts made this year. And they expect Wall Street to rally when companies are able to report results in the third and fourth quarters that show improvement over last year, when the economy and earnings began to slide.

But the advance will be choppy and investors will be tentative, because _ like a test of the lows _ that's normal too.

"The market always goes up a wall of worry," said Al Mirman, market strategist at V Finance in Sarasota, Fla. "A year from now these stocks will be much higher."

For the week, the Nasdaq was almost unchanged, slipping 0.30 or 0.01 percent. It rose 6.11 to 2,029.07 Friday.

The Dow fell 159.98, or 1.5 percent, for the week after falling 38.96 to 10,416.67 Friday.

The S&P 500 index lost 5.03 for the week, a 0.4 percent drop. It gained 2.89 Friday to 1,205.82.

The Russell 2000 index, which tracks the performance of smaller company stocks, slipped 0.06 to 485.01 Friday. It ended the week down 2.92, or 0.6 percent.

The Wilshire Associates Equity Index, the market value of New York Stock Exchange, American Stock Exchange and Nasdaq issues was $11.165 trillion Friday, down $47.170 billion from last week. A year ago, the index was $13.196 trillion.