AFTERNOON BOUNCE KEEPS DOW OVER 200-DAY LINE -- SOX WEAKNESS CAUSES MORNING SELLING

DOW BOUNCES OFF 200-DAY LINE... After a technology-led morning selloff, the market staged an afternoon bounce that came at a good time. That's because it kept the Dow Industrials over their 200-day moving average. With the exception of the Nasdaq, which closed in negative territory, all the major stock indexes closed the day with gains -- and on rising volume. That's encouraging action. The Dow's upside leaders were Caterpillar, GE, IBM, MCD, and Verizon. The last stock benefited from a strong telecom group. Not surprisingly, the Dow's weakest stock was Intel which was part of an early selloff in the semiconductor group. That's where most of the morning selling came from.

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INTEL AND SOX PULL MARKET LOWER... A brokerage downgrade pushed chip stocks sharply lower on the open. Charts 2 and 3 show Intel, the chip bellwether, and the SOX Index coming dangerously close to their spring low. I suggested last week that the ability of those lows to hold represented a major test for the chip group and the Nasdaq market. The good news is that the supports are still holding. Although Intel ended in the loss column, it made back most of its early losses. The SOX also closed off its low. That helped stabilize the Nasdaq market. The big question will be whether or not this afternoon's bounce carries into tomorrow. And whether or not the Nasdaq can climb back over its 200-day moving average.

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