Many of the larger cap indexes tested their 50-day moving averages  last Wednesday, with the S&P500 also testing the all-important 800 level.

Some of my longer-term technical analysis tells me that the recent rally is part of a large consolidation pattern, which could eventually come back down and test the recent lows.

The reason I mention this is that although the Dow and S&P 500 have gone low enough to satisfy their weekly charts, the Nasdaq Composite, the NYSE Composite, Wilshire 500, and the smaller-cap indexes did not appear to go low enough.

Also, the bear market that ended in 2002 took over seven months of consolidation before the bull market began. It’s only been about four months since the November lows. If history repeats itself, a lot of choppiness lies ahead.

If my “consolidation theory” is correct, watch for it in the Nasdaq 100 (NDX). Take a look at the chart below…

Note the two resistance lines – one at the January high and the other at the October high. If either of these two levels are tested and the indexes begin struggling around one of them, I would trade lightly until the move plays out.

Source: Ticker Of The Week: Nasdaq 100 (NDX)

U.S. stock futures pointed to another monumental beating on Friday – with leading contracts falling as much as rules allow — as a plunge in Asia reignited concerns about the health of the global economy.

S&P 500 futures dropped 60 points to 855.20 and Nasdaq 100 futures fell 85 points to 1,168.50. Dow industrial futures fell 550 points.

All three contracts fell so much that they reached pre-specified limits that can’t be broken until pit trading opens.

Thursday’s session for U.S. stocks was erratic but generally positive, with the Dow Jones Industrial Average closing 172 points higher and the S&P 500 rising 11 points, though the Nasdaq Composite slipped 11 points.

Read on at MarketWatch.

GE’s stock dropped more than 11%, and was trading at $32.50 shortly after noon EDT.

At midday today in New York, all three of the key U.S. stock indices were down by more than 1%.

The blue-chip Dow Jones Industrial Average Index was down 146.31 points (-1.16%), trading at 12,435.67. Of the 30 stocks in the Dow, 26 were down. The tech-laden Nasdaq Composite Index fell do 2,318.89, a drop of 32.81 points, or 1.4%. And the broader Standard & Poor’s 500 Index skidded 15.08 points (-1.11%), to hit 1,345.47.

The S&P is down 2.1% for the week, as this morning’s sell-off extended the worst weekly decline in a month.

The transportation sector (up 0.14%) posted the only gain, while the conglomerates sector that GE is part of had the biggest decline, plunging 5.60%.

“We are seeing the collateral damage to the economy,” Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television. “We saw this with retail sales, consumer confidence, now we are seeing this with the General Electric earnings. When you look at this from the vantage point on the effect of the broader economy, things are getting worse.”

GE – the world’s third-largest company by market value – reported a 6% decline in its first-quarter profit, due mostly to trouble in the financial divisions that are part of its massive GE Capital unit. Net income dropped to $4.3 billion, or 43 cents per share, while revenue increased 8% to $42.24 billion.

According to FactSet Research, the mean analyst expectation for profit from continuing operations was 51 cents per share. GE reported just 44 cents per share, which caused its shares to tumble.

In overseas markets earlier today, Japan’s Nikkei 225 Index surged 378.43 points to close at 13,323.73. Hong Kong’s blue-chip Hang Seng Index had a 480.69-point gain, and closed at 24,667.79.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had gained ground against the yen (up 0.216%), but lost ground against both the euro (down 0.449%) and the pound sterling (down 0.086%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 48.44 points (-0.39%), to trade at 12,528.00. The tech-laden Nasdaq Composite Index declined 18.17 points (-0.77%), to reach 2,330.59. And the broader Standard & Poor’s 500 Index shed 7.56 points (-0.55%), to hit 1,357.98.

The basic materials sector (up 0.56%) and the energy sector (up 0.85%) posted the biggest gains, while the consumer cyclical sector (down 0.83%) and the transportation sector (down 1.94%) posted the largest declines.

Citigroup Inc. (C) shares gained on a report in The Wall Street Journal that the bank planned to sell $12 billion in debt for 90 cents on the dollar. Fellow financial firms Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH) and Morgan Stanley (MS) saw share-price declines after announcing higher levels of “harder-to-value” assets – the so-called “Level 3″ assets that have been at the center of many major subprime-related losses in the U.S. finance sector.

Shares of shipping giant United Parcel Service Inc. (UPS) dropped 3% after the firm lowered its outlook for the coming year.

UPS is a “pretty good thermometer of the temperature of the economy,” Gavin Graham, chief investment officer at Guardian Group of Funds Ltd. in Toronto, which manages about $5.4 billion, said in an interview with Bloomberg Radio. “Unfortunately the temperature is dropping.”

In overseas markets early today, Japan’s Nikkei Index lost 138.54 points to close at 13,111.89. Hong Kong’s blue-chip Hang Seng Index had a 327.12-point loss, to close at 23,984.57.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had lost ground against the euro (down 0.425%), the yen (down 0.059%) and the pound sterling (down 0.319%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 45.43 points (-0.36%), to trade at 12,567.00. The tech-laden Nasdaq Composite Index decreased 12.87 points (-0.54%), to reach 2,351.96. And the broader Standard & Poor’s 500 Index shed 5.84 points (-0.43%), to hit 1,366.70.

“We’ll be lucky to see earnings be flat for the year and we’ll probably see earnings decline,” Steven Bleiberg, who helps manage about $6 billion as head of global investment strategy at Legg Mason Asset Management (LM) in New York, said in an interview with Bloomberg Television. “Ultimately you’ve got to have earnings growth, that’s the driver, and I just don’t see it happening. There are so many negative signs out there.”

Washington Mutual Inc. (WM) led financial shares lower as the thrift was forced to slash its dividend even after a $7 billion cash infusion, which was more than the $5 billion expected.

Aluminum manufacturer Alcoa Inc. (AA) dropped after announcing a 50% reduction in earnings after Monday’s close. Advanced Micro Devices Inc. (AMD) shares dropped after announcing a 22% decline in sales.

“Ultimately we’re still in a bear market, and it’s going to take some more digestion and some more sideways movement to get out,” Doug Sandler, chief equity officer at Riverfront Investment Group, told MarketWatch.

In overseas markets, Japan’s Nikkei Index reversed Monday’s gains with a loss of 199.80 points to close at 13,250.43. Hong Kong’s blue-chip Hang Seng Index had a 267.07-point decline, to close at 24,311.69.

European bourses were down with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

Source:http://www.moneymorning.com/2008/04/08/midday-market-update-stocks-head-lower-on-weak-first-quarter-earnings/