Stocks Falter in Late Trading, Flop in First Half of Year

The stock market ended the second quarter with a whimper Wednesday as all three major averages collapsed late in the session. It was a fitting end to a lousy three months and first-half for stocks.

Here we are at the midway point of 2010 and the blue-chip Dow is off more than 6%. The tech-heavy Nasdaq is down 7%. And the broader S&P 500 is off 7.5%. Ugh. (See chart below.)

Stocks stayed close to break-even pretty much throughout Wednesday's session, shrugging off an anemic June private payrolls report and a slip in the Chicago Purchasing Managers' index. The euro edged up against the dollar after European banks borrowed less funding than originally forecast from the European Central Bank.

And then, in the final 30 minutes of the session, investors closed their books on the quarter by taking profits. The Dow Jones Industrial Average ($INDU) fell 97 points, or 1%, to close at 9,774. The S&P 500 ($INX) lost 11, or 1%, to 1,031. The more volatile Nasdaq Composite ($COMPX) slipped 26 points, or 1.2%, to settle at 2,109.

In a potentially devastating technical move, the S&P 500 closed below 1,040, a critical level of support. Furthermore, the broader market hasn't gone anywhere for eight months. (See chart below.)

Oil for August delivery slipped 66 cents to $75.28 a barrel, while gold for August delivery rose $2 to $1,244 an ounce. Gold traded on the Comex division of the New York Mercantile (CME) exchange rose 12% in the second quarter. In the bond market, the yield on the 10-year Treasury closed at 2.94% after falling below the key 3% level Tuesday when the Dow fell 268 points.

The market has two moods these days, says Ed Yardeni, bullishly prescient president of Yardeni Research: Anxiety and Panic, and that's created a gaping schism between sentiment and fundamentals. "The technical damage certainly is pointing in the direction of a bear market for stocks," Yardeni wrote to clients Wednesday. "Investors seem to be working on discounting a global double dip recession."

"I believe that the fundamentals aren't likely to be bad enough to justify much more downside," Yardeni added. "Global growth is slowing, but another global recession is unlikely. Profits are likely to remain robust."