U.S. stocks facing another test of 'Where's the bottom?'

U.S. stocks facing another test of 'Where's the bottom?': "

The U.S. stock market opens Wednesday with another big test looming: After Tuesday's late sell-off, key indexes were again near their lowest levels of the last two bruising weeks.

If the indexes fall decisively through those levels investors can expect to hear more predictions that the market is in danger of an accelerating decline.

You may not personally care to watch day-to-day stock chart patterns, but plenty of robot traders out there do exactly that for a living, unfortunately for the rest of us.

On Tuesday the Standard & Poor's 500 index (charted below) fell 18.70 points, or 1.7%, to close at 1,070.71 in an energy-sector-led slump. That left the index down 12% from its 19-month high reached April 23.

The S&P had plunged to close at 1,071.59 on May 20, bounced the following day to 1,087.69, then fell again last week to finish at 1,067.95 on May 26. From there it bounced yet again, closing at 1,103.06 on May 27.

The Russell 2,000 small-stock index has traced a similar pattern, falling to 640.04 on May 20, rebounding, then sliding to 640.02 on May 25 before rising again late last week. On Tuesday the Russell index tumbled 3.1% to close at 640.96. It is down 13.6% from its April peak.

Although U.S. economic data still point to a continuing recovery, the market's list of other fundamental worries keeps getting longer. The two latest shocks: BP's failure over the weekend to stop its Gulf of Mexico oil gusher, and Israel's deadly takeover of a humanitarian flotilla bound for the Gaza Strip, which inflamed Mideast tensions.

Marc Pado, market strategist at brokerage Cantor Fitzgerald & Co., says the critical number for the S&P 500 is 1,040, which is about where it bottomed on an intraday basis in February and again in May.

"If it goes through there everyone will start talking about 1,000," Pado said. A drop to the 1,000 level would take the index down almost 18% from its April peak -- getting close to the 20% threshold that would mark a new bear market.

-- Tom Petruno

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California may begin to outperform nation's economy in 2011, report says

California may begin to outperform nation's economy in 2011, report says: "

It’s pretty clear that California is currently in worse shape than the rest of the nation. Budget issues aside, the state’s unemployment rate, at 12.6%, is 2.7 percentage points higher than the nation’s. In March, the state’s unemployment rate was 2.9 percentage points higher than the nation's, setting a record difference.

But an economic brief released Tuesday by Comerica Bank suggests that California could begin to outperform the nation next year.

“California tends to be more cyclically sensitive than the national economy, suffering more in downturns but growing more rapidly during expansions,” wrote economist Dana Johnson in the research brief.

The state’s growth will be led, surprisingly, by the housing sector, Johnson said. Home prices are rising, which means people have more incentive to stay in their homes. The inventory of mortgage foreclosures is dropping in California, while it’s still rising nationally.

Home-building is traditionally a contributor to growth, but it hasn’t been strong yet in this recovery, which is partially why California is lagging. But because California’s housing sector is balancing more rapidly than the rest of the nation, the state could be in better shape next year, he said.

“The odds are growing that later this year or early in 2011, the state will get a bigger boost from homebuilding and could begin outperforming national trends,” Johnson wrote.

-- Alana Semuels

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