By Kristina Zurla, BridgeNews Chicago--May 10--Stock index futures remained in a bearish pattern as skittishness in the technology sector again led to more widespread selling. Both Jun S&P; 500 and Nasdaq futures fell their first downside limits and closed down 2.3% and 5.8%, respectively.

* * * Investors were still worried about high valuations in the technology sector and reacted negatively to the latest news from stocks in the group. Bellwether Cisco Systems' (CSCO) came out with a positive but apparently not good enough earnings report, and a Motorola (MOT) downgrade from Salomon Smith led to a weak and skittish start. An upbeat but not overwhelmingly optimistic report from IBM CEO Lou Gerstner met with a disappointed response. Jun Nasdaq futures quickly slid their first downside limit of 110.00, dragging down S&P; 500 futures. Jun S&P; 500 fell through some key technical markers, including psychological support at 1400.00, and in the afternoon its first downside limit of 35.00 gave way. Traders reported the break came steadily and orderly, with more of a lack of buying in the afternoon than anything else pulling the market to its late lows. A short-covering rally briefly took hold in the afternoon, pulling the market dramatically off its lows. Chicago Mercantile Exchange traders said momentum began building as Jun S&P; 500 crossed the 1392.00 mark and again back up through 1400.00, but the market fell apa rt anew into the close. Jun S&P; 500 and Nasdaq both closed below their 50% retracement levels at 1398.00 and 3342.00, which technicians deemed bearish. In addition, the Nasdaq closed below its 200-day moving average at 3271.00, which one broker called "an ominous sign." There was no economic news to move the market, but Thursday holds the April retail sales report and Friday the producer price report, both certain to cause a stir. Traders are hoping the reports help cement ideas about what the Federal Reserve will do at Tuesday's Federal Open Market Committee meeting, where the direction of short-term interest rates will be decided. In the meantime, traders saw little possibility for any significant change in trend.

TECHNICALS Jun S&P; 500 futures broke down emphatically through important support near the 1400.00 level and now have the scope for a quick run to major support just below 1350.00. An argument can be made that Jun broke below a descending wedge formation on daily charts that targets a downside move to 1280.00 or lower. Looking ahead to Thursday, there is very little major support between current levels and 1350.00. Pivot point support comes in near 1372.30 and 1356.20. Resistance should be seen at 1400.00, 1421.15 and 1450.00.

Click below for S&P500; chart in analytics Media://Analytics/Pages:S&P500;:/cmd=us@sp.1/CH/MA/HZ2/NVO

OPTIONS At the CME, Fuji sold 500 May 10.00/12.00 2x1s at 7.70, Goldman sold 500 May 1300/1360 put spreads at 7.70 and Lehman sold 1,500 Jun 1375 puts at 33.70. Deutsche Bank bought 800 May 1350/1400 put spreads at 18.00, while Morgan Stanley bought 1,000 Jun 1470 calls at 3.50. At the Chicago Board Options Exchange's SPX, Goldman sold 300 Jun 1375 puts at 33.50 and bought 3,000 Jun 1350/1300 put spreads at 12.00. In the OEX, Mesirow bought 1,000 Jly 880 calls at 1 3/8. Volatilities in the at-the-money straddles were estimated as follows: Contract Volatility May 31.24% Jun 26.57% Jul 24.95% Sep 24.21% Dec 23.83% Mar 24.01%

CASH The Dow closed down 168.97, or 1.6%, at 10,367.78 and the Nasdaq composite down 200.08, or 5.6%, at 3384.93. The S&P; 500 slid 29.09, or 2.1%, to 1383.05. Breadth on the New York Stock Exchange was sharply negative as decliners beat advancers by 2,095 to 896. The weakest pockets included biotechnology stocks, computer technology and semiconductors, while forest and paper products, retailing issues and utilities outperformed. In the technology sector, traders said that although Cisco (CSCO) reported strong earnings after the bell Tuesday, the stock still trades at about 140 times earnings, which is very expensive by any historic measure. The stock reported earnings of 14 cents per shar e in its fiscal third quarter, 1c ahead of the First Call consensus forecast, but sank 4 1/4 to 58 1/2. Motorola (MOT) weighed on the market, plunging 18 to 86 1/2 after Salomon Smith Barney downgraded the stock to outperform from buy. Intel (INTC) slid 10 7/8 to 106 1/16 after announcing it would replace motherboard and Applied Materials (AMAT) plunged 6 to 84 5/8 ahead of its earnings, which came out after the close. The company reported 55c per share in its fiscal second quarter, matching expectations. Although IBM presented an upbeat analyst meeting, its CEO did not promise the type of revenue growth, disappointing some Wall Street analysts. The stock dropped 5 3/8 to 103 5/8. Shares of Microsoft (MSFT) fell 1 5/8 to 66 3/16 ahead of the filing of its initial response to the government's break-up proposal. The company indicated that it would seek to extend the remedy phase of the trial in order to more closely examine its options.

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