For Traders on the Frontlines, It's Keep Your Head Down

SAN FRANCISCO -- Proving Slaughter is more than just the name of a bad "hair band," stocks plummeted yet again today

The Dow Jones Industrial Average slumped 3% to 9485.71, while the S&P 500 shed 3.4% to 1106.46, its lowest close since November 1998. The once proud Nasdaq Composite fell another 6.2% to 1673, its lowest close since Oct. 20, 1998.

Given the extent of the decline, concerns about temporary insanity after my recent bout of optimism and the fact the "gurus" have mainly proven to be snake-oil salespeople, I did the financial journalists' version of due diligence today: I called the folks on the frontlines at Wall Street's trading desks.

Bob Basel, director of listed trading at Salomon Smith Barney, summed up the session in typically direct style: "With earnings looking more negative, no intermeeting rate cut in sight, Cisco (CSCO) putting the shakes into everybody, the Chinese situation and people continuing to raise cash to pay taxes, everyone has got a reason to be selling."

Basel referred to persistent and widespread rumors that Cisco, which fell 8.7% to $13.75, was going to announce more bad news after the close. At press time, no such announcement was forthcoming.

Yet like many market participants, he suggested a rally is likely to emerge, at least for tomorrow.

In fact, several traders took solace that the action today was so extreme on the downside that it almost certainly will improve tomorrow.

"Yesterday, there were no buyers, but the sellers were not very aggressive," said Timothy Heekin, director of equity trading at Thomas Weisel Partners in San Francisco. "Today, there're still no buyers, but the sellers are very aggressive."

Today, down volume bested up volume 12 to 1 on the New York Stock Exchange, where 1.4 billion shares changed hands. In Nasdaq trading, down volume bested up 16 to 6 on 2.5 billion shares. Yesterday, down volume led 8 to 3 on the Big Board's 1.2 billion total, and 14 to 3 in over-the-counter trading, when 1.8 billion shares changed hands.

Advancers bested decliners 23 to 7 on the NYSE today, while new 52-week lows bested new highs 158 to 33. Losers led 15 to 4 in Nasdaq trading, while new lows dominated new highs 612 to 20.

The aggressive selling and the rising volume had Heekin "getting slightly optimistic" that the long-anticipated capitulation was finally occurring.

"I've got [institutional clients] selling seven figures' worth of stock in supposedly good names in the growth sector," he said, mentioning Corning (GLW), Nokia (NOK) and Ciena (CIEN) as examples. "People are saying 'Get me out.' There's much more aggressive selling."

Other signs of possible capitulation included the 13.2% spike in the Chicago Board Options Exchange Volatility Index, the CBOE equity put/call ratio rising to 1.00 from 0.68, and the fact gold stocks caught a bid today: The Philadelphia Stock Exchange Gold & Silver Index rose 3.4%.

"When you see that type of capitulation-type selling you're getting close to a bottom," Heekin said. However, "there's no way this market is going to snap back at attention. I think it's going to be a U-shaped bottom [with a] trough that languishes for a while."

Sam Ginzburg, managing director of institutional trading at Gruntal, offered an even less optimistic outlook, suggesting "we are probably in the bottom of the sixth inning of a nine-inning horror show."

Ginzburg's attention was on the Dow, suggesting there's "more downside to go" in the market's "last bastion."

American Express (AXP), which leapt 15% Friday on spurious takeover rumors, but which has come down 8% since, is representative of the kind of "big Dow companies that haven't come in a heck of a lot" and are likely to experience a "whacking," he said.

Despite the long-known and well-detailed failings of the source of those rumors (BusinessWeek's Gene Marcial), traders glommed onto the takeover speculation because "anytime there's a catalyst, the market is going to jump all over it," Ginzburg said.

Survive and ... Survive

But the trader sees few potential positive catalysts for the market overall, noting as long as the earning news continues to be negative "the big boys aren't going to put money to work."

News after the bell tonight included another slew of profit warnings from high-tech companies such as Rational Software (RATL) and Agile Software (AGIL), as well as Trico Marine (TMAR), which supplies support vessels for the oil and gas industry.

Given the backdrop, Ginzburg said his desk is focused on "complete discipline," which means "keeping losses small and not riding gains as long as we used to."

Additionally, they are almost exclusively trading liquid stocks such as Citigroup (C), Bank of America (BAC), Philip Morris (MO), Cendant (CD) and General Electric (GE), "because you can always get in and out of them," he said.

Ginzburg is trading the aforementioned from both the long and short sides, sometimes alternately in the same day on the same stock. This is not long-term, buy-and-hold-type investing.

But for someone whose job is to "see opportunity and inefficiencies" in the market, Ginzburg said the focus now is to "hopefully make some money and not get hurt too bad if [the market] goes against you [and] being able to play tomorrow."

For the rest of us, there is only the hope that the overwhelming negatives mean the worst has finally arrived. Then again, that's becoming a familiar refrain on these Streets of Broken Hearts.

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