Tech Sells Off as Blue-Chips Cling to Meager Gains

On transports! On small-caps! Go cyclicals and airlines! Now where's that road?

The aforementioned rallied nicely, but with Rudolph-esque (and we don't mean Nureyev, Valentino or Giuliani) tech stocks unable to climb out of a deep funk, the Christmas-like atmosphere on Wall Street defrosted like so many turkeys.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 16.65 +0.2% 10,411.66 +13.4% S&P 500 21.32 -1.6% 1328.50 +8.2% Nasdaq 76.02 -2.9% 2507.48 +14.9% Russell 2000 0.15 +0.04% 417.39 -1.1% TSC Internet 82.08 -10.6% 694.10 +70.8% TSC E-Commerce 11.01 -7.5% 135.15 +58.8% TREASURY BOND CHANGE VALUE YIELD 30-Year 6/32 96 8/32 5.507%

For the second straight day, distinctive divergences emerged, leaving market traders bemused. As was the case yesterday, the S&P 500 and Nasdaq Composite Index ended with losses. Both the Dow Jones Industrial Average and Russell 2000 closed with gains, but each fell far from its intraday heights.

The Nasdaq Comp finished at its session low, down 76.02, or 2.9%, to 2507.48. The S&P 500 lost 21.32, or 1.6%, to 1328.50.

"I'm seeing what would look like the beginning of a short-term pullback in the S&P and Nasdaq," said Ronny Kraft, CEO of Gotham Capital Management, a New York-based hedge fund. "If we get another day or two of this we'll have some major tops on the charts. There's an amazing divergence: The Dow for the first time has gone parabolic. The technicians are going to have a field day with this.""

The Dow industrials rose as high as 10,526.54 before closing up just 16.65, or 0.2%, to 10,411.66. Still, the index established its sixth record in the past eight sessions.

Tech investors focused more on Intel's (INTC Quote) cautious comments about revenues rather than its better-than-expected earnings. Once again, the vast majority of technology's bellwethers ended with losses. The Nasdaq 100 fell 3.3% and the Morgan Stanley High Tech 35 lost 1.3%.

The influence of technology's biggest names was reflected in the fact market internals belied the performance of major proxies.

In Nasdaq Stock Market activity 1.41 billion shares were exchanged -- the busiest day in Nasdaq history and seventh straight plus-billion-share session -- while gainers led retreaters 2,207 to 1,925. In New York Stock Exchange trading, 956.4 million shares were exchanged while gainers led losers 1,737 to 1,281. New 52-week highs bested new lows 106 to 62 on the Big Board and by 162-98 in over-the-counter trading.

Meanwhile, the Philadelphia Stock Exchange Semiconductor Index rose 1.3%, inspired largely by chip-equipment makers KLA-Tencor (KLAC Quote), which rose 7.5% after reporting better-than-expected profits, and Teradyne (TER Quote), up 5.5%.

Pacing the Dow's gains were so-called deep cyclical plays such as Alcoa (AA Quote), Caterpillar (CAT Quote), United Technologies (UTX Quote) and International Paper (IP Quote). Outside the Dow, the cyclical sector continued its recent ascent; the Morgan Stanley Cyclical Index gained 4.4%.

"The 'Dogs of the Dow' have been getting smacked this year, but today they're having a huge day," Kraft said.

Had the Dow gained at least 75 points today, it would have "moved outside its standard deviation" for the first time since the beginning of 1994, he observed. Despite pulling back from intraday highs, the Dow's move today was encouraging in the context of recent gains and the fact it's "doing it with a total absence of technology," he said.

"I think it's a real healthy-type correction where lagging sectors are catching up," added one block trader who requested anonymity. "Now you're seeing deeply oversold, friendless stocks -- beaten-down sectors -- showing signs of life. I wouldn't have thought it possible, and still don't based on way the market rolled over."

The trader noted the performance of the aforementioned Dow components and others such as U.S. Steel (X Quote), which climbed 9.5%. "The market cap of the whole steel industry is $15 billion," he said. "That's net change in AOL on a tough day."

Transports were also big gainers, led by airlines such as AMR (AMR Quote) and US Airways (U Quote). The Dow Jones Transportation Average rose 146.88, or 4.5%, to 3443.32 while the American Stock Exchange Airline Index jumped 4.7%.

J.P. Morgan (JPM Quote) was among the Dow industrials' leading lights after wildly exceeding analysts' earnings expectations, but finished well off its intraday best of 140 1/16. The financial giant closed up 2.8% at 132 7/8 as many of its peers suffered late in the session. The Philadelphia Stock Exchange/KBW Bank Index slid 0.9% while the American Stock Exchange Broker/Dealer Index shed 5.6%.

Dow losers were led by drug makers Merck (MRK Quote) and Johnson & Johnson (JNJ Quote), retail giant Wal-Mart (WMT Quote), consumer favorite Procter & Gamble (PG Quote) and oil giant Chevron (CHV Quote).

As with their cyclical counterparts, the Dow's losers' performance was reflective of broader market developments. The American Stock Exchange Pharmaceutical Index lost 4.4%; the Amex Retailing Index shed 3.2%; the Morgan Stanley Consumer Index dipped 1.3%; and the Amex Oil & Gas Index fell 1.2%.

A big change from yesterday was the general faltering of the Internet's biggest names, such as America Online (AOL Quote), Yahoo! (YHOO Quote) and Amazon.com (AMZN Quote).

Additionally, Infoseek (SEEK Quote) shed 24.5% after reporting a second-quarter loss of 39 cents a share.

TheStreet.com Internet Sector index fell 82.08, or 10.6%, to 694.10, while TheStreet.com E-Commerce Index shed 11.01, or 7.5%, to 135.15.

Despite sliding from its intraday high of 425.55, the Russell 2000 outperformed the S&P 500 for the fourth straight session, rising 0.15, or 0.04%, to 417.39.

Inflation, Anyone?

With the long bond back above 5.50%, "I think stock prices come into question," Kraft said. "Right now, we're adjusted for disinflation; there's almost a defensive bias. [Fed members] are defending the fact there is no inflation. It's almost absurd."

Noting recent gains in prices for commodities such as paper and oil, the hedge fund manager said investors have been lulled into complacency.

With the most recent CPI and PPI reports, "they're not seeing the full representation of the move in oil in March," he said. "The tell will be in the next monthly CPI and PPI. I think inflation is there. [Cyclical stock performance] is the tell we're perhaps going into the next phase of the market."

Among other indices, the Dow Jones Utility Average shed 6.42, or 2.2%, to 291.59; and the American Stock Exchange Composite Index slid 1.68, or 0.2%, to 736.12.

The price of the 30-year Treasury bond fell 8/32 to 96 6/32, its yield rising to 5.51%.

Wednesday's Company Report

By Heather Moore
Staff Reporter

(Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.)

As noted above, J.P. Morgan picked up 3 9/16 to 132 7/8 after rising as high as 140 1/16 after posting a first-quarter profit of $3.01 a share, blowing away the 11-analyst estimate of $1.73 and moving up from the year-ago $1.80.

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Today's wave of cyclical love kissed few harder than those of the transportation variety.

Delta (DAL Quote), ahead of tomorrow's earnings report, flew 2 11/16 to 71 3/16; Northwest Airlines (NWAC Quote) rose 2 5/8, or 9.4%, to 30 9/16; Continental Airlines (CAIB Quote) flew 2 1/4, or 5.5%, to 43 5/16; US Airways added 1 to 55 3/8; and AMR jumped 3 11/16, or 5.7%, to 69.

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Also as mentioned earlier, yesterday's Internet winners were today's losers.

Florida Banks (FLBK Quote) plunged 14 1/16, or 45.3%, to 17 after Wachovia lowered its recommendation to neutral from buy. Similarly, Net.B@nk (NTBK Quote) sank 63 15/16, or 27.3%, to 172 and Sovereign Bancorp (SVRN Quote) sank 3, or 17.3%, to 14 11/16.

Mergers, acquisitions and joint ventures

Casella Waste Systems (CWST Quote) climbed 3, or 14.6%, to 23 9/16 after announcing it will terminate its merger agreement with KTI (KTIE Quote) unless KIT allays its concerns about a variety of financial and operational issues. KTI slid 1 5/8, or 17.1%, to an annual low of 7 7/8.

priceline.com (PCLN Quote) surged 9 1/2, or 11.7%, to an all-time high of 93 1/8 on news of a five-year marketing deal with First USA, a unit of Bank One (ONE Quote), which lost 7/8 to 57 1/4. The companies said the deal could mean $200 million in revenue for priceline.com and millions of new accounts for First USA.

The Nihon Keizai Shimbun reported that Sony (SNE Quote) and IBM have agreed to jointly develop and market digital editing systems for TV broadcasting. Their first client will be CNN, which will pay them at least 5 billion yen, the paper said. Sony picked up 9/16 to 99 5/16; IBM fell 5/8 to 179 3/8.

Earnings/revenue reports and previews

@Home (ATHM Quote) gave up 22 13/16, or 12.5%, to 159 1/16 even after last night meeting the 14-analyst consensus with a first-quarter operating loss of 7 cents a share vs. the year-ago loss of 10 cents.

E-Tek Dynamics (ETEK Quote) swelled 6 3/16, or 14.3%, to an all-time high of 49 1/2 after reporting third-quarter earnings of 14 cents a share vs. the seven-analyst consensus of 11 cents and year-ago earnings of 6 cents. The company also said CEO Michael Fitzpatrick was named to the added post of chairman. U.S. Bancorp Piper Jaffray upped its recommendation to buy from neutral.

Identix (IDX Quote) expanded 1/2, or 6.9%, to 7 3/4 after saying it sees third-quarter revenue coming in flat with the year-ago period and that it expects to post a quarterly loss. The three-analyst estimate called for earnings of 2 cents a share vs. the year-ago loss of 3 cents.

Inprise (INPR Quote) declined 5/16, or 8.9%, to 3 1/4 after warning it expects a first-quarter loss of 54 cents to 56 cents a share, including charges, vs. the three-analyst view for break-even results. The company hired Hambrecht & Quist to weigh whether it should split into two. Inprise also appointed Dale Fuller interim president and CEO, replacing Delbert Yocam, who -- along with CFO Kathleen Fisher -- was asked to leave March 31.

Intel sliced off 3 9/16, or 5.9%, to 57 after last night posting first-quarter earnings of 57 cents a share, 2 cents above the 33-analyst forecast and well ahead of the year-ago 36 cents. But the chipmaker said second-quarter revenue may be flat to slightly lower than the first quarter's $7.1 billion. Today, Credit Suisse First Boston started coverage with a buy.

KLA-Tencor excelled 3 7/16, or 7.5%, to 49 after reporting third-quarter profits of 22 cents a share, including a gain. The 17-analyst forecast called for operating earnings of 14 cents vs. the year-ago 34 cents.

Lucent (LU Quote) jumped 2 7/16 to 59 3/8 after saying its second-quarter earnings will meet or exceed the 30-analyst outlook of 15 cents a share, thus quelling rumors to the contrary.

Seagate (SEG Quote) advanced 1 9/16, or 5.9%, to 28 3/16 after reporting third-quarter profits of 49 cents a share, reversing a 10-cent loss a year earlier and besting the 10-analyst consensus by 3 cents. However, the disk-drive maker forecast that fourth-quarter revenue will be "flat" sequentially.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Adtran (ADTN Quote)	1Q	24c	23c	25c	12	+1 5/16	21 15/16
Banknorth (BKNG Quote)	1Q	53c	52c	43c	4	+1 1/4	27 3/8
Computer Network (CMNT Quote)	1Q	11c	9c	4c	2	+2 1/8	16 1/2
Gentex (GNTX Quote)	1Q	22c	21c	17c	6	+2 3/4	24 17/32
Hughes Electronics (GMH Quote)	1Q	10c	9c	13c	5	-3/8	54 5/8
Huntington Bancshares (HBAN Quote)	1Q	46c	45c	42c	12	+1/4	33 3/8
Johnson Controls (JCI Quote)	2Q	70c	69c	56c	8	+2 1/4	69 5/8
Pope & Talbot (POP Quote)	1Q	-17c	-27c	-49c	5	+2	8 1/2
SouthTrust (SOTR Quote)	1Q	62c	61c	54c	17	+1/16	38 1/16
Sysco (SYY Quote)	1Q	22c	21c	19c	11	+5/8	27 5/16
Time Warner (TWX Quote)	1Q	0c	-4c	-12c	15	-3 1/2	73 1/2

Downside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Rowan Cos. (RDC Quote)	1Q	-12c	-6c	48c	22	-1 1/8	11 15/16

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
BestFoods (BFO Quote)	1Q	49c	49c	44c	14	-5/8	46 3/8
New York Times (NYT Quote)	1Q	34c	34c	32c	11	+1 5/16	31 1/4
U.S. Bancorp (USB Quote)	1Q	51c	51c	47c	22	-1 5/16	35 13/16
Wachovia (WB Quote)	1Q	$1.18	$1.18	$1.04	22	+3/16	85 1/2
Winn-Dixie (WIN Quote)	3Q	40c	40c	41c	7	-5/16	36 15/16

Offerings and stock actions

Sagent Technology (SGNT:Nasdaq) rocketed 6 9/16, or 72.9%, to 15 9/16 after 5 million shares were offered via an IPO at 9.

Oracle (ORCL Quote) tacked on 9/16 to 24 1/8 after its board added 85 million shares to its stock-buyback plan.

Analyst actions

Biomatrix (BXM Quote) dropped 9 11/16, or 10.8%, to 80 5/16 after Prudential Securities cut the stock to accumulate from strong buy. TheStreet.com this afternoon reported on Biomatrix's travails.

Infoseek dropped 19 11/16, or 24.5%, to 60 3/8 after BT Alex. Brown cut the stock to buy from strong buy. Last night, the company reported a second-quarter loss of 39 cents a share vs. the nine-analyst estimate for a loss of 41 cents.

Sprint PCS Group (PCS Quote) sloughed off 8, or 14.4%, to 47 1/2 after Morgan Stanley Dean Witter lowered its recommendation to neutral from strong buy.

Xoom.com (XMCM Quote) gave back 11 3/8, or 12.1%, to 83 after spiking yesterday on news the company was in a deal to sell a large stake to a suitor but that the deal fell through. Today, BancBoston Robertson Stephens started coverage with a buy.

Ziff-Davis (ZD Quote) slipped 3/8 to 18 5/8 Merrill Lynch upped its recommendation to accumulate from neutral.

Miscellany

Dow Chemical (DOW Quote) hopped 8, or 7.9%, to an all-time high of 109 1/2 after unveiling its Liquid Armor corrosion-inhibited deicer.

First Sierra Financial Services (FSFH Quote) dropped 1 1/4, or 6.8%, to 19 3/4 after announcing plans to set up a business-to-business Internet bank.

Harris (HRS Quote) added 5 5/8, or 20.1%, to 33 5/8 after saying it will spin off its Lanier Worldwide office equipment unit to shareholders to focus on its communications equipment business. As part of the reorganization, the company will cut 300 to 400 jobs, resulting in annual savings of $20 million to $30 million.

Indymac Mortgage (NDE Quote) shot up 2 1/16, or 17.5%, to 13 7/8 on news the company plans to do more business online rather than through brokers.

Raytheon (RTN Quote) rose 4 3/4, or 7.4%, to an all-time high of 68 13/16 on expectations that recent developments in Kosovo will raise demand for the company's missiles.