Collapse in Nasdaq, Reversal in Dow Has Market Players on Edge

"Rotation" and "parabolic" were the watchwords on Wall Street last week. Today, traders (re-)added "fear" and "ugliness" to the lexicon.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 53.36 -0.5% 10,440.53 +13.7% S&P 500 29.52 -2.2% 1289.48 +4.9% Nasdaq 138.43 -5.6% 2345.61 +7% Russell 2000 9.14 -2.2% 412.44 -2.3% TSC Internet 108.21 -16.2% 560.81 +38% TSC E-Commerce 23.99 -18.4% 106.75 +25.4% TREASURY BOND CHANGE VALUE YIELD 30-Year 23/32 96 2/32 5.521%

Money continued to flow into the cyclicals, but the Dow Jones Industrial Average stumbled dramatically from its intraday high of 10,765.75, closing down 53.36, or 0.5%, to 10,440.53.

General Electric (GE Quote), Wal-Mart (WMT Quote), IBM (IBM Quote) and Merck (MRK Quote) provided the biggest drag on the Dow.

Moreover, other major averages recoiled from early gains to end with substantive losses, leaving market players unnerved.

The Nasdaq Composite Index overcame early reticence to rise as high as 2501.71 around 11 a.m. EDT. But the tech-compliant index fell precipitously thereafter, tumbling as low as 2344.12 before closing off 138.43, or 5.6%, to 2345.61. The decline is the second-worst in point terms and seventh-worst in percentage terms in Nasdaq history.

Market internals evinced the drama of today's session. In New York Stock Exchange trading, 1.214 billion shares were exchanged -- the second-busiest session in NYSE history and third-straight billion-plus-share session -- while gainers led losers 1,926 to 1,194. In Nasdaq Stock Market activity 1.210 billion shares were exchanged -- its 10th-straight billion-plus session -- while losers led 2,452 to 1,685. New 52-week highs bested new lows 163 to 32 on the Big Board and by 80 to 76 in over-the-counter trading.

Technology's champions such as Microsoft (MSFT Quote), Cisco (CSCO Quote), Dell (DELL Quote) and Sun Microsystems (SUNW Quote) each stumbled more than 5%. The Nasdaq 100 fell 5.7%, decisively piercing its 50-day moving average.

In NYSE trading, tech stalwarts such as Gateway (GTW Quote), Lucent (LU Quote), Motorola (MOT Quote) and Texas Instruments (TXN Quote) suffered similar declines. The Morgan Stanley High-Tech 35 shed 6.7% and the Philadelphia Stock Exchange Semiconductor Index lost 4.9%.

America Online (AOL Quote), meanwhile, fell 15.7%, heading a severe reversal among Internet stocks. TheStreet.com Internet Sector index fell 108.21, or 16.2%, to 560.81 while TheStreet.com E-Commerce Index lost 23.99, or 18.4%, to 106.75.

"This is ugly," said one market strategist. "Guys are walking around here with AOL and they're dying. All of these parabolic moves in Internet stocks are over."

But not everyone was crying over spilled InterMilk.

"If you're an equity trader, you love a day like today," said Samuel Ginzburg, managing director of equity trading at Gruntal. "If you know the company, know the stock and understand the magnitude of herd mentality, you can be nimble and make some money. Your stomach might hurt, but you can make some money."

For example, Ginzburg said he bought some AOL a few minutes before the bell at 113 1/4 and sold it "at the last possible second" before the close for 115 7/8. "It's kind of amazing to me [but] you can take a minute gamble and make or lose $10,000 or $20,000 in the stock," he said, ebullient that it was the former. "We had some fun today."

The trader eschewed commenting on what today's action portends for the bigger picture. But "whatever they're saying on TV today, I'll do the opposite," he said. "You can trade the bounce. At 10 o'clock tomorrow, if you buy one of the over-the-counter stocks you like, you'll probably make some money."

The S&P 500 rose as high as 1340.02 but reversed sharply in the afternoon to close down 29.52, or 2.2%, to 1289.48, its fifth-consecutive decline. In addition to the aforementioned tech giants, for big-cap drug makers weighed heavily on the index.

Eli Lilly (LLY Quote) fell 11.5% after reporting earnings in-line with expectations but warned its second-quarter profits will disappoint. In sympathy, Pfizer (PFE Quote), Warner-Lambert (WLA Quote), and Schering-Plough (SGP Quote) each lost more than 7%. The American Stock Exchange Pharmaceutical Index closed down 5.7%.

Blue-chip averages got their only measurable support from financial giants such as J.P. Morgan (JPM Quote) and cyclicals such as United Technologies (UTX Quote). The Morgan Stanley Cyclical Index gained 1.8%; and the Philadelphia Stock Exchange Oil Service Index climbed 4%.

The Russell 2000 fell 9.14, or 2.2%, to 412.44 after reaching as high as 426.12.

Roll the Ugliness

"It's starting to look ugly," said Ronny Kraft, CEO of Gotham Capital Management. "As I noted last week, this is the beginning of a correction in the Nasdaq and S&P. Cyclical stocks are doing well but the reality is, everyone is in tech: You can have the majority of stocks moving higher but people losing money."

Like most players, Kraft could identify no fundamental reason for the about-face today. He observed some "major, major" sell programs enacted at Dow 10,700, potentially "a sign large institutions and the smart money are making a market bet."

So-called regression models comparing the Dow's performance in the past 145 trading days with other years show an 80% correlation between the most recent period and the 145 days that preceded the market tops of 1929, 1973 and 1987, Kraft said.

"This could potentially be the beginning of something problematic," he said. "I see potentially 5% upside but as much as 30% downside. I think this is an inflection point."

Kraft, who entered today shorting Amazon.com (AMZN Quote) and Net.B@nk (NTBK Quote) and is recommending bets against a variety of others, remains similarly concerned about prospects for big-cap tech stocks.

The Nasdaq closed below its 50-day moving average of 2405 today, while simultaneously breaking the intermediate-term "trendline" in place since November, he noted. "Any violation of the trendline and 50-day moving average is twice as significant," he said. "The reality is, the Nasdaq could come back down to its 100-day moving average, around the mid-2300s. That's a heck of a drop. We could see Dell, Cisco, and Microsoft 25% lower than where they are right now."

The hedge fund manager expressed concern for retail investors, because while institutions are "scaling out" of AOL and Amazon.com, "the public is buying with the notion you're supposed to buy on dips," he said. "The reality is, one of these dips is not going to be a pivot point."

Among other indices, the Dow Jones Transportation Average rose 38.01, or 1.1%, to 3566.71, but off its intraday best of 3679.47; the Dow Jones Utility Average gained 2.27, or 0.8%, to 298.42; and the American Stock Exchange Composite Index fell 10.30, or 1.4%, to 735.11 after hitting a 52-week high of 754.65 intraday.

The price of the 30-year Treasury bond rose 23/32 to 96 2/32, its yield falling to 5.52%.

Elsewhere in North American equities, the Toronto Stock Exchange 300 dropped 105.54, or 1.5%, to 6907.69 and the Mexican Stock Exchange IPC Index skidded 92.27, or 1.7%, to 5464.17.

Monday'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.)

Citigroup (C Quote) knocked off 1 to 70 5/8 after rising as high as 76 1/4 on its first-quarter earnings of $1.04 a share. The profit topped both the 22-analyst estimate for 87 cents and the year-ago 90 cents. Separately, Dime Bancorp (DME Quote) lost 7/16 to 22 3/4 after news it's buying Citigroup unit Citibank's automobile finance business. Dime fell 7/16 to 22 3/4.

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Maybe it's all these new patchouli-scented '60s movies, but -- aside from all the tech carnage -- a little nostalgia kicked in today. And it ended up a good day -- yes, a good day -- for what (overly?) eager Internet players call the dead-tree folks. Paper conquers virtual -- for a day, at least.

Still flexing from last week's solid earnings, newspaper stocks soared: New York Times (NYT Quote) rose 1 5/8, or 5%, to 34 1/8; Times Mirror (TMC Quote) rose 4 11/16, or 8.2%, to 62 1/8; Tribune (TRB Quote) rose 1 15/16 to 80 15/16; Dow Jones (DJ Quote) rose 1 11/16 to 53 7/16; and Gannett (GCI Quote) rose 3 3/16 to 73 1/8. Meanwhile, the Philadelphia Stock Exchange Forest & Paper Products Index lifted 0.7%.

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Sorry, Compaq (CPQ Quote) -- you're, like, so last week's news. Chief Executive Eckhard Pfeiffer and CFO Earl Mason resigned yesterday. Big whoop, the stock only dribbled down 7/8 to 22 3/4 (an annual low, however).

Mergers, acquisitions and joint ventures

Consolidated Natural Gas (CNG Quote) picked up 3 9/16, or 6.8%, to 56 after Columbia Energy Group (CG Quote) yesterday made a $6.7 billion hostile bid for the company. Columbia Energy gave up 1 1/2 to 46 3/4. In February, Consolidated Natural agreed to be bought by Dominion Resources (D Quote) for $6.3 billion in stock but that deal's value has fallen to about $5.5 billion as Dominion's stock price has slumped. Today, Goldman Sachs lifted Consolidated Natural Gas to market outperformer.

Hertz (HRZ Quote) vaulted 3 1/8, or 5.2%, to an all-time high of 63 after signing a multimillion-dollar agreement to become the premier car rental sponsor on AOL.

Qwest Communications (QWST Quote) closed unchanged at 82, after leaping as high as 92 1/8, after BellSouth (BLS Quote) agreed to invest $3.5 billion for a 10% equity stake in the company. BellSouth tacked on 11/16 to 41 7/8.

Earnings/revenue reports and previews

Eli Lilly tumbled 9 7/16, or 11.5%, to 72 7/8 after saying worldwide quarter sales rose 8% to $2.3 billion but that sales of Prozac fell 4% to $589.9 million. The company also posted first-quarter earnings of 53 cents a share, in line with the 24-analyst estimate and up from the year-ago 46 cents.

Nicor (GAS Quote) slipped 3/16 to 36 1/8 after reporting first-quarter net earnings of 82 cents a share, including a gain for the sales of its interest in QuickTrade electronic-energy trading system. The seven-analyst view called for operating earnings of 88 cents vs. the year-ago 75 cents.

Vantive (VNTV Quote) plunged 3 1/16, or 32.7%, to 6 5/16 after warning it expects to post break-even results for the first quarter -- below estimates for a 6-cent profit -- and naming Thomas Thomas chairman and CEO.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Amcol (ACO Quote)	1Q	21c	14c	12c	3	+1 9/16	11 1/4
Amtran (AMTR Quote)	1Q	$1.22	$1.13	$1.02	4	+1 1/2	23 3/8
AVX (AVX Quote)	4Q	9c	8c	34c	4	+1 11/16	19 1/2
BankAmerica (BAC Quote)	1Q	$1.08	$1.03	$1.11	25	-1 1/4	71 3/4
Case (CSE Quote)	1Q	-68c	-85c	88c	16	+2	34 15/16
CNF Transportation (CNF Quote)	1Q	58c	51c	33c	12	+1 7/8	41 7/8
Consolidated Freightways (CFWY Quote)	1Q	30c	28c	29c	6	+1 11/16	12
Cooper Tire & Rubber (CTB Quote)	1Q	41c	39c	34c	7	+1 7/8	23
Dana (DCN Quote)	1Q	$1	99c	84c	11	+2 15/16	50
Diebold (DBD Quote)	1Q	42c	41c	39c	5	+1 1/2	26 1/2
FMC (FMC Quote)	1Q	92c	84c	75c	6	+3 7/8	65 3/4
Lexmark (LXK Quote)	1Q	96c	88c	69c	8	-6 3/4	101 1/4
Mercantile Bancorp (MTL Quote)	1Q	74c	73c	75c	14	+5/16	49 3/4
Orckit Communications (ORCTF Quote)	1Q	-38c	-39c	-13c	7	-6 5/16	22 5/8
Rent Way (RWY Quote)	2Q	33c	30c	18c	7	+2 3/16	29 7/16
Rockwell (ROK Quote)	2Q	74c	70c	60c	10	+3 7/8	52 13/16
Rohm & Haas (ROH Quote)	1Q	61c	58c	58c	9	+2 7/8	39 15/16
Ryerson Tull (RT Quote)	1Q	42c	28c	28c	8	+1 1/2	21 1/16
Station Casinos (STN Quote)	1Q	18c	13c	-7c	11	+1 9/16	16 1/8
Temple-Inland (TIN Quote)	1Q	33c	21c	47c	12	-1 3/16	68 3/4
Tower Auto (TWR Quote)	1Q	51c	44c	37c	10	+4 3/16	26
United Dominion Industries (UDI Quote)	1Q	35c	30c	35	8	+1 1/2	23 1/4
USG (USG Quote)	1Q	$1.71	$1.70	$1.35	8	+5 1/16	63 3/16

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Bank of New York (BK Quote)	1Q	41c	41c	36c	23	+1/8	37 11/16
Crown Cork & Seal (CCK Quote)	1Q	20c	20c	21c	8	--	33 15/16
Microwave Power Devices (MPDI Quote)	1Q	8c	8c	2c	3	-1 5/8	9 1/2
Northern Trust (NTRS Quote)	1Q	82c	82c	73c	15	+3 1/16	97 3/16

Analyst actions

Amgen (AMGN Quote) sliced off 5 13/16, or 8.7%, to 60 15/16 even after CIBC Oppenheimer lifted it to strong buy from buy.

Boise Cascade (BCC Quote) grew 2 1/16, or 5.5%, to 39 3/4 after Prudential raised it to strong buy from hold.

First American Financial (FAF Quote) shot up 2 5/8, or 17.6%, to 17 9/16 after Merrill Lynch pushed it up to intermediate-term accumulate from neutral.

Nuevo Energy (NEV Quote) climbed 1 3/8, or 9.8%, to 15 3/8 after J.P. Morgan upped it to buy from market performer.

TeleBanc (TBFC Quote) stumbled 14 1/2, or 16%, to 74 15/16 even after Merrill Lynch started coverage with a near-term accumulate and a long-term buy.

Wellman (WLM Quote) jumped 1 3/8, or 11.1%, to 13 3/4 after Morgan Stanley Dean Witter upgraded it to outperform from neutral.

Ziff-Davis' (ZD Quote) Internet unit, ZDNet (ZDZ Quote), tanked 8 1/8, or 20.4%, to 31 5/8 even after Goldman Sachs started coverage at market outperformer.

Miscellany

Central European Media Enterprises (CETV Quote) slouched 2 7/16, or 21.2%, to 9 after dismissing its general director, Vladimir Zelezny.