Gut-Wrenching Collapse and Rebound on Record Volume Brings Talk of Bottom

SAN FRANCISCO -- From the closing levels of major market averages, today looked like just another day at the office. In truth, it would not be a stretch to say April 4, 2000, was among the most incredible sessions in the history of the U.S. stock market.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 57.09 -0.5% 11,164.84 -2.8% S&P 500 11.24 -0.8% 1494.73 +1.7% Nasdaq 74.79 -1.8% 4148.89 +1.9% Russell 2000 9.92 -1.9% 506.12 +0.3% TSC Internet 27.61 -2.8% 970.80 -15.9% NOTE CHANGE PRICE YIELD 10-Year Treasury 14/32 104 12/32 5.907%

Early in the day, some used the term "crash" -- albeit in hushed tones -- to describe the action. "Bids wanted" was the motto of the brokerage community, market players noted, suggesting a level of panic not previously evident. Additionally, the S&P 500 futures repeatedly hit limit down levels early in the session, defensive stock groups rallied and bonds benefited from a "flight to quality" trade.

But at midday, investors again stepped into the breach of the downturn, leaving major averages well off the lows hit shortly after 1 p.m. EDT. The action generated talk of today being a climax or panic low for the Nasdaq Composite Index, even as some investors continued to suffer debilitating losses in certain tech names.

After trading as low as 3649.11 -- a shocking intraday decline of nearly 575 points, or 13.6% -- the Nasdaq rose sharply in the afternoon session, closing down a relatively tame 74.79, or 1.8%, to 4148.89. At its intraday nadir, the index was 27.7% below its all-time high of 5048.62, hit March 10; the index closed 17.8% below that level.

The afternoon bounce was not as important as the fact the Nasdaq "made that panic, screaming low and stopped going down," said John Bollinger, president of EquityTrader.com. "It's nice to get a meaningful bounce [but] you want to have everybody's attention via the pain mechanism. I think we saw a little bit earlier a phase in which people just said, 'Sell it. I don't care what the price is, just sell it.'"

Indeed, the selling was all-encompassing within the tech sector early on. Bellwethers such as Sun Microsystems (SUNW Quote) and Cisco (CSCO Quote), as well as newer tech favorites such as JDS Uniphase (JDSU Quote) and Broadcom (BRCM Quote), sported big declines at midday.

Chip Stocks Help to Lead Recovery

The afternoon recovery was focused on some of the same names and led -- in a general sense -- by semiconductor issues. Intel (INTC Quote) closed up 1.4% to 132 3/4 after trading as low as 119 while Applied Micro Circuits (AMCC Quote) rose 5.1% to 122 1/8 after trading as low as 87 3/8. The Philadelphia Stock Exchange Semiconductor Index lost 2.4% to 1068.89 but finished well off its intraday worst of 965.46.

Similarly, so-called highfliers rallied from intraday lows, including Vignette (VIGN Quote), which closed up 21.7% to 153 1/4 after trading as low as 102.

TheStreet.com Internet Sector index shed 27.61, or 2.8%, to 970.80, but finished way, way off its not-a-typo session low of 819.04. Yahoo! (YHOO Quote) closed up 5.7% to 167 1/2 after trading as low as 132 3/4.'It's nice to get a meaningful bounce [but] you want to have everybody's attention via the pain mechanism,' said EquityTrader.com's John Bollinger. 'I think we saw a little bit earlier a phase in which people just said, "Sell it. I don't care what the price is, just sell it."'

The Dow Jones Industrial Average, which yesterday profited at the expense of the tech sector, declined as low as 10,717.78 after an initial rise as high as 11,418.24. But the blue-chip average rallied in concert with the Comp after 1 p.m., trading above break-even in the final hour of the session before closing off 57.09, or 0.5%, to 11,164.84.

American Express (AXP Quote) and J.P. Morgan (JPM Quote) exerted the greatest drags on the Dow as financial stocks reversed from yesterday's big gains.

The Philadelphia Stock Exchange/KBW Bank Index fell 3.3% while the American Stock Exchange Broker/Dealer Index lost 9.3%.

Brokerage stocks -- notably online and discount trading firms such as Charles Schwab (SCH Quote) and E*Trade (EGRP Quote) -- were harder-hit amid concerns that the recent selloff and accompanying margin calls will result in a drying-up of trading activity.

Speculators Learn a Lesson

"A lot of daytraders and short-term speculators learned the hard way that leverage works in both directions, and more quickly to the downside," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "You probably carried out some individuals that were heavily margined and speculating. I think ultimately it will be healthy for the market."

After trading as low as 1416.41, the S&P 500 fell 11.24, or 0.8%, to 1494.73, as the comeback by big-cap tech names and strength in drug makers buoyed the index.

The American Stock Exchange Pharmaceutical Index rose 3.5% as investors flocked to the relative safety of consumer staples. Food stocks such as Kroger (KR Quote) also benefited.

The big decline early in the day had the Chicago Board Options Exchange Market Volatility Index up as high as 35.43. But with major averages in recovery mode, the index came back down, closing at 27.90; still, that's an 8.7% rise for the VIX, which is one measure of investors' level of fear.

The Russell 2000 closed down 9.92, or 1.9%, to 506.12 after trading as low as 464.08.

In New York Stock Exchange trading, 1.5 billion shares were exchanged -- the most ever -- while declining stocks led advancers 2,028 to 1,055. In Nasdaq Stock Market action 2.84 billion shares traded -- also the heaviest session in history -- while losers dominated 3,281 to 1,098. New 52-week lows bested new highs 75 to 49 on the Big Board and by 380 to 25 in over-the-counter trading.

Cautious Optimism

Despite the grossly negative market internals, there was a widespread belief among market players this afternoon that the market had seen its lows.

Shortly after the close, Salomon Smith Barney equity strategist John Manley upped the equity allocation in his model portfolio to 60% from 55% and lowered cash to 5% from 10%.

Meanwhile, Cantor's Meehan has been skeptical of tech stock valuations for some time and, thus, was not surprised at the extent of the downturn. The speed of the comeback, however, was an "eye-opener," he said.

While today's turnaround will "attract some buyers looking for a sign of capitulation, I don't think -- as we have in more recent times -- we'll see the Nasdaq go in leaps and bounds back to new highs immediately," he said.

The general consensus is the Nasdaq will continue the comeback begun this afternoon and move higher for the next few days (at least). But at some point in the next week or so, there will be a "retest" of today's low. Only if that level holds will institutional investors feel confident the rebound is sustainable.

Among other indices, the Dow Jones Transportation Average rose 11.97, or 0.4%, to 2718.07; the Dow Jones Utility Average fell 0.37, or 0.1%, to 292.81; and the American Stock Exchange Composite Index fell 35.48, or 3.6%, to 942.52.

The price of the 10-year Treasury note rose 14/32 to 104 12/32, its yield declining to 5.91%.

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