With an 0-2 Count, Stocks Look to Rally Back

As with Monday and Tuesday, stocks look like they're heading higher this morning.
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All right. Third time's a charm. Really.

As with Monday and Tuesday, stocks look like they're heading higher this morning. There's the requisite bit of good news:

Dow Chemical

(DOW) - Get Report

"merging with" (that's secret corporate-speak for "taking over")

Union Carbide

(UK)

. European markets are behaving. The futures are pointing positive. Even the bond (and this is new) is showing some strength.

But will gains in stocks hold? Since the market topped out mid-July, investors have consistently used any strength in the market to lighten up.

The pattern has been for the markets to open up on the futures-buying in the morning and tag off in the afternoon," said Jim Volk, co-director of institutional trading at

D.A. Davidson

. "The market's going through a corrective phase, and people are concerned that the correction isn't over. When people are uncertain, the market continues roll over on light volume."

Chatter about how this year is like last year continues. Heck, it's even picked up, as people have begun to identify what they think are likely catalysts for the decline. There's a lot of talk about how the weakness of the dollar and the recovery in other markets could feed on each other, prompting a flight of capital out of the U.S.

That doesn't frighten you? Then consider margin and the Internet stocks. We saw last year the kind of damage one highly leveraged hedge fund,

Long Term Capital Management

, could do to the world's credit markets. Consider what, collectively, a group of highly leveraged Internet investors could do to the American stock market. How much of

America Online's

(AOL)

float was bought on margin? What was the principal?

Dell

(DELL) - Get Report

stock?

People always find reasons for a decline. The problem is that, in markets, fears can become real. Worries about a flight of capital out of the U.S. can

turn into

a flight of capital. Investors taking money out of the dot-coms because they worry margin calls loom can take the stocks low enough for the margin calls to become a reality.

That's why it's so important that the market find its footing here. So these hypotheticals can fade.

At 8:10 a.m. EDT, the

S&P 500

futures were up 1.5. They closed near fair value, so that indicates a bit of strength at the open.

The 30-year Treasury was up 6/32 to 87 27/32, dropping the yield to 6.15%.

Tokyo's

Nikkei

dropped 284.55, or 1.6%, to 17,685.38, hurt by renewed weakness in the greenback. Tech stocks took the biggest hits (notably

Softbank

, which shed 9.1%) on the back of the rout their U.S. counterparts saw yesterday.

Hong Kong's

Hang Seng

closed up 117.18 to 13,591.02, helped by more gains in

HSBC

(HSBHY)

. But outside financial issues, the market wasn't so hot. Decliners led advancers more than 2 to 1.

In Frankfurt, the

Xetra Dax

was down 5.45 to 5102.23. In Paris, the

CAC

was off 27.38 to 4327.37. London's

FTSE

was down 2 to 6248.6.

Wednesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Dow Chemical is buying Union Carbide in a stock swap valued at about $9.3 billion. Dow will also assume $2.3 billion of Union Carbide debt. Under the terms of the deal, Union Carbide shareholders will receive 0.537 shares of Dow for each share of Union Carbide they own. Based on Dow's closing price of 124 11/16 yesterday, the transaction is valued at $66.96 per Union Carbide share, a hefty premium to Union Carbide's closing price of 48 13/16 yesterday. The deal is expected to be accounted for as a pooling of interests and accretive to Dow's earnings in the first year after closing. Union Carbide is a component of the

Dow Jones Industrial Average

.

Earnings/revenue reports and previews

(Earnings estimates are from

First Call

.)

CNA Financial

(CNA) - Get Report

posted second-quarter operating earnings of 23 cents a share ahead of the four-analyst estimate of 21 cents but down from the year-ago 33 cents.

Jones Apparel Group

(JNY)

, excluding a noncash inventory charge, posted second-quarter earnings of 32 cents a share. Excluding the results of

Nine West

and the noncash inventory charge, second-quarter earnings came in at 31 cents. Jones Apparel completed its acquisition of Nine West on June 15.

Ogden

(OG)

posted second-quarter earnings of 49 cents a share, ahead of the two-analyst estimate of 41 cents but down from the year-ago 52 cents.

Salton

(SFP)

, a home appliance maker, said it expects fiscal 1999 earnings will exceed analysts' current estimates. The one-analyst forecast calls for the company to earn $2.17 in fiscal 1999. The company expects to announce the results in early September. Meanwhile, Salton also said it has postponed a planned public offering of 2.9 million shares of stock, citing market conditions.

Mergers, acquisitions and joint ventures

Health Care Property Investors

(HCP) - Get Report

plans to merge with

American Health Properties

(AHE)

.

Miscellany

Allegiance Telecom

(ALGX)

said Paul Allen's

Vulcan Ventures

will buy 1.5 million shares of Allegiance common stock from its existing private equity investors at $50 a share. Allen, of course, is a co-founder of

Microsoft

(MSFT) - Get Report

.

Chase

(CMB)

told

Motorola

(MOT)

that it has to guarantee $300 million of an existing $800 million loan for troubled satellite telecommunications company

Iridium

(IRID)

, which is trying to reorganize its debt and add subscribers.

For some investors, hedge fund manager Julian Robertson's

Tiger Management

took the unusual step earlier this week of making a regulatory filing, moving from the realm of "passive" to "active" investor on its 22.4% stake in

US Airways

(U)

, seems like a rerun, the Heard on the Street column in

The Wall Street Journal

says. Big stakes in US Airways have been headaches in the past for hedge fund manager Michael Steinhardt, who has since closed his hedge fund, and famed investor

Warren Buffett

, the column says.

Analyst actions

Merrill Lynch

named

Diamond Offshore

(DO) - Get Report

its Focus One stock of the week,

CNBC

said.