Big Bounce in Stocks Yields Cautious Optimism

Wall Streeters were pleased to see the major indices rally into the close, but the choppy recent action means skepticism remains.

Author:: Robert Mann
Publish date:: May 26, 1999 6:01 PM EDT

The market these days is somewhat reminiscent of the old allegory about the blind men and the elephant. Pundits and players alike are groping about, trying to figure out what it is we're dealing with.

Yesterday and this morning, they were mainly asking, "What's wrong?"

Potential answers included (but were not limited to): The

Fed's

tightening bias and

Rubin's

resignation;

Mike Mayo's sell recommendation and Mary Meeker's musings over just what kind of queendom she rules; resurfacing worries about emerging (and mature) markets in Latin America and Asia; margin calls; and a combination thereof or some yet-undiscovered peril.

But by day's end, the correct answer (for those long stocks) was, "Nothing."

Overcoming some milk-curdling volatility in the early going, major stock averages rose impressively today. But that doesn't make our preamble null and it's certainly not void if you bought

Yahoo!

(YHOO)

at 244 or

Dell

(DELL) - Get Report

at 55, or any of a host of other growth stocks that continue to trade light years from all-time highs.

As is their wont, tech stocks in general and Net stocks in particular were the focus of the most intense backing and forthing today.

TheStreet.com Internet Sector

index, which

Morgan Stanley Dean Witter's

Meeker said could fall a further 100 points from yesterday's close of 550.30, fell as low as 522.74 at midmorning. Then, as if

Keith Jackson

came back for one last

Auburn

Alabama

game and yelled "fumbllllle," investors pounced on DOT components and the index recovered to close up 21.72, or 4%, to 572.02.

Among Net leaders, the performance of Yahoo! most impressed. The portal slid as low as 120 1/2 -- or a half-point above its 200-day moving average -- before bouncing sharply to close up 10.7% to 140 7/8.

"These stocks remain the trading darlings of the market, whether it's institutional investors, professional traders or mom-and-pop online traders," said Scott Bleier, chief investment strategist at

Prime Charter

. "With all the drubbing they've been getting, it was time for a bounce. When people panic, they bounce; when people are euphoric, they drop."

Still, new Net names posted a mixed performance.

DLJdirect

(DIR:NYSE) gained 50% and

StarMedia

(STRM:Nasdaq) jumped 73.3% from their respective IPO prices, but

ZipLink

(ZIPL:Nasdaq) shed 11.6%,

Juno Online

(JWEB:Nasdaq) slid 10.6% and

Edgar Online

(EDGR:Nasdaq) rose but a fraction.

Similar to the DOT, the

Nasdaq Composite Index

climbed 46.28, or 1.9%, to 2427.18 after trading as low as 2339.12. The

Dow Jones Industrial Average

gained 171.07, or 1.6%, to 10,702.16 after trading as low as 10,518.70, while the

S&P 500

closed up 20.36, or 1.6%, to 1304.76 after overcoming a decline as low as 1278.53.

Elsewhere, the

Russell 2000

added 0.96, or 0.2%, to 435.41, and the juggernaut that is the

Dow Jones Utility Average

rose 2.15, or 0.7%, to another all-time high, 330.63.

The Dow's rise was fostered in an excessive way by

IBM

(IBM) - Get Report

, which soared 6.7% ahead of a scheduled 2-for-1 split tomorrow.

Additionally, one hedge fund manager observed "concentrated" buy programs hitting the market today. Discerning among the 30 Dow stocks, buying was focused on weakened groups such as technology, financials and drug makers, he said, while recent favorites such as cyclicals were simultaneously avoided.

Indeed, IBM was joined on the upside by

Hewlett-Packard

(HWP)

, as well as financials such as

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

, and drug maker

Johnson & Johnson

(JNJ) - Get Report

. Meanwhile,

Boeing

(BA) - Get Report

led laggards.

However, energy giants

Chevron

(CHV)

and

Exxon

(XON) - Get Report

also aided the blue-chip average.

Overall, the performance of Dow components mimicked broader trends. The

Morgan Stanley High-Tech 35

rose 2.5%, the

Philadelphia Stock Exchange/KBW Bank Index

climbed 3.7%, and the

American Stock Exchange Oil & Gas Index

climbed 2.3%. Meanwhile, the

Morgan Stanley Cyclical Index

underperformed, up 0.4%.

Interestingly, stocks moved inversely to bonds. The price of the 30-year Treasury bond tumbled 21/32 to 92 7/32, its yield rising to 5.80%. Sources said the

Treasury Department's

two-year note auction caused some players to unwind so-called curve-flattening trades, in which the long end of the market is bought while the short end is sold as a hedge against unfriendly action by the

Federal Reserve

The aforementioned hedgie, who happens to be net short equities, had a less complex explanation: "They had to pull the money for this rally from somewhere," he said.

He's Baaaaack

Helping spur the S&P 500 -- as well as sentiment -- higher,

Merrill Lynch

(MER)

jumped 15.8% today. The catalyst for the move was a regurgitation of rumors pertaining to a potential merger between Merrill and

Chase

(CMB)

, as promulgated by Dan Dorfman, previously of

CNBC

and

Money

(among others), and now chief mouthpiece at

JagNotes.com

Some traders called the rumor "ridiculous" and

CNBC's

David Faber dubbed it "old" (vs., say, the footage of Chase Chairman Walter Shipley denying the combo?). Regardless, few complaints were heard (except from the shorts) about Merrill's bounce, for the stock is considered a key indicator of the broader market's health. The

American Stock Exchange Broker/Dealer Index

rose 4.8%.

Notwithstanding the good tidings from Merrill, as well as major averages, market internals were still somewhat sickly.

New York Stock Exchange

trading, 876.9 million shares were traded while declining stocks edged advancers 1,485 to 1,459. In

Nasdaq Stock Market

activity, 1.1 billion shares were exchanged while losers led 2,086 to 1,833. New 52-week lows led new highs 57 to 30 in Big Board activity and by 67 to 31 in over-the-counter trading.

"This is a technical bounce," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "It's a nice technical bounce, but breadth is still negative. We're finally getting an oversold bounce in Internet stocks

but I don't know if all the damage is done yet."

Volk, among others, noted

Intel

(INTC) - Get Report

closed down 2.3% and

Dell

(DELL) - Get Report

didn't exactly try to set the night on fire (cue

Moog

Among other indices, the

Dow Jones Transportation Average

rose 0.55 to 3453.88; and the

American Stock Exchange Composite Index

added 3.82, or 0.5%, to 782.66.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

slid 14.59 to 6784.92 and the

Mexican Stock Exchange IPC Index

jumped 177.29, or 3.3%, to 5618.35.

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.

)

O Net IPO, Net IPO! Wherefore art thou Net IPO?/Deny thy reason, and refuse thy correction./Or if thou wilt not, be but the cause of my Caribbean-vacation cancellation.

A Veronese village's worth of investors were reciting this little modern poem (or something like it) as a clump of Internet names failed to rake in the outlandish Net IPO gains of yore in their initial offerings today.

Donaldson Lufkin & Jenrette's

(DLJ)

TheStreet.com

barnesandnoble.com

Mergers, acquisitions and joint ventures

Platinum Technology

(PLAT) - Get Report

vaulted 2 7/8, or 11%, to 29 after

Computer Associates

(CA) - Get Report

last night said it cut a deal with the

Justice Department

to complete its $3.5 billion purchase of the mainframe software firm. The department is requiring Computer Associates, which added 1/2 to 45 1/4, to sell six of its mainframe systems management software products and some related assets.

Security First Technologies

(SONE)

, a provider of Internet services for financial institutions, lost 1 3/4, or 5.2%, to 32 1/8 in the wake of last week's announcement it will buy

Edify

(EDFY)

, which dipped 1/8 to 9 13/16, and Brussels-based

FICS

Williams Cos.

(WMB) - Get Report

picked up 2 1/16 to 48 7/8 after Intel said last night it will invest $200 million in the company's

Williams Communications

unit.

Earnings/revenue reports and previews

Far from Silicon Alley and deep in the heart of Texas,

Evans Systems

(EVSI) - Get Report

tanked 13 1/2, or 51.4%, to 12 13/16 on the heels of Monday's lackluster earnings report and a report in

The Wall Street Journal's

Texas Journal section focusing on the company's bloated market capitalization.

Fleetwood Enterprises

(FLE)

lowered 13/16 to 25 11/16 after reporting fourth-quarter earnings of 66 cents a share, 5 cents ahead of the four-analyst view but below the year-ago 81 cents.

Fluor

(FLR) - Get Report

slipped 1/4 to 37 1/16 after posting second-quarter earnings of 62 cents a share, 1 cent below the eight-analyst view and behind the year-ago 67 cents.

Genesco

(GCO) - Get Report

advanced 9/16 to 12 15/16 after recording first-quarter earnings of 16 cents a share, beating both the six-analyst estimate of 10 cents and the year-ago 13 cents.

Nelson

(TNM)

gave up 1/8 to 10 3/8 after announcing fourth-quarter earnings of 17 cents a share, 1 cent behind the three-analyst forecast but 1 cent above the year-ago figure.

Nordson

(NDSN) - Get Report

declined 1/2 to 58 7/8 after reporting second-quarter earnings of 77 cents a share, topping the three-analyst outlook by a penny and moving ahead of the year-ago 65 cents.

Semtech

(SMTC) - Get Report

excelled 1 5/8 to 40 after late yesterday posting first-quarter earnings of 29 cents a share, 2 cents higher than the five-analyst prediction but a penny shy of the year-ago figure.

Take Two Interactive

(TTWO) - Get Report

swelled 7/16, or 5.3%, to 8 5/8 after recording second-quarter earnings of 8 cents a share, double the 13-analyst view and ahead of the year-ago 2 cents.

Toll Brothers

(TOL) - Get Report

flew 15/16 to 21 5/8 after posting second-quarter earnings of 59 cents a share, 8 cents higher than the 10-analyst view and above the year-ago 41 cents.

Offerings and stock actions

MindSpring

(MSPG)

expanded 4 9/16, or 6.6%, to 73 9/16 after last night announcing a 2-for-1 stock split.

Analyst actions

Morgan Stanley Dean Witter lowered three real estate investment trusts holding suburban office properties to neutral, citing a recent rise in share prices and weaker fundamentals for the group going forward. In reaction,

Arden Realty

(ARI) - Get Report

fell 3/4 to 25 3/16;

CarrAmerica Realty

(CRE)

fell 1 1/8 to 25 1/4; and

Kilroy Realty

(KRC) - Get Report

fell 1 1/16 to 24 1/16.

Fiber-optic cable maker

Corning

(GLW) - Get Report

popped up 5 5/16, or 11.1%, to 53 5/16 after

Salomon Smith Barney

reiterated its buy and said yesterday's sell-off in the stock provided a good buying opportunity.

Marine Drilling

(MRL)

grew 7/8, or 7.3%, to 12 15/16 after

Credit Suisse First Boston

started coverage with a buy and a price target of 19 a share.

Nordstrom

(NOBE)

rose 2 3/16, or 6.6%, to 35 3/8 after

Lehman Brothers

initiated coverage with an outperform and a 12-month price target of 42 a share.

Oracle

(ORCL) - Get Report

skidded 5/8 to 23 7/16 after Credit Suisse First Boston slashed its fourth-quarter earnings estimate for the company to 30 cents from 33 cents a share and its full-year 1999 estimate to 82 cents from 85 cents.

SoundView

lowered the stock to buy from strong buy.

Pep Boys

(PBY) - Get Report

hopped up 15/16, or 5.2%, to 19 1/8 after

Prudential

upped it to strong buy from accumulate and raised its price target to 25 from 23.

Providian Financial

(PVN)

sank 12 5/8, or 13.2%, to 83 3/8 after Prudential Securities removed its "single best idea" designation for the stock but maintained its strong buy rating.