Bounce From Lows Brings Cheer, Along With Skepticism

The market has improved from its worst levels, but breadth and other technicals still look bad for the long side.
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You can't say that it wasn't dramatic the way stocks turned this morning, the way the heavy early selling found investors willing to buy. And you can't say that it isn't cheering to see it, after days and days where any hint of strength was met by selling. It's comforting to see the trading screens finally flash green.

But skepticism is reigning on Wall Street, where the move is seen as little more than a head fake, a momentary respite on the way to declines that will end with a much more capitulative downturn than what we saw this morning.

Both fundamentally and technically, said Peter Canelo, U.S. strategist at

Morgan Stanley Dean Witter

, the market is on shaky footing.

Fundamentally, the concern is interest rates, and a growing concern that the

Fed

will raise rates not just at its meeting Aug. 24, but also at its Oct. 4 get-together.

"What's happening is, we had this crisis, it brought inflation down a little bit too much and it brought interest rates down a little too much," said Canelo. "So rates are going back where they were." This is really not too much of a problem -- the market was doing fine when rates were higher, after all -- but Canelo thinks it will be enough to weigh down the market through to the end of the quarter.

Technically, Canelo is worried about what effect the Internets will have on the market. "We have seen a massive head-and-shoulders top on

TheStreet.com Internet Sector

index," he said. In that context, today's turn in the dot-coms is not very comforting, representing the usual fake-out rally after a

head-and-shoulders gets completed. Among the technically minded, it's considered the classic shorting opportunity.

The DOT lately was up 3 to 493, having traded as low as 452.90.

"In my opinion, we're going to 300" on the DOT, said Canelo. That, he thinks, will bring margin calls which will prompt selling in other issues. "That could take the

S&P 500

below 1280, and then you go back to your February and March lows." Around 1220.

The corollary level on the

Dow Jones Industrial Average

to 1280 is 10,500, according to Greg Nie, chief technical analyst at

Everen Securities

in Chicago. "I think the market, in terms of the Dow, has a fighting chance to stay in the trading range it's been in since April, 10,500 is shaping up to be the pivotal point -- we are probably in danger of brushing it and playing with fire." If the Dow breaks that level on heavy volume, Nie worries that his indicators will point bearish for the first time in a long while.

The Dow was lately up 30 to 10,704 while the S&P 500 was down a fraction to 1305. The

Nasdaq Composite Index

was off 6 to 2534. It had been as low as 2474.41. The

Russell 2000

was off 4 to 426.

Canelo doubts that Dow will get too heavily hit, though, protected by its weighting in cyclicals. The S&P, loaded with tech and financials, is another story. "I think you need anywhere from four to six weeks just to grind out the weak hands, losing positions, margin calls and that sort of thing," he said. Once the selling is over, though, "I think we're going to see a tremendous rally in the market in the fourth quarter."

Decliners were topping advancers 1,945 to 868 on the

New York Stock Exchange

with 540 million shares changing hands. There were 150 new 52-week lows against 25 new highs. In

Nasdaq Stock Market

action, decliners were beating advancers 2,472 to 1,186 on 753 million shares. There were 174 new lows and 23 new highs.

Thursday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

In the the midst of a volatile market, investors responded harshly to companies that missed earnings estimates or warned of bad news to come. Shares of

Buckle

(BKE) - Get Report

got belted 9 5/8, or 34.2%, to 18 9/16 after the company said it could miss the

First Call

consensus expectation of 31 cents a share by as much as 4 cents.

Protein Design Labs

(PDLI) - Get Report

weakened 4 3/16, or 15.5%, to 22 7/8 after reporting a wider than-expected-loss of 14 cents a share for the second quarter, compared with a five-analyst estimate of a 9-cent loss and a year-ago loss of 5 cents.

Upscale retailer

Neiman Marcus

(NMG)

wasn't looking so fancy after the upscale retailer warned fourth-quarter earnings might miss their mark by as much as 5 cents due to weak sales. The current five-analyst estimate is for 12 cents. Shares slipped 1 3/16, or 7.6%, to 22.

Separately,

Internet Capital

(ICGE:Nasdaq) was a bright spot in the otherwise bleak IPO market. Its shares rocketed up 10 3/4, or 89.5%, to 22 3/4 after

Merrill Lynch

priced 14.9 million shares at $12 each.

Mergers, acquisitions and joint ventures

American Access Technologies

(AATK)

added 5/8 to 17 3/8 and

Herman Miller

(MLHR) - Get Report

slipped 5/16 to 25 9/16 after the companies announced a marketing deal.

Calpine

(CPN)

rose 3/4 to 74 1/4 after it said it entered into an agreement with a subsidiary of EXCHANGE="" PRIMARY="NO"/>

Enron

(ENE)

to acquire development rights for natural gas power plant in California. Shares of Enron were flat at 84 13/16.

Cardinal Health

(CAH) - Get Report

lost 11/16 to 66 3/8 after it said it's acquiring privately held

Automatic Liquid Packaging

of Woodstock, Ill., a custom manufacturer of sterile liquid pharmaceuticals and other health-care products, for $390 million in stock.

IBM

(IBM) - Get Report

added 7/8 to 119 3/8 and

i2 Technologies

(ITWO)

tacked on 3 1/2, or 13.4%, to 29 3/4 after the two companies agreed to jointly market supply chain software to companies moving their business onto the Internet.

Jabil Circuit

(JBL) - Get Report

added 3 3/4, or 10.2%, to 40 7/16 after it said it plans to acquire

GET Manufacturing

, a privately held electronics manufacturing services provider which is headquartered in Hong Kong, for $250 million in stock. GET has principle manufacturing operations in China, with additional sites in Mexico and California.

Earnings/revenue reports and previews

Ethan Allen

(ETH) - Get Report

lost 1/2 to 27 5/16 despite posting fourth-quarter earnings of 54 cents a share, ahead of the 12-analyst estimate of 52 cents.

Pier 1 Imports

(PIR) - Get Report

fell 2 11/16, or 30.7% to 6/16 after it said its chief financial officer resigned and second-quarter earnings will fall below expectations. Pier 1 said it expects to report earnings of 12 to 14 cents a share. The 15-analyst estimate called for the company to earn 18 cents. The company said Stephen Magnum, the CFO, is leaving "to pursue other interests."

Royal Dutch/Shell Group

, on an adjusted current cost of supplies basis, posted better-than-expected second-quarter results of $1.61 billion, up about 5% from $1.54 billion in the year-ago period.

Royal Dutch Petroleum

(RD)

which owns 60% of Royal Dutch/Shell Group, rose 2 1/8 to 62 1/2 while

Shell Transport & Trading

(SC) - Get Report

, which owns 40%, added 2 1/8 to 49 5/8.

UnitedHealth Group

(UNH) - Get Report

jumped 5 5/8, or 10.1%, to 61 3/16 after posting second-quarter earnings of 76 cents a share, ahead of the 21-analyst estimate and up from the year-ago 45 cents.

Offerings and stock actions

Be Free

, an Internet marketing service, said it plans to raise $60 million through an IPO of common stock.

Donaldson Lufkin & Jenrette

,

Hambrecht & Quist

and

Dain Rauscher Wessels

will underwrite the offering.

CIT Group

(CIT) - Get Report

fell 2 1/16, or 7.9%, to 23 7/8 after it said it approved a 2-million share repurchase program.

Things were looking blue for the trading debut of

Cobalt

(CBLT:Nasdaq), which lost 1 5/8, or 14.8%, to 9 3/8 after being priced at $11 a share by

BancBoston Robertson Stephens

.

Interactive Pictures'

(IPIX:Nasdaq) lost 3 /16 to 17 15/16 after

J.P. Morgan

priced its shares top-range at $18 each.

Trizetto Group

, a health-care Internet portal in Newport Beach, Calif., said it plans to raise more than $57 million in an initial public offering.

Bear Stearns

, DLJ and

Adams Harkness & Hill

will underwrite the offering.

Analyst actions

Charles Schwab

(SCH)

climbed 1 5/16 to 38 15/16 after

Warburg Dillon Read

initiated coverage with a buy rating and set a price target of 55 on the stock.

Dow Chemical

(DOW) - Get Report

gained 3 5/16 to 121 15/16 after J.P. Morgan and

PaineWebber

raised their recommended ratings to long-term buy, and attractive respectively.

Miscellany

Eastman Kodak

(EK)

lost 5/8 to 69 7/8 after it said that Jesse Greene has been promoted to senior vice president of business strategy and information technology, a newly created position that expands the executive management team. Greene will report directly to Dan Carp, who will become the company's CEO in January, Kodak said.

Microsoft

(MSFT) - Get Report

gained 1 1/4 to 86 1/8 after it said it's laying plans for low-priced, or perhaps even free, Internet access in a challenge to

America Online's

(AOL)

dial-up Net-access business, as reported in

The Wall Street Journal

. AOL lost 5 5/8, or 6.4%, to 81 3/4.

The Heard on the Street column in the

Journal

today takes a look at prominent analyst Bill Burnham of

Credit Suisse First Boston

. The column notes that his record at First Boston has been mixed, pointing out that his 12-month price targets on

E*Trade

(EGRP)

and

Ameritrade

(AMTD) - Get Report

have been surpassed, but two of the IPOs he recommended after First Boston took the companies public -- online broker

TD Waterhouse Group

(TWE)

and

Pilot Network Services

(PILT)

, an Internet-security firm -- are now trading well below their IPO prices. People in the industry say new investment banking clients have been drawn to First Boston because of Burnham's clout, the column reports, helping to improve the firm's rankings in Internet underwritings.