"Rotation" and "parabolic" were the watchwords on Wall Street last week. Today, traders (re-)added "fear" and "ugliness" to the lexicon.
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.
provided the biggest drag on the Dow.
Moreover, other major averages recoiled from early gains to end with substantive losses, leaving market players unnerved.
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
each stumbled more than 5%. The
fell 5.7%, decisively piercing its 50-day moving average.
In NYSE trading, tech stalwarts such as
suffered similar declines. The
Morgan Stanley High-Tech 35
shed 6.7% and the
Philadelphia Stock Exchange Semiconductor Index
, 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
. "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.
fell 11.5% after reporting earnings in-line with expectations but warned its second-quarter profits will disappoint. In sympathy,
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
and cyclicals such as
Morgan Stanley Cyclical Index
gained 1.8%; and the
Philadelphia Stock Exchange Oil Service Index
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
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
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
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.
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,
lost 7/16 to 22 3/4 after news it's buying Citigroup unit
automobile finance business. Dime fell 7/16 to 22 3/4.
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
rose 1 5/8, or 5%, to 34 1/8;
rose 4 11/16, or 8.2%, to 62 1/8;
rose 1 15/16 to 80 15/16;
rose 1 11/16 to 53 7/16; and
rose 3 3/16 to 73 1/8. Meanwhile, the
Philadelphia Stock Exchange Forest & Paper Products Index
-- you're, like,
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
picked up 3 9/16, or 6.8%, to 56 after
Columbia Energy Group
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
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,
lifted Consolidated Natural Gas to market outperformer.
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.
closed unchanged at 82, after leaping as high as 92 1/8, after
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
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.
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
electronic-energy trading system. The seven-analyst view called for operating earnings of 88 cents vs. the year-ago 75 cents.
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:
sliced off 5 13/16, or 8.7%, to 60 15/16 even after
lifted it to strong buy from buy.
grew 2 1/16, or 5.5%, to 39 3/4 after
raised it to strong buy from hold.
First American Financial
shot up 2 5/8, or 17.6%, to 17 9/16 after
pushed it up to intermediate-term accumulate from neutral.
climbed 1 3/8, or 9.8%, to 15 3/8 after
upped it to buy from market performer.
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.
jumped 1 3/8, or 11.1%, to 13 3/4 after
Morgan Stanley Dean Witter
upgraded it to outperform from neutral.
, tanked 8 1/8, or 20.4%, to 31 5/8 even after Goldman Sachs started coverage at market outperformer.
Central European Media Enterprises
slouched 2 7/16, or 21.2%, to 9 after dismissing its general director, Vladimir Zelezny.