Jangled Nerves Remain in Control of Battered Market

The technical damage isn't being repaired, and there's no news good enough to spark a lasting intraday rally.
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Stocks were showing significant shrinkage at midday.

All the proxies were solidly lower. The

Dow Jones Industrial Average

was off 61 to 10,257; the tech-swathed

Nasdaq Composite Index

down 39 to 2711; and the

S&P 500

was sagging 9 to 1272.

TheStreet.com Internet Sector

index was sinking 5 to 606, while the small-cap

Russell 2000

was 5 lower to 415.

All the standard reasons for the market's recent weakness were operating today. Fears about a coming interest-rate hike. Fears about the yen's resurgence against the dollar. Fears about third-quarter earnings preannouncements. And, especially after yesterday's off-the-cuff reference to

"absurd"

tech valuations by

Microsoft

(MSFT) - Get Report

President

Steve Ballmer

, more than a little fear about how much higher this market can go.

Taken together, those fears are turning more than a few into amateur technical analysts. "It's momentum now," said Brian Belski, chief investment strategist

George K. Baum

in Kansas City, Mo.

Indeed, lately we've heard a lot about momentum, and the technical damage that the market has sustained. The S&P 500 futures have blown through the neckline on a head-and-shoulders pattern. The Dow has blown through key support at 10,500. The S&P 500 has blown through its 200-day moving average.

Which leads one to wonder, when will all this blowing be through?

Like every other honest person in the market, Belski doesn't know. But his recent conversations with clients haven't been suggesting that it'll happen anytime soon. "We're not close to a washout, because the fear factor isn't peaking yet," he said. "The bulk of my calls yesterday were, 'What do I need to buy, Brian?' That doesn't usually coincide with a market bottom.

Selling peaks when people are begging you to tell them what to sell."

Concurring was John Bollinger, president of

Equity Trader.com

, who noted that he hadn't seen any of the sentiment indicators that he watches change significantly lately. "That suggests to me that there's some further pain to come," he said.

Hey, it could be worse. Rao Chalasani, chief investment strategist at

Everen Securities

in Chicago, was able to find some positives within the market's general weakness: "Long-term interest rates have dropped -- that increases fundamental support for the stock market. Financial stocks, which have been getting slammed, seem to be stabilizing, which is good for the market. And in the technology area, we're seeing some strength in the Internet, which has gone through a substantial correction in the April-August period."

Indeed. The 30-year Treasury was lately holding firm after yesterday's gains, up 2/32 to 101 28/32, its yield easing to 5.99% -- a number that, in not-so-distant past, has been a rally signal for stocks. Financial stocks, meanwhile, were having one of their strongest sessions in a while, the

Philadelphia Stock Exchange/KBW Bank Index

was lately up 11.2%.

In terms of the Net, most notable on the plus side was

America Online

(AOL)

, up about 7.3%.

No 'Waterfall Decline'

Dick Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va., described today's action as "moderately good."

Moderately good?

"We're not getting a waterfall decline here," he explained. "You might have anticipated that today, but that's obviously not happening."

Dickson wishes it would. "Straight down from here would be great, because that would wash the selling out and be done with it."

But in the absence of such a washout, the market will face some important tests in the near future. "I'm looking for some kind of a test of the breakdown level," said Dickson, "rallying up to 10,400 or 10,500 for the Dow and 1290 for the S&P 500. If that rally is weak -- with continued weak breadth, basically a case of the tech stocks bouncing back -- that to me would suggest more of the same, that the market is still on very weak legs and likely to take out whatever lows we establish here."

Breadth was certainly weak today. Decliners were leading advancers 1,928 to 870 on the NYSE, where there were a mere 9 new 52-week highs against 189 new lows. In Nasdaq action, decliners were beating advancers 2,432 to 1,141, with 22 new highs and 113 new lows.

Volume was decent. On the

New York Stock Exchange

, 525 million shares had traded, while 703 million shares changed hands on the

Nasdaq Stock Market

.

Friday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified

.)

MCI WorldCom fell 4 5/16 and Sprint added 2 to 53 1/8 after

The Wall Street Journal

reported the two companies have been chatting about a merger. The newspaper said that although Sprint has held talks with a few telecom titans, negotiations with MCI have recently picked up. The

Journal

story also said that significant roadblocks remain, which could sink a deal.

Security First Technologies

(SONE)

lost 1 3/8 to 36 7/8 after saying it would buy privately held

VerticalOne

for $166 million in stock. Security First provides Web-based services for banks and brokers, while VerticalOne organizes personal account information on the Internet.

Rite Aid's

(RAD) - Get Report

woes continue as

Lehman Brothers

cut its 2000 earnings estimate to $1.28 a share from $1.56, and 2001 earnings estimates to $1.49 from $1.88 a share. Amid a lawsuit and flagging share price, the company said it would cut 330 jobs in a corporate downsizing it hopes will result in after-tax savings of $20 million a year. The stock, which was one of the most actively traded issues on the NYSE this morning, seems to have already absorbed most of the bad news, lately edging down 3/16 to 11 13/16.

Mergers, acquisitions and joint ventures

Regency Realty

(REG) - Get Report

added 1/16 to 20 and

Federal Realty

(FRT) - Get Report

climbed 1/16 to 20 11/16 after the two companies called off talks about Regency's possible acquisition of Federal's shopping center assets.

Earnings/revenue reports and previews

Allstate

(ALL) - Get Report

dropped 4 7/8, or 15.6%, to 26 7/8 after warning it expects lower operating earnings due to higher catastrophe losses. The company said it expects third-quarter operating earnings of 50 cents to 55 cents a share, which would miss both the 13-analyst estimate of 78 cents and the year-ago 76 cents. Allstate said it expects to post earnings Oct. 20. The company also said depending on developments in the weather, fourth-quarter operating earnings could come in at 65 cents to 73 cents a share, which would fall well below the 13-analyst estimate of 81 cents and below the company's year-ago operating earnings of 78 cents.

Goodyear

(GT) - Get Report

climbed 3/16 to 44 7/16 after last night saying third-quarter earnings could come in slightly above or below analyst estimates, and would reflect workforce reductions. Goodyear said it expects earnings of 50 cents to 56 cents a share in the third quarter. The current seven-analyst estimate is for 51 cents a share.

Park Electrochemical

(PKE) - Get Report

gained 1 5/16 to 29 3/8 after posting second-quarter earnings of 53 cents a share, beating the three-analyst estimate of 44 cents and the year-ago 2 cents.

Steelcase

(SCS) - Get Report

tacked on 1/16 to 14 1/2 after reporting second-quarter earnings of 25 cents a share, beating the six-analyst estimate of 24 cents but down from the year-ago 41 cents.

Offerings and stock actions

Initial public offerings

Alteon Websystems

(ATON:Nasdaq) and

Interspeed

(ISPD:Nasdaq) were making tracks on their first trading day. Interspeed ran up 8 1/16, or 67.2%, to 20 1/16, while Alteon soared 31 1/4, or 165.1%, to 50 1/2.

Sylvan Learning Systems

(SLVN)

added 1/16 to 15 15/16 after it announced plans to spin off its prometric testing unit.

Universal Forest Products

(UFPI) - Get Report

inched down 3/16 to 15 3/4 after the company said it recently repurchased 100,000 shares.

Analyst actions

Atmos Energy

(ATO) - Get Report

lost 3/16 to 24 7/16 after

Deutsche Banc Alex. Brown

upgraded it to buy from market perform.

Ericsson

(ERICY)

fell 3/16 to 31 1/4 and

Nokia

(NOK) - Get Report

added 5/16 to 87 5/8 after

Merrill Lynch

raised its rating on both stocks to intermediate-term buy from accumulate.

EarthLink

(ELNK)

added 2 15/16, or 6.9%, to 45 7/16 after

Morgan Stanley Dean Witter

raised its rating to strong buy from outperform and set a price target of 74.

Kroll-O'Gara

(KROG)

plummeted 10 3/8, or 40.5%, to 15 9/32 after

Warburg Dillon Read

sliced its rating to hold from strong buy.

Lehman Brothers

(LEH)

climbed 5/16 to 53 11/16 after Merrill Lynch upgraded it to near- and long-term buy from accumulate.

McLeodUSA

(MCLD)

rose 3/8 to 35 7/8 after Merrill Lynch rolled out coverage with a near-term accumulate, long-term buy rating.

Motorola

(MOT)

gained 5/16 to 84 after Merrill Lynch upped its rating to near-term buy from accumulate.

Natrol

(NTOL)

tacked on 1/4 to 8 1/2 after

Banc of America Securities

initiated coverage with a buy rating and set a price target of 11 1/2.

TheStreet.com Inc.

(TSCM)

, publisher of this Web site, rose 1 1/2, or 8.1%, to 20 5/16 after

Prudential Securities

initiated coverage with a strong buy.

Miscellany

AutoNation

(AN) - Get Report

gained 3/16 to 11 15/16 after saying it tapped Michael J. Jackson to become its CEO.

DaimlerChrysler

(DCX)

added 7/8 to 67 1/8 after announcing, as expected, that it trimmed its management board to 14 from 17 members and that Thomas Stallkamp, the company's North American president, will leave the company by the end of the year.

General Motors

(GM) - Get Report

slipped 11/16 to 621/16 after saying it will raise its investment in its Arlington, Texas, truck assembly plant by $75 million, to more than $500 million.

Sky Financial

(SKYF)

added 3/8 to 22 5/8 after it said chairman and CEO David Francisco will retire and the company will take a merger-related charge in the third and fourth quarters. Sky also said it authorized the repurchase of up to 3.5 million common shares.

The Heard on the Street column in the

Journal

said that in the wake of the devastating earthquake this week in Taiwan, some big hedge funds are going long the

Philadelphia Stock Exchange Semiconductor Index

.

Dial

(DL) - Get Report

added 1/8 to 26 3/8 after

Business Week's

Inside Wall Street column, mentioned the company as a takeover target. (

TheStreet.com

took a look at an item in the Inside Wall Street column on

Log On America

(LOAX)

in a recent Truth Serum

story.) Shares of Dial soared in June on rumors it was a takeover target, but the stock has since cooled off as the takeover chatter chilled. The column cites an unidentified money manager who has been snapping up shares of Dial and says

Clorox

(CLX) - Get Report

, lately up 1/16 to 40 7/8 is interested in buying Dial. Meanwhile, Andrew Shore, an analyst at

PaineWebber

, is quoted in the column as saying Dial is "vulnerable to a takeover," but he doesn't think anything will happen over the next six to nine months.

Cidco

(CDCO)

gained 9/16 to 14 after a bullish mention citing Brion Tanous, a senior analyst at

First Security Van Kasper

, who says the stock could soar to 34 in a year.

Finally,

Blonder Tongue Laboratories

(BDR) - Get Report

added 1/8 to 7 7/8 after also garnering positive mention in the column.