Midmorning Selloff Weighs on Market; Tech Stays Strong

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Asia was stable. Europe was up. The

S&P 500

was making new highs.

Life was sweet.

But around 10:30 a.m. EST the market took a sudden drop. Though some news organizations are reporting that the fall resulted from a rampaging sell program, traders were scratching their heads.

"I don't know if that's what happened," Edward Collins, executive vice president of U.S. stocks at

Daiwa Securities America

, said of the program-trade rumors. "It happened in a heartbeat and we were jammed. We didn't see any sell program." Some traders attributed the drop to a selloff in the S&P 500 futures market, sparked by rumors of heightened tension in Iraq.

After 10:30 a.m., stocks got slammed

Around 12:30 p.m., the

Dow Jones Industrial Average

was down 40 to 8070 and the S&P was down 5 to 1002, while the small-cap

Russell 2000

was up 2 to 444.

Along with small-caps, tech stocks continue to romp. "There's no stopping techs today," said one trader. "They'll run your ass over."

The tech-fortified

Nasdaq Composite Index

was up 2 to 1682. The index, which had been a laggard for several months, has rallied more than 12% from its January low.

"

Compaq

(CPQ)

CPQ-

DEC

(DEC)

DEC showed people that there's still value, that the world isn't burning," one stock salesman said of the recent rally. "I don't know how healthy it is and I'm not sure we're out of the woods in technology, because it's just money flow. I don't think anyone's making any long-term bets. You've got a lot of fast, hot money chasing these things."

Even within that framework, according to

Everen Securities

technical analyst Gregory Nie, the Nasdaq and the broader market look like they can go higher.

"There's a hesitation to chase strength," he said. "But at the same time, as the technical picture improves, it serves as a catalyst to pull in more and more of the skeptics and extend the rally."

Reports that

Netscape

(NSCP)

is putting itself on the block, and that it's had talks with

Sun Microsystems

(SUNW) - Get Report

(and, according to

The Wall Street Journal

,

Oracle

(ORCL) - Get Report

,

IBM

(IBM) - Get Report

and

America Online

(AOL)

), are sending the browser maker higher today.

"We believe that a Sun-Netscape merger would be attractive, by providing Sun with a strong Web server/application development platform," wrote

Salomon Smith Barney

analyst Marc Usem in a research note released this morning. "Netscape's focus on Java, JavaScript and Java-based applications could boost Sun's Java efforts. Solaris with Netscape would also more directly address the operating system/web competition with

Microsoft

(MSFT) - Get Report

."

Netscape was up 3 1/8 at 22 3/8. Sun was trading at 49 1/2, up 1/2.

* * * * *

3Com

(COMS)

shares tripped Thursday morning as both buy-side and sell-side pros chattered about a warning from

Cowen

that the networker still faces excessive inventories and other challenges. At 12:30 p.m., the stock was off 2 3/16 to 32 9/16 on heavy volume of 10.1 million shares.

The nature of Cowen's cautionary words remains unclear. Networking analyst Chris Stix at Cowen is traveling and could not immediately be reached for comment. No research note could be obtained.

3Com soon heads into its quiet period, prior to its earnings release for the February quarter. A

First Call

survey of analyst estimates has fallen to 14 cents per diluted share from 19 cents six weeks ago.

One sell-side pro says the cautionary words aren't news, since the inventory reductions of certain modem and other products were expected to take more time. "This quarter's a wash," he said. "Everybody's already written it off."

3Com officials could not be reached for comment.

--

Kevin Petrie