Nasdaq Carnage Gets Worse as Traders Flee Tech Stocks

Support levels are cracking all over the place as a broad selloff grips Wall Street.
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Watching the stock market lately has been like watching an episode of

VH1's

Behind the Music

.

The market is currently in the portion of a typical

Behind the Music

installment where the artist or group in question is going through a rough stretch. And while the typical

Behind the Music

has a pleasant ending with the artist or group coming out of a troubled time better than ever, the same can't be said for stocks right now. Considering the glum view on Wall Street, a pleasant ending seems a long way away, what with market psychology in the outhouse and all.

As the market prepared to exit the lunch hour in New York, major market averages were deep in the red, with the

Nasdaq Composite Index

leading the way on the downside. The Nasdaq Comp was down 69, or 2.7%, to 2450, near its session low.

The

Nasdaq 100

was down 2.6%.

Cisco

(CSCO) - Get Report

, a Nasdaq heavyweight, which is set to report earnings after the close, was off 3 1/8, or 5.2%, to 56 3/4. Other Nasdaq titans were lower as well, including

Microsoft

(MSFT) - Get Report

,

Dell

(DELL) - Get Report

and

MCI WorldCom

(WCOM)

.

Meanwhile, the selling that has plagued Internet stocks continued to roll on.

TheStreet.com Internet Sector

index was off 20, or 4.1%, to 460, led in the red by

America Online

(AOL)

.

Meanwhile, an upbeat meeting with analysts yesterday sparked some life in technologically troubled

eBay

(EBAY) - Get Report

, but the stock is off its intraday high of 84. It was lately up 13/16 to 80 7/16.

As for blue-chips, the

Dow Jones Industrial Average

was down 112, or 1%, to 10,596.

J.P. Morgan

(JPM) - Get Report

was leading the average lower, accounting for 22.80 points of the Dow's decline.

Elsewhere, the

S&P 500

was down 23, or 1.8%, to 1274. Small-caps were again taking a beating. The

Russell 2000

was off 8, or 1.8%, to 418.

The

Dow Jones Transportation Average

was also notable on the downside. It was off 3.2%, dragged down the most by

AMR

(AMR)

and

FDX

(FDX) - Get Report

.

Meanwhile in the futures market, the September S&P 500 futures contract was down 23.80 to 1279.20.

The contract has fallen through support, which was around 1290, said Dave Eberhart, analyst at

Optima Investment Research

. Eberhart said the contract's next support level is about 1281 to 1275.

Market breadth is weak, and it's not just technology or financial stocks suffering, "it's pretty much everything," Eberhart said. Speaking around 11:15 a.m. EDT, he said 78 of the S&P 500's 89 subindexes were lower and only 11 were higher.

Investors in recent weeks have been apprehensive -- to say the least -- to step in buy stock particularly ahead of the Aug. 24

Federal Open Market Committee

meeting. For a while, there was some debate whether the Fed would hike later this month or not, but

Friday's

employment report

took care of much of that. The stronger-than-expected jobs data greatly increased the odds that the FOMC will raise short-term rates at the next meeting.

There are also fears among some market players that the Fed isn't going to stop there, hiking rates again at its Oct. 5 meeting or even boosting the fed funds target rate by 50 basis points Aug. 24 instead of the usual 25.

The recent revolting performance of the long bond has contributed to the stock market's recent swoon as the benchmark 30-year Treasury bond's yield keeps rising and rising. Of course, higher interest rates are the poison of high-price-to-earnings-ratio issues -- of which the Nasdaq Comp is heavy. Not to mention the effect of rising yields on Internet stocks, and their gargantuan valuations.

And according to some, there's more downside for the market ahead.

Peter Green, director of technical research at

Gruntal

, pointed out that the Dow has broken support at 10,650 and it is likely to go to 10,400. As for the Nasdaq Comp, it should go to 2434. Green pointed out that the market has yet to see complete capitulation.

In the Treasury market, the 30-year bond was lately down 4/32 to 86 19/32, yielding 6.25%. Treasury traders are confronting the first leg of the Treasury's quarterly refunding, which kicks off with the auction of $15 billion in five-year notes. The total amount of the refunding is $37 billion. (For more on the fixed-income market, see today's early

Bond Focus.)

On the

New York Stock Exchange

, decliners were outpacing advancers 2,355 to 603 on 470 million shares. On the

Nasdaq Stock Market

, losers were beating winners 2,787 to 948 on 542 million shares.

On the NYSE, a massive 233 issues had set new 52-week lows while 36 had touched new highs. On the Nasdaq, 123 issues had set new 52-week lows while new highs totaled 30.

Meanwhile, among other indices, the

Dow Jones Utility Average

was down 0.3% and the

American Stock Exchange Composite Index

was down 1.5%.

On the Big Board, AOL was most active with 12.6 million shares changing hands. It was down 5 to 80 9/16.

On the Nasdaq, Cisco was most active with 21.9 million shares changing hands.

Tuesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

General Motors

(GM) - Get Report

fell 2 to 60 after the company said it will form a new Internet unit called

e-GM

which will boost the company's existing online and business operations.

Alcan

(AL) - Get Report

of Canada added 3/4 to 32 9/16, and

Pechiney

(PY) - Get Report

of France slipped 5/16 to 27 5/8 after the companies said they were in merger talks with each other along with

Alusuisse Lonza

of Switzerland, confirming a report in

The Wall Street Journal

that suggested the three could be planning a merger to create an aluminum-and-packaging behemoth to rival

Alcoa

(AA) - Get Report

. Alcoa shrugged off the news, climbing 3/4 to 66 3/8.

Mergers, acquisitions and joint ventures

Razorfish

(RAZF)

shaved off 2 3/4, or 9.7%, to 25 9/16 after it said it would acquire

i-Cube

(ICUB)

in a deal valued around $677 million. i-Cube also fell, 7/8 to 20 1/8.

Lucent

(LU)

shed 2 3/8, to 61 1/14 after it agreed to acquire

International Network Services

(INSS)

in a deal valued at $3.7 billion. Each International Network share will be converted into 0.8473 Lucent share. At yesterday's prices the takeover is valued around $3.7 billion, or about $54 an International Network share, Lucent said. International Network jumped 2 13/16, or 5.9%, to 50 5/16.

TotalFina

(TOT) - Get Report

added 1 1/4 to 65 15/16 after its board rejected

Elf Aquitaine's

(ELF) - Get Report

advances for the second time at a meeting on Monday. Elf lost 1/16 to 89 5/16.

Earnings/revenue reports and previews

Dollar General

(DG) - Get Report

lost 7/16 to 24 7/16 after it posted second-quarter earnings of 15 cents a share, in line with the 14-analyst estimate and up from the year-ago 12 cents.

Equity Residential

(EQR) - Get Report

added 5/16 to 42 after the company reported second-quarter earnings of $1.11 a share, a penny better than the 19-analyst estimate and up from the year-ago 99 cents a share.

First Union Real Estate

(FUR)

lost 1/16 to 4 13 /16 after reporting second-quarter earnings of 11 cents a share, slightly ahead of the single-analyst estimate of 10 cents and better than a year-ago loss of 48 cents.

Fossil

(FOSL) - Get Report

shed 6 1/8, or 13%, to 41 3/16 despite reporting better-than-expected second-quarter earnings of 44 cents a share, 4 cents ahead of the seven-analyst estimate and up from 26 cents a year ago.

Overseas Shipholding Group

(OSG) - Get Report

fell 1/8 to 13 9/16 after it reported second-quarter earnings of 23 cents a share, compared with 20 cents a year ago. The latest quarter included a 16-cent gain, and no operating income figures were available. The single analyst estimate called for a 5-cent operating loss.

Polo Ralph Lauren

(RL) - Get Report

added 7/16 to 18 11/16 after posting first-quarter operating earnings, excluding a charge, of 28 cents a share, ahead of the 14-analyst estimate of 24 cents.

United Retail Group

(URGI)

was unchanged at 10 3/8 after it reported second-quarter earnings of 42 cents a share, ahead of the single-analyst estimate of 38 cents and up from the year-ago 38 cents.

Wal-Mart

(WMT) - Get Report

added 7/8 to 41 1/16 after it posted second-quarter operating earnings of 31 cents a share, excluding a litigation-settlement charge of 3 cents. Earnings were ahead of the 17-analyst estimate of 28 cents and up from the year-ago 23 cents.

Offerings and stock actions

Suntrust Banks

(STI) - Get Report

lost 5/8 to 63 7/16 after its board approved a buyback of up to 15 million shares.

Analyst actions

Apache

(APA) - Get Report

lost 13/16 to 46 after

J.P. Morgan

cut it to a long-term buy from buy based on valuation, leaving its price target unchanged.

Beringer Wine Estate

(BERW)

rose 3/8 to 36 7/8 and

Robert Mondavi

(MOND)

gained 3/8 to 36 3/8 after J.P. Morgan started coverage with a buy and a market perform, respectively.

eBay

(EBAY) - Get Report

gained 3/4 to 80 1/2 after

CNBC

reported

Morgan Stanley Dean Witter

analyst Mary Meeker was out with positive comments on the stock.

Glaxo Wellcome

(GLX)

lost 11/16 to 48 15/16 after

Salomon Smith Barney

cut its recommendation to neutral from outperform and slashed its 12-month price target.

Goldman Sachs

(GS) - Get Report

rose 1/2 to 56 3/16 after

Bear Stearns

upgraded it to attractive from neutral.

Masco

(MAS) - Get Report

lost 7/16 to 29 and

Myriad Genetics

(MYGN) - Get Report

lost 3/8 to 9 1/2

after CIBC World Markets

complimented both stocks with initial buy ratings.

National Golf Properties Inc

(TEE)

added 3/16 to 22 5/16 after

ING Barings

started coverage of the real estate investment trust with a buy rating.

PaineWebber

(PWJ)

lost 11/16 to 38 7/16,

Merrill Lynch

(MER)

lost 1 5/8 to 62 7/8 and

Morgan Stanley Dean Witter

(MWD)

fell 15/16 to 81 1/2 despite Salomon Smith Barney's upping its third-quarter earnings estimates on all three financial stocks.

QLT Phototherapeutics

(QLTI)

jumped 4 15/16, or 7.4%, to 71 3/4 after ING bumped up estimates, taking its price target to 84.

Miscellany

Lexmark

(LXK)

gained 2 5/8 to 65 1/2 after

Standard & Poor's

said it will be added to the

S&P 500

, replacing

Raychem

(RYC)

, which is being bought by

Tyco International

(TYC)

. The change will occur after the close of trading Thursday.

Qwest

(QWST)

lost 1/16 to 26 3/16 after saying it will offer free Net access for consumers who buy special long-distance calling services. The company said for a flat rate of $24.95 a month, the package features free, unlimited dial-up Net service and 250 minutes of domestic long-distance calling service. The move comes a day after

MCI WorldCom

(WCOM)

a rival, cut evening, overnight and weekend calling rates to as low as 5 cents a minute. Shares of MCI lost 1 3/4 to 75 11/16.

Silicon Graphics

(SGI)

fell 2 13/16, or 17%, to 13 7/16 after it announced its second restructuring plan in under a year. The company said it will spin off its media operations, cut up to 1,500 jobs, and form an alliance with

NEC

(NIPNY)

of Japan. NEC lost 5/8 to 73.

Zonagen

(ZONA)

lost 2, or 27.4%, to 5 5/16 after it said U.S. regulators suspended clinical trials of its phentolamine-based drugs due to concerns over cancer risks. However, the FDA said it will allow Zonagen's marketing partner

Schering-Plough

(SGP)

to complete an ongoing 12-week human study of Vasomex, whose active ingredient is phentolamine. Schering-Plough lost 5/16 to 47 3/4

Staff reporter

Tara Murphy contributed to this story.