Nasdaq Keeps Powering Ahead as Tech Remains a Sponge for Money

Traders are continuing their rotation out of the Dow industrials, and big-cap techs are benefiting.
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A calm discussion on Capitol Hill about the state of the economy was causing considerable skittishness in the stock market. As

Federal Reserve

Chairman

Alan Greenspan

and the

Senate Banking Committee

chat about asset valuations, interest rates and that big bad wealth effect, stocks -- especially interest-rate-sensitive ones -- were swinging about and trying to gain a foothold.

The second round of

Humphrey-Hawkins

testimony is shaping up to be a lot like the first, but the

Dow Jones Industrial Average

wasn't taking any chances this time. After opening with an optimistic jump, the blue-chip average was down more than a hundred points in midmorning before rebounding somewhat. Lately it was off 70 to 10,235. The 30-stock average continues to linger in correction territory, having stumbled more than 10% from its January high of 11,722. The broader

S&P 500

index had been taking its cue from the Dow but lately was edging up 1 to 1353.

"We had a little euphoric rally this morning, but I think it was premature," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "We still have to test a little further on the downside."

Volk noted Greenspan's remarks today and upcoming economic indicators as two of a handful of factors that may push some additional short-term profit-taking in stocks. Investors need to digest a couple of these things, said Volk. "People are really trying to decide if this market is fully valued or overvalued."

The technology sector was showing some of the too-cool attitude that has been its trademark lately, with the tech-infused

Nasdaq Composite Index

keeping a firm grip on its gains, lately up 86, or 2%, to 4468.

TheStreet.com Internet Sector

index was showing even more strength, up 54, or 5%, to 1139, while the small-cap

Russell 2000

was following the Nasdaq's lead, lately up 6, or 1%, to 547.

"A lot of the big

tech leaders have barely pulled back," said Brian Belski, chief investment strategist at

George K. Baum

in Kansas City, Mo. He believes some of the froth is already being taken out of tech stocks that have shown weak fundamentals but notes that

Applied Materials

(AMAT) - Get Report

,

Cisco

(CSCO) - Get Report

and

Microsoft

(MSFT) - Get Report

are still strong and tend to lead the Nasdaq.

Focusing on the damage in the Dow and cyclicals in general, Belski said he thinks the "bulk of the downside is finished," though investors are "trying to figure out where the lows are going to be." Belski said he didn't find the divergence in the indices troubling, saying they are "just kind of highlighting exactly what is going on in terms of the investing climate, 2000 is more of a year of realism."

America Online

(AOL)

was providing considerable upside for the DOT, rising 11.1% after

Merrill Lynch

released a report outlining the potential strengths of its proposed merger with

Time Warner

(TWX)

. The report, dubbed "You've Got Upside," opined the "combined company is well positioned to benefit from the ongoing impact of the Internet on the global media industries. We regard the stock as a core holding if for no other reason than this." Merrill added it believes "the merger will prove a strong combination."

Upside earnings surprises from

Federated Department Stores

(FD)

and

Consolidated Stores

(CNS) - Get Report

were doing little to lift those stocks or the sector in general. Federated was down 3.2%, while Consolidated was off 0.5%. The

S&P Retail Index

was down 1.3%. For more details on Federated's

earnings, see coverage from

TheStreet.com/NYTimes.com

joint newsroom.

The story was similar in the energy sector where oil service stocks were dipping into the red despite bullish comments from

Lehman Brothers'

which recommended that investors aggressively buy large independent oil refining stocks, noting that refining margins will rebound as crude oil prices moderate. After climbing above the $30-a-barrel mark last week, a nine-year high, crude oil contracts have moved lower this week.

Royal Dutch Petroleum

(RD)

was sliding 4.4%. The

Philadelphia Stock Exchange Oil Service Index

was down 1.4%.

The bond market was coming under some selling pressure with the 10-year Treasury down 11/32 to 100 21/32, putting its yield at 6.41%. The 30-year Treasury was off 19/32 to 101 21/32, yielding 6.13%. (For more on the fixed-income market, see today's

Bond Focus.)

Market Internals

Breadth was negative on the Big Board and just about even on the Nasdaq on moderate volume.

New York Stock Exchange:

1,075 advancers, 1,753 decliners, 560 million shares. 30 new 52-week highs, 156 new lows.

Nasdaq Stock Market:

2,036 advancers, 1,969 decliners, 1.1 billion shares. 200 new highs, 90 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.