Now We Know: Yesterday's Bounce Wasn't Real

Stocks and bonds are tumbling at midsession, with Wall Streeters seeing more work needed on the downside.
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With the benefit of hindsight, we can list all kinds of reasons the move in stocks yesterday was a sucker's rally. We can point to the lousy advance/decline line, note that new lows outpaced new lows, talk about how traders were just trying to game a bounce off of a support level that, in truth, already looked like it had been cracked.

The biggest reason yesterday was a head fake, though, is that stocks are down today. The

Dow Jones Industrial Average

lately was down 184, or 1.7%, to 10,519.

IBM

(IBM) - Get Report

, down 3.5%, and

3M

(MMM) - Get Report

, down 4.9%, were the biggest contributors to the downside. The

S&P 500

was down 17, or 1.3%, to 1288.

Strength in its two largest components,

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

, helped limit the

Nasdaq Composite Index's

losses. It was down 10 to 2417.

TheStreet.com Internet Sector

index was down 7, or 1.2%, to 565 and the small-cap

Russell 2000

was down 2 to 434.

Stocks have fallen for two weeks now, and with the S&P more than 5% off its highs, there's a lot of talk about how stocks are in the middle of a correction. "The bull market is very much intact, but near-term the market is very overvalued," said Larry Rice, chief investment strategist at

Josephthal

.

There is a great deal of confusion in the market over interest rates, said Rice. Bonds, of course, have generally been in trouble and are in more trouble today. The 30-year Treasury was down 18/32 to 91 20/32, putting the yield at 5.85%. (For more on the fixed-income market, see today's early

Bond Focus.) What's more, the yield curve has flattened considerably -- a sign that the market thinks a rate hike is coming. What's odd though is that utility stocks have been on a rampage, and gains in them usually indicate an expectation of

lower

inflation. And gold's dropped more than 17 bucks this month. No inflation there.

Those kinds of cross-currents -- along with a lack of real news and Memorial Day coming up -- tend to keep people out of the market. "Not much is going to happen before the long weekend," said Bill Allyn, head of block trading at

Jefferies

. "I don't see any real panic selling. There's just an absence of buyers."

Allyn, too, thinks the move down has got some more legs. "There's a little profit-taking going on," said the chronically sanguine trader. "I don't think there's huge cause for alarm -- in my view we have another 500 points, tops, on the decline before we go up again."

Regardless of whether 500 points is something to get alarmed about, Rice would welcome it. "For the last couple of months, this has been a trading affair," he said. "I expect a further correction. I want to have some cash for that."

Market internals were solidly negative.

New York Stock Exchange

decliners were crushing advancers 1,803 to 969 on 434 million shares. On the

Nasdaq Stock Market

, 1,994 decliners were leading 1,499 advancers on 469 million shares. New 52-week lows were edging new highs 29 to 23 on the Big Board and 32 to 30 on the Nasdaq.

Thursday's Midday Movers

By Heather Moore
Staff Reporter

Inet Technologies

(INTI:Nasdaq) was up 2 3/8, or 14.1%, to 19 after

Goldman Sachs

priced its 5.75 million-share IPO top-range at $16 a share last night. The company is a telecommunications equipment maker based in Plano, Texas.

Elsewhere in new issues,

SalesLogix

(SLGX:Nasdaq) was up 1 1/2, or 16.7%, to 10 9/16 after

Hambrecht & Quist

priced its 3.33 million-share IPO bottom-range at $9 a share. The company is a Scottsdale, Ariz.-based software provider.

Meanwhile,

DLJdirect

(DIR:NYSE),

Donaldson Lufkin & Jenrette's

(DLJ)

online brokerage unit, was up 6 1/2, or 21.7%, to 36 13/16 in its second day of trading. And

StarMedia

(STRM) - Get Report

was up 10 7/8, or 41.8%, to 36 7/8 after its IPO yesterday.

In other news:

DII Group

(DIIG)

was down 1 3/16 to 32 5/16 after late yesterday filing with regulators for a 6 million-share offering.

Empi

(EMPI)

was up 4 1/8, or 19.9%, to 24 7/8 after agreeing to be bought by an affiliate of

Carlyle

for $26.50 a share, or about $168 million, in cash.

Italy's

Gucci

(GUC)

was down 3 3/4, or 5.3%, to 66 3/4 after a Dutch court refused to investigate the company's sale of a 42% stake to France's

Pinault Printemps-Redoute

, making of a full takeover of Gucci by

LVMH Moet Hennessy Louis Vuitton

(LVMHY)

unlikely. LVMH was down 1 5/8 to 53 7/8.

Infinity Broadcasting

(INF) - Get Report

was down 7/16 to 25 9/16, above an earlier low of 24 1/4, after agreeing to buy

Outdoor Systems

(OSI)

for $6.5 billion in stock, plus the assumption of about $1.8 billion of debt. Outdoor Systems was up 1 7/16, or 5%, to 30 1/4.

Marcam Solutions

(MRCM)

was up 3 7/16, or 91.7%, to 7 3/16 after

Invensys

agreed to buy it in a $60 million cash deal.

SFX Entertainment

(SFXE)

was up 1 7/8 to 54 7/8 after

The New York Times

and

The Wall Street Journal

reported the company's close to acquiring troubled

Livent

, a Broadway production company, for around $100 million.

Tarrant Apparel

(TAGS) - Get Report

was up 3 1/4, or 13.3%, to 27 3/4 even after

Prudential Securities

lowered its price target on the stock to 35 from 55 a share. Late yesterday, Tarrant and

Burlington Industries

(BUR)

ended their joint-venture talks. Today, Tarrant said the termination of those talks won't changes the company's earnings estimates.

Trimeris

(TRMS)

was up 1 1/2, or 12.8%, to 13 3/16 after saying it will offer 2.5 million shares at about $11.75 a share.

Vignette

(VIGN)

was down 5 1/8, or 8.7%, to 64 1/4 after the underwriters for its February IPO agreed to release about 500,000 shares from a lockup. The company said the shares include about 430,000 shares of the 16.5 million shares held by former preferred shareholders and 70,000 shares held by the company's two founders.

Williams Cos.

(WMB) - Get Report

was up 3 3/16, or 6.5%, to 52 1/16 after

Telefonos de Mexico

(TMX)

said it will buy up to $100 million in shares of the company's

Williams Communications

unit. Williams Communications has filed for a $750 million IPO. Telmex's announcement came a day after Intel agreed to a $200 million investment in Williams Communications. Telmex was up 7/8 to 81 3/8.

Earnings/revenue movers

AutoZone

(AZO) - Get Report

was down 2, or 6.4%, to 29 1/8 after last night reporting third-quarter earnings of 39 cents a share, including charges for the closure of underperforming stores and the discontinuing of development of certain sites. The 14-analyst estimate called for 40 cents vs. the year-ago 35 cents.

Fatbrain.com

(FATB)

was down 2 3/4, or 13.8%, to 17 5/16 after last night reporting a first-quarter loss of 46 cents, narrower than the three-analyst forecast for a loss of 50 cents but wider than the year-ago loss of 25 cents.

Gerber Scientific

(GRB)

was up 1 1/16, or 5.1%, to 22 1/16 after recording fourth-quarter earnings of 36 cents a share, a penny ahead of the four-analyst estimate and ahead of the year-ago 32 cents. The company also said it sees strong earnings growth this year and that it's in a position to reduce its debt and buy back shares.

Grow Biz

(GBIZ)

was down 1, or 11.1%, to 8 3/4 after last night saying it expects to record break-even second-quarter results due to continuing losses from its retail game store chain. The single-analyst view called for a quarter loss of a penny a share vs. the year-ago profit of 17 cents.