Questions Linger on Wall Street as Dow, Nasdaq Diverge

A tech rally and a continued blue-chip selloff leave the trading picture murky.
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SAN FRANCISCO -- Like an arm-wrestling match between a moray eel and a rattlesnake, today's market action settled nothing.

Yes, major market proxies were mostly higher as bellwether tech stocks recovered from

yesterday's shellacking, inspired partially by better-than-expected earnings from

3Com

(COMS)

, which rose 3.4%. But the most public face of equities retreated, market internals again favored losers, and there were individual names damaged by earnings warnings. Examples of the latter include

Cordant

(CDD)

, which fell 17.2%, and

Claire's Stores

(CLE)

, off 10.5%.

Action in the fixed-income and currency markets was again the dominant focus for equity traders. The dollar slid to 104.04 yen from 104.76 late yesterday, while the price of the 30-year Treasury bond dipped 2/32 to 100 13/32, its yield at 6.10%.

"The key thing is the bond and the dollar and the bond looks like it's holding up," said one New York-based equity trader, boldly suggesting 6.13% is a "resistance" level for the long bond. "Bonds are holding their own, hopefully they'll bounce."

Despite general optimism about both bonds and stocks, the trader admitted it was "tough" to get a handle on the action today. "The market looks like it wants to sell off, then it looks like they want to jam 'em up into quarter-end," he said. "Nobody is jamming in on the buy side, they're all a little afraid, but they're also not selling off hard. I'd buy 'em on the dips."

The

Dow Jones Industrial Average

took another dip today, falling 74.40, or 0.7%, to 10,524.07 after trading at low as 10,493.99. Weakness in

Goodyear

(GT) - Get Report

and

Union Carbide

(UK)

was most damaging to the index. Goodyear, which fell 8.9% yesterday after

J.P. Morgan

cut its earning estimates, lost another 4.1% today. Union Carbide, meanwhile, fell 3.9% after calling a meeting of its shareholders for Dec. 1 to vote on its pending merger with

Dow Chemical

(DOW) - Get Report

, which lost 3.5%.

Philip Morris

(MO) - Get Report

fell 2.8% after the

Justice Department

filed a civil lawsuit against major tobacco companies. Elsewhere,

R.J. Reynolds

(RJR)

fell 4.2% and

British American Tobacco

(BTI) - Get Report

slid 4.8%.

Nevertheless, the

S&P 500

rose 2.93, or 0.2%, to 1310.51 while the

Nasdaq Composite Index

gained 37.07, or 1.3%, to 2858.17. Both proxies got a boost from big-cap tech stocks such as

Microsoft

(MSFT) - Get Report

and

Cisco

(CSCO) - Get Report

, which helped the

Nasdaq 100

rise 1.6%. The S&P got an additional boost from modest strength in energy stocks, brokerages, and retailers. The Comp got a fuel-injected lift from bellwether Internet names, which soared in near unanimity.

TheStreet.com Internet Sector

index rose 32.94, or 5.3%, to 650.68, thanks to impressive gains by favorites such as

America Online

(AOL)

(also an S&P 500 component),

Yahoo!

(YHOO)

, and

MindSpring

(MSPG)

.

Outside the DOT,

priceline.com

(PCLN)

leapt 7.3% after announcing plans to extend its service into grocery stores.

The enthusiasm for Net and related names was further evinced in the performance of IPOs

Kana Communications

(KANA)

, up 243%;

E.piphany

(EPNY:Nasdaq), up 183%; and

Broadbase Software

(BBSW:Nasdaq), higher by 93.8%.

The

Russell 2000

rose 1.03, or 0.2%, to 427.53, its rise hampered by negative market internals.

In

New York Stock Exchange

trading today, 822.2 million shares were exchanged while declining stocks led advancers 1,723 to 1,216. In

Nasdaq Stock Market

action 1.04 billion shares traded while losers led 1,914 to 1,881. New 52-week lows bested new highs 249 to 23 on the Big Board and by 116 to 63 in over-the-counter trading.

The divergence between the Dow and Nasdaq, along with the expanding ranks of stocks at 52-week lows, were another in a string of events that have even veteran market players perplexed.

"The last couple of days have been very confusing," confessed Randy Billhardt, co-head of block trading at

PaineWebber

. "We're seeing tremendous volatility on relatively light volume. Today's volume does not suggest a tremendous trend" (notwithstanding repeated attempts by

CNBC's

Bob Pisani to characterize the session as being heavily traded).

"If you price merchandise correctly there are buyers, but they're not actively participating," Billhardt continued. "It's more a buyers' boycott unless there's specific news on a stocks. News that is stock specific can either elevate it tremendously, such as 3Com, or hit it dramatically, like

Apple

(AAPL) - Get Report

yesterday. There is no in-between."

The environment is likely to remain intact for some time, he continued. "As we get closer to earnings, with more possibility of warnings, people would rather not be a hero and will keep powder dry waiting for a buying opportunity," the trader said. "We're getting closer to those levels but unless I see volume pick up or a significant trend, it's very trendless."

Amid concerns about additional

Federal Reserve

tightening, fears of Y2K -- legitimate or not -- and a sense the market remains at "relatively lofty levels" despite its recent setbacks, "earnings are going to be crucial," Billhardt said. "The market is not cheap. What we need to maintain the levels we're at is to see positive earnings."

Until solid earnings reports are released

en masse

, the "cautionary, volatile trading" is likely to continue, he said. But despite those short-term reservations, the trader remains "fundamentally rather positive" about earnings and the economy.

Among other indices, the

Dow Jones Transportation Average

fell 11.36, or 0.4%, to 2926.28; the

Dow Jones Utility Average

dipped 1.76, or 0.6%, to 300.48; and the

American Stock Exchange Composite Index

fell 2.53, or 0.3%, to 782.45.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

fell 31.57 to 6886.30 and the

Mexican Stock Exchange IPC Index

gained 71.97, or 1.5%, to 4991.76.

Wednesday's Company Report

By Eileen Kinsella
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.

)

Tobacco companies felt like the school bully had picked on them today. So they got together and elected tough guy Philip Morris to cross the playground and tell the Justice Department that they're not afraid of its big bad lawsuit. That didn't stop tobacco stocks from looking a little bruised. Shares of Philip Morris fell 1 1/8 to 34 1/2 , R.J. Reynolds slipped 1 3/16 to 27 5/16, and

Loews

(LTR)

, which operates

Lorillard Tobacco

, lost 1 15/16 to 71 11/16.

Meanwhile, several technology IPOs were busy partying like rock stars. Broadbase Software shot up 13 1/8, or 93.8%, to 27 1/4, after being priced at $14.

Holders of E.piphany were having a vision as the shares rose 29 5/16, or 183%, to 45 3/16 after

Credit Suisse First Boston

priced shares at $16 each.

Kana Communications rocketed 36 7/16, or 242.9%, to 51 1/2 after being priced at $15.

Mergers, acquisitions and joint ventures

AK Steel

(AKS) - Get Report

slipped 7/8 to 17 1/2 after it said that it upped the number of shares that

Armco

(AS)

stockholders would receive in their planned merger. The share increase boosts AK Steel's stock value to $7.50 per share of Armco. Armco climbed 5/8, or 10.6%, to 6 1/2.

Cisco added 1 1/16 to 72 1/4 after it said that it has inked an agreement to purchase privately held Internet software maker

WebLine Communications

in a stock deal valued at $325 million.

City National

(CYN)

lost 1/2 to 30 13/16 after it announced its plans to acquire

Pacific Bank

(PBSF)

in a deal valued at $153 million. Pacific jumped 4 5/16, or 20.9%, to 25.

Enron

(ENE)

was unchanged at 39 1/2 after it said its Energy Services division forged a $1 billion deal with

Owens Corning

(OWC)

to supply energy to 20 fiberglass production facilities. Owens Corning lost 1/4 to 23 15/16.

MedImmune

(MEDI)

gained 7 1/4, or 7.1%, to 109 1/4 after it said it forged a $440 million stock deal to acquire

U.S. Bioscience

(UBS) - Get Report

in an effort to boost its cancer-drug product line. According to the terms, MedImmune would exchange 0.15 of a share for each share of U.S. Bioscience's 29.8 million outstanding shares. U.S. Biosciences advanced 2 5/8, or 22.8%, to 14 1/8.

Xerox

(XRX) - Get Report

added 9/16 to 42 9/16 after it announced its plans to acquire

Tektronix

(TEK)

Color Printing and Imaging Division for $950 million.

Merrill Lynch

downgraded shares of Tektronix to a buy from a neutral. Despite the downgrade, Tektronix was climbed 1 5/16 to 36 3/16.

Earnings/revenue reports and previews

Cintas

(CTAS) - Get Report

added 3 3/8, or 6.4%, to 56 1/16 after it reported first-quarter earnings of 38 cents a share, in line with the 11-analyst estimate and up from the year-ago 33 cents.

Claire's Stores lost 1 7/8, or 10.5%, to 15 15/16 after it warned third quarter profits would miss analyst estimates due to a shortfall in sales. The eight-analyst estimate calls for earnings of 31 cents a share

Dean Foods

(DF) - Get Report

added 3/4 to 40 after it reported first-quarter earnings of 70 cents a share, beating both the 10-analyst estimate of 63 cents and the year-ago 52 cents.

Morgan Stanley Dean Witter

(MWD)

edged up 3/4 to 89 9/16 after reporting third-quarter earnings of $1.65 a share, beating both the 14-analyst estimate of $1.63 and the year-ago $1.01.

National Discount Brokers

(NDB)

added 3/16 to 26 15/16 after it reported first-quarter earnings of 2 cents a share, beating the two-analyst estimate of break-even results and the year-ago loss of 4 cents.

National Service Industry

(NSI)

lost 3/8 to 31 posted fourth-quarter earnings of $1.07 a share, beating the four-analyst estimate of 83 cents and the year-ago 72 cents.

Rowe

(ROW)

added 1/8 to 9 1/4 after it posted third-quarter earnings of 23 cents a share, beating the four-analyst estimate of 22 cents and the year-ago 17 cents.

3Com added 15/16 to 28 5/8 after

last night posting first-quarter earnings of 33 cents a share, well ahead of the 26-analyst estimate of 24 cents and above the year-ago 24 cents.

Worthington Industries

(WTHG)

inched up 7/16 to 14 3/4 after it posted first-quarter earnings of 27 cents a share, beating the five-analyst estimate of 22 cents and the year-ago 9 cents.

Offerings and stock actions

Cigna

(CI) - Get Report

slipped 1/8 to 89 3/4 after it boosted its share buyback authorization by $2 billion. Since the start of the year, Cigna has repurchased 17.1 million shares for $1.5 billion.

Analyst actions

Merrill Lynch analyst Candace Browning slashed her estimates on a host of airline stocks, citing Hurricane Floyd and slow revenues. September quarter and fiscal 1999 earnings estimates on

AMR

(AMR)

were sliced to $1.70 from $2 and $4.50 from $4.80, respectively, while

Continental's

(CAL) - Get Report

were cut to $1.45 from $1.70 and $4.90 from $5.40, respectively.

Delta's

(DAL) - Get Report

September quarter and fiscal 1999 earnings estimates were lowered to $1.90 from $2.10 and $6.65 from $6.75 respectively, while

US Airways'

(U) - Get Report

estimates for the same periods were cut to a loss of 50 cents a share from a 20 cent-loss and to a profit of $1.85 per share from a $2.30.

Browning also sliced her fiscal 1999 estimate on

Northwest

(NWAC)

to $3.30 from $3.45 and lowered both full-year and Sept-quarter estimates on

United

(UAL) - Get Report

to $9.60 from $10 and $3.60 from $3.75 respectively.

AMR lost 1/8 to 54 5/8, while Delta fell 1 5/16 to 47 7/16. US Airways climbed 1 5/16, or 5.3%, to 25 7/8 and Northwest added 5/16 to 24 1/2, while United was slipped 1/8 to 66 3/8.

Merrill Lynch started coverage of

Amtel

(ATML)

with intermediate accumulate, long-term buy ratings and

Microchip Technology

(MCHP) - Get Report

with intermediate and long-term accumulate ratings. Shares of Amtel climbed 1 1/2 to 38 5/8 while Microchip gained 2 3/8 to 58 1/2.

Credit Suisse First Boston upped its rating on

Apache

(APA) - Get Report

to a buy from a hold. Shares of Apache rose 1 1/2 to 41 1/2.

Deutsche Banc Alex. Brown

cut its rating on

B/E Aerospace

(BEAV)

to market perform from buy. B/E Aerospace fell 2 1/2, or 16.9%, to 12 3/8.

J.P. Morgan

began coverage of

Blockbuster

(BBI) - Get Report

with a buy rating. Blockbuster added 3/4, or 5.7%, to 13 1/16

Deutsche Banc Alex. Brown upgraded shares of

Broadcom

to a strong buy from a buy. Broadcom jumped 10 1/16, or 9.7%, to 114 1/4.

PaineWebber

upgraded

Chevron

(CHV)

to attractive from neutral. Chevron slipped 1/8 to 89 5/8.

PepsiCo

(PEP) - Get Report

slipped 1/4 to 32 3/4 after

Warburg Dillon Read

slashed its rating to hold from strong buy, citing U.S. domestic growth rates of Frito-Lay and, to a lesser extent, Pepsi.

Goldman Sachs added

Eli Lilly

(LLY) - Get Report

and

Merck

(MRK) - Get Report

to its recommended list. Shares of Eli Lilly rose 1 1/16 to 66 11/16, while Merck tacked on 1 1/8, to 69 7/8.

SG Cowen

hammered its rating on

Maxwell Technologies

(MXWL) - Get Report

to neutral from strong buy. Shares of Maxwell shed 6 11/16, or 34.5%, to 12 11/16, a record low for the year.

Goldman Sachs began coverage of

Pfizer

(PFE) - Get Report

,

Pharmacia & Upjohn

(PNU)

, and

American Home Products

(AHP)

with market outperformer ratings. Pfizer added 13/16 to 36 7/8 and Pharmacia & Upjohn shares climbed 1 to 48 3/4, while AHP lost 7/16 to 44 7/8.

Goldman Sachs initiated coverage of

Schering-Plough

(SGP)

, and

Bristol-Myers Squibb

(BMY) - Get Report

with market performer ratings. Schering-Plough was lost 1 15/16 to 48, while Bristol Myers shares fell 1/2 to 71 7/16.

Goldman Sachs sliced its rating on

Sinclair Broadcast Group

(SBGI) - Get Report

to market performer from its recommended list. Merrill Lynch and Morgan Stanley have also downgraded the stock. Shares of Sinclair shed 4 7/16, or 29.8%, to 10 1/2.

United Technologies

fell 2 1/4 to 58 5/8 after

Brown Brothers Harriman

raised its short-term rating to buy from neutral and its price target to 78.

Miscellany

Amazon.com

(AMZN) - Get Report

climbed 3 3/4, or 6%, to 66 after the company said it plans to sell downloadable music over the Internet.

BroadVision

(BVSN) - Get Report

, has been going bonkers, rising jumping 17 11/16, or 14.6%, to a record 139, amid general fervor about business-to-business e-commerce stocks. The stock spiked up yesterday following an announcement of a vague deal with a European division of Sony.

Probably less influential was a press release today from BroadVision entitled "BroadVision's Pehog Chen Named 'Master of the Universe' by Business Week Magazine."

CDNow

(CDNW)

and

Columbia House

have chosen Scott Flanders as to act as chairman and CEO after their planned merger is completed. The merger is a joint venture between

Sony

(SNE) - Get Report

which slipped 1/2 to 156 7/8, and

Time Warner

(TWX)

which lost 7/16 to 62 13/16 .

Financial services firm

ReliaStar

(RLR)

fell 2 3/16, or 5.3%, to 39 3/8 after the company said the loss ratio in its medical reinsurance business jumped to 94% in July and August from 71.7% in the second quarter.

The NYSE said a regular seat on the exchange sold for $2.55 million, $100,000 under the record $2.65 million paid in August. The sale marked the second since the Big Board announced plans for an IPO.

Phelps Dodge

(PD) - Get Report

climbed 1 1/2 after it upped its bid for

Asarco

(AR) - Get Report

and

Cyprus Amax Minerals

(CYM)

to nearly $2.8 billion in cash and stock, confirming a report in

The Wall Street Journal

. Shares of Cyprus climbed 1 9/16, or 9.1%, to a 1999 high of 18 13/16, after it said its advisors and board would review the new offer. Asarco climbed 2 1/16, or 10.1%, to 22 1/2.