Rotation Fortune Smiles on Cyclicals as Techs Droop

At least one technician sees ominous signs in the Nasdaq's performance, and First Call's Chuck Hill has some concerns as well.
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Ask not for whom the bell tolls; it tolls for tech. Following a week of stunning gains, technology stocks took a respite today, sending the

Nasdaq Composite Index

reeling from

yesterday's record-setting advance.

Meanwhile, cyclical stocks rang loud and clear, helping the

Dow Jones Industrial Average

rumble back into record territory while the

S&P 500

rose modestly to another all-time high.

The Dow rose as high as 10,845.45 before closing up 113.12, or 1.1%, to 10,831.71, eclipsing its Thursday high of 10,727.18. The S&P 500 rose 2.76, or 0.2%, to a record 1362.80, overcoming a midafternoon dip as low as 1356.61.

Blue-chip proxies were enlivened by cyclical plays such as Dow components

Caterpillar

(CAT) - Get Report

,

Chevron

(CHV)

,

DuPont

(DD) - Get Report

and

Alcoa

(AA) - Get Report

. The

Morgan Stanley Cyclical Index

gained 1% while the

S&P Chemical Index

gained 2.4%.

Disney

(DIS) - Get Report

paced Dow laggards, down 6.3% after posting second-quarter earnings in line with estimates and below year-ago results.

Other Dow gainers included

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

, which led a rebound in bank stocks. The

Philadelphia Stock Exchange/KBW Bank Index

rose 3.1%.

IBM

(IBM) - Get Report

gained a further 0.5% after announcing plans to repurchase up to $3.5 billion in stock and raise its quarterly dividend. But Big Blue was largely alone in positive territory among tech leaders.

Nasdaq Stock Market

bellwethers were particularly soft.

MCI WorldCom

(WCOM)

fell 5.9% on word it will pay 17% more than originally announced to acquire Bulletin Board-listed

CAI Wireless Systems

, which rose 18.5%.

Additionally,

Microsoft

(MSFT) - Get Report

fell 4.6%, and

Intel

(INTC) - Get Report

shed 3.4%. With the

Nasdaq 100

losing 2.4%, it's no surprise the Composite shed 49.64, or 1.9%, to 2602.41 after rising as high as 2677.76 in a short-lived upswing this morning.

Net Stocks Turn Sour

The tech-bedeviled index was also betrayed by Internet plays.

TheStreet.com Internet Sector

index, which climbed as high as 731.49 early on, fell 17.30, or 2.4%, to 696.97.

America Online

(AOL)

fell 5.6% ahead of its earnings report. After the close, AOL reported third-quarter earnings of 11 cents a share vs. the 34-analyst consensus estimate of 9 cents and year-ago results of 4 cents.

eBay

(EBAY) - Get Report

rose as high as 234 after posting better-than-expected earnings

last night but closed up just a fraction at 209 1/4.

Elsewhere in the group,

DoubleClick

(DCLK)

shed 13.6% after reporting a first-quarter loss of 13 cents a share, 8 cents better than year-ago results but only matching the seven-analyst expectation.

With the Nasdaq having gained over 13% in the five previous sessions, traders mainly took the retrenchment in stride. But Peter Green, director of technical research at

Gruntal

, said there is cause for concern.

"The Nasdaq Comp had a negative outside day, meaning it opened higher than the previous high but closed lower than the previous day's low, accompanied by negative divergence," Green said. "My sense is it's topped out short-term."

The technician expects the index to fall as low as 2525. Beyond that, it has support at 2489 and could "potentially" pull back to its 50-day moving average of 2425.

"My sense is the market wants to discount some international economic recovery," he said, explaining the revival of cyclicals. "With higher growth you may get a minor uptick in inflationary pressure. It's a minor change in psychology."

For example,

Treasury

Secretary

Robert Rubin

today said the U.S. supports the selling of up to 10 million ounces of gold to pay for debt relief -- the latest in a series of such statements by finance officials. "Yet gold and gold stocks rallied," the technician observed. "It's pretty interesting." The

Philadelphia Stock Exchange Gold & Silver Index

rose 5.4%.

In

New York Stock Exchange

trading, 893.1 million shares were exchanged while advancers led losers 1,758 to 1,236. In Nasdaq activity, 1.14 billion shares were exchanged -- its 16th-straight billion-plus session -- while gainers led 2,049 to 1,965. New 52-week highs led new lows 86 to 39 on the Big Board and by 76 to 43 in over-the-counter trading.

Earnings Maven Unsure About Tech

For different reasons than Green, Chuck Hill, director of research at

First Call

, is also cautious about the outlook for high tech.

"I don't want to make too much out of this, but it is a concern

that we haven't been seeing upward revisions during the quarter leading up to reporting season in tech," Hill said in an interview at

TheStreet.com's

headquarters this afternoon. "Except

Compaq

(CPQ)

, we're not seeing downward revisions; the estimates are essentially flat. That's not bad, but it is a change in the pattern of seeing stuff inch up in the quarter."

Additionally, there's a pattern of downward earning revisions among intermediate- and small-cap tech companies, so "tech in the aggregate shows some downward revision in the last couple of months," he said.

Moreover, while the pace of negative preannouncements has "slowed in the aggregate here in the first quarter relative to the last several, it's gone up for tech," the researcher observed. "Again, except for Compaq there's not much in big-caps, but there seems to be a greater uncertainty about the outlook for tech earnings than three or six months ago. Then there was pretty good confidence we were on an upswing. Now, it's a little fuzzy.

"On the other side, second-quarter year-over-year numbers are going to look terrific because there's such easy comparisons to last year, even if we trim a little bit," he continued, noting the semiconductor industry is expected to have an 87% year-over-year growth in earnings.

As for the Internet sector, Hill said: "Certainly there's some good news numbers-wise, but I still think it's a huge bubble. But it may get bigger before it breaks."

Look for more of Hill's comments in a Q&A tomorrow.

Among other indices, the

Dow Jones Transportation Average

fell 13.11 to 3597.46, owing largely to an 11% decline in

Airborne Freight

(ABF)

, which posted disappointing earnings. Elsewhere, the

Dow Jones Utility Average

gained 3.12, or 1%, to 305.71; the

Russell 2000

gained 0.19 to 435.16; and the

American Stock Exchange Composite Index

added 2.47 to another record, 774.07.

The price of the 30-year Treasury bond rose 18/32 to 95 26/32, its yield dipping to 5.54%.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

gained 11.21 to 7063.29 and the

Mexican Stock Exchange IPC Index

dipped 22.76 to 5382.39.

Tuesday's Company Report

By Heather Moore
Staff Reporter

(

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

)

Dow component

AT&T

(T) - Get Report

rung up 1/16 to 53 after reporting first-quarter operating earnings of 61 cents a postsplit share, including the impact of its March 9

TCI

acquisition, beating the 18-analyst forecast of 57 cents and moving ahead of the year-ago 45 cents.

Separately, Japan's

Nippon Telegraph & Telephone

(NTT)

gained 1 3/8 to 54 3/8 after agreeing to team up with AT&T in the global network solutions business.

Meanwhile,

Comcast

(CMCSK)

tacked on 2 to 66 1/4 after

The Wall Street Journal

reported that the company is in preliminary discussions to align itself with either Microsoft or AOL to counter Telephone's $54 billion cash-and-stock bid for

MediaOne

(UMG)

. Comcast previously offered $48 billion in stock. MediaOne rose 3 to an all-time high of 81 13/16. Microsoft dropped 4 to 84. Ahead of today's postclose earnings, AOL gave up 9, or 5.6%, to 153.

TheStreet.com

previewed the earnings report from Ma Net in a

piece this morning.

Mergers, acquisitions and joint ventures

Park Place Entertainment

(PPE)

shot up 2 1/4, or 24.7%, to an all-time high of 11 3/8 after agreeing to buy

Caesars World

and other gaming assets from

Starwood

(HOT)

for $3 billion in cash. The sale excludes the

Desert Inn

golf resort and casino in Las Vegas. Starwood fell 11/16 to 34 5/16.

Tarrant Apparel

(TAGS) - Get Report

grew 4 1/2, or 10.4%, to 47 13/16 after announcing an agreement with

Burlington Industries

(BUR)

to form a joint-venture company, to be named TABU Apparel Services, that will provide garment-manufacturing services for the casualwear market. Burlington skidded 1/2, or 6.2%, to 7 9/16.

Earnings/revenue reports and previews

Cheap Tickets

(CTIX)

expanded 2 11/16, or 6.4%, to 44 3/4 after last night posting first-quarter earnings of 5 cents a share, coming in ahead of expectations for a break-even quarter.

eBay picked up 1/4 to 209 1/4 after rising as high as 234 following last night's first-quarter earnings of 5 cents a share, 3 cents ahead of the 10-analyst forecast and above the year-ago penny. Meanwhile, online auction house

Bid.com

(BIDS)

-- rallying lately on word of an online audio auction planned for tonight -- sprouted up 2 13/16, or 17.1%, to an all-time high of 19 5/16.

Hi/fn

(HIFN)

climbed 6 7/8, or 16.8%, to an all-time high of 48 1/16 after last yesterday reporting second-quarter earnings of 21 cents a share, beating estimates of 11 cents.

Insight Enterprises

(NSIT) - Get Report

sank 1 9/16, or 5.3%, to 28 even after last night topping first-quarter earnings estimates by 2 cents a share.

Kemet

(KMET)

advanced 1, or 6.8%, to 15 3/4 after last night matching fourth-quarter earnings estimates for 6 cents a share.

Estee Lauder

(EL) - Get Report

flourished 2 13/16 to an all-time high of 98 1/16 after setting a 2-for-1 stock split and reporting third-quarter earnings of 39 cents a share, a penny above the 11-analyst view and ahead of the year-ago 33 cents.

Macrovision

(MVSN)

swelled 7 3/8, or 18.3%, to an all-time high of 47 7/8 after last night topping first-quarter earnings estimates by 3 cents with a profit of 20 cents a share.

MRV Communications

(MRVC)

lifted 1 19/32, or 19.6%, to 9 3/4 after last night meeting first-quarter expectations for a loss of 3 cents a share.

Shaw Industries

(SHX)

tacked on 1 5/16, or 7%, to 20 1/16 after last night reporting a first-quarter profit of 28 cents a share, 4 cents higher than expected.

U.S. Foodservice

(UFS) - Get Report

rose 3 1/2, or 8.6%, to 44 after last night posting third-quarter earnings of 34 cents a share, in line with estimates.

Zebra Technologies

(ZBRA) - Get Report

powered up 2, or 6.4%, to 33 3/8 after last night posting first-quarter earnings of 44 cents a share, a penny above estimates.

In other earnings news:

Offerings and stock actions

Dollar General

(DG) - Get Report

increased 3 11/16, or 11.4%, to 36 3/16 after setting a 5-for-4 stock split.

Galileo

(GLC)

tumbled 3 3/8, or 6.4%, to 49 3/16 after

KLM Royal Dutch Airlines

(KLM)

announced plans to sell its 10.6 million-share stake in the company through a public offering. Late yesterday, Galileo beat first-quarter earnings estimates by a penny a share. KLM added 1 1/16 to 30 5/8.

Pegasus Systems

(PEGS)

gave up 2 to 40 1/4 after filing for a 1.75 million-share offering.

Razorfish

(RAZF)

, a digital communications company, soared 17 3/8, or 108.5%, to 33 1/2 after

Credit Suisse First Boston

priced its 3 million-share IPO at $16 a share.

Analyst actions

Advo

(AD)

climbed 2, or 10%, to 22 after

Morgan Stanley Dean Witter

raised it to outperform from neutral.

Airborne Freight

(ABF)

sliced off 3 15/16, or 11%, to 31 3/4 after Morgan Stanley Dean Witter cut it to outperform from strong buy. Last night, the company missed first-quarter earnings estimates by 6 cents with a profit of 51 cents a share.

Apple

(AAPL) - Get Report

rose 4 13/16, or 11.8%, to 45 3/4 after

Goldman Sachs

upgraded the stock to its recommended list from market perform.

Calpine

(CPN)

hopped up 3 3/4, or 9.9%, to 41 5/8, matching an all-time high, after

BT Alex. Brown

upgraded it to strong buy from buy.

Safeway

(SWY)

surged 2 3/16 to 53 13/16 after

NationsBanc Montgomery Securities

started coverage with a buy.

U S West

(USW)

slid 1 3/4 to 53 1/2 after

Merrill Lynch

lowered it to accumulate from buy.

Miscellany

CMS Energy

(CMS) - Get Report

flew 2 3/8, or 5.8%, to 43 5/8 on last night's news it will replace

Union Camp

(UCC) - Get Report

in the S&P 500 after the close Friday. And

Aflac

(AFL) - Get Report

flew 3 1/2, or 6.8%, to an all-time high of 54 13/16 on word it will replace

Fred Meyer

(FMY) - Get Report

in the index.

Toys R Us

(TOY)

expanded 1 1/4, or 5.7%, to 23 1/16 after announcing plans to establish a separate Internet sales unit in a strategic partnership with

Benchmark Capital

, a Silicon Valley venture-capital firm. The company also said it acquired a 500,000-square-foot, automated distribution center in Memphis, Tenn.