Stocks Come Off Highs in Sudden Wave of Selling

On the heels of a modest, if somewhat stealthy, recovery late

yesterday, plus

Computer Associates'

(CA) - Get Report

forecast of better-than-expected earnings

last night, tech stocks were poised for some kind of rebound today. A robust

GDP

report this morning helped turn the rebound into a fast break.

And then, something went wrong.

A sudden downdraft sent the

Dow Jones Industrial Average

and the

S&P 500

spiraling into negative territory. The Dow, earlier as high as 10.961.71, lately was off 21 to 10,858. The S&P 500 was down 4 to 1339.

The move was led by an abrupt influx of bond futures into the market, offered by a dealer who needed to hedge against a $400 million to $500 million purchase of bonds, according to a trader.

The bond market, already weak on the strong GDP report, was slammed at lunchtime, with the bellwether 30-year Treasury lately down 1 23/32 to 94 10/32. Its yield swelled to 5.65%. (For more on the fixed-income market, see today's early

Bond Focus.)

In equities, the selling was concentrated in the financial sector, with

American Express

(AXP) - Get Report

plummeting out of positive airspace to lead the Dow's decliners.

3M

(MMM) - Get Report

was the Dow's biggest positive influence, up 5.6% after posting first-quarter earnings of 95 cents a share, 4 cents ahead of the nine-analyst

First Call

estimate although down from the year-ago 98 cents.

IBM

(IBM) - Get Report

followed among gainers.

The

Nasdaq Composite Index

lately was up 15 to 2543 but was well off its earlier steamy pace.

TheStreet.com Internet Sector

index was up 12 to 659.

Gains by recently punk bellwethers such as

Cisco

(CSCO) - Get Report

,

Intel

(INTC) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

were giving the Nasdaq a lift. The

Nasdaq 100

was up 1.8%.

Also,

Compuware

(CPWR)

was higher by 12.9% after posting better-than-expected earnings last night.

In

New York Stock Exchange

trading, Computer Associates was up 2.2%,

EDS

(EDS)

was higher by 3.8% despite last night posting profits that merely matched expectations.

Hewlett-Packard

(HWP)

, like IBM, was also on the rise; the

Morgan Stanley High-Tech 35

was up 1.7%.

Similarly, Internet stalwarts

America Online

(AOL)

,

Amazon.com

(AMZN) - Get Report

and

CMGI

(CMGI)

were on the mend from recent injuries; however, each was down from intraday highs as lunchtime approached.

Meanwhile,

InfoSpace.com

(INSP) - Get Report

was up 17.8% and

EarthWeb

(EWBX)

higher by 6.4% after each company separately reported narrower-than-expected quarterly losses last night.

As technology stock revived, cyclicals slipped back. Despite the GDP figure, interest in the group was dampened by last night's warnings of disappointing sales by

Deere

(DE) - Get Report

, lately down 7.6%. The

Morgan Stanley Cyclical Index

was off 0.4%.

The

Russell 2000

was up 2 to 435.

The 4.5% first-quarter GDP figure helped, but "I think the fact the overseas guys had marked things up had everybody set up for an up opening before that came out," said Bob Basel, director of listed trading at

Salomon Smith Barney

. "We walked in this morning with the

Globex

up 8. And we've got some earnings numbers out today that were OK. The one cyclical lagging is Johnny Deere."

As for how the session ends, "I think the key is how the program guys going to want to play the last day of the month," he said. "Will they mark specific stocks up or get a few things off the books? If the five stocks they're marking up happen to be in the Dow, you'll see them flying. But unless your program trading desk has that kind of order flow in hand, you're not going to know."

In NYSE trading, advancers were leading declining stocks 1,473 to 1,363 on 527 million shares. In

Nasdaq Stock Market

activity, gainers were leading 2,105 to 1,592 on 584 million shares. New 52-week highs were outpacing new lows 61 to 10 on the Big Board and 71 to 23 on the Nasdaq.

As Record Beckons, Dow Theorist Is Defiant

Meanwhile, the

Dow Jones Transportation Average

was up 32, or 0.9%, to 3675. Before the sudden bout of selling, the measure was well on track to eclipse its all-time high of 3686.02, set April 16, 1998. If the average establishes a closing high today it would eliminate (according to its basic premise) the bearish signal being cast by

Dow theory, although some purveyors of the tool say it has been bullish for some time.

However, the man widely considered the dean of Dow theorists, Richard Russell, editor and publisher of

Dow Theory Letters

, wrote April 21: "The transportation average topped on April 16, 1998. The longer the time lag for confirmation, the less valid a final confirmation. Therefore, if the transports should finally advance above 3686.03, I would not be particularly impressed. Actually, a final belated confirmation might even signal the end of the entire rise in the big-cap averages. In other words, it could be the 'final gasp.'"

Reached at his La Jolla, Calif., office this morning, Russell echoed the sentiment.

"My feeling is it's been so long

since the transports' last record, it's sort of a nonevent," he said. "Partially, the basis of Dow theory is value. One of the basic elements of value is return on investment. With

dividend yields at 1.2%, you're just betting on continued capital gains. The total bet is stocks will continue to go up, it's an unprecedented situation. I think we're in the process of topping out."

Russell was unbowed when asked how he could cling to a negative stance when major averages have appreciated at least 25% since Aug. 4, when he first espoused a bearish view.

"To me, it's been a bull market in averages and a bear market in everything else," he said. "The other thing is, we've got the biggest public participation in history. I saw speculation in '68, but never as widespread as this. I think when this thing goes it will be a long, drawn-out bear market. The bigger the excess on the upside, the worse it is on the downside."

Russell acknowledged being (very) early on the call and could not predict when the turn occurs. "I know it's hard to believe, but it's hard to believe what this bull market is doing," he said. "We've got all these mutual funds and hedge funds playing with someone else's money, which gives you a huge, wild market. We've never seen anything like this. No bull market goes on forever. I hope I'm wrong

about what happens next; I've got kids."

Friday's Midday Movers

By Heather Moore
Staff Reporter

YPF

(YPF) - Get Report

, Argentina's largest oil company, was jumping up 6 1/16, or 16.9%, to 42 after Spain's

Repsol

(REP)

offered to buy the entire company for $13.4 billion. In January, Repsol, lately up 15/16, or 6%, to 16 1/2, bought a 14.99% stake in YPF for $2 billion.

Dow component 3M was climbing 4 13/16, or 5.6%, to 90 7/16 after reporting first-quarter earnings of 95 cents a share, 4 cents ahead of the nine-analyst estimate but down from the year-ago 98 cents. The company said currency effects sliced earnings by 2 cents a share and that results were harmed by Brazilian economic weakness and a strong dollar. 3M said results were positively affected by an improvement in sales in the Asia Pacific region, solid productivity gains and growth in several of its U.S. businesses.

With the transport index on pace for a new all-time high, airline names were taking off.

Delta

(DAL) - Get Report

was flying up 2 9/16 to 64 1/2 and

US Airways

(U) - Get Report

was flying up 2 1/4 to 55 11/16.

It didn't hurt that

Business Week's

Inside Wall Street column quoted Joseph Battipaglia, chairman of investment policy at

Gruntal

, saying that large transport stocks were the best bets among cyclical stocks if investors think foreign economies -- particularly in Asia and Latin America -- are on their way back. Specifically, Big Joe named

Airborne Freight

(ABF)

, up 1 3/4, or 5.7%, to 32 3/4;

Northwest Airlines

(NWAC)

, up 1 1/4 to 34 1/2; and

Union Pacific

(UNP) - Get Report

, up a fraction to 60 5/8.

Elsewhere in the column, money manager David Rocker of

Rocker Partners

said

Bowne

(BNE)

has turned into a "fascinating and undervalued stock" worth twice its current price. Bowne was lifting 1 3/8, or 7.9%, to 19.

In other news:

Capital One

(COF) - Get Report

was up 9 1/16, or 5.4%, to 176 3/4 after its board approved a 3-for-1 stock split.

Newly public coal company

Consol Energy

(CNX:NYSE) was trading below its IPO price of $16 a share, lately off 1 1/16 to 14 15/16.

Internet-based software management company

Marimba

(MRBA:Nasdaq), whose 4 million-share IPO was priced above range at $20 a share last night, was rocketing 43 1/16, or 215.3%, to 63 1/16 after an opening delay.

Restoration Hardware

(RSTO)

was down 9 5/8, or 39.7%, to 14 11/16 after

NationsBanc Montgomery Securities

downgraded the stock to hold from buy.

State Street

(STT) - Get Report

was down 5 7/8, or 6.3%, to 87 5/8 after

PaineWebber

downgraded the stock to attractive from buy.

Earnings/revenue movers

Compuware was up 3 1/16, or 12.9%, to 26 13/16 after last night reporting fourth-quarter earnings of 31 cents a share, beating estimates for 29 cents.

Corinthian Colleges

(COCO)

was soaring 6 5/16, or 49.8%, to 19 1/8 after last night recording third-quarter earnings of 25 cents a share, blasting away forecasts for 14 cents.

Deere, North America's largest farm equipment maker, was down 3 7/16, or 7.6%, to 41 3/4 after late yesterday warning it sees second-quarter sales volume falling 20% below year-ago levels and full-year sales falling 18% to 20%.

InfoSpace.com was up 21, or 17.8%, to 140 1/2 after last night reporting a first-quarter loss of 3 cents a share, down from break-even results a year ago but narrower than the five-analyst consensus for a loss of 14 cents.

St. Paul

(SPC)

was up 1 to 29 3/4 after posting earnings of 62 cents a share, a penny shy of the 14-analyst estimate and down from the year-ago 64 cents.

Zoran

(ZRAN)

was down 2 1/8, or 16.4%, to 10 7/8 after last night posting a first-quarter profit 4 cents below expectations for a nickel a share.