Tech's Sharp Decline Has Traders Looking Over Their Shoulders

But some say the calm international scene should stanch the bleeding and prevent 1998 redux.
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Better-than-expected earnings from corporate bellwethers.

Check.

No bad news from the economic or international front.

Check.

All systems go! We have ignition ... we have ... Houston, we have a problem.

Like the space shuttle

Columbia

, equities never got off the ground today, creaking under the weight of recent excesses. Rather than leaking hydrogen, major averages bled profits, most notably in technology favorites.

Market gauges seemed poised for another rise after

Microsoft

(MSFT) - Get Report

,

IBM

(IBM) - Get Report

and

Lucent

(LU)

, plus a handful of others, posted better-than-expected earnings.

But each of the tech bellwethers had risen sharply heading into the earnings and the

Nasdaq Composite Index

had just enjoyed a tremendous ascent, culminating in

Friday's record, its ninth in 12 trading sessions. Today, the tech-beguiled index tumbled 98.07, or 3.5%, to 2732.22 after trading as low as 2728.21, as nearly all tech stalwarts suffered heavy losses. The point decline was the fourth-largest in Nasdaq history, though the percentage decline wasn't similarly significant.

Microsoft fell 5.1% and

Sun Microsystems

(SUNW) - Get Report

lost 5.2%. Additionally,

Intel

(INTC) - Get Report

fell nearly 4%,

Dell

(DELL) - Get Report

fell 3.1% and

Cisco

(CSCO) - Get Report

stumbled 4.2%. The

Nasdaq 100

fell 3.9%.

In

New York Stock Exchange

trading, IBM slid 5.1%, Lucent lost 8.9%,

Hewlett-Packard

(HWP)

declined 4.8% and

Texas Instruments

(TXN) - Get Report

fell 5.9% after also besting consensus expectations. The

Morgan Stanley High-Tech 35

lost 4.9%, while the

Philadelphia Stock Exchange Semiconductor Index

lost 4.5%.

The

Dow Jones Industrial Average

fell 191.55, or 1.7%, to 10,996.13 after trading as low as 10,969.54. The decline was the Dow's third-worst of 1999, trailing only a 228.63-point loss on

Jan. 14 and a 219-point loss on

March 23. The

S&P 500

shed 30.55, or 2.2%, to 1377.10.

IBM and H-P were the Dow's biggest negative influences, while financials

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

suffered setbacks of 3.9% and 2.9%, respectively. The

Philadelphia Stock Exchange/KBW Bank Index

fell 1.6%.

In Netland, bellwethers such as

Amazon.com

(AMZN) - Get Report

tumbled along with traditional tech favorites, sending

TheStreet.com Internet Sector

index down 23.30, or 3.7%, to 593.73.

The selloff was all-encompassing, reflected by market internals and broader averages. The

Russell 2000

slid 7.82, or 1.7%, to 453.55 while the

American Stock Exchange Composite Index

shed 11.76, or 1.4%, to 805.90.

In

New York Stock Exchange

trading, 756.7 million shares traded, while declining stocks swamped advancers 2,043 to 869. In

Nasdaq Stock Market

action 1.08 billion shares traded while losers led gainers 2,776 to 1,211. New 52-week lows bested new highs 45 to 44 on the Big Board, though new highs led by 75 to 42 in over-the-counter trading.

Still, several new issues enjoyed solid opening sessions, led by

Gadzoox Networks

(ZOOX)

, which soared 256%.

At

midday, most market players were unperturbed by the declines. By day's end, they weren't so sure.

"This is average tech carnage -- a pullback from extended conditions

that we knew was coming," Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla., said shortly after lunchtime. "When it comes to tech stocks, there is no quiet move -- no in between. No happy medium."

Still, Kaltbaum backed off from his notion yesterday that "any pullback is buyable," explaining that "how you finish today and tomorrow are very important."

Reached shortly before the close of trading, the technician expressed some chagrin.

"It's not a good day. This is a little more

of a pullback than I would like," he said. "I think there's damage being done here. To what extent I don't know, but I don't think it's killing the golden goose."

Tomorrow will be key, he added: "If you can reverse this move and catch some support, you'll be OK."

The technician said stocks such as IBM are declining from "overbought conditions," not "breaking down," providing some solace amid an otherwise inconsolable session for those long.

Deja Vu All Over Again

While concerned, most players accepted today as an inevitable result of recent successes. Brian Belski, chief investment strategist at

George K. Baum

in Kansas City, Mo., was less sanguine.

Today was "a classic case of 'buy the rumor, sell the news,'" Belski said, echoing the majority view. "IBM and Microsoft both fluffed warnings, which was enough for some people to lay off. We were due for a pullback."

But "the momentum in the recent move

wasn't all that hot in terms of really strong rallying days," he added, expressing a less popular outlook. "It's kind of been consolidating in an uptrend the last couple of weeks. There's been some decent earnings news but not great.

"I don't think the market has the calendar on its side," the strategist continued. "You can feel the tensions build as banks try to rush out IPOs before everyone goes on vacation in August."

Speaking of the calendar, Belski is also troubled by similarities between this year and last. In 1998, you'll recall, investors rushed into stocks at the end of the second quarter and through the beginning of earnings season, only to see losses mount in the last half of July and build through early September.

"I think in terms of trading patterns, this vs. last year is almost exactly the same," he said. "Because we don't have the same foreign ambiguities, I don't think the pullback is going to be as intense."

Finally, Belski observed that "important" rallies in recent years have coincided with bond "yield bottoms" vs. the most recent advance, which accompanied an apparent top.

"Usually you have money come out of bonds and into stocks when stocks got cheap," he said. The absence of such asset-allocation buying "adds credence to saying this latest move wasn't a bonafide breakout."

Today, the price of the 30-year Treasury bond rose 5/32 to 91 4/32, its yield slipping to 5.89% after the

Federal Reserve

intervened to support the currency vs. the Japanese yen. The advance was further aided by asset allocators fleeing stocks for bonds, Belski noted.

Among other indices, the

Dow Jones Transportation Average

fell 28.90, or 0.8%, to 3434.94 and the

Dow Jones Utility Average

dipped 0.09 to 321.32.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

dropped 121.50, or 1.7%, to 7154.44 and the

Mexican Stock Exchange IPC Index

tumbled 97.32, or 1.7%, to 5814.97.

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.

)

On a day otherwise starved of good news, it was nice to know that investors could still look at initial public offerings -- especially of the Internet food group -- as a nice slice of chocolate cake.

Genentech

(DNA:NYSE) popped 30, or 30.9%, to 127 after last night

J.P. Morgan

priced its 20 million-share IPO top-range at $97. The price range for the biotech company's first offering was raised to $88 to $98 from $85 to $95. The company, whose parent is

Roche Holding

, develops, manufactures and markets pharmaceuticals.

Among other new issues:

  • Convergent Communications (CONV:Nasdaq) grew 6 3/8, or 42.5%, to 21 1/2 after Goldman Sachs priced its 8.4 million-share offering top-range at $15. The company is a data and voice communications services provider. The price range for the offering was raised to $13 to $15 from $11 to $13.
  • Gadzoox Network rocketed 53 3/4, or 255.9%, to 74 13/16 after Credit Suisse First Boston priced its 3.5 million-share offering above-range at $21. The company makes products that connect computer systems to data storage services. The price range for its offering was raised to $18 to $20 from $9 to $11.
  • Finally, Talk City (TCTY) grew 1 5/8, or 13.5%, to 13 11/16 after Lehman Brothers priced its 5 million-share IPO top-range at $12. The company is an online communities provider. The price range for its offering was raised to $10 to $12 from $8 to $10.

Mergers, acquisitions and joint ventures

Healtheon

(HLTH)

picked up 4 1/16, or 6.9%, to 63 1/8 on word it agreed to develop an online prescription service for doctors who have a high concentration of patients with prescription plans administered by

Merck-Medco

, a unit of

Merck

(MRK) - Get Report

. Merck lowered 1 15/16 to 68 11/16.

Lycos

(LCOS)

slipped 4 3/4 to 95 13/16 after news it formed a $70 million venture capital fund with partners that include Paul Allen's

Vulcan Ventures

. The venture capital fund will be called

Lycos Ventures

.

Earnings/revenue reports and previews

CBRL

(CBRL) - Get Report

lost 1 11/16, or 9.3%, to 16 7/16 after saying last night it sees fourth-quarter earnings of 21 cents to 25 cents a share due to poor

Cracker Barrel

same-store sales, higher costs from increased management staffing levels at these stores and pressure on store-level margins. The 17-analyst estimate called for 37 cents vs. the year-ago 56 cents.

Citrix Systems

(CTXS) - Get Report

skidded 7 3/4, or 12.4%, to 54 5/8 even after last night topping second-quarter earnings estimates of 31 cents by 1 cent a share.

IBM shed 6 3/8 to 128 1/4 after last night recording second-quarter earnings of 91 cents a share, topping the 21-analyst prediction of 88 cents and moving ahead of the year-ago 75 cents. Today, Credit Suisse First Boston raised its price target on IBM to 155 and reiterated its buy rating.

BancBoston Roberston Stephens

lifted its 1999 earnings view to $3.90 from $3.78, and

Bear Stearns

lifted its 1999 earnings view to $3.85 from $3.80.

Inter-Tel

(INTL) - Get Report

expanded 2 3/8, or 11.4%, to 23 1/4 after last night reporting second-quarter earnings of 27 cents a share, 4 cents ahead of estimates.

Microsoft shaved off 5, or 5.1%, to 93 5/16 after last night warning of a revenue slowdown for fiscal 2000. The software giant also posted fourth-quarter earnings of 40 cents a share, 4 cents better than the 26-analyst estimate and up from the year-ago 25 cents.

MYR Group

(MYR)

excelled 1 1/8, or 6%, to an all-time high of 19 13/16 after last night beating second-quarter estimates by a penny with a profit of 51 cents a share.

Nu Skin Enterprises

(NUS) - Get Report

slipped 4 1/2, or 23.4%, to 14 3/4 after warning its earnings will be lower than anticipated for several future quarters due to its acquisition of

Big Planet

. The company also posted second-quarter earnings of 25 cents a share, below the four-analyst forecast of 31 cents.

Profit Recovery

(PRGX) - Get Report

tacked on 3 1/8, or 7.2%, to 47 after last night reporting second-quarter earnings of 25 cents a share, 4 cents higher than expectations.

Qualcomm

(QCOM) - Get Report

picked up 4 3/16 to 162 15/16 after last night beating third-quarter earnings estimates of 63 cents a share with a profit of 75 cents. Today, Credit Suisse First Boston upped its 1999 earnings estimate for the company to $2.44 from $1.75 and its 2000 view to $3.75 from $2.50.

SAP

(SAP) - Get Report

, the German software company, declined 1 1/16 to 33 7/16 saying its second-quarter net income fell 7% to 142 million euros, down from the year-ago 152 million euros, while income before taxes fell 7% to 248 million euros, down from the year-ago 268 million.

Xircom

(XIRC)

flew 2 5/8, or 8%, to 35 3/8 after last night topping third-quarter earnings by a nickel a share with a profit of 48 cents. Today,

First Albany

lifted the stock to accumulate from neutral.

Zomax

(ZOMX)

added 13/16 to 48 1/8 after last night reporting second-quarter earnings of 60 cents a share, 5 cents higher than the five-analyst estimate and significantly ahead of the year-ago 15 cents The company also set a 2-for-1 stock split.

In other earnings news:

Analyst actions

Continental Airlines

(CAL) - Get Report

added 9/16 to 42 after

Donaldson Lufkin & Jenrette

upgraded the stock to buy from market perform.

Forward Air

(FWRD) - Get Report

slouched 2 3/4, or 9.5%, to 26 3/8 after

ABN AMRO

cut it to hold from outperform.

Hewlett-Packard gave up 5 5/8 to 110 5/8 even after Bear Stearns upgraded it to buy from attractive, citing yesterday's hiring of Carly Fiorina as the company's CEO.

ISS Group

(ISSX)

tanked 11 9/16, or 30.2%, to 26 9/16 after Goldman Sachs downgraded the stock to market outperform from the firm's recommended list. Goldman cited the stock's recent run-up and said the company is moving into a "seasonally slower" third quarter. Yesterday, ISS met second-quarter earnings estimates of 3 cents a share.

PRI Automation

(PRIA)

sank 6 5/16, or 16.6%, to 31 7/8 after

Merrill Lynch

cut it to near-term neutral from accumulate.