Traders Seize Profits in Tech Ahead of Big Earnings Report

All eyes will be on Yahoo! after the close. Meanwhile, one market maven says the end is nigh.
Author:
Publish date:

Following the inaugural first-quarter earnings announcement from one of the Dow 30, stocks felt free to build on

Monday's record gains early this morning. But come lunchtime, profit-taking -- and some nervousness -- had struck ahead of tonight's earnings report from one of the Street's biggest Internet companies, with white-hot tech and Internet sectors hit the hardest and the

Dow Jones Industrial Average

still in the green.

With warnings season comfortably behind us (

Network Associates

(NETA)

being today's exception), the focus has shifted to actual reports. And while next week is considered the official beginning of earnings season,

Alcoa

(AA) - Get Report

today became the first major company to report earnings. The world's largest aluminum producer posted a profit of 60 cents a share, 6 cents ahead of the 16-analyst

First Call

estimate but behind the year-ago 62 cents. The stock lately was up 4.1% to 42 3/4.

Investors, meanwhile, are waiting for

Yahoo!'s

(YHOO)

report, expected after today's closing bell. Analysts are calling for earnings of 8 cents a share but the whisper number is closer to 9 cents or a dime. The Internet portal was down 0.3%. (

TheStreet.com

previewed Yahoo!'s announcement in a

piece yesterday.)

Some market watchers are casually explaining today's losses in the tech-saturated

Nasdaq Composite Index

as a natural reaction to two consecutive record sessions. Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla., is a bit more dramatic. This is it, he says -- the beginning of the end.

"I'm not worried about the Dow -- I don't really look at that, it's only 30 stocks," Kaltbaum said. "I'm a technician and a fundamentalist first, and underneath this market, more and more, this thing is not looking good. Every day, the average stock breaks down more. I'm talking about small- to midcap stocks. I called a top in July, and it's the same thing here. I don't know what the trigger point will be and I don't know when it will happen, but when big-caps start to correct, it's going to mean real trouble."

The technician said it's possible large-caps will walk their way through earnings season unharmed, but that at some point in the short-term we're looking at a substantial correction. He noted that software companies were "getting destroyed today across the board," with the

CBOE Computer Software Index

off 3.2% and

Microsoft

(MSFT) - Get Report

down 2.3%.

"Financials stocks do seem to be breaking out and

Lucent

(LU)

has broken out, but as we're at

Dow 10,000, we're making new lows," Kaltbaum said. "The advance/decline line on the Nasdaq is below where it was when the Nasdaq was at 1400. In 1998, the Nasdaq rose 39.6%. Take out the top five, and the Nasdaq was down 7.03%. When something gives, it's gonna be nasty, it's just a matter of when."

After rising as high as 2596.25 and falling as low of 2511.39, the Nasdaq was down 34 to 2529.

MCI WorldCom

(WCOM)

, down 4.1%, and

Sun Microsystems

(SUNW) - Get Report

, down 2.5%, stood out among those feeling the most pressure.

The

Morgan Stanley High-Tech 35

was down 1.9%, and the

Philadelphia Stock Exchange Semiconductor Index

was down 1.6%.

Internet stocks were releasing some steam, with

TheStreet.com Internet Sector

index down 1.1% and

TheStreet.com E-Commerce Index

down 1%. Red-capped superstock

America Online

(AOL)

was losing 1.8%.

Peter Cardillo, chief strategist at

Westfalia Investments

, said a recent batch of good news -- including Yahoo!'s not-yet-announced earnings -- is already priced into a majority of Internet stocks. "It's going to be a nonevent when

Yahoo! announces -- you know it's buy the rumor, sell the fact," he said. "Only if they really blow away the Street or if they miss estimates will it matter."

As for the broad market, Cardillo said: "Today we have a reversal, with the Dow up and the Nasdaq down. So we're seeing pockets of strength and pockets of weakness. We've been up in record territory, earnings season is approaching, NETA preannounced,

IBM

(IBM) - Get Report

and techs are down -- people are nervous. There has been a shift to a more cautious attitude in the market today."

The strategist agrees with Kaltbaum that a (12% to 15%) correction is pending, but he insists that it will wait until after earnings season and that the Dow will mark 10,300 to 10,400 in the meantime.

The Dow recently was up 15 to 9978, off its session high of 10,040.91. In addition to

AT&T

(T) - Get Report

, stars of the blue-chip index included financials

American Express

(AXP) - Get Report

,

Citigroup

(C) - Get Report

and

J.P. Morgan

(JPM) - Get Report

.

The broader

S&P 500

was down 2 to 1316, while the small-cap

Russell 2000

was down 3 to 398.

Market internals were decidedly negative. On the

New York Stock Exchange

, decliners lead advancers 1,585 to 1,243 on 480 million shares. And the downs had the ups 2,093 to 1,596 on 786 million shares in

Nasdaq Stock Market

activity.

The 30-year Treasury was up 4/32 to 96 5/32, yielding 5.51%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday's Midday Movers

By Aaron L. Task
Senior Writer

Preannouncement season was supposed to be over.

Gillette's

(G) - Get Report

warning

Monday night was supposed to be the last gasp.

Nuh-uh.

Several companies waved the red flag, either

last night or this morning, leading to some debilitating losses for the guilty culprits (and their shareholders).

Most prominently, as mentioned above, Network Associates was down 5 3/8, or 24.5%, to 16 5/8 after saying first-quarter earnings will be 30 cents to 32 cents a share, well below the 21-analyst forecast of 46 cents. The company also announced a $169 million adjustment to acquisition write-downs. Network Associates posted fourth-quarter operating earnings of 50 cents a share, beating the year-ago 22 cents. Including charges, the company reported fourth-quarter net earnings of 40 cents vs. a year-ago loss of 47 cents. Analysts at

Bear Stearns

,

NationsBanc Montgomery Securities

,

Goldman Sachs

and

Brown Brothers Harriman

each cut ratings.

Engineering Animation

(EAII)

was down 21 5/16, or 53.4%, to 18 7/8 after warning it expects first-quarter revenue to fall 15% below analysts' expectations and first-quarter earnings to come in below the six-analyst consensus of 26 cents a share.

Elsewhere,

Data Dimensions

(DDIM)

was down 1 1/16, or 25.8%, to 3 1/16 after saying it expects to record first-quarter earnings of 9 cents to 12 cents a share vs. the three-analyst prediction for 21 cents. The company earned 7 cents a year ago.

FVC.com

(FVCX)

was down 5 31/32, or 45.9%, to 7 1/16 after warning of a first-quarter loss of 20 cents to 22 cents a share. The five-analyst forecast called for earnings of 3 cents vs. the year-ago loss of 4 cents. Bear Stearns cut its recommendation to attractive from buy.

Hyperion Solutions

(HYSL)

was down 1 3/16, or 9.2%, to 11 11/16 after saying its third-quarter earnings will fall short of the 12-analyst forecast of 22 cents a share. A year ago, the company earned 21 cents. Goldman Sachs cut its recommendation to market performer from market outperformer.

PictureTel

(PCTL)

was down 1 11/16, or 26%, to 4 13/16 after saying it expects to lose 68 cents a share in the first quarter vs. the four-analyst estimate of a 9 cent shortfall.

Saville Systems

(SAVLY)

was down 4 1/4, or 42.2%, to 5 7/8 after warning it expects to post a first-quarter loss of up to 9 cents a share. The 14-analyst estimate was for a profit of 24 cents a share vs. 23 cents a year ago.

BT Alex. Brown

cut its recommendation to buy from strong buy.

Symix Systems

(SYMX)

was down 2 5/8, or 26.4%, to 7 3/8 after saying it sees third-quarter earnings of 9 cents to 11 cents a share vs. the seven-analyst outlook for earnings of 13 cents. The company lost 60 cents a share a year ago.

Earnings/revenue movers

Acclaim Entertainment

(AKLM)

was down 1 3/16, or 13.3%, to 7 25/32 despite reporting second-quarter earnings of 21 cents a share, in line with the six-analyst view and ahead of the year-ago loss of 2 cents.

Maxim

(MXG)

was down 1 3/18, or 13.1%, to 9 1/8 after reporting a fourth-quarter loss of 37 cents a share, excluding one--time gains, vs. the five-analyst estimate of a 10 cent shortfall and year-ago profits of 19 cents.

In other news:

Asia Pulp & Paper

(PAP)

was down 15/16, or 11%, to 7 5/8 after the company filed with the

Securities & Exchange Commission

to offer an additional 40.3 million American Depositary Shares.

Check Point Software Technologies

(CHKP) - Get Report

was down 2 13/16, or 9.4%, to 27 1/4 after

ING Baring Furman Selz

cut its recommendation to hold from buy.

General Cable

(GCN)

was up 2 3/16, or 23%, to 11 11/16 after announcing it will acquire the energy and cable business of U.K.-based

BICC

for $440 million. General Cable later announced its board has approved the repurchase of up to $50 million of its outstanding shares.

InfoSpace.com

(INSP) - Get Report

was up 23 1/8, or 25.8%, to 112 7/8 after announcing a 2-for-1 stock split.

Peapod

(PPOD)

was down 1 1/16, or 8.7%, to 11 3/16 on word chief operating officer John Walden has resigned to become president of the Internet commerce division of

Best Buy

(BBY) - Get Report

, which was off a fraction.

Revlon

(REV) - Get Report

was up 3, or 15%, to 23 after saying it is considering the sale of one of more of its businesses. Goldman Sachs and

Lazard Freres

have been hired as advisers.

Seagram

(VO) - Get Report

was up 3 3/16, or 5.8%, to 58 1/8 after its

Universal Music

unit and

BMG

, a unit of

Bertelsmann

, unveiled a joint Internet venture, creating an online music store called

getmusic.com

.

Spyglass

(SPYG) - Get Report

was up 5 7/8, or 65.7%, to 14 7/8 after announcing a development deal with Microsoft that could generate as much as $20 million in revenues over three years.

TCI Music

(TUNE)

was up 7 5/8, or 25.8%, to 37 3/16 following yesterday's announcement it will assume the Internet and interactive TV assets of

Liberty Media

(LMGA)

.

Watson Pharmaceuticals

(WPI)

was up 4 1/16, or 9.6%, to 46 1/4 on news it will replace

Aeroquip-Vickers

(ANV)

in the S&P 500 after the closing bell Friday. Aeroquip-Vickers is being acquired by S&P 500 component

Eaton

(ETN) - Get Report

.

Univision Communications

(UVN)

was up 3 7/16, or 6.8%, to 54 3/8 on the simultaneous announcement it will replace Watson in the

S&P MidCap 400

index.