Violent Lurch Downward Has Pros Hoping It's All Over

The kind of selling spasm seen today could be a one-day release of tension, or the start of something bigger. No one's placing big bets yet.
Author:
Publish date:

SAN FRANCISCO -- All together now. Freed from having to ponder the meaning of last week's divergences, traders faced a whole new set of worries today.

Major averages declined precipitously in unison despite

early indications suggesting a positive session. At

midday, a repeat of last week's trend seemed likely, as small-cap and tech proxies fought to sustain early gains while blue-chip averages faltered. But by 2:30 p.m. EST, all major averages had fallen into negative territory and the losses were not stemmed until about 20 minutes remained in the session.

Once as high as 11,366.50, the

Dow Jones Industrial Average

traded as low as 10,917.27 before closing down 243.54, or 2.2%, to 11,008.17. The decline is the Dow's fifth in a row and its 10th-largest point loss ever (the percentage drop was not historically significant). The index has fallen 6.1% from its record close of 11,722.98, set

Jan. 14.

The

S&P 500

slid 39.83, or 2.8%, to 1401.53 after trading as high as 1454.09 and as low as 1395.42.

The

Nasdaq Composite Index

, meanwhile, closed off 139.32, or 3.3%, to 4096.08 after trading as high as 4303.15. The decline -- the third-biggest point loss in the average's history -- came amid the heaviest over-the-counter trading volume ever, at 1.989 billion shares.

The tech-imbued average was waylaid by weakness in bellwethers such as

Sun Microsystems

(SUNW) - Get Report

,

Oracle

(ORCL) - Get Report

,

Cisco

(CSCO) - Get Report

and

Dell

(DELL) - Get Report

.

Additionally, recent tech leaders such as

JDS Uniphase

(JDSU)

and

Qualcomm

(QCOM) - Get Report

suffered big drops. The

Nasdaq 100

shed 4.9%.

Intel

(INTC) - Get Report

bucked the trend, rising 0.8% after

Robertson Stephens

made bullish comments. Still, the

Philadelphia Stock Exchange Semiconductor Index

fell 1.9%.

TheStreet.com Internet Sector

index fell 34.53, or 3%, to 1127.77 despite a 13.3% rise in

Amazon.com

(AMZN) - Get Report

, which received bullish comments from

Goldman Sachs

and

Donaldson Lufkin & Jenrette

. Separately, Amazon announced it has boosted its minority stake in

drugstore.com

(DSCM)

, which surged 19%.

Weakness in

Yahoo!

(YHOO)

helped sabotage the DOT, which traded as high as 1191.74.

Elsewhere,

TheStreet.com New Tech 30

plummeted 92.65, or 13.9%, to 575.80. Unveiled Jan. 5, the TSC New Tech 30 is an expanded index replacing the

Red Hots

index. The market-cap-weighted index remains focused on tracking the most scorching part of the market, the magnet for Wall Street's hot money. A list of the index components is available at

http://www.thestreet.com/newtech/.

'There's no major portion of the market portfolio managers can put their money in and feel comfortable about,' said Ed Nicoski of

U.S. Bancorp Piper Jaffray

. 'There just isn't any leadership except tech, and that can only go so far without breaking or causing the rest of the market to take a break.'

Even the

Russell 2000

got caught in the downdraft, falling 10.99, or 2.1%, to 522.95, ending its streak of record-setting closes at five.

"The market did have a decent tone

earlier but there was heavier profit-taking than people thought we'd see," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland. "People were running to the hills on stuff previously parabolic."

For example, the trader noted

Enzo Biochem

(ENZ) - Get Report

-- a huge winner last week -- declined 35% to 79 1/2 after trading as high as 139 intraday.

But "this doesn't seal the end of the bull market," Volk continued. "I keep reminding myself the violence is compressed. It could be we completed a week's worth of selloff in a day. I still maintain it's a midcourse correction and not the beginning of a top."

In

New York Stock Exchange

trading, 1.116 billion shares were exchanged while declining bested advancers 2,029 to 1,028. In

Nasdaq Stock Market

action losers led 2,399 to 1,802 on the record-setting volume mentioned above. New 52-week lows bested new highs 156 to 93 on the Big Board while new highs led 449 to 95 in over-the-counter trading.

Gimme Shelter

"There's no major portion of the market portfolio managers can put their money in and feel comfortable about," said Ed Nicoski, chief market strategist at

U.S. Bancorp Piper Jaffray

in Minneapolis. "There just isn't any leadership except tech, and that can only go so far without breaking or causing the rest of the market to take a break."

Nicoski cautioned against overanalyzing today's decline but said the market has a "huge problem" and "a lot of vulnerability built in." Given the "parabolic" moves enjoyed by tech and biotech of late, "at some point they're going to get hurt real bad and harder than the rest of the market," he said. "I don't know if today's the day" that begins the process.

The conundrum, Nicoski explained, is that technology still represents "long-term leadership" and a sector investors should continue to overweight. But investors should also have some cash on hand for what is shaping up to be an extremely volatile year, he said.

Market players were unable to pin the decline on any particular event but the drug industry embodied both the session's overriding negativity and sense of missed opportunity.

Procter & Gamble

(PG) - Get Report

said it had

broken off merger talks with

Warner Lambert

(WLA)

and

American Home Products

(AHP)

. P&G, which plummeted last week on rumors of such a combination, rose as high as 108 7/8 before closing up fractionally at 103 1/8, while Warner Lambert lost 4.6% and American Home dumped 11.2%.

Elsewhere, Dow component

Johnson & Johnson

(JNJ) - Get Report

shed 6.8% while

Bristol-Myers Squibb

(BMY) - Get Report

slid 4.1% despite posting better-than-expected earnings. The

American Stock Exchange Pharmaceutical Index

slid 4.6%.

Financial stocks also stumbled although the price of the 30-year Treasury bond rose 22/32 to 93 8/32, its yield dipping to 6.65%. The

Philadelphia Stock Exchange/KBW Bank Index

fell 1.6%.

Dow component

General Electric

(GE) - Get Report

fell 4.1%; the conglomerate said it was "fully reserved" against fourth-quarter losses suffered by its reinsurance unit.

Among other indices, the

Dow Jones Transportation Average

slid 48.54, or 1.8%, to 2702.95; the

Dow Jones Utility Average

dipped 2.83, or 0.9%, to 312.26; and the

American Stock Exchange Composite Index

fell 6.79, or 0.7%, to 905.49.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

lost 176.16, or 2%, to 8458.75 and the

Mexican Stock Exchange IPC Index

dropped 35.43, or 0.5%, to 6855.35.

For coverage of today's top stocks in the news, see the Company Report, published separately

.