Wall Street Pares the Pain but Finds Little Pleasure

Major indices finished way off their lows, but almost all of them lost ground amid hideous internals.
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A pitched battle was waged on Wall Street today along the 38th Parallel known as key "technical support" levels. In the end, those long stocks lost the battle but may have won the war. Or, at least, staved off final defeat as major proxies closed well off session lows. However, the possibility for a counterattack remains high as forces are massed along the Yalu River of skepticism.

The

S&P 500

was most encouraging to market players. The index closed down 16.37, or 1.3%, to 1281.43 but up from its session low of 1267.73. At its worst, the index was more than 10% below its

July 16 all-time high of 1418.18 and below its 200-day moving average of 1279.40. Those levels raised the fear factor even among the most jaded Wall Street participants.

"A lot of people are looking for a rally. A little bit of the Sir Walter," one trader quipped at midday. "But if it doesn't hold right here

at the 200-day moving average, it's probably going to get ugly."

The closely watched (and benchmarked) index avoided falling into official correction territory, but it's down 9.7% from its all-time high.

The

Dow Jones Industrial Average

closed down 52.55, or 0.5%, to 10,655.15 after trading as low as 10,549.08. Some market watchers said 10,600 was a key level for the blue-chip proxy, for it was from around that level that the index rose in late June to its all-time high of 11,209.84.

The Dow was hampered most by

IBM

(IBM) - Get Report

and

J.P. Morgan

(JPM) - Get Report

as growth stocks and financials continued to feel the pinch of higher interest rates.

After giving up early gains, the price of the 30-year Treasury bond closed down 4/32 to 86 19/32, its yield rising to 6.25%. (For more on the fixed-income market, see today's late

Bond Focus.)

The Dow and the S&P were aided by strength in retailers, notably

Wal-Mart

(WMT) - Get Report

, which rose 6.7% after posting robust second-quarter earnings and predicting a strong second half. The

S&P Retail Index

rose 1.9%. Additionally, consumer stocks such as

Procter & Gamble

(PG) - Get Report

and cyclicals such as

Caterpillar

(CAT) - Get Report

buoyed blue-chip averages.

'We may have hit support here intraday but it doesn't mean anything,' said Gary Kaltbaum of J.W. Genesis. 'If you take a look at a chart of the

long bond's yield, there's a perfect breakout to the upside. I suspect 6.50% is a lock. That's what's causing the pain in growth names.'

The

Nasdaq Composite Index

fell 28.87, or 1.2%, to 2490.11 after trading as low as 2442.22. The tech-flavored index is now down 13.1% from its all-time high.

As had been the case on the downside of late, Internet stocks led today's rebound.

TheStreet.com Internet Sector

index, once as low as 458.09, recovered to trade as high as 490.61 before closing up 8.37, or 1.7%, to 488.40.

Bellwether Net names such as

Amazon.com

(AMZN) - Get Report

and

Yahoo!

(YHOO)

led the DOT's comeback. Still, the average remains mired in a bear-market reversal, down 38.2% from its April 12 high of 790.44.

Reflecting the day's ebb and flow, the

Chicago Board Options Exchange's

volatility index closed up 1.1% to 28.30 vs. its session high of 31.09. The VIX, as it's known, is basically a measure of investors' level of fear and has not closed above 30 since March 2.

On the Other Hand

Despite the "moral" victory by major averages, there was plenty for those betting against stocks to crow about today. Most troubling, the

Dow Jones Transportation Average

fell 82.91, or 2.6%, to 3137.54 and is now down 17.1% from its all-time high of 3783.50, set May 12. Additionally, the

Russell 2000

fell 3.07, or 0.7%, to 422.82 after trading below its year-opening level of 421.95 intraday. Meanwhile, market internals continue to sour like cucumbers in garlic and dill, salt and spices.

In

New York Stock Exchange

trading, 836.3 million shares were exchanged while declining stocks swamped advancers 2,313 to 764. In

Nasdaq Stock Market

action 989.3 million shares traded while losers led 2,684 to 1,343. New 52-week lows bested new highs 324 to 40 on the Big Board and by in 182 to 38 over-the-counter trading.

"Breadth stats have turned to mush and made a big bearish statement," said Greg Nie, chief technical analyst at

Everen Securities

in Chicago. "What more do you want me to say?"

In absolute terms, the advance/decline has lost over 12,000 "units" since its July 16 peak, Nie said. "That's a lot of ground in a fast period of time."

The questions from here: "Are price charts going to break down? Is volume going to confirm to keep things under pressure?" the technician posed. "We are playing with fire."

The S&P holding above 1280 was significant today but "I think we're going to flirt with these numbers for a couple of days," Nie said. "We're getting close to a bottom but it's going to be very testy."

Like many on Wall Street, Nie said the "real risk" to stocks is interest rates.

"It's the interest rates, stupid," agreed Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla. "We may have hit support here intraday but it doesn't mean anything. If you take a look at a chart of the

long bond's yield, there's a perfect breakout to the upside. I suspect 6.50% is a lock. That's what's causing the pain in growth names."

Today's rebound from the lows notwithstanding, "there's too much damage being done to important stocks," the technician said, citing

MCI WorldCom

(WCOM)

and

Lucent

(LU)

as examples; each fell more than 3%.

He said sellers are also "coming after" recent highfliers such as

EMC

(EMC)

-- which fell 6.1% in investors' continued disappointment with its

Data General

(DGN)

acquisition -- and

Cisco

(CSCO) - Get Report

, which lost 1.9%.

After the close, Cisco reported fiscal fourth-quarter earnings of 21 cents a share, a penny ahead of the consensus estimate.

Among other indices, the

Dow Jones Utility Average

fell 1.26, or 0.4%, to 317.69; and the

American Stock Exchange Composite Index

shed 7.10, or 0.9%, to 770.77.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

dropped 73.48, or 1.1%, to 6790.26 and the

Mexican Stock Exchange IPC Index

lost 13.39 to 5058.31.

Tuesday's Company Report

By Eileen Kinsella
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.

)

Shares of

Frontier

(FRO) - Get Report

were slammed today as static about

Global Crossing's

(GBLX)

falling stock price raised questions about the companies multibillion-dollar merger. Fears about a phone-rate war and overall weakness in the high-tech sector weren't helping matters any. Frontier was one of the big losers on the Big Board today, dropping 4 1/8, or 9.2%, to 40 3/4. Global Crossing continued its slide, falling 2 5/8, or 8.6%, to 28.

Mergers, acquisitions and joint ventures

Alcan

(AL) - Get Report

of Canada rose 1 13/16, or 5.7%, to 33 5/8 and

Pechiney

(PY) - Get Report

of France rose 5/16 to 28 1/4 after the companies confirmed they and

Alusuisse Lonza

of Switzerland were in three-way merger talks.

The Wall Street Journal

reported earlier that the three could be planning to create an aluminum-and-packaging behemoth to rival

Alcoa

(AA) - Get Report

. Alcoa rose 13/16 to 66 7/16 despite the news.

Razorfish

(RAZF)

shaved 3 1/4, or 11.5%, to 25 after it said it would acquire

i-Cube

(ICUB)

in a deal valued around $677 million. i-Cube melted 1 1/8, or 5.4%, to 19 7/8

Lucent lost 2 to 61 5/8 after it agreed to acquire

International Network Services

(INSS)

in a deal valued at $3.7 billion. Each International Network share will be converted into 0.8473 Lucent share. At yesterday's prices the takeover is valued around $3.7 billion, or about $54 an International Network share, Lucent said. International Network added 2 15/16, or 6.2%, to 50 7/16.

TotalFina

(TOT) - Get Report

added 1 to 65 11/16 after its board rejected

Elf Aquitaine's

(ELF) - Get Report

advances for the second time at a meeting on Monday. Elf lost 3/8 to 89.

Earnings/revenue reports and previews

Automatic Data

(AUD)

lost 1 3/8 to 38 despite saying it expects double-digit growth in earnings per share next year in addition to an improvement in operating margins.

Barr Laboratories

(BRL)

gained 7/16 to 37 15/16 after posting fourth-quarter earnings of 56 cents a share, a penny better than the lone-analyst estimate and up from 38 cents a year ago. The company said the year-ago EPS included a 3-cent restructuring charge.

Overseas Shipholding Group

(OSG) - Get Report

floated down 1/8 to 13 9/16 after it reported second-quarter earnings of 23 cents a share, compared with 20 cents a year ago. The latest quarter included a 16-cent gain, and no operating income figures were available. The single analyst estimate called for a 5-cent operating loss.

Polo Ralph Lauren

(RL) - Get Report

added 3/4 to 19 after posting first-quarter operating earnings, excluding a charge, of 28 cents a share, ahead of the 14-analyst estimate of 24 cents.

Wal-Mart rose 2 11/16, or 6.7%, to 42 7/8 after it posted second-quarter operating earnings of 31 cents a share, excluding a litigation-settlement charge of 3 cents. Earnings were ahead of the 17-analyst estimate of 28 cents and up from the year-ago 23 cents.

In other earnings news:

Offerings and stock actions

The market may be cool, but

Red Hat Software

(RHAT:Nasdaq) is proving to be red hot.

Goldman Sachs

, the IPO's lead underwriter, fired up the price range to $12 to $14 from $10 to $12 a share, discounting recent investor pessimism toward Internet stocks.

International Data

tagged Linux, Red Hat's largest distribution product, as "the fastest-growing operating system for servers in 1998."

The

Pacific Exchange

is conjuring up plans to go public and reorganize its stock trading operation. Spokesperson Dale Carlson told

Reuters

if the

Securities and Exchange Commission

and current members give the green light, the third-largest U.S. exchange will abandon a membership stock trading operation for a for-profit corporate subsidiary, which would take an estimated nine months. Implementing the proposed changes would give the exchange the niche it needs to compete in the world of online trading by giving trading rights to anyone who holds a $2,000-a-month license.

Stride Rite

(SRR)

added 1/16 to 8 7/16 after it said it would increase steps to buy back 2 million shares. The footwear manufacturer will accept restructuring charges of 4 cents a share and plans to eliminate 125 jobs.

Suntrust Banks

(STI) - Get Report

slipped 1 3/16 to 62 3/8 after its board approved a buyback of up to 15 million shares.

Analyst actions

Apache

(APA) - Get Report

lost 2 1/16 to 44 3/4 after

J.P. Morgan

cut it to a long-term buy from buy based on valuation, leaving its price target unchanged.

Beringer Wine Estate

(BERW)

added 1/8 to 36 9/16 and

Robert Mondavi

(MOND)

rose 1/8 to 36 3/8 after J.P. Morgan started coverage with a buy and a market perform, respectively.

eBay

(EBAY) - Get Report

jumped up 9 9/16, or 12%, to 89 1/4 after

Morgan Stanley Dean Witter

analyst Mary Meeker was out with positive comments on the stock.

Glaxo Wellcome

(GLX)

lost 9/16 to 49 1/16 after

Salomon Smith Barney

cut its recommendation to neutral from outperform and slashed its 12-month price target.

Goldman Sachs

(GS) - Get Report

added 1 5/16 to 57 after

Bear Stearns

upgraded it to attractive from neutral.

Masco

(MAS) - Get Report

fell 1/2 to 28 15/16 and

Myriad Genetics

(MYGN) - Get Report

lost 3/8 to 9 13/16 even after

CIBC World Markets

complimented both stocks with initial buy ratings.

National Golf Properties Inc

(TEE)

edged down 1/8 to 22 5/8 after

ING Barings

started coverage of the real estate investment trust with a buy rating.

PaineWebber

(PWJ)

slipped 7/8 to 38 1/4,

Merrill Lynch

(MER)

fell 13/16 to 36 11/16 and

Morgan Stanley Dean Witter

(MWD)

rose 7/8 to 83 5/16 after Salomon Smith Barney's upping its third-quarter earnings estimates on all three financial stocks.

QLT Phototherapeutics

(QLTI)

rose 5 3/4, or 8.6%, to 72 7/8 after ING bumped up estimates, taking its price target to 84.

Remedy

(RMDY)

gained 1 11/6, or 8.6%, to 21 7/16 after

Banc of America Securities

gave the software maker just what the doctor ordered, raising its rating from a buy to a strong buy.

Taiwan Semiconductor Manufacturing

(TSM) - Get Report

moved up 1 1/2 to 32 after

Donaldson Lufkin & Jenrette

tech analyst Boris Petersik booted up its rating to a buy from a market perform.

Miscellany

Halter Marine

(HLX) - Get Report

lost 1/16 to 5 7/8 after it said it concluded an internal investigation into financial wrongdoing by former employees.

Six former Halter employees, including one who was a senior officer of the company until May 1999 and a director until June 1999, and another was a senior officer of a Halter subsidiary, were involved in schemes to defraud the company, Halter disclosed in a document filed late Monday with the SEC. Shares of Halter appeared unaffected by the filing; HLX closed at 5 7/8, down 1/16.

The two former officers, who were not named in the filing, apparently had an undisclosed relationship with vendors of the company. Halter paid these vendors $6.2 million over a three-year period for services that were actually performed "in whole or in substantial part" by Halter's own workforce. The amounts paid were then included as expenses in Halter's financial reports. Other wrongdoing which has come to light included the use of company workforce for personal use.

Halter said in its filing that every employee known to have participated in the misconduct has been terminated. It will seek recovery of the misappropriated funds, and will strengthen internal audit functions and controls. News of the investigation surfaced prior to the announcement of Halter's pending merger with

Friede Goldman

(FGI)

.

--

Mavis Scanlon

General Motors

(GM) - Get Report

lost 1 3/16 to 60 13/16 after the company said it will form a new Internet unit called

e-GM

which will boost the company's existing online and business operations.

Healtheon

(HLTH)

was under the weather, shedding 7 5/16, or 18.8%, to 31 3/4 after inside shareholders took advantage of their first chance to sell shares since the online healthcare company's IPO in February. In May, the stock soared to 126 when it brought WebMD on board in a $7.9 billion deal, forming the largest online health service.

Lexmark

(LXK)

gained 2 9/16 to 65 7/16 after

Standard & Poor's

said it will be added to the

S&P 500

, replacing

Raychem

(RYC)

, which is being bought by

Tyco International

(TYC)

. The change will occur after the close of trading Thursday.

Medtronic

(MDT) - Get Report

slipped 1 15/16 to 64 15/16 despite saying that the U.S.

Food and Drug Administration

approved its Sigma line of pacemakers.

Qwest

(QWST)

gained 5/8 to 26 7/8 after saying it will offer free Net access for consumers who buy special long-distance calling services. The company said for a flat rate of $24.95 a month, the package features free, unlimited dial-up Net service and 250 minutes of domestic long-distance calling service. The move comes a day after rival MCI WorldCom, cut evening, overnight and weekend calling rates to as low as 5 cents a minute. Shares of MCI fell 2 3/8 to 75 1/16.

Silicon Graphics

(SGI)

lost 3 3/4 or 23.2%, to 12 7/16 after it announced its second restructuring plan in under a year. The company said it will spin off its media operations, cut up to 1,500 jobs, and form an alliance with

NEC

(NIPNY)

of Japan. NEC lost 5/8 to 73.

Zonagen

(ZONA)

lost 2, or 32.9%, to 4 15/16 after it said U.S. regulators suspended clinical trials of its phentolamine-based drugs due to concerns over cancer risks. However, the FDA said it will allow Zonagen's marketing partner

Schering-Plough

(SGP)

to complete an ongoing 12-week human study of Vasomex, whose active ingredient is phentolamine. Schering-Plough lost 1 1/16 to 47.

Staff reporter

Tara Murphy contributed to this story.