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Nasdaq Slips Into Red for the Year, Tech Still the Culprit
By David A. Gaffen

Convinced that the grass is greener on the other side of the septic tank, investors continued to practice a form of crop rotation, pouring money into the Dow Jones Industrial Average and uprooting the technology sector.

While the Dow finished up 101 to 11,287.08, the nicest thing that could be said about the Nasdaq Composite Index is that it only fell 132 points. Volume was lousy and breadth was nearly 3-to-1 in favor of losers. On a closing basis, the Comp is now in the red for the year, down 0.3%, having lost nearly 1000 points in less than a month.

Major Indices
Dow 100.52 0.90% 11,287.08 -1.8%
S&P; 500 -3.85 -0.26% 1500.61 +2.1%
Nasdaq -132.24 -3.16% 4055.96 -0.3%
Russell 2000 -8.53 -1.64% 510.13 +1.06%
TSC Internet -54.21 -5.65% 905.84 -21.5%
TSC New Tech 30
-11.3% 599.85 -2.92%
10-Year Treasury -27/32 104 17/32 5.884%

Other than that, Mrs. Lincoln, how was the play?

The Comp, at one point down 179 points, scraped together an early afternoon rally that proved only to be fodder for investors eager to sell strength. The market meted most of its punishment on the semiconductor names after an earnings conference call by Motorola (MOT:NYSE), which made investors nervous. The Comp finished at 4055.96.

They also sold the Internet and biotechnology names, putting that money to work in a narrowly focused group of blue-chip stocks (that is, the Dow), led by the index's manufacturing components: 3M (MMM:NYSE), Johnson & Johnson (JNJ:NYSE) and Honeywell (HON:NYSE). The S&P; 500 finished off 3.85 to 1500.61.

"People are not necessarily running from the market, but they're moving to a new momentum area, and this seems like a momentum type market, both up and down," said Ned Collins, executive vice president of U.S. stock trading at Daiwa Securities.

But selling tech today didn't produce a broadening in the New York Stock Exchange. While three-quarters of the Dow stocks finished higher, NYSE market internals were poor, an indication that while investors retain confidence in stocks as an asset class, they're not willing to take a risk by making deep and broad sector bets.

"You have a few Dow stocks doing quite nicely, and there's the banking stocks," said Peter Cardillo, chief strategist at Westfalia Investments. "That's telling you something -- people are not exiting the stock market; they're going into a safe haven."

In the early afternoon, it looked like the Comp was going to make a go of it. After hitting a low of 4009, identified as a technical support level by traders (it was the low reached Wednesday), the index rallied back to within five points of breakeven before falling apart again. The Comp's close was its lowest since Feb. 1.

Momentum players, who tried to resume their buying in earnest last week, are being confronted with what may be a choppy market for at least the rest of earnings season. The recent pattern already has analysts wondering whether the spring/summer weakness in technology, experienced during each of the last two years, has arrived.

"We've shifted sentiment so much now that it's more than a one- or two-day event," said Tony Dwyer, chief market strategist at Kirlin Holdings. "You've struck at the hearts of momentum players -- they'd rather sell a rally than buy a dip."

Big-cap technology names, which have lately served as a good proxy for where money is going (most actually rose during last Tuesday's freak-out) were down today. Software maker Oracle (ORCL:Nasdaq) was lower by 6.2%, Sun Microsystems (SUNW:Nasdaq) fell 3.6% and Intel (INTC:Nasdaq) was down 5/8 to 130 3/4.

The Nasdaq Stock Market's most active today was Cisco (CSCO:Nasdaq), which was hit, losing 2 9/16 to 70 today on 57 million shares.

Earnings, Shmearnings, Let's Sell

It seems the desire to absolve debt is greater than the power of forgiveness in this market; investors have opened up the earnings season by reacting ruthlessly when companies don't clear whatever obstacles the market has put in front of it.

Motorola reported earnings of 59 cents a share, beating estimates by 1 cents. But Motorola's expectations for chip production aren't as rosy this year as they are for 2001, and it was hit with several downgrades. It was the NYSE's most active, finishing down 17% to 124, on 30 million shares traded.

But Dwyer said earnings are coincidental, coming as they do at a time when the market continues to aggressively revalue these stocks.

"The P/E is 93! People are not reacting harshly -- the fundamentals are terrific, there's no debating that, but it's discounted," said Dwyer. "You're in a weak tape, so if you've got companies that are trading at the valuations they are in New Economy stocks, in the current market psychology, any news is met with selling pressure."

For sure, it had a dampening effect on the entire sector. Rambus (RMBS:Nasdaq), one of the most prominent of the momentum plays, lost 18 1/4 points today (mild profit-taking for this stock); Micron Technologies (MU:NYSE) lost 4%, while Applied Materials (AMAT:Nasdaq) gained 1 7/8 to 104 5/8.

Meanwhile, the market continues to take the long view on the Dow stocks. Dow component International Paper (IP:NYSE) was cheered today, after reporting first-quarter earnings of 60 cents per share, beating analyst expectations for 58 cents. The stock finished up 9/16 to 43 3/16.

The Philadelphia Forest & Paper Products Index rose 2.2% today. Other commodity-related indices also did well today, including the S&P; Chemical Index, up 2.9%, and the Morgan Stanley Commodity Related Equity Index gained 2.4%.

"Even if it is a good year for earnings, the issue is valuation," said Hugh Johnson, chief investment officer at First Albany. "From time to time, that's going to persist or occur."

Which helps explain the pain the Internet sector continues to feel. Internet stocks were put to the rack today. Yahoo! (YHOO:Nasdaq) lost 5.6%; RealNetworks (RNWK:Nasdaq) was down 10%, and TheStreet.com Internet Sector index lost 5.7% of its value. eBay (EBAY:Nasdaq) was one of the few Internet plays to show any real strength, gaining 5/16 to 156.

The Nasdaq Biotechnology Index fell 3.4%, while the American Stock Exchange Biotechnology Index fell 4.9%. The Russell 2000 fell 8.53, or 1.6%, to 510.13.

The Dow Jones Transportation Average gained 2.8% today, while the Dow Jones Utilities Average rose 0.8 points to 300.06.

Market Internals

Breadth was poor on middling volume on the NYSE, and really nasty on the Nasdaq.

New York Stock Exchange: 1,519 advancers, 1,434 decliners, 972 million shares. 37 new highs, 50 new lows.

Nasdaq Stock Market: 1,215 advancers, 2,998 decliners, 1.66 billion shares. 21 new highs, 138 new lows.

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