Dow Slumps 8.62 in Seesaw Session : Late Wave of Computerized Trading Snuffs Stock Rally
A mild stock rally fizzled late Tuesday, overwhelmed by computerized selling strategies and anxiety that has afflicted investors since the historic crash exactly six months ago.
The Dow Jones index of 30 blue chip stocks, up more than 32 points at mid afternoon, slid in the final hours and finished down 8.62 to 1,999.50, back under the 2,000 level for the first time in two weeks. Most broader market indexes also fell.
“People are willing to venture into the market on a day-by-day basis, but not much longer,” said Joseph Barthel, technical analyst at the Butcher & Singer Co. investment firm. “Without some sort of clarification, I think we’re doomed to this type of whipsawed action.”
The market strengthened through the early hours, largely because of sharply higher earnings reported by some leading companies.
Some said the stock decline was speeded by index arbitrage program trading, the controversial strategy of selling large amounts of stocks and buying equivalent groups of stock index futures, or vice versa, to profit from price disparities.
The result was a seesaw market dominated by professional traders, as reflected in the relatively light New York Stock Exchange volume of 161.91 million shares. On Monday, the volume was even lighter at 144.65 million shares.
Six Months Since Crash
“Volatility and uncertainty about the economy are keeping a lot of people on the sidelines,” said Hugh Johnson, senior vice president of the First Albany Corp. brokerage.
“This is the six month anniversary,” he said, referring to Black Monday, Oct. 19. “It just sort of makes me think that even though it’s six months later, we haven’t come a long way.”
“Late selling today was based on last week’s disappointments,” said Eugene Peroni, a technical analyst with Janney Montgomery Scott.
“The market’s trading range now looks like it’s between 1,980 and 2,150,” Peroni said. “The low side lies at 1,967 and any close below that level would be damaging to the market.”
The number of rising and falling stocks finished about even in NYSE composite trading, with 789 up, 733 down and 466 unchanged. Earlier in the day, gainers outnumbered losers by more than 2 to 1.
Among the most prominent blue chips, Aluminum Co. of America jumped 3 to 46 1/2. The company reported sharply higher first-quarter earnings.
Gillette slipped 3/8 to 42 after announcing plans to buy back about 11 million shares. The company, a longtime takeover target, faces a tough proxy fight at its annual meeting on Thursday.
Bethlehem Steel Drops
Other notable stocks benefiting from higher corporate earnings included Philip Morris, up 5/8 to 87 5/8; Honeywell, up 1 1/8 to 68 7/8, and Monsanto, up 1 3/8 to 81 7/8.
Bethlehem Steel fell 1 5/8 to 19 3/8. The company said it had plans to sell 8 million shares of common stock and apply the proceeds to its $1.7-billion unfunded pension liability.
Transportation issues edged higher as crude oil prices retreated from Monday’s high levels. The Dow Jones transportation index gained 0.30 points to 836.47. American President gained 1 to 28 1/8 and Consolidated Rail rose 5/8 to 30.
Pacificorp led the actives as institutional investors moved to capture its dividend. The issue fell 1/2 to 33 5/8 with more than 6 million shares changing hands.
