Profit Taking Nips Rally; Dow Off 3.93

The stock market rally was tripped up by a round of profit taking Wednesday that wiped out early gains and left the blue chip index lower.

The Dow Jones industrial index, which rose 26.07 to a post-crash closing high Tuesday and advanced about 10 points early Wednesday, ended down 3.93 at 2,343.21.

New York Stock Exchange volume dropped to 189 million shares from Tuesday’s 217 million. At the same time, advancing issues slightly outnumbered declines in NYSE trading.

Traders said early enthusiasm gave way to caution before President Bush’s budget address to the nation tonight and Friday’s inflation report on wholesale prices for January.

“We may have to go back one step before we can go ahead,” said Mark Tavel, Rothschild Asset Management president. “But no matter what the Dow does over the next few days, I still have to assume the trend is up.”

Traders who execute large orders for institutional investors said they still see a willingness to buy stocks on pullbacks.

The Dow’s advance Tuesday snapped a four-day retreat and put the blue chip index at a post-crash closing high. But an early rally Wednesday was knocked down, a sign of how volatile the session would be.

“Anytime there’s been a pullback we’ve seen buying,” said a trader at Donaldson Lufkin & Jenrette Securities Corp. He noted that the index trimmed half of an eight-point decline in the final 30 minutes.

“We still have a decent amount of room on the upside,” said Ed Laux of Kidder, Peabody & Co. “The onus is on the bears to prove there’s something radically different in the equation,” he added.

But Jack Solomon, technical analyst at Bear, Stearns & Co., said he was troubled by the week’s activity. “We exceeded a previous high and failed to sustain it,” he said, noting that the day’s pullback and a slackening of volume. The Dow hit an early high of 2,360, putting it above the level it stood at before its 108.35-point loss Friday, Oct. 16, the session before Black Monday.

Solomon said the technical problems, plus a spurt in takeover rumors, amounted to a combination of ingredients that preceded poor markets in the past. He said a correction could quickly bring the Dow below 2,300 and set the stage for a further pullback into the 2,250 to 2,300 zone.

General Motors shares pulled back 1/2 to 93 3/8 after jumping 4 3/8 Tuesday.

Other losers among the blue chips included International Business Machines, down 5/8 at 127; General Electric, down 7/8 at 47 1/2; Sears Roebuck, down 1 1/8 at 42 1/4, and American Telephone & Telegraph, down 1/8 at 32.

Brokers said traders were also disappointed by recent weakness in the Dow Jones index of 20 transportation stocks, which fell 11.81 Wednesday to 1,076.16.

At the end of last week, noted William LeFevre at Advest Inc., the transportation index had climbed to within 18 points of the peak close of 1,101.16 it reached in 1987 before the market crash.

Among the recently hot airline issues, AMR fell 7/8 to 59 5/8, Delta Air Lines dropped 1 to 55 3/4, UAL slipped 3/4 to 121 1/2 and NWA edged down 1/8 to 64.

Dayton Hudson, subject of takeover speculation, climbed 1 3/8 to 46 1/8.

The Wilshire index of 5,000 equities finished the day at 2,941.465, down 5.773.

The NYSE’s composite index of all its listed common stocks slipped 0.33 to 167.69.

Standard & Poor’s industrial index fell 1.10 to 345.31; its 500-stock composite index was down 0.98 at 298.65.

The NASDAQ composite index dropped 1.22 to 407.97; the American Stock Exchange market value index closed at 327.23, up 0.85.

Stock prices soared to yet another new high on the Tokyo Stock Exchange on Wednesday as brisk buying shook off some late profit taking. The Nikkei average of 225-shares jumped 184.47 to close at an all-time high of 32,065.12.

Share prices on the London Stock Exchange also continued their recent strong advance, closing sharply higher. The Financial Times 100-share index ended the day up 23.4 at 2,096.2.