CALIFORNIA ELECTIONS / PROPOSITION 34
Reversing a 148-point plunge that took it to the brink of its low for the year, the Nasdaq composite index roared back in the last 90 minutes of trading Thursday as investors grabbed such beaten-down stalwarts as Microsoft, Intel and Cisco Systems.
The intraday rebound, stronger than the Nasdaq snap-back that occurred Oct. 18, again raised hopes that the autumn technology rout is reaching an end.
Even so, some highflying tech names that had held up fairly well in the recent slide--particularly fiber-optics companies--still got battered Thursday. Former favorites Ciena, Juniper Networks and Corning all slumped more than 10% during the day, though they recovered somewhat by the close.
The Nasdaq composite ended the day at 3,272.18, up 42.61 points, or 1.3%, from Wednesday and up 190 points from the midafternoon low of 3,081.
“We looked into the precipice but came back,” said Scott Bleier, chief investment strategist for Prime Charter in New York.
The broad market was mixed. The Dow Jones industrial average gained 53.64 points, or 0.5%, to 10,380.12, while the New York Stock Exchange composite index eased 0.5%.
Some analysts, including Bleier, said the bounce-back was convincing enough to mark an end to the brutal tech sell-off that has dragged Nasdaq down 35% from its March peak.
However, the same thought crossed many of the same minds last week when Nasdaq resurged Oct. 18 from a morning low of 3,026, then jumped nearly 10% the following two days--only to tumble again early this week.
Others thought they spotted the bottom two weeks ago, when the index slid to its lowest close of the year Oct. 12, at 3,074.68.
Still, the market’s fight to keep its upward momentum since Oct. 12 has heartened some pros.
Early Thursday, the sell-off in fiber-optic names that started Wednesday with disappointing sales news from Nortel Networks broadened and intensified. Some of the drops during the trading day were staggering. Telecom equipment maker Ciena fell as low as $84 before rebounding to close at $103, down $5.38 for the day.
Telecom stocks in general were hit by more downbeat company reports, including wireless services firm Nextel Communications’ warning that customers aren’t signing on as quickly as expected.
But Bleier and other analysts said this week’s pummeling of fiber-optics firms and a few other “sacred cows”--such as Sun Microsystems, down $6.63 to $102 Thursday--marks the end of the “last bastion of strength” in the tech sector, after earlier steep pullbacks had taken down such leaders as Intel, Applied Materials and Lucent Technologies.
When the last holdouts finally get knocked down, that often signals a market bottom, Bleier said.
What’s more, Thursday probably marked the end of the tax-selling season for mutual funds, he said. Most funds operate on a fiscal year that ends Oct. 31, and managers have been under pressure to sell weak stocks to generate capital losses that can offset gains recorded earlier. In a year of poor performance by many funds, managers don’t want to compound the pain for their investors by handing them a big capital gains bill.
Bleier noted that because trades take three days to clear, Thursday was probably the climax of tax-induced selling by the funds.
Some depressed tech leaders are already climbing back. Intel rose $3.38 to $44.69 Thursday; Microsoft gained $3.19 to $64.44.
Still, a second wave of tax selling could come in December when individual investors sell their losers, some experts warn.
At brokerage A.G. Edwards, market strategist Alfred E. Goldman called this week’s Nasdaq action a “retest” of last week’s lows. If the rebound holds, it could signal a lasting turnaround, he said.
“Fear and despair” have gripped investors, and there is worry over the violence in the Middle East and concern that the U.S economy may be weakening more than expected, Goldman said. But such pessimism is often most pronounced when a downturn is nearing its end, he and other analysts note.
On the other hand, many of the stocks that have been battered this week are still high-priced relative to their underlying earnings--which some analysts fear makes them vulnerable to further declines. Sun Microsystems still is priced at about 88 times its most recent 12 months’ earnings per share. Ciena is valued at 333 times earnings.
Barry Berman, managing director of equity trading at Robert W. Baird & Co. in Milwaukee, agreed that Nasdaq’s comeback Thursday--amid the sixth-heaviest trading session ever--would “give people some confidence.” He wasn’t ready to call the tech bear market over, however.
Also unconvinced is Tim Hayes, senior equity strategist for Ned Davis Research in Venice, Fla.
By Hayes’ reckoning, Nasdaq is not as “oversold” as it was following the spring tech crash, and there still hasn’t been a wholesale flight by investors from stocks into the safety of bonds.
If the Nasdaq index slides below 3,000, it could bring on that kind of “capitulation” that would mark a bottom, Hayes said.
Market Roundup: C9-10
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Bottoming Process?
The Nasdaq composite stock index went on another wild ride Thursday, turning a 148-point midday loss into a 42.61-point gain by the close -- and boosting hopes that the fall tech sell-off has seen its worst.
Nasdaq composite index daily closes Thursday: 3,272.18
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Source: Bloomberg News
