Nasdaq Index Nears Recent Low
The Nasdaq composite index plunged Tuesday to just above its recent 22-month low, raising fears that a new phase of the year-old technology stock bear market may be about to unfold.
The index slid 107.03 points, or 4.4%, to 2,318.35, its lowest close since it plummeted to 2,291.86 on Jan. 2. The broad market also fell Tuesday, though Nasdaq again bore the brunt of the losses.
For the battered tech sector, which has slumped anew in recent weeks amid a barrage of earnings warnings from key companies, the focus now may be on investors who have held stocks such as Cisco Systems, Texas Instruments, JDS Uniphase, Sun Microsystems and others since 1998 or earlier.
Many of those investors--both individuals and institutions--may have held on through last year’s Nasdaq collapse in part because their cost basis is so low: Given the surge in tech shares since 1995, the split-adjusted price of Cisco and others is $10 or less for many investors who bought before 1999.
But as the stocks continue to fall, those buy-and-hold investors are seeing more of their huge paper capital gains melt away, analysts said. If more of those shareholders decide they want to exit the tech-stock boom with at least some kind of decent gain, they could lead a new round of selling in the stocks.
“I think there’s a psychological tendency kicking in. People are saying, ‘Geez, I had doubled my money and now I’m just about down to where I bought in,’ ” said Bill Ryder, chief quantitative strategist at First Union Securities in Richmond, Va. “Human nature prompts them to figure, ‘I might as well sell now and get out with something.’ ”
Moreover, market chart-watchers say a Nasdaq slide below the 22-month low reached Jan. 2 could cause technically oriented traders to bail out.
“If we fall below 2,290, I think you’re looking at 2,000 as the next level of support,” said Tim Hayes, senior equity strategist at Ned Davis Research in Venice, Fla.
Other analysts aren’t as downbeat. Some argue that Nasdaq is in the process of bottoming, and that Tuesday’s decline, while large, wasn’t accompanied by extraordinary volume that would suggest a new panic-selling phase.
Also, though long-term investors may exit more tech shares, many investors who don’t own the shares may be eager to get in as prices sink further, analysts said. That could limit the declines.
Still, losers topped winners Tuesday by 25 to 13 on Nasdaq, while losers held a more modest edge of 17 to 13 on the New York Stock Exchange.
In the broad market, the Dow industrials lost 68.84 points, or 0.6%, to 10,730.88. The Standard & Poor’s 500 fell 1.8%.
Some analysts say the tech sector faces a one-two punch from the weakened economic outlook and worsening investor psychology.
“When there are concerns about the economy, a cyclical area like technology is always going to react more strongly than the broad market,” said Alan Hoffman, senior portfolio manager at Value Line Asset Management in New York.
What’s more, “A lot of these stocks, like Intel and others, have done so well for so long that investors still have huge profits they want to protect,” he said. “That’s why there has been an atmosphere of, ‘Sell first and ask questions later.’ ”
As Ryder put it: “We saw how momentum works on the upside in recent years. Now we’re seeing how momentum works the other way too.”
Still, some individual investors who have owned major tech shares for years say they aren’t in a selling mood at these prices.
Ellie Goldman of the Westside Investment Network, a Los Angeles investment club, said her group has no plans to dump slumping tech shares such as Cisco, Sun and Intel.
The group’s cost basis for 1,000 Cisco shares is $13.42. At $26.06 for Cisco on Nasdaq on Tuesday, the group still has roughly doubled its money--on paper.
“These are wonderful companies and we’re in this for the long term,” Goldman said.
At its meeting this week the club may even consider buying back JDS Uniphase, which it sold in December to lock in a capital loss for tax purposes, and adding to its stake in the electronics maker Flextronics International. The latter, which lost $2.63 Tuesday to close at $31.06, is 31% off its 52-week peak.
Though the 7-year-old club remains committed to its growth-stock focus, it may also consider diversifying a bit more by adding a financial services or basic materials company in the near future, Goldman said.
Among the market highlights:
* Downgrades from Wall Street analysts rocked semiconductor and fiber-optic stocks. Intel declined $2.94 to $31.44, Broadcom dropped $9.75 to $64.38, Applied Micro Circuits slid $5.75 to $38.06, Xilinx fell $5.50 to $42.38, PMC-Sierra sank $7.88 to $44.63 and JDS Uniphase lost $1.50 to $34.31.
Gloomy brokerage reports also clipped Agilent Technologies, off $6 to $44, and Nextel Communications, off $3.13 to $22.31.
In the networking area, Cisco fell $2.19 to $26.06, Nortel Networks lost $1.13 to $18.87 and Juniper Networks slipped $5.25 to $74.75.
* Retail leader Wal-Mart climbed $1.04 to $53.40 after beating profit forecasts. Best Buy advanced $1.12 to $41.13
* Brokerage and investment banking shares tumbled amid an uncertain environment for new stock offerings and online trading. Morgan Stanley Dean Witter dropped $5.89 to $68.86 and Lehman Bros. fell $7.14 to $72.
Market Roundup, C7, C8
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Long-Term Tech Gains Dwindle
Selling in the technology sector Tuesday drove many key stocks to their lowest levels in more than a year. Each new decline in the stocks wipes out more of their capital gains since the late-’90s-raising the risk that even die-hard long-term investors will be tempted to bail out to preserve some profit.
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Sun Microsystems
Tuesday close is lowest since October 1999
Tuesday: $22.25, down 94 cents
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Cisco Systems
Tuesday close is lowest since June 1999
Tuesday: $26.06, down $2.19
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Texas Instruments
Tuesday close is lowest since August 1999
Tuesday: $34.50, down $2.10
Source: Bloomberg News
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Paper Profits in Tech
Investors who bought such tech giants a JDS Uniphase and Oracle before 1999 still are sitting on large paper gains, despite the crash in the stocks. Here’s a look at the highest prices investors could have paid for key stocks in 1997, 1998 and 1999, and their current prices. All data are adjusted for splits.
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Ticker ---Highs each year:--- Tues. Stock symbol ’97 ’98 ’99 close Broadcom BRCM -- $32.06 $137.50 $64.38 Cisco Systems CSCO $10.05 24.13 53.56 26.06 Intel INTC 25.13 31.25 44.66 31.44 JDS Uniphase JDSU 5.81 8.67 83.81 34.31 Oracle ORCL 6.86 7.42 28.02 23.13 Sun Microsystems SUNW 6.66 10.86 40.94 22.25 Texas Instruments TXN 17.63 22.26 54.24 34.50
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Sources: Times research, Bloomberg News
