Stocks Plunge Amid Record Volume

NEW YORK —  A sharp sell-off slammed stocks Monday in extraordinarily heavy trading, prompting some analysts to warn that a deep pullback may have begun.

For the first time in a week, the Nasdaq composite index and the Dow Jones industrial average both moved in the same direction--steeply down. The recent divergence between the two, with Nasdaq surging while the Dow fell, had been one of several trends that analysts viewed as an ominous sign for the broader market.

Major technology stocks, including such recent kings of the market as Qualcomm and Cisco Systems, dragged the Nasdaq to a 3.3% drop Monday on record volume of 1.972 billion shares. That broke a string of six straight winning sessions for the index.

Trading also was heavy, though not a record, on the New York Stock Exchange, where blue-chip stocks continued a slump that began last week. The Dow fell 243.54 points, or 2.2%, to 11,008.17.

Most troubling to some traders Monday was that there was no apparent trigger for the market’s slide. Indeed, prices rallied early in the day, then quickly sank. Bond yields, which have been rising this month, declined on Monday as some investors ran for cover.

Many technical analysts, the Wall Street pros who watch the market’s inner workings for clues to its next big move, have been warning that the high volatility and heavy trading of recent weeks were signs of a troubled market.

In particular, analysts noted that the market’s advance was failing to broaden much beyond tech and telecom stocks, despite several rally attempts by many beaten-down stock groups.

The NYSE advance/decline line, the cumulative tally of daily advancers minus decliners on the Big Board, dropped Monday through its Dec. 22 low, reaching the lowest point in a relentless, 20-month decline from its April 1998 peak.

Losers outnumbered winners by 2 to 1 on the NYSE and 23 to 18 on Nasdaq.

Analysts say such poor “breadth” can signal a market that is running out of steam. “All bull markets end with narrowing strength, where the few stocks that do well do colossally well,” said Philip R. Roth, chief technical strategist for Morgan Stanley Dean Witter.

However, “poor breadth can persist almost interminably,” Roth added, so he said it may be too early to pronounce the long bull market dead.

Even in the context of rising volatility, Monday’s losses in Nasdaq and the Dow were startling because both indexes began the day strongly in positive territory.

The Dow, in fact, was more than 100 points up and more than 100 points down in the same day for the first time since Oct. 5.

The Nasdaq index hit a record high of 4,303.15 in the first half hour, struggled to hold a gain until midafternoon and then dived, closing near its low for the day.

Such one-day reversals, in which an index makes a higher high than the previous trading day but then falls to a lower low, often mark at least a short-term market peak, said Richard McCabe, analyst at Merrill Lynch & Co.

“This may finally be the start of what could be at least a 10% to 15% decline [in the Dow and Standard & Poor’s 500], and maybe a 20% decline in the Nasdaq, which has farther to go to correct the excesses,” he said.

Such a correction may last several months, McCabe said.

Gregory Nie, technical analyst at First Union Securities, agreed that the market is due for a significant pullback--a drop of 20% in the Nasdaq index, and “even more for the stocks that have gone orbital.”

But Eugene Peroni Jr., director of equity research for John Nuveen & Co. in Radnor, Pa., was more sanguine than most. He sees the divergence between tech stocks and most blue chips as a reflection of long-term changes in the economy, and expects it to continue.

Nor is Peroni overly worried about the advance/decline line. He said that despite poor market-breadth figures, there continues to be a rotation of strength from sector to sector.

At one point or another last year, he said, the drug, retailing, biotech and cyclical-industrial sectors all staged rallies in which certain stocks reached 52-week highs--all within the context of a market dominated by tech names.

Still, Peroni acknowledged that tech-driven advances tend to be marked by “more elated rises and uglier retreats.”

Many analysts are pointing to surging Nasdaq volume as their greatest concern now. In a broadly rising market, heavy volume can be considered a reflection of investor confidence. But in a disjointed market, in which some stocks are moving explosively upward and others are lagging badly, it can be a trouble sign.

“High volume gets very dangerous when not accompanied by price increases,” said Ralph Bloch, technical analyst at Raymond James Financial in St. Petersburg, Fla.

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Big Reversal

After a surge at the opening Monday, the Nasdaq composite index plummeted in late trading on record share volume. The day’s action in the Nasdaq index:

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Note: All times Eastern

Source: Bloomberg News

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Nasdaq’s Biggest Volume Days

The 10 heaviest trading sessions in Nasdaq history:

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Volume Nasdaq index (billions) close point chg. Monday 1.972 4,096.08 -139.32 Friday 1.916 4,235.40 +45.89 Thursday 1.843 4,189.51 +38.22 Dec. 9, 1999 1.781 3,594.17 +8.09 Jan. 5 1.732 3,877.54 -24.15 Jan. 10 1.731 4,049.67 +167.05 Dec. 8, 1999 1.671 3,586.08 -0.84 Jan. 11 1.686 3,921.19 -128.48 Jan. 14 1.650 4,064.27 +107.06 Nov. 17, 1999 1.646 3,269.39 -26.13

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Source: Nasdaq Stock Market