Shares Fall Again as Trading Volume Soars

The stock market’s brutal autumn sell-off grew uglier Wednesday, as sharp declines in major technology stocks slammed the Nasdaq composite index and left it just above its spring-crash low.

The latest plunge came on enormous trading volume, indicating that investors were tripping over themselves to unload their holdings.

That often is a sign that a selling wave may be reaching a peak, analysts noted. Still, many said it is far from certain that this decline has run its course.

Some brokerages reported issuing more margin calls to investors who had bought stocks on credit--forcing those investors either to put up more cash or to sell their shares. Those calls may be triggering more selling.

Hammered by earnings warnings from such tech giants as Motorola and Lucent Technologies, the Nasdaq index tumbled 72.05 points, or 2.2%, to 3,168.49, the 13th drop in the last 16 days. At its worst, the index fell to 3,103, a 4.2% loss from Tuesday’s close.

Wednesday’s finish for Nasdaq was its lowest since the spring closing low of 3,164, reached May 23.

The broad market also was hit hard. The Dow Jones industrial average slumped 110.61 points, or 1.1%, to 10,413.79.

Though many stocks closed above their early-morning lows, the mood of the day was overwhelmingly negative. Losers swamped winners by 28 to 12 on Nasdaq and by 20 to 9 on the New York Stock Exchange.

Nasdaq volume topped 2.3 billion shares, the heaviest since the mid-April tech-stock blood bath. Almost 1.4 billion shares changed hands on the NYSE.

Perhaps more frustrating to Wall Street than the losses themselves were the mixed messages about whether the selling might be nearing an end, or has yet to reach its peak.

Though there is broad agreement that the tech-dominated Nasdaq is in a bear market--the index is down 37% from its March high--much of the rest of the market has held up relatively well in recent months.

A major fear now is that the broader market, too, could fall prey to a deeper slump.

“Right now, the market is betwixt and between itself trying to figure out if this is a bear market [only] in tech and in ‘dot-coms,’ or if this is going to end with a broader and more-encompassing bear phase that infects” other industries, said Elaine Yager, technical analyst at Herzog, Heine, Geduld in New York.

The ferocious selling of many tech names on Wednesday convinced some market pros that the downturn is in its last stage.

Wholesale dumping of stocks often marks the final capitulation, in which all but the most long-term investors exit a sector, or the market as a whole. Such panicked selling can set the stage for a rally as bargain hunters swoop in to buy at discount prices.

A sentiment indicator known as the Chicago Board Options Exchange put/call ratio showed that investors are growing excessively bearish: The indicator finished the day tied for the most bearish level of the year.

In the contrarian ways of Wall Street, excessive bearishness is actually bullish because it suggests there will soon be few investors left to sell.

But some traders were disappointed that Nasdaq began to fall again in late afternoon, after rallying back to even at midday, from the morning loss of 137 points.

The latest sell-off has been fueled by earnings or sales warnings from a host of major tech companies. Hurt by the slowing economy, rising supplies of some tech products and the euro’s weakness, companies such as Intel, Dell Computer, Apple Computer, Lucent and Motorola have told investors that near-term results won’t meet expectations.

Lucent dived $10.13, or 32%, to $21.25 on Wednesday after warning that third-quarter results and 2001 results will be below forecasts.

Likewise, Motorola said that its earnings in its fourth quarter and in 2001 would come up shy of estimates, prompting an 18% slide in its shares, off $4.81 to $21.44.

Among other losers on Wednesday, Yahoo plunged $17.31 to $65.38, Rambus fell $5.25 to $59.81, Oracle slid $2.38 to $62.25, Qualcomm plunged $9.19 to $70.50 and Tellabs dropped $3.38 to $44.38.

Some shares managed to advance: Emulex rose $4.38 to $113.94. Teradyne gained $1.38 to $32.69.

Despite many tech stocks’ steep declines, some experts say they still are overvalued.

Richard Bernstein, a quantitative analyst at Merrill Lynch, told clients Wednesday that tech companies whose earnings are expected to grow by more than 20% annually over the next five years still trade at more than twice the valuation of non-tech companies with the same earnings prospects.

His message: Even though techs have dived, they remain pricey and could fall a lot more.

Bernstein also believes that Wall Street overall remains far too bullish about the tech sector to suggest that fear has taken hold--and thus that a bottom might be forming.

Some Wall Street technical analysts agreed that the market still must undergo a “climactic” sell-off, in which stocks begin the day by plunging on huge volume, but close the day with a gain.

“We still have to go through that painful end of a bear market,” said Bernadette Murphy of Kimelman & Baird in New York.

Meanwhile, the plunge in many stocks over the last few weeks is hurting aggressive individual investors who have bought stocks with borrowed money.

So-called margin calls, requests to investors to put up more cash or have their stocks sold out from under them, have increased in the last week, brokerages say.

A similar scenario unfolded during the sell-off in March and April, worsening that decline. Many individuals complained that brokerages sold their stocks without warning.

“The market goes down and you get a lot of margin calls,” said Mike Dunn, a spokesman for Datek Online Brokerage Services.

Market Roundup: C10, C11

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Great Tech-Stock Revaluation

The plunge in big-name technology shares this year has dramatically lowered the stocks’ prices relative to the companies’ earnings per share. At their 2000 peaks, many major tech issues were priced at 40, 60, even 100 times earnings. Now, those P/E ratios are sharply lower, as investors fear that future earnings growth won’t match earlier expectations. Here’s a look at stock P/Es based on earnings-per- share estimates for the current fiscal year. (For Lucent Technologies and Apple Computer, estimates are for the year that ended Sept. 30.)

*

Still Too High?

Despite the collapse of many technology stocks from their spring peaks, the Pacific Stock Exchange index of 100 major tech issues still is more than double its level in late

1998.

Monthly closes and latest for PSE tech-stock index

Wednesday: 920.55

*

Sources: Bloomberg News, Zacks Investment Research (earnings estimates), Times research