Depressed Tech Stocks Snap Back, Kicking Nasdaq Up 7.8%

Wall Street made a more convincing case Thursday that its latest sell-off has reached at least a temporary end.

A huge buying wave drove depressed technology stocks sharply higher, pushing the Nasdaq composite index up 247.04 points, or 7.8%, to 3,418.60. It was the index’s third-biggest percentage gain ever.

The broad market also rebounded, continuing a rally that had begun early Wednesday morning after a brutal early plunge.

The Dow Jones industrial average jumped 167.96 points, or 1.7%, to 10,142.98.

Traders said the market was primed to snap back after seven weeks of near-relentless selling triggered by worries over the slowing economy, soaring oil prices, Middle East violence and other concerns.

Thursday’s surge was led by tech giants such as Microsoft and Nokia after their quarterly earnings proved to be far less dire than many investors had expected.

Federal Reserve Chairman Alan Greenspan, speaking at a conference, also helped stoke the gains after he said oil’s rise has had little effect on inflation expectations--a statement viewed as meaning the Fed isn’t worried enough about energy costs to factor them into its interest-rate policy.

Some of Thursday’s rebound stemmed from “short covering”: Traders who had sold borrowed shares in recent months, betting on a market decline, were rushing to close out their bets and take profits by replacing the shares.

The New York Stock Exchange on Thursday reported that the total number of shares sold short had jumped 4.2% in the 30 days ended Oct. 13, to a record 4.49 billion shares.

With many stocks down sharply since mid-September, short sellers have enjoyed big paper profits.

But analysts said the heavy buying on Thursday was much more than short-covering.

Many said it was a continuation of the mood shift that occurred early Wednesday, after the market had opened with a 435-point collapse in the Dow.

Investors seemed to decide en masse that the selling was finally overdone. They dug the market out of its hole Wednesday and kept the momentum going Thursday.

But given the enormous volatility of recent weeks, many Wall Street pros say they want to see a number of “follow-through” rally days to make a stronger case that the selling has exhausted itself.

Skeptics note that Nasdaq also roared up last Friday--only to plunge again early this week. What’s more, Nasdaq trading volume, while heavy Thursday, was off from Wednesday’s levels.

“My guess is that the next week or two will tell,” said Warren Epstein, head trader at Richard A. Rosenblatt & Co. in New York.

Trading in one popular stock, networking-hardware maker Sun Microsystems, showed what a difference an attitude change can make.

Sun accidentally released its rosy earnings report Wednesday while the market was still open. But rather than applauding Sun’s 88% earnings gain and 60% sales growth over the year-earlier quarter, investors focused on a slight erosion in the company’s profit margin and took the stock down by 1% by Wednesday’s close.

All was forgiven Thursday, as Wall Street decided that an 88% surge in profit was good enough after all. Sun shares jumped $7.38 to $117.69 on Nasdaq.

This whipsaw action comes with almost every quarterly earnings cycle, said Mary C. Farrell, investment strategist at PaineWebber.

The pre-announcement period is always negative, as companies that aren’t doing so well try to soften the blow by issuing warnings. By the time the real numbers are released, they nearly always look better than expected, she said.

The selling this month has been exacerbated by tax-related moves that many mutual funds tend to make each October, taking losses in their portfolios to offset gains for tax purposes. Many traders say that if that selling is winding down, the market will find it much easier to stabilize.

Peter Coolidge, managing director of equity trading at Brean Murray & Co., admitted to being baffled about the market’s gyrations.

Thursday “just shows how the market can turn on a dime. I’m still somewhat skeptical, but at this point I’ll take what I can get,” Coolidge added.

But some pros are suddenly comfortable with the market, with Nasdaq still down 16% year-to-date and the Dow down 12%.

Purchase, N.Y.-based money manager Robert Olstein, who has defensively held onto a 20% cash position for two years, has just gone on a buying spree, snapping up issues such as Maytag and J.C. Penney, both of which are trading near multi-year lows.

Olstein has drained his cash reserves to 8% buying those and other overlooked issues that he considers screaming bargains.

Olstein believes that the major market indexes will rise only weakly in the coming year because many of the biggest companies--the ones that have the most influence over the indexes--remain overvalued.

But even if the indexes languish, it won’t be a bear market, in Olstein’s view, because more stocks will rise than fall. In other words, it would be a reversal of the “stealth bear market” of 1998 and 1999, in which the indexes racked up big gains while most individual names faltered.

Market Roundup: C7, C8

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Liftoff--But Will They Fly?

Some of the biggest gainers among technology stocks on Thursday, and how key indexes performed:

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Thurs. Thurs. Pctg. Stock (ticker) close change change Efficient Net. (EFNT) $37.94 +$9.44 +33.1% RealNetworks (RNWK) 19.00 +4.13 +27.7 QLogic (QLGC) 90.44 +19.56 +27.6 Texas Instruments (TXN) 45.75 +8.88 +24.1 KLA Tencor (KLAC) 35.00 +6.56 +23.1 Microsoft (MSFT) 61.88 +10.13 +19.6 Next Level (NXTV) 42.25 +6.69 +18.8 Cypress Semicon. (CY) 40.50 +5.81 +16.8 Broadcom (BRCM) 234.13 +24.75 +11.8 Dell Computer (DELL) 28.81 +2.56 +9.8 Nasdaq composite 3,418.60 +247.04 +7.8 S&P; 500 1,388.76 +46.63 +3.5

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Sources: Reuters, Times research

Record Nasdaq Gains

The Nasdaq composite index has been in a bear market since peaking on March 10 at 5,048. Yet since that time it has recorded eight of its 10 biggest single-day percentage gains ever. The top 10 percentage gains:

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Point Pctg. Date gain gain May 30, 2000 254.37 7.94 Oct. 13, 2000 242.09 7.87 Oct. 19, 2000 247.04 7.79 Oct. 21, 1987 24.07 7.34 April 18, 2000 254.41 7.19 April 25, 2000 228.75 6.57 April 17, 2000 217.87 6.56 June 2, 2000 230.85 6.44 Sept. 8, 1998 94.34 6.02 June 1, 2000 181.59 5.34

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Sources: Nasdaq, Bloomberg News