Dow Slides 94 in Late Sell-Off; NYSE Volume Hits Record

Blue chip stocks staged a stunning reversal late Thursday that raised questions about the market’s ability to keep its spectacular January rally alive.

The Dow Jones industrial average, up 60 points to a record 6,906 in late afternoon, plummeted in the final hour of trading to close with a loss of 94.28 points, or 1.4%, at 6,755.75.

The session saw the heaviest trading volume ever on the New York Stock Exchange, as 685 million shares changed hands--topping the previous record of 683 million shares set last July 16 in the midst of the market’s summer dive.

The broad market didn’t suffer much damage Thursday, as losing stocks outnumbered winners by just 14 to 11 on the NYSE, and most key market indexes were off only modestly.

But the speed of the market’s reversal and the pace of trading worried some analysts, most of whom tied the decline to rising bond yields and computerized program selling triggered by technical trends.

Another factor cited was a report that well-known market guru Elaine Garzarelli, who has been calling for a sharp market decline, changed her mind and advised her clients Thursday that stocks were poised to rally another 10% to 15% over the next 12 months.

Garzarelli couldn’t be reached for comment, but Reuters reported that her decision was relayed to clients over her telephone hotline. She reportedly said that the environment for stocks had improved because of strong corporate earnings and the unlikelihood of a credit-tightening move by the Federal Reserve Board.

While a bullish statement from a high-profile analyst might be expected to boost the market, some Wall Streeters said Garzarelli’s switch was viewed as a “contrarian” signal: Because she was so wrong calling for the market to dive throughout last fall, her shift to the bullish side now might also be viewed as the wrong call.

“Everybody’s been waiting for a big bear to capitulate,” to signal that the market’s latest streak may be over, said one veteran analyst.

Garzarelli’s change of mind hit the market in late afternoon, at the same time that bond yields crept up to their highest levels since mid-October: The 30-year Treasury bond yield ended at 6.86%, up from 6.83% on Wednesday.

Traders said the bond market was pressured by a heavy supply of new issues, including the Treasury’s offering Thursday of $12.5 billion of new five-year notes. The notes were priced to yield 6.325%.

In addition, “[Federal Reserve Gov.] Susan Phillips made some comments late in afternoon saying that the Fed is at a heightened state of alert for inflation, and that really set people off,” said Mike Clark, head trader at CS First Boston in New York.

Meanwhile, a rapid sequence of computerized sell programs--apparently triggered by a downdraft in Standard & Poor’s 500 index futures prices--hit the market in the final hour.

At the height of the session’s rally, just as the Dow was surpassing 6,900, the S&P; futures contract was also nearing a key psychological level, said Mike Rothberg, managing director of portfolio trading at Cantor Fitzgerald.

“The [futures] contract got to an all-time high and was headed for 800,” Rothberg said. “It hit 799.70 but couldn’t break through and right after it turned around we had sell programs.”

Program trading is generated by discrepancies between futures prices and the prices of S&P; stocks in the market. Such institutional trading games can send prices sharply higher--or lower--and can feed on themselves.

With blue-chip stocks having scored huge gains already this year, some analysts worry that any excuse--fundamental or technical--could cause a major bout of profit-taking soon.

Even with Thursday’s slide, the Dow index still is up 4.8% this year, after surging 26% in 1996.

“This was more than profit-taking,” said Scott Bleier, strategist at Prime Charter Ltd. “These could be construed as major reversals, particularly because they were on such heavy volume.”

The combined volume on all U.S. stock markets totaled 1.647 billion shares, beating Wednesday’s 1.457 billion and second only to the 1.737 billion of last July 16.

Yet many experts say strong fourth-quarter corporate earnings reports will continue to underpin stocks.

Healthy reports on Thursday helped propel such big-name stocks as Texas Instruments, which soared 7 to 70 3/4; United Technologies, up 3 1/8 to 69 5/8; Xerox, up 1 3/8 to 59 1/2; and Franklin Resources, up 1 3/8 to 54 1/2.

On the downside, IBM continued to slide, losing 6 1/4 to 151 3/4 in the wake of its somewhat disappointing report issued Tuesday. The stock fell 10 on Wednesday.

Other stocks losing ground after their earnings reports included Sears, down 2 to 49 1/8; Delta Air Lines off 3/8 to 82 3/8; BellSouth, down 1 3/8 to 42 1/2; and Chevron, down 1 1/8 to 66.

In other markets, the dollar continued its ascent, reaching a 47-month high of 119.47 yen, up from 119.03 Wednesday. The rise was fueled by a growing perception that Japan is unsure how to contend with the yen’s slide.

But the dollar weakened against the German mark.