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Sellers Hammr Stocks Again

Wall St.: Friday's steep sell-off sent Nasdaq down 2.6% and the S&P 500 down 2%--and deeper into bear territory. Dow has worst week since 1989.


NEW YORK — Stocks plunged again Friday to close out the worst week for the Dow Jones industrial average since 1989 and the seventh straight losing week for the Nasdaq Stock Market.

Amid mounting worries about the health of the global economy, investors seemed to have plenty of good reasons to sell all week long--and many did.

But as traders headed home for the weekend, many said it isn't clear whether one group of investors, more than another, could be blamed for the market's latest, and vicious, dive.

Is it hedge funds? Mutual funds? Foreigners? Investors who bought stocks on credit? All of them combined?

That question always arises when bear markets grip Wall Street, and the answer is seldom satisfying.

"It's chasing ghosts," said veteran trader Ted Weisberg of Seaport Securities. "You have to find someone to blame."

The Dow dropped 207.87 points, or 2.1%, to 9,823.41 on Friday, bringing its loss for the week to 7.7%. Analysts could cite no fundamental catalyst for Friday's slide other than more of the same: concern about the economy's weakness and slumping corporate profits.

The day's sell-off sent the Nasdaq composite index and the Standard & Poor's 500 index deeper into bear market territory. The Nasdaq fell 49.80 points, or 2.6%, to 1,890.91, leaving it down 63% from its peak on March 10 last year.

The S&P slid 23.02 points, or 2%, to 1,150.53 and now is off nearly 25% from its record high.

Some of the week's loss was laid at the door of traders who use options- and futures-based strategies: Friday was a so-called triple-witching day of quarterly options and futures expirations. The unwinding of stock positions on such days can add to volume and volatility.

Indeed, Friday was the third- heaviest trading day in New York Stock Exchange history, with 1.57 billion shares changing hands.

Losers swamped winners by 2 to 1 on the NYSE and by 26 to 11 on Nasdaq.

But many of those who sold heavily this week may not have been executing some grand bearish strategy. Rather, they may have been selling because their computers told them to, said NYSE floor trader Joseph Cangemi of Francis P. Maglio & Co.

Institutional traders and hedge fund managers are constantly trying to exploit short-term market imbalances through sophisticated computer-driven strategies, he explained. Their activity doesn't always move the markets, but if individual investors and more conventional money managers are on the sidelines, the effects of these "program" traders can loom larger.

Meanwhile, some traders pointed to foreign investors. Noting the sharp declines in markets worldwide--and the fact that U.S. blue chips favored by those investors were hit so hard this week--foreigners seemed a likely culprit.

Fresh concerns about the health of Japanese banks helped trigger the Dow's 317-point dive Wednesday. Some analysts noted that if Japanese banks faced insolvency, they might be forced to sell foreign holdings--including U.S. stock--to raise cash.

Yet analysts also noted that the dollar Friday hit nearly a two-year high against the Japanese yen, at 122.82 yen. The dollar also rose to a three-month high against the euro this week.

If Japanese and Europeans were dumping their dollar-denominated investments, the dollar should be falling--not rising.

Furthermore, the Japanese hold far more U.S. Treasury bonds than U.S. stock, and the Treasury market is on fire: Yields sank to fresh two-year lows by Friday. The yield on the 5-year T-note, for example, slid to 4.49% from 4.51% on Thursday and 4.72% a week ago.

Bonds are winning as many worried U.S. investors run for a safe haven amid the crumbling stock market, and as bond traders bet the Federal Reserve will have little choice but to slash interest rates further to revive the economy.

On Wall Street, some analysts are less inclined to blame sellers in this market than to blame the lack of buyers.

Pros have for weeks been bemoaning a "buyer's strike" in which prices grind steadily down because bids fail to materialize for many stocks.

In this climate, a falling market creates its own momentum.

What's more, it worsens the situation for investors who have no choice but to sell: those who borrowed money to buy stocks and now are getting "margin calls" or demands for cash to boost their depleted collateral.

If they sell shares to raise the cash, that puts additional downward pressure on stock prices.

The NYSE reported Friday that margin-debt levels in Big Board member firms' accounts dropped an additional 5% in February, to $186.9 billion. That's down a whopping 33% from last March's all-time high of $278.5 billion.

Seaport's Weisberg said margin calls were flying this week at his firm and all over Wall Street. He suspects that when the NYSE's March margin numbers come out, they will show a far larger drop than in February.

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