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Blue Chip Stocks Sizzle

Stocks shot up Friday to their sixth win in seven sessions Friday as a late surge pushed the Dow Jones industrial average to within about 200 points of breaking its record high set back in July.

The Dow Jones Industrial Average advanced 103.50 points, or 1.1 percent, to 9,159.55. The Industrials stood but a stone's throw from their record high of 9,367.84 set during July 20's session. The index is up 22.7 percent in the last six weeks.

"Friday's rally was definitely related to options expiration," said Todd Clark, managing director of listed trading at Charles Schwab Capital Markets. "There was a big imbalance on the buy side this morning and, interestingly, right after the opening we saw prices deteriorate for a while."

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DJ INDUSTRIALS

The activity was dominated by buying in larger, blue-chip issues, with small- and medium-sized shares closing flat on balance.

On the week, the Dow added 239.96 points, or 2.7 percent, for the sixth winning week in the last seven.

On the year, the Dow is up 1,251.30 points, or 15.8 percent, following gains of 33 percent, 26 percent, and 22 percent, in 1995, 1996, and 1997, respectively.

The rise comes on optimism that Federal Reserve-induced interest rate cuts will stoke a faster pace of U.S. economic growth in 1999. Some on Wall Street are quick to point out that stocks are just now entering their most favorable period of the year.

"The market's main plus right now is that you have seasonality and history on your side," said Ricky Harrington, senior vice president and technical analyst at Interstate/Johnson Lane Inc. "The Thanksgiving-through-December period has historically been a strong period for the market."

Friday's gains were clearly focused on the blue-chip sector, a beneficiary of double-witching, or the monthly expiry of certain options contracts.

Otherwise, trading was fairly dull in keeping with the trend over the past several sessions. Earnings results were few and far between, while the economic docket was empty. More of the same is expected next week.

Among broad sectors, te overheated technology segment, winded from its recent romp, took a well-deserved rest. But financial and energy issues picked up the slack, contributing largely to the advance in blue-chip indexes.

Federal Reserve Chairman Alan Greenspan, speaking via video to a banking conference in Frankfurt, noted there has been "a partial reversal of bank risk aversion."

Internet issues perked up in the final hour of Friday's activity after sprinting about 15 percent over the past week. A stock split announcement by Amazon.com was the day's highlight within the group.

Elsewhere, brokerage names surged on positive analyst comments. Historically, the stocks have tended to lead the direction of blue-chip averages. Since the Oct. 8 market lows, the group has soared about 80 percent.

Meanwhile, there was little of fundamental import to account for the broad rises in energy shares, some of the day's best actors.

The market's triumphs of late have come at the expense of many professional money managers, whose year-to-date performance has lagged the surging blue-chip averages.

"Institutional investors still have money on the sidelines and they'll want to show fully-invested positions at the end of December," Harrington said. "So I don't see the market reversing in a big way before January, but I would look for some kind of minor correction next week."

Despite his near-term bullish stance, Harrington is cautious about the 1999 market.

"The market is priced at levels that leave no room for disappointment," he said. "And 1999 is going to have a number of negative surprises. So I think as early as January or shortly thereafter, the market is going to change character."

In Friday's market indicators:

  • The Standard & Poor's 500 Index rose 0.9 percent.
  • New York Stock Exchange winners sidled past losers by 17 to 12.
  • On the Big Board floor, turnover swelled 7 percent to 712 million shares.
  • The Nasdaq Composite advanced 0.4 percent. Advancing issues led decliners by 20 to 19 in the Nasdaq Stock Market. Volume totaled 856 million shares.
  • The Russell 2000 Index of small-company stocks closed virtually unchanged.
  • In the bond market, the 30-year Treasury advanced 9/32, to yield 5.221 percent.

Among the companies in the news:
  • Lycos (LCOS) bettered consensus views with its fiscal first-quarter loss of 6 cents a share vs. a profit of a penny in the year-ago period. Most had looked for a penny worse. The stock eased 1 1/4 to 60 3/4.
  • BEA Systems (BEAS) said third-quarter operating results totaled 7 cents a share, a penny richer than most Wall Street estimates. But shares of the enterprise software developer cratered 13 1/16, or 50 percent, to 13 5/16 amid a flurry of analyst downgrades. The analysts pointed to mounting uncertainty about BEA's earnings outlook after the company made cautionary comments in a conference call.
  • Smart Modulr Technology (SMOD) ascended 1 3/8 to 23 7/8. The maker of computer memory devices said fiscal fourth-quarter net amounted to 26 cents, matching most views. It earned 32 cents in the same period last year.
  • PRI Automation (PRIA) rallied 2 13/16 to 23 3/16. The semiconductor equipment maker recorded a fiscal fourth-quarter loss of 20 cents a share, a dime worse than consensus views. Yet PRI's upbeat remarks in a statement accompanying the earnings report served to brighten its prospects in the eyes of analysts.
  • Deere (DE) dipped 1 5/16 to 37 11/16 on news it will temporarily lay off about 2,400 workers in December and January. The agricultural equipment manufacturer tied the move to sagging North American market demand.
  • Amazon.com (AMZN) sped 27 3/8 higher to 180 5/8 after the online retailer of books and other products set a three-for-one stock split.
  • Sepracor (SEPR) picked up 6 3/16 to 81 3/16. Merrill Lynch started coverage of the medical products manufacturer with "short-term accumulate" and "long-term buy" ratings.
  • Warner-Lambert (WLA) tacked on 1 1/2 to 79 5/8. The pharmaceutical maker said 1998 per-share results of $1.48 are "achievable."
  • Lehman Brothers (LEH) put on 3 1/2 to 45 11/16. Keefe Bruyette & Woods analyst Hal Schroeder began coverage of the investment broker with an "attractive" rating.
  • Other brokerage stocks rallied. Merrill Lynch climbed 4 3/8 to 71 5/8, Donaldson Lufkin & Jenrette 2 5/16 to 39 3/16, Bear Stearns 3 1/16 to 38 13/16, and AG Edwards 1 7/8 to 37 11/16.
  • Top-tier computer-related stocks traded mixed after recent chunky wins. Intel fell 13/16 to 112 1/16. The semiconductor titan has been guiding the analyst community to expect better-than-forecast results in the fourth quarter. It's up about 50 percent since Oct. 8.

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