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RealTime IT News

Stocks Drop, Then Pop

Stocks fell Thursday on a negative outlook from Tyco, but managed to recover by the end of the day.

The ISDEX http://www.wsrn.com/apps/ISDEX/ was unchanged at 135, and the Nasdaq finished unchanged at 1713. The S&P 500 slipped 1 to 1091, and the Dow added 4 to 10,035. Volume rose to 1.53 billion shares on the NYSE, and 1.97 billion on the Nasdaq. Advancers led 16 to 15 on the NYSE, but decliners led 19 to 16 on the Nasdaq.

After the close, Overture soared on better than expected results and a three-year extended agreement with Yahoo . VeriSign fell after missing revenue estimates and warning. Microchip , Adaptec , Flextronics and Corvis matched estimates. Aspen missed, and Digital Insight warned. JDS missed and warned.

During the day, AOL gained 1% after beating estimates but lowering forward guidance.

McAfee.com plunged after Network Associates rescinded its takeover offer amid accounting concerns.

Macromedia soared and Symantec and ESS Tech gained after beating estimates and raising guidance. Silicon Storage gained on its report, but LSI Logic and Intersil fell.

Digital River , Foundry and WebMethods rose on their earnings reports, but F5 , Netegrity , Harmonic , Speechworks , CYTYC and Citrix fell.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the internetstockreport.com story link at the top of the newsletter.

A nice comeback today, but two cautionary notes are in order. First, the S&P 500 usually straddles the middle between the Dow and the Nasdaq. When it outperforms or under performs, it is usually due to either banks or oils; in this case, the S&P and banks finished down on the day, a negative for the market. Second, sell-offs that come back most of the way, but not all the way, seem to experience some follow-through selling more often than not. We'll see if the pattern holds tomorrow, when GDP and Michigan consumer sentiment are released. Strong first quarter GDP is likely priced into the market, which now appears to be discounting a weaker than expected rebound and earnings. The S&P 100 (first chart) remains the big concern here; as long as it remains below 547, the market has substantial downside potential, to 485-490 minimum on the OEX. The Dow (second chart) pierced critical 9950 support and its 200 day moving average at 9935 but then recovered. Below 10,180, the index remains in a downtrend. The S&P 500 (third chart) held above 1074-1082 support. 1098 is tough resistance. The Nasdaq (fourth chart) held its February low at 1696. Support below that is 1670 and 1620-1640. Resistance is 1720-1732 and 1757-1760.

Finally, an important observation on the four-year Presidential election cycle and its relation to the stock market. In the last 80 years, the low of the mid-term election year has held for the next four years in every Presidential election cycle except for one: 1930, the start of the Great Depression. There were 1% breaches of the 1946 (1947 and 1949) and 1978 (1980) lows, but the mid-term year low essentially held up as support in those four-year cycles. That's 19 out of 20 instances that the mid-term year set a major low, with one noteworthy exception. Since 2002 is a mid-term election year, that makes the market's low this year important support until 2006. Since administrations attempt to stimulate the economy in the third and fourth years of the cycle - 2003 and 2004 in this case - any breach of the 2002 low before 2006 could be a sign that the U.S. economy has entered a liquidity trap, where debt becomes so high that the effect of stimulus and credit is limited. We don't know what low the market will ultimately set this year, but it's a good bet that it could hold for a few years, and will also set an important support until 2006.

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