Early Rally Fades

An early rally on good earnings news from Nokia and Ciena faded by the end of the day on Thursday, as technology and Internet stocks finished lower. But Nasdaq futures rose 1% after the bell on earnings news from Oracle and Adobe that wasn't as bad as feared.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 5 to 224, and the Nasdaq lost 31 to 1940. The S&P 500 rose 6 to 1173, and the Dow added 57 to 10,031. Volume declined to 1.23 billion shares on the NYSE, and 1.95 billion on the Nasdaq. Advancers led 16 to 14 on the NYSE, but decliners led 19 to 17 on the Nasdaq. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

The Producer Price Index and Michigan Consumer Sentiment will be reported tomorrow morning.

Oracle traded unchanged at 14 5/8 after matching lowered estimates of 10 cents a share and predicting flat growth next quarter. However, i2 fell after hours after Oracle's application software sales came in lower than expected. Adobe also traded higher after hours after beating estimates but guided future estimates lower. Compaq also issued an earnings warning after the bell, and was unchanged on the news.

During the day, Ciena rose 1 1/2 to 54 7/8 after reaffirming its bullish earnings outlook. Juniper slipped 1 1/4 to 56, Cisco rose 1/4 to 20 1/2, and JDS Uniphase declined 3/8 to 24 3/16. Corning lost .08 to 23.90 despite a deal with China Netcom. Nokia surged 3.15 to 24.95 after the company lowered revenue estimates but said it would meet bottom line estimates.

Yahoo lost 5/16 to 15 after comments by Disney chief Michael Eisner that Disney is not interested in buying Yahoo, the latest big media company to say that.

Akamai fell 1 7/8 despite a new COO from Lucent and a deal with Broadwing .

Siebel Systems , off 2 3/16 to 26 9/16, continued to fall on earnings worries. Check Point fell 5 to 63 3/4.

Network Appliance fell 2 1/4 to 19 after JP Morgan lowered estimates on both NTAP and EMC , which slipped .15 to 35.15. SanDisk , off 1 to 19 7/8, warned.

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The Nasdaq did the opposite today of what it did yesterday: closing lower than its open (2023.79) after gapping up, creating an ugly black candlestick. Not a good sign. All is not lost, however, as long as the index can preserve its recent rally attempt by staying above 1922 or so. There is a gap at 1924-1930 that has so far provided support. The Nasdaq continues to form a bullish falling wedge (first chart), with the lower line touching on the December and January closing lows; that lower line is declining at 5 points or so a day, so we'll place it at 1902 for tomorrow. The next strong support on the index after that is about 1850-1870. To the upside, the Nasdaq needs to fill a down gap at 2042-2053, and must get back above 2070, the redrawn 1990 logarithmic trendline. After that, the upper boundary of that falling wedge is around 2100, and next resistance after that is 2252. The index is trapped in a range here, between 1900 and 2100. The Nasdaq 100 is also forming a bullish forming wedge (second chart), but could also be forming a nasty bear flag (third chart), with about 300 points of potential downside. The Nasdaq 100 broke that pattern to the downside today, so we absolutely want those lower falling wedge boundaries to hold (at 1902 on the Nasdaq for tomorrow). Given that the last decline on the Nasdaq indexes might have been an exhaustion move, that bear flag might not work out. We hope. On the plus side, the Nasdaq created a positive divergence the last two days: for the first time, the S&P 500 set lower lows, but the Nasdaq did not. At 26 times earnings, the 10 largest Nasdaq stocks are beginning to look attractive (albeit with falling earnings) compared to the price-to-earnings ratios of 20 sported by the Dow and S&P.

The S&P 500 is back above 1171, its low of two days ago, but faces a lot of resistance from 1191, the July 1998 high, to 1198. Below 1160, the S&P doesn't have another strong support on the charts until 1125. To the upside, the index must take out 1214-1215, an important level that marked the index's recent breakdown.

The Dow is hanging on to 10,000 support, but must get back above 10,300 to be restored to health. To the downside, there are supports at 9900, 9850, 9800, 9750, then 9650, 9350 and 9200. The Transports are barely standing today after their recent beating, a big negative because of their importance to the health of the economy as a whole. We still believe a turn is coming in the next week or so, but this is one unstable market until then.

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