RealTime IT News

Market Euphoria, Predictably, Is Short-Lived

The raging bull made a quick exit.

A worrisome unemployment report and more earnings warnings in the technology sector limited Thursday's breathtaking rally to a one-day event, as stocks dropped across the board in Friday's trading.

The Dow Jones fell 139.34, or 1.4%, to 9778.71, while the Nasdaq tumbled 65.10, or 3.6%, to 1719.90. The S&P 500 finished at 1120.62, down 30.82, or 2.7%.

Unemployment in March reached 4.3%, the highest U.S. jobless rate in 20 months, according to figures released Friday morning by the Labor Department.

'Net tickers gave back the most gains from Thursday, as internet.com's Internet Stock Index, or ISDEX, slipped 11.97, or 6.4%, to 176.02. All 13 'Net sectors had more decliners than advancers, most by a wide margin. For full sector breakdowns, visit WSRN's Internet sectors page.

Helping to trigger Friday's decline were earnings warnings from Sycamore Networks, Extreme Networks and Agilent Technologies. (For earnings reports, visit our earnings calendar and our reported-earnings page. For after-hours quotes and news, visit After Hours Trading.)

Fiber-optic equipment maker Sycamore dropped 20.0% to $7.25 on news that the company expects a fiscal Q3 net loss of $38 million, or 16 cents per share, far short of Wall Street estimates of a 5 cents per share net profit.

Extreme Networks , after sliding as low as $13.30 in morning trading, battled back to near-breakeven, closing down 0.3% to $15.96. The network switch maker announced late Wednesday that its expected net income of 12 cents per share in its fiscal second quarter would instead be a net loss of 6 cents to 8 cents per share. Both SCMR and EXTR said they would lay off about 12% to 13% of their respective workforces.

Agilent , a maker of testing and measurement equipment, ended down 9.2% to $27.80 after hitting a 52-week low of $25 per share earlier in the day. A spinoff from Hewlett-Packard, Agilent said that sales for the quarter ended April 30 would fall below estimates and that it is unable to offer guidance for the rest of the year. Company officials said they are imposing a temporary 10% pay reduction on its workforce designed to save $70 million per quarter.

Networking equipment giant Cisco Systems lost 8.8% to $13.63, its lowest closing price since October 1998.

Cell-phone maker Motorola plunged 23.1% to $11.50 after Credit Suisse First Boston released a report speculating that lower demand would cause MOT to miss profit and sales forecasts for 2001.

Crayfish Co. Ltd. (NASDAQ:CRFH) rose 23.1% to $8, its second straight day of gains since dropping 32% to $5.69 Wednesday after the company announced the resignation of its corporate auditors.

Software and content management product vendor Novadigm also advanced for the second consecutive day since announcing it has been selected to manage software for the U.S. Navy Marine Corps Intranet. NVDM gained 13.9% to $6.41. Since Wednesday's close, NVDM is up 30.6%.

Now for some technical analysis, courtesy of Paul Shread:

April 6, 4 p.m.: As we said yesterday, the S&P 500 closed right at its main downtrend line from late January (first chart), setting up today's pullback. That line is declining about 5 points per day, so we'll put it at 1145 for Monday. 1120 is first support, and then 1090. The Nasdaq's downtrend line is declining at about 23 points per day; we'll place it at about 1800 for Monday (second chart). The Nasdaq began to fill yesterday's 1638-1706 gap today, but found support at 1700. A move below 1700 would likely mean that that gap at 1638 will be filled. The Dow found support today above the 9687 support level. The next supports are 9500 and 9400. Critical resistance is 9992 (all levels in third chart). A close above 10,000 would be a good sign for the broader market. A few comments on yesterday's rally. First, volume was lower than the previous day, which was a hint that there wasn't a whole lot of conviction behind the rally. Second, 9 of the Nasdaq's 11 best one-day gains have occurred in the last year, during the index's worst bear market ever. And third, the Dow's best single day ever occurred in October 1931 - eight months before the bottom of the great 1929-1932 bear market. A single good day does not a bull market make. Wait for the Nasdaq to break that downtrend line.