Amazon, eBay Lead Nets Higher

Two familiar names led Internet stocks higher on Friday: and eBay.

The ISDEX rose 27 to 826, powering above 800. The Nasdaq added 71 to 4246. The S&P 500 rose 14 to 1510, and the Dow climbed 24 to 10,813. Volume declined to 951 million shares on the NYSE and 1.66 billion on the Nasdaq. Advancing issues led 15 to 12 on the NYSE and 21 to 17 on the Nasdaq. June’s Producer Price Index came in at a 0.6% increase, as expected, but the core declined a better-than-expected 0.1%. The retail sales report came in stronger than expected, however, as did the Michigan consumer sentiment survey. For earnings reports, visit our earnings calendar and reported earnings.

Internet stocks continued their resurgence, led by the business-to-consumer stocks. soared 7 1/8 to 42 1/8 after a strong defense and Buy rating from Salomon Smith Barney. The firm expects Amazon to finish the March 2001 quarter with $660 million in cash.

eBay soared 7 3/4 to 61 3/16 on a CS First Boston Strong Buy rating and $72 price target. gained 1 1/8 to 39 9/16 on a CSFB Buy rating and $45 target.

Yahoo gained 5 13/16 to 128 3/8 after Yahoo Japan posted strong earnings numbers.

The cascade of earnings reports began. Juniper Networks rose 3 1/2 to 173 and gained 17/32 to 6 5/8, both on better-than-expected numbers. But a number of stocks fell despite beating estimates, including RSA Security , off 8 5/8 to 70 1/8, Keynote , off 18 3/16 to 65 despite blowout earnings, Broadbase Software , down 5 3/16 to 33 13/16, and Sonus Networks , off 10 13/16 to 181. Sonus’ numbers were initially reported as a miss. HomeGrocer fell 1 3/8 to 6 5/8 despite better-than-expected numbers, dragged down by an earnings miss and warning from merger partner Webvan , which fell 1 17/32 to 7 25/32. Extended Systems cratered 37 5/8 to 49 1/2 on an earnings warning.

Commerce One continued to gain in the wake of Ariba’s bullish earnings report, adding 10 3/8 to 70 5/16. The company reports earnings after the bell on Tuesday. The stock broke out of a three-month symmetrical triangle yesterday at 52, with potential upside to 85 or higher, based on the high (65) and low (29) points of the pattern. The stock has gapped up two days in a row.

Alteon WebSystems fell 10 1/2 to 113 13/16 after rising as high as 138 1/4 on a Business Week report that the company could be a takeover target. Vignette declined 3 7/16 to 50 1/8 despite a positive mention in the magazine.

Covad continued to rise, adding 1 to 22 15/16 on a Banc of America Buy rating. NorthPoint , up 1 1/8 to 15 1/16, and Rhythms , up 1 3/16 to 17 9/16, received Market Perform ratings.

MarketWatch added 1 3/8 to 23 5/8 on a First Albany Strong Buy rating and $35 price target.

Some technical comments on the market: The S&P 500 took out its 78% retracement level today (1508). And despite that positive, it continues to look like it’s about to drop. We mentioned yesterday that the S&P 500 was forming a rising wedge in the 60-minute chart; that pattern continues to wind tighter, and the index finished right at the upper boundary of it today. The S&P 500 could move higher from here, but the pattern has at most two or three days until the apex is reached, and it could break down as soon as Monday morning. A rising wedge, or

an uptrend with converging boundaries, is never a good thing for two reasons: first of all, it implies a weak rally that can only go so far, and second, it usually only occurs in bear market rallies. A lot has been made lately of broken downtrends, but only one bear market in history never broke its downtrend at some point. You guessed it: the 1929-1932 Great Bear. So a broken downtrend in itself sometimes means no more than a good short-term rally. We’ve seen a few rising wedges recently in the S&P and the Nasdaq; not a definitive sign that this is a rally in a primary bear market, but it is one piece of evidence in that direction. The Dow’s upside, if it hasn’t been capped already, is likely to be capped in the 11,000 area, the upper boundary of its bearish diamond pattern. To the downside, we want to stay above the breakout points of 1488 and 10,700, respectively, on the S&P and Dow, although we could conceivably go as low as 10,620 on the Dow, where it broke its 2 1/2-month downtrend.

The ISDEX and the Nasdaq continue to look good here. The ISDEX has continued to move higher after piercing key resistance at 790. Next up is the 50% retracement level of 845, and if we treat the ISDEX’s trading range (700-790) as a rectangle, the ISDEX could be set up for a run to 880. There is a lot of congestion in the 850 area from early April, however. A break below 790 would negate the index’s breakout. To the downside, 700 has proven strong support; a break of that number could give the index room to 600. The Nasdaq appears to be set up for a run to its 62% retracement level of 4337. It broke higher out of a barely-formed symmetrical triangle this morning and continued higher. It has now filled a gap down from 4188 to 4094 from April 11. A break below 4073 would negate the index’s breakout. Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. A thought: if this is a bear market rally, then in the last week we’ve had the last two beaten-down groups rally: first the cyclicals, and now the Nets.

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