B2B Stocks Follow Ariba Higher

Business-to-business Internet stocks posted strong gains Thursday morning, a day after Ariba blew away earnings and revenue estimates.

The ISDEX rose 36 to 789, a key resistance level, for a two-day gain of 14%. The Nasdaq gained 67 to 4167. The S&P 500 added 2 to 1495, and the Dow climbed 9 to 10,792. Volume declined slightly to 450 million on the NYSE, but soared to 900 million on the Nasdaq. Declining issues led 14 to 12 on the NYSE, for the first time in seven trading days, while breadth was even on the Nasdaq. Juniper Networks will report earnings after the close. For more on earnings, visit our earnings calendar and reported earnings. The Producer Price Index for June will come out tomorrow.

Ariba soared 20 7/16 to 123 15/16 after reporting a third-quarter loss of 5 cents a share, 3 cents better than expected. But revenues were even better, coming in at $80 million versus estimates of $50 million, and deferred revenues almost doubled to $150 million. Several brokerage firms reiterated Buy ratings, while Prudential and Morgan Stanley Dean Witter upgraded Ariba to Strong Buy. Technical note: Ariba’s move completes our objective of 117 after the stock broke out of a rectangle pattern at 83 a month ago.

B2B stocks went along for the ride. Commerce One rose 6 7/8 to 58 3/4, VerticalNet added 1 1/2 to 48 1/4, PurchasePro gained 5 1/2 to 46 3/4, FreeMarkets climbed 7 23/64 to 53 1/4 and Ventro bolted 4 51/64 to 25 3/16. Yesterday’s IPO divine interVenture also rose on the news, up 1 9/32 to 9 3/8. But Open Market was left out of the party, falling 3 3/8 to 8 9/16 on an earnings warning.

Redback Networks gained 11 1/16 to 167 9/16 after reporting a second-quarter loss of 5 cents a share, 4 cents better than estimates. Juniper , up 10 9/16 to 162 1/2, and Sonus Networks , up 3 9/16 to 205 5/16, are expected to report after the close today.

Internet security stocks rose after Salmon Smith Barney initiated coverage of several issues with Buy ratings. RSA Security , which reports earnings after the close today, gained 7/16 to 74 1/2, Check Point rose 3 5/16 to 235, and VeriSign added 6 15/16 to 184 5/8.

Exodus continued to rise on news that GlobalCrossing may sell its Web hosting business to the company, soaring 7 1/4 to 49 3/16. Robertson Stephens upgraded the company to Strong Buy.

RealNetworks bolted 6 1/4 to 53 on news of an alliance with America Online .

Agency.com soared 5 15/16 to 21 3/4 on bullish comments by Chase H&Q and Goldman Sachs. Both firms expect the company to beat estimates.

Akamai and Inktomi rose on news of alliances with European data communications company KPNQwest. Akamai rose 5 9/16 to 119 9/6, and Inktomi added 4 9/16 to 132 1/8.

Some technical comments on the market: The ISDEX is right at key resistance (790) after a two-day 14% run-up. A break through that number could set up a run to the 50% retracement level of 845, and if we treat this trading range (700-790) as a rectangle, a break of 790 could carry the ISDEX to 880. 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, but will need to consolidate here before moving higher; we’ll watch for a continuation pattern for confirmation. The index appea

rs to be in the process of filling a gap down from 4188 to 4094 on April 11. Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. Leadership appears to be shifting to mid-cap issues, hence the big-cap indexes are lagging here. Which leads us to the Dow and S&P 500. The two haven’t exactly set the world on fire since breaking out at 10,700 and 1488, respectively. They could be consolidating after a tough fight, or they could be weakening. As long as the indexes hold around those breakout points, they should be okay. Let’s begin with the S&P 500. We have a rising wedge (bearish) in the 60-minute chart; a broadening pattern (bearish) in the daily chart; and what may be a diamond or head-and-shoulders pattern (both very bearish) in the weekly chart. Yesterday’s rally turned back right at the upper boundary of the broadening pattern. And the rally has given us a symmetrical triangle in the weekly chart, with 75 degree angles to the top and bottom boundaries. So we may have a stronger diamond pattern, with an apex somewhere in the late August time frame (the same as the Dow), with a lower boundary around 1380. If the S&P can take out its 78% retracement level of 1508, that would be a real positive, and would potentially negate those bearish patterns. The Dow is back above its 200-day moving average (10,747) and has broken its downtrend since reaching 11,100 in late April. Next resistance is 10,863. The Dow needs to get above 11,000 to break its diamond pattern definitively; the lower boundary is around 10,200-10,300. One potential warning sign: the CBOE put-call ratio closed yesterday at an extremely low .39, a sign of a dangerous level of complacency. And a correction: the NYSE did not close at a new high yesterday, but ended just beneath one.

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