Bears Back In Charge

Another stock market rally appeared to be failing on Thursday, as investors sold technology and Internet shares in the wake of continued vigilance by the Federal Reserve and a negative earnings outlook from Applied Materials.

The ISDEX dropped 36 to 529, and the Nasdaq lost 133 to 3032. The S&P 500 declined 17 to 1372, and the Dow fell 51 to 10,656. Volume declined to 940 million shares on the NYSE and 1.52 billion shares on the Nasdaq. Decliners led by 16 to 12 on the NYSE and 27 to 11 on the Nasdaq. The Consumer Price Index came in inline with estimates. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Technology and Internet leaders rolled over. Broadcom plummeted 25 7/16 to 144 1/4 after Merrill Lynch downgraded communications chip companies. As we said last week, the stock has downside potential to 125. Ariba , off 14 1/2 to 77 1/2, fell back below its June breakout point of 183, just three days after breaking support at 100. Possible support points are 70 and 60, but the stock has room to 49. Juniper Networks lost 16 21/32 to 160 27/32, breaking a broadening top. If the stock can’t get back above 180, it could be headed as low as 120.

CNET dropped 6 11/16 to 19 1/2 on concern over an increase in third-quarter revenues that were paid by customers in the form of stock, up to 10.4% of sales from 7.6% in the third quarter. was one such customer. Packeteer lost 10 3/4 to 22 13/16 on word that the company may lose a contract from Intel. added another 2 7/16 to 8 5/8, more than doubling in two days after settling a copyright infringement suit with Universal Music Group.

Rumors that Nortel Networks continues to experience difficulties weighed on Internet infrastructure stocks. One rumor had Ciena , off 2 1/16 to 98 3/8, winning a major contract from Nortel. Corvis , off 8 3/8 to 39, also dropped on worries that it was losing a customer. , down 17/32 to 2 31/32, announced that it is laying off 20% of its workforce, or 20 staffers.

PSINet rose 7/32 to 2 1/32 on news that the company has retained Goldman Sachs to explore financial alternatives. But the stock dropped after hours on news that the company’s CEO would have to sell 11 million shares to cover a margin call.

NaviSite lost 1 3/8 to 6 7/8 on a Merrill Lynch downgrade. Parent company CMGI could sell the company, the firm said.

Xpedior rose 3/8 to 1 7/16 on an alliance with IBM.

BroadVision rose 9/16 to 33 7/16 on a Robinson Humphrey upgrade to Outperform from Neutral.

Art Technology climbed 1/2 to 48 1/2 after withdrawing a 4.72 million share secondary offering due to market conditions.

divine interVentures lost 1/2 to 2 on news that portfolio company will shut down.

Some technical comments on the market: Note: We are now including charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link:

The Nasdaq 100 completed the predicted 75-point down move to 2925 based on the break below 3000. We’ll watch what develops here. Yesterday’s broken bearish pennant gives the index downside potential to the 2500-2750 range. Given th

at leaders like Ariba, Broadcom and Juniper are rolling over, the outlook is not positive.

The ISDEX continues to form a potential broadening bottom. A break above the top line at 680 would mean a bottom is in, and give the index room to 850. A nice looking chart, but be on guard for a possible retest of that lower trendline.

We continue to watch the S&P 500’s 1994 logarithmic trendline at 1369. If we close below that line by more than 2%, or 1335, we may have seen the end of the bull market. The index has repeatedly come close to a major technical breakdown over the last month or so, but has somehow escaped from the abyss each time. The bull is wobbly, but still standing.

The Dow continues to hold up well, consolidating above a small downtrend line broken two days ago. First major resistance is 10,850, the old diamond apex, and critical resistance is 11,000, where the index has failed five times. First support is 10,600, but the index will continue to have bullish leanings as long as it stays above 10,369.

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