Blue Chips Continue To Outperform

Investors continued to flee shares of Internet infrastructure companies for blue chips on Monday. Cisco Systems was the latest market darling to get dumped.

The ISDEX dropped 33 to 566, just above its May low, and the Nasdaq lost 86 to 3191. The S&P 500 climbed 19 to 1398, and the Dow surged 245 to 10,835, as investors snapped up shares of basic materials companies Alcoa and International Paper. Volume rose to 1.16 billion shares on the NYSE, but declined to 1.74 billion on the Nasdaq. Advancers led by 18 to 10 on the NYSE, but decliners led by 22 to 17 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Terra Networks rose 3 3/8 to 22 1/2. Lycos will begin trading under the TRRA ticker symbol tomorrow, as the company’s merger takes effect.

Cisco Systems dropped 2 5/8 to 48 1/16, below the critical $50 level, after Lehman Brothers reduced its price target on the company from $90 to $60-$65. Lehman said the company was the best-positioned telecom equipment vendor, but that worries over capital spending could continue to hurt the stock. Cisco reports earnings Nov. 6.

JDS Uniphase , which reported better-than-expected earnings on Thursday, dropped 5 11/16 to 71 9/16, wiping out all of Friday’s gains and then some. Juniper Networks was off 14 1/8 to 166 1/2, breaking a broadening top, with potential downside to 120. Even if there is further downside ahead for the stock, it could still retrace to the 179 1/2 level. Much above 180 and the breakdown would be negated.

Among others, Lehman also cut price targets on Sycamore Networks , off 9 to 56 1/8, Redback , down 15 9/16 to 98 1/2, and Sonus , off 2 to 34.

About.com slipped 3/8 to 23 1/2 after trading as high as 31 1/2 on news that it will be acquired by magazine publisher Primedia for 2.3409 shares.

El Sitio slipped 1/8 to 3 3/4 after announcing it will be acquired by Ibero American Media Partners, a joint venture of Cisneros Group and Hicks Muse. Shareholders will get a stake in the new company.

Amazon.com fell 2 1/4 to 33 3/8 despite positive comments from Merrill Lynch, which said it is comfortable with the company’s fundamentals and cash position. Lehman Brothers had questioned the company’s cash position last week, a report reiterated in Barron’s today.

Some technical comments on the market: Note: We are now including charts with the technical market commentary; just click on the links in the story below to go to them. If you have trouble accessing the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

The Dow looks good here, but it closed right at the highest point we can call the apex of the broken bearish diamond pattern. If the Dow can clear this level and close above 10,900, it would look pretty healthy to us. Here’s why we don’t want to turn back here: for those of you with a copy of Edwards & Magee’s Technical Analysis of Stock Trends, a book well worth owning, there is an example of a diamond pattern (Hudson Motors in 1946, page 185) tracing out the exact same move: a sell-off to the previous reaction low (9,700 on the Dow), a retracement to the apex (in Hudson’s case,

the upper trendline), and then a major sell-off. Also, even though the Dow’s action has been very positive as of late, it could still be viewed as a bear flag. Still, the index looks good, with a couple of signs that could still be interpreted as worrisome.

The Nasdaq once again tested its broken September downtrend line. We would not view another test of the 3000 level favorably; the problem with horizontal support is that it can eventually be exhausted. To the upside, we want to see the Nasdaq 100 fill the gap in the 3283-3326 range. That gap formed an island reversal last week. The Nasdaq 100 needs to get above 3326 to fill that gap and negate the reversal.

The ISDEX is once again testing its May low and broken September downtrend line. Below that, 500 could be next support. To the upside, 600 is first resistance, then 650, and then 700 has proven to be tough resistance after that. The S&P 500 today cleared its highest September downtrend line. That index too could be forming a bear flag. The S&P has so far managed to hold its 1994 logarithmic trendline at about 1350. The S&P cannot close below that line by more than 2%, or 1323.

News Around the Web