Blue Chips Up, But Techs Take A Breather

Blue chip stocks rose on merger news on Monday, but the Nasdaq continued to digest its three-day, 15% gain.

The ISDEX gained 3 to 674, but the Nasdaq slipped 9 to 3473. The S&P 500 was up 1 to 1397, and the Dow rose 82 to 10,308 on a merger between Honeywell and GE. Volume declined to 465 million shares on the NYSE and 800 million on the Nasdaq. Decliners led by 13 to 12 on the NYSE, but advancers led 19 to 16 on the Nasdaq. The big economic reports for the week are Thursday’s employment cost index and Friday’s GDP report. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

FreeMarkets rose 2 to 49 1/2 on an expanded alliance with Dow component United Technologies . FreeMarkets reports earnings after the close tonight.

Ariba gained 3 7/16 to 133 3/16 on news that it will join the Nasdaq 100 on Friday.

Corning , off 6 to 99 15/16, met estimates at 35 cents a share. The company had pre-announced positive earnings earlier. Corning raised 2001 guidance to $1.40-$1.43, versus current estimates of $1.38.

Cisco slipped 1 1/4 to 56 1/16 on a Barron’s article that said the company avoided reporting $18 billion in costs through pooling-of-interest accounting; there is a move on Capitol Hill to end this controversial merger accounting practice. Also, Cisco has been rumored as a possible addition to the Dow when the Honeywell-GE merger goes through.

Amazon.com slipped 2 3/4 to 28 1/16 ahead of its earnings report, which will be announced after the close tomorrow.

Last week’s earnings winners continued to gain. Commerce One rose 3 5/8 to 73 5/8, E.piphany climbed 4 11/16 to 94 9/16, Kana added 1 to 27 1/16, and Interwoven rose 5 11/16 to 125 1/2, just above its September 25 closing high of 122 1/16.

Priceline.com added 1/2 to 5 7/8 despite news that Delta Airlines may sell its stake in Priceline and join competitor Hotwire.com.

Ticketmaster Online rose 1 7/8 to 14 1/2 after the company formed a committee to explore alternatives, such as a merger or issuance of additional stock to parent USA Networks.

Stamps.com gained 1/4 to 2 7/8 after announcing it will reduce its workforce by 40%, or 240 positions.

Drugstore.com slipped 1/32 to 2 17/32 despite beating estimates.

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

Now that the initial euphoria is wearing off, it’s time to look for signs that this rally has staying power. First of all, we are looking for a high-volume follow-through rally (a 1% gain in volume that is higher than the day before) any time between tomorrow and early next week. Second, we want to make sure the rally doesn’t begin to form converging boundary lines, indicating a bearish wedge or pennant formation. It’s a little early to look for that, but we’ll keep our eyes open. And third, we are watching behavior around key levels. For the Nasdaq, that’s almost the entire range from about 3500 to 3800, beginning w

ith the 38% retracement level of 3494 and the August bottom of 3521. 3600-3700 could also be tough resistance. But more important is 3800, the 62% retracement level of 3790, and 3830-3860, where the index broke its May trendline. A comparable point on the S&P 500 is 1450, where the index broke a large rising wedge. A failure around those levels would be bearish.

To the downside, we want to stay above the September downtrend line on the Nasdaq at about 3350. Also in that chart, notice a small uptrend that the Nasdaq is developing; a move out of that, which the index may be doing now, is probably nothing more than the start of a well-deserved rest. We still think the rally should continue to the 3800 level, based on the size of the falling wedge the Nasdaq broke out of at about 3175. The S&P 500 cannot close below its 1994 logarithmic trendline at about 1350 by more than 2%, or 1323. The S&P’s advance has so far been halted by a secondary downtrend line at about 1408. 1420-1425 could also pose some resistance.

The ISDEX continues to run into resistance at the 700 level. Next resistance is 725-750, and first support is 650. The Dow is back above 10,300 resistance. If the Dow can close above that mark, the next resistance would be its secondary downtrend line around 10,400-10,500.

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