Bulls Routed Again

Traders failed to pull technology and Internet shares out of their tailspin on Monday, as sellers regained control in the final hour of trading.

The ISDEX fell 17 to 772, while the Nasdaq dropped 82 to 3896. The S&P 500 lost 5 to 1489, and the Dow declined 25 to 11,195. Volume declined to 902 million shares on the NYSE and 1.47 billion on the Nasdaq. Advancers led 15 to 12 on the NYSE, but decliners led 24 to 15 on the Nasdaq. Oracle and Red Hat report earnings on Thursday. The PPI for August will be reported on Thursday and the CPI on Friday. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site.

Priceline rose 3/4 to 26 1/2 on news that famed value investor Prince Alwaleed bin Talal plans to invest an additional $50 million in the company, the second high-profile value investor to bet on a fallen Internet stock. The first was Bill Miller of Legg Mason Value Trust, who believes Amazon.com should be valued in the mid-60s. Amazon slipped 9/16 to 42 3/8 after Merrill Lynch analyst Henry Blodget raised his third-quarter loss estimate on the stock from 30 to 32 cents a share. Blodget said long-term investors in Amazon will be rewarded. The stock, which traded as low as 41 on the news, has been holding well around its breakout point in the 42-43 range. That said, as we’ve pointed out previously, a return to the 31-36 level in the next few weeks is possible. Also on a value note, Dallas Fed President Robert McTeer said the stock market is much less of a bubble now than it was earlier this year.

Scient led the ISDEX on the upside, gaining 4 3/8 to 31 3/8, adding a second day of gains on a William Blair upgrade.

Telecom equipment stocks, the market’s leader for much of this year, continued to struggle on concerns that telecom equipment spending may be slowing. Cisco fell 2 47/64 to 61 1/8, Juniper Networks lost 14 9/16 to 183 1/16, and Northern Telecom declined 4 1/16 to 67 15/16.

Commerce One rose 3 3/4 to 75 1/8, continuing its run after closing above 70 resistance on Thursday. Prudential upgraded the stock to Strong Buy and set a $90 price target. Ariba slipped 3/16 to 153 9/16 and i2 lost 2 3/8 to 158 1/8, but FreeMarkets added 4 9/16 to 77 3/16, and PurchasePro climbed 4 9/16 to 70 1/4.

Check Point Software fell 8 3/16 to 138 1/16 despite Merrill Lynch beginning coverage with a near-term Accumulate and long-term Buy, calling the company a core software holding.

Covad gained 1 3/4 to 20 1/8 after a bullish analyst meeting and news of a $150 million investment from SBC, but declined after the market closed on news of a $500 million private convertible offering. DoubleClick added 1/16 to 33 3/4 after its analyst meeting, and JDS Uniphase , off 4 7/16 to 109 7/8, will hold one tomorrow.

Liberate gained 2 1/2 to 32 1/2 on news of a European contract win.

internet.com , publisher of this Web site, slipped 2 1/4 to 25 1/16 after announcing the acquisition of advertising and marketing information site clickz.com for $16 million in cash and stock.

Radware , up 2 to 32 5/16, and Akamai , off 4 13/16 to 62 11/16, announced an Internet content

partnership.

SpeechWorks fell 7 1/16 to 66 after a Barron’s article questioned the company’s valuation.

Allaire , off 2 to 23, continued to fall despite positive analyst comments.

Some technical comments on the market: The Nasdaq and Nasdaq 100 closed right at critical support: at the downtrend lines from March broken last month (3900 on the Nasdaq, 3700 on the Nasdaq 100). The indexes need to rally here; further selling and we have a failed breakout. Next support is the May uptrend lines at 3750 on the Nasdaq and 3600 on the Nasdaq 100; a break of those levels would likely send the indexes back to their May lows. So far, earnings warning season hasn’t delivered any huge surprises, so barring a warning from a market leader, the May uptrend should hold. However, we should note one troubling similarity between this summer’s rally and the March peak: in both cases, the Nasdaq 100 went on to a new high, while the Nasdaq did not. This divergence shows weakness in the recent rally, but doesn’t necessarily mean a huge decline is coming. To the upside, the Nasdaq faces resistance at around 4000, and then again at 4100.

The Dow and S&P 500 finished just below support at 11,200 and 1490, respectively, suggesting that the blue chips could be in for further weakness here. The Dow may be forming a head-and-shoulders top here; a clean break of 11,200 would likely carry the index back to 11,000. Critical support is just under 10,900, the upper boundary of the Dow’s bearish diamond pattern, which the index broke out of last month. Resistance on the Dow is 11,300 and 11,400, and on the S&P, 1500 and 1507. The ISDEX closed below 790-800 support today, which now becomes resistance again. Critical support on the ISDEX is just above 700, which is now the intersection of the index’s March downtrend and May uptrend lines. To the upside, the ISDEX’s recent rally was capped by the 50% retracement level of 850.

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