Bulls Take The Day Off

Stocks took a breather on Tuesday to digest their strong gains. Blue chips pulled back, but the Nasdaq managed to eke out a small gain.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 2 to 296, and the Nasdaq added 8 to 2313. The S&P 500 gave back 3 to 1309, and the Dow fell 80 to 11,257. Volume declined to 1.25 billion shares on the NYSE, and was unchanged at 2.3 billion on the Nasdaq. Decliners led 16 to 14 on the NYSE, but advancers led 21 to 17 on the Nasdaq. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

Telecom equipment and networking stocks had another good day. Cisco rose .61 to 23.48 on Salomon Smith Barney comments that the company’s optical business is accelerating. The firm also made positive comments about Ciena , which surged 3.46 to 64.25. AT&T successfully completed tests of Ciena’s MultiWave Metro intelligent optical transport system. CSFB also made positive comments about an increase in Cisco orders.

The sector shook off news of a cut in capital spending by Genuity , which said it is cutting CapEx spending by half through 2004, casting doubt on a projected strong rebound in CapEx spending in 2002. Investors also ignored reports that Nortel is cutting prices aggressively to maintain market share. Communications chip stocks were weak on Bear Stearns comments that cancellations are continuing. PMC Sierra slipped .73 to 42.75.

Redback Networks dropped 1.69 to 17.31 on news that the company’s CEO is resigning. Investors ignored rumors that the company could be a takeover target.

Openwave , up 3.79 to 43.45, gapped through 40 resistance on Thomas Weisel channel checks that found momentum is gaining for WAP services.

ISPs had a good day on news that AOL is raising billing prices by $1.95 to $23.90 a month. Earthlink rose .66 to 14.15.

McAfee.com soared 4.40 to 12.50 on an alliance with Microsoft .

i2 added .90 to 28 after SG Cowen began coverage with a Buy rating and $33 target, saying the company is the clear leader in supply chain management.

Some technical comments on the market: Note: We include charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

The S&P 500 and the Nasdaq finished close enough to unchanged so they could be forming dojis, indecision days that can precede a turn, and tomorrow is a significant cycle turn date. Hopefully any pullback will be modest; the indexes have all broken through enough resistance at this point to change the major trend from down to at least a trading range, if not up. The S&P 500 (first chart) and the Nasdaq (second chart) need to hold above their September downtrend lines broken yesterday. That gives the Nasdaq downside room to 2200 (2252-2300 should now be support), but the S&P only has downside room to 1275-1280 (the 1254-1300 range should now be support). The S&P is a potential inverse head and shoulders bottom with upside potential to 1420-1450; to the upside, the index doesn’t have much chart resistance until 1375-1380. The Dow (third chart) pulled back below a critical level, the 11,400 point that has stopped earlier rallies. Above 11,400, the Dow should be headed for new highs, and the 11,000-11,035 level should now be support.

Special report: For a free introduction to technical chart patterns and an overview of last year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.

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