Buyers Return

A good earnings outlook from GE and strong long-term growth projections from Cisco lifted stocks on Tuesday, as buyers finally returned. A weaker than expected retail sales report raised rate cut hopes ahead of next week’s Federal Reserve meeting.

The ISDEX http://www.wsrn.com/apps/ISDEX/ added 12 to 240, and the Nasdaq gained 91 to 2014. The S&P 500 climbed 17 to 1197, and the Dow rose 82 to 10,290. Volume rose to 1.36 billion shares on the NYSE, but declined slightly to 2.1 billion on the Nasdaq. Decliners led advancers 17 to 13 on the NYSE, but advancers led 20 to 16 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.

Cisco rose 2 9/16 to 21 3/8 after CEO John Chambers said that the current business environment remains difficult, but that the sector should see long-term 30-50% growth rates. Juniper , which also presented at the Merrill Lynch Global Communications conference, surged 9 3/4 to 59 7/16.

Cisco’s comments that it plans to move into the security market appeared to have no effect on companies in that sector. Check Point rose 5 11/16 to 70 1/8, and Internet Security soared 7 5/16 to 44 5/8.

B2B stocks were strong. webMethods climbed 3 1/2 to 27 1/2 on a deal with Best Buy. Ariba added 1 9/16 to 12 7/8, i2 rose 2 3/4 to 21 5/8, and Commerce One tacked on .90 to 11.74. PurchasePro added 5/8 to 10 5/8 despite an announcement that founder and CEO Charles Johnson plans to begin selling shares.

Sonus Networks rose 4 1/16 to 26 on a multi-year deal with Qwest .

Engage added 1/32 to 1 after beating estimates by a nickel with a 21-cent loss.

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: http://www.afterhourstrading.com/column.html

Well, the market finally turned up today. A good start, but until the Dow gets back above 10,300, the S&P 500 above 1215, and the Nasdaq above 2070, the rally will be little more than a retest of recent breakdowns. As we said at midday, we had noticed that everyone on CNBC seemed to stop trying to call a bottom and started predicting lower lows. The most common levels cited have been 1500 and 1800 on the Nasdaq. When every market expert agrees on something, you can bet good money that they’re wrong. That told us that either the market will bottom here, or it will go a lot lower than anyone expects. A cycle turn is due some time in the next week or so, so at least an intermediate bottom might not be a bad bet here.

The other fallacy we keep hearing is that we need a high-volume capitulation day for the bear market to end. The only major bear market that ended in a one-day reversal was a five-month panic in 1938-1939. This bear market will end when we least suspect it, for reasons we can’t begin to fathom, but the odds are very high that it will not end on a high-volume panic sell-off. At some point, sellers will just plain run out of steam. We’re seeing some evidence of that here. And finally, everyone thinks that the Dow’s break of 10,300 was the start of Armageddon, or at least a retest of the 9650-9732 lows. That means that what will likely happen is

either modestly lower lows, like we’re getting, or much lower lows. What better place to bottom than here? There are no major supports, so no one’s looking for it. Besides, bear markets don’t respect support, so it’s better for it just to decide to turn higher at some point. The one psychological negative here we’re noticing is a lot of anger toward the Fed: that’s a plus because it means that investors are no longer in denial, but a negative because bear markets tend to end in despair, not in anger. That could support an intermediate turn here, but maybe not a major bottom. We’ll see when it happens; the market will tell us.

The Nasdaq held the lower trendline of what could be a bullish falling wedge (first chart) yesterday, with the lower line touching on the December and January closing lows; that lower line is declining at 5 points or so a day, so we’ll place it at 1912 for tomorrow. The next strong support on the index is at about 1850-1870 (second chart). The last couple of down days looked like potential exhaustion gaps, meaning sellers could be running out of steam. To the upside, the Nasdaq got above 2201.68 today to begin filling those gaps. The first major resistance is 2070, the redrawn 1990 logarithmic trendline. After that, the upper boundary of that falling wedge is around 2100, and next resistance after that is 2252. If the Nasdaq can close above 2252, a bottom is likely in, and the index could be headed for about 2900. The index formed a small gap at 1924-1930 on the open today that may need to be filled at some point.

The S&P 500 took out its first resistance today, 1191, the July 1998 highs. Next up is 1214-1215, an important level that marked the index’s recent breakdown. To the downside, 1191 is first support, then 1171, and the first strong support is 1125.

The Dow broke critical support at 10,300 yesterday, but Armageddon has so far failed to materialize; an uptrend line from March 2000 is so far providing support around 10,100. A retest of the 10,000 level and the 9600-9700 lows are not out of the question if the index can’t get back above 10,300. After 10,300, 10,450-10,500 is next resistance, and then 10,600-10,700. GE is recovering somewhat today after its recent breakdown, but the Transports got crushed, a big negative because of their importance to the health of the economy as a whole.

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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