Check Point, Big Blue Lead Market Higher

Stocks rose on Thursday, buoyed by strong earnings from Check Point Software and IBM. But Net stocks were weak on an earnings warning from Vignette.

The ISDEX http://www.wsrn.com/apps/ISDEX/ slipped 3 to 404, but the Nasdaq climbed 48 to 2730. The S&P 500 added 14 to 1343, and the Dow rose 98 to 10,682, boosted by IBM’s earnings. Volume declined to 574 million shares on the NYSE, and 1.1 billion on the Nasdaq. Advancers led by 14 to 13 on the NYSE, and 18 to 17 on the Nasdaq. Economic reports continued to show a significant slowdown in manufacturing. 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.

Traders awaited a slew of earnings after the close from the likes of Microsoft , Sun Microsystems , eBay , Commerce One , Nortel and Inktomi .

Check Point soared 10 15/16 to 137 1/2 after beating estimates by 8 cents with 46-cent earnings and declaring a 3-for-2 stock split.

i2 Technologies beat estimates by a penny with 9-cent earnings, but the stock fell 3 15/16 to 49 15/16 on concern about competition from the likes of Oracle and comments that business could slow .

Travelocity.com surged 3 to 17 15/16 after beating estimates by 9 cents with a 5-cent loss. Expedia rose 2 to 13 3/4.

Vignette plunged 5 11/32 to 7 5/32 on an earnings warning. BroadVision fell 2 7/8 to 14 3/8, and Art Technology lost 5 1/2 to 19 1/2.

Other earnings warnings came from Scient , down 1/4 to 3 3/16, S1 , off 1 1/4 to 6 1/2, Entrust , down 1 5/8 to 15 3/4, and Jupiter Media Metrix , down 1 9/16 to 6 7/8.

Mercury Interactive surged 5 15/16 to 86 7/8 after beating estimates by 4 cents with 28-cent earnings. Marimba , up 17/32 to 7 21/32, beat estimates by 6 cents with a 1-cent loss.

Analysts dismissed yesterday’s speculation that Yahoo could be a takeover target, but traders didn’t appear to be listening sending the stock 2 9/16 higher to 32 13/16.

Openwave continued to rise on positive analyst comments, climbing 2 5/16 to 49 7/16, but off its intraday high of 53 1/4.

Networkers had a tough time despite positive earnings from Redback Networks , down 7 7/16 to 41 1/8, Extreme Networks , down 6 15/16 to 40 15/16, Avici , off 1 11/16 to 33 1/4, and Efficient Networks , off 5/8 to 13 13/16.

NBC Internet slipped 3/16 to 4 after announcing 30% layoffs.

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The Nasdaq has had a perfect record since the Fed cut rates: the five up days since then have all come on rising volume, and the five down days since then have all come on declining volume. We couldn’t ask for better price and volume action. However, the Nasdaq is threatening to break that string of perfection today, rising on 20% lower volume so far. Given the dojis (potential rev

ersal patterns) that have formed in the Nasdaq and S&P in recent days, we wouldn’t be surprised to see some sort of pullback to relieve overbought conditions here, at least filling the 2618.55 gap created yesterday on the Nasdaq. That gap filled partially today, which in our experience usually means it will fill completely within a matter of days. The one argument against filling that gap right away is that it occurred on a breakout out of the index’s 4 1/2-month downtrend. The Nasdaq peaked yesterday at the upper trendline of a new rising channel (first chart), which combined with the lower volume today, could limit upside from here. The Nasdaq and Nasdaq 100 (second and third charts) continue to trade above their September downtrend lines broken yesterday, a good sign. The Nasdaq 100 appears to be forming a bearish rising wedge (again, the third chart), but the bullish price and volume action does not support a picture of a weak rally, which a rising wedge would normally indicate, so we are not taking the bearish pattern seriously. Again, volume is always half the picture of any chart pattern. The Nasdaq 100 partially filled a gap at 2470.72 today. The maximum downside expected on any pullback would be to about 2425 on the Nasdaq, the lower boundary of the rising channel.

The ISDEX broke its September downtrend line yesterday and has upside potential to 450-470. However, the Nets are up 40% in a little more than a week, so we wouldn’t be surprised to see a pullback there, either. The ISDEX created a gap at 388.5 yesterday that was partially filled today.

The S&P 500 took out its September downtrend line yesterday, at about 1440, but then closed back below it. A close above that line, which the index seems poised to do today, would be yet another positive for the overall market. The negatives are the lower volume on today’s breakout and the fact that the index formed a gravestone doji yesterday, trading strongly higher during the day only to finish back at the unchanged level, a potential reversal sign.

The Dow is putting in a much better performance today, finally blasting off out of its rounding pattern at 10,500 support. A strong close on the index would remove the only major weakness we see in this market, but higher volume on the move would be nice. Critical support on the Dow is 10,300, while a close above 11,007 would confirm a new bull market under Dow Theory.

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