Cisco Comments Short-circuit Rally

Comments by Cisco Systems that a slowdown in capital expenditures was affecting the company cut short a promising rally in technology and Internet stocks on Wednesday. Traders anxiously awaited Yahoo’s earnings after the bell.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 6 to 342, and the Nasdaq climbed 15 to 2457, but both indexes were well off their earlier highs. The S&P 500 slipped 1 to 1299, and the Dow lost 50 to 10,522. Volume rose to 570 million shares on the NYSE and 1 billion on the Nasdaq. Advancers led by 15 to 11 on the NYSE, and 20 to 12 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.

It was a rare day on the ISDEX, internet.com’s Internet Stock Index, which traded 2% higher while Cisco was its worst-performing stock, down 10% to 33 11/16. CEO John Chambers admitted at a Morgan Stanley conference that the CapEx spending slowdown began to affect the company’s business in mid-December, and said the company has less visibility than usual. Morgan Stanley and CIBC made negative comments on the stock. Morgan said the company’s earnings could be impacted by 2 cents a share this year and 10 cents a share next year. CIBC said Cisco no longer has an appreciating stock price with which to make acquisitions, a big part of the company’s strategy. Juniper Networks slipped 3 3/4 to 113 7/16 in sympathy.

Broadcom , a Cisco supplier, slipped off its highs, but still traded up 5 15/16 to 102 15/16. Broadcom is also a big supplier to Motorola , which reports earnings after the bell tonight.

Yahoo slipped 1 1/8 to 29 ahead of its highly-anticipated earnings report due out after the bell tonight. For the first time, Yahoo’s whisper number (12 cents) is lower than the official estimate (13 cents).

eBay surged 3 1/2 to 36 7/8 on a positive presentation by CEO Meg Whitman at the Morgan Stanley conference.

Interwoven surged 3 to 24 on a Wit SoundView Strong Buy rating. PurchasePro tacked on 3/16 to 15 7/16 on an ABN Amro Buy rating.

Priceline.com added 1/4 to 2 1/16 on news of a settlement with Expedia .

barnesandnoble.com slipped 3/8 to 2 1/32 on an earnings warning. ServiceWare plunged 2 to 1 1/2 on an earnings warning.

Evoke , up 5/32 to 1 29/32, preannounced better than expected results and announced a restructuring.

i2 Technologies , up 3 1/2 to 45 3/16, finally got a bounce after preannouncing better than expected revenues. Ariba rose 3/4 to 37 11/16, and Commerce One tacked on 11/16 to 19 15/16.

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The Nasdaq filled its gap from yesterday at 2396 this morning before turning up, backing and filling action that remains constructive. Now with earnings season about to hit, we should get a better sense of near-term market direction. Yesterday’s action gave the index upside potential to 2650, but so far buyers haven’t shown much conviction.

The Nasdaq and Nasdaq 100 remain in the middle of new rising channels:

The S&P 100 is forming a strong lower support line here (first chart), while the S&P 500 is forming a large trading range between 1277 and 1350 (second chart). The S&P 500 may be forming a small ascending triangle that could carry it to about 1345. A clean break of 1350 could carry the S&P all the way to 1420.

The ISDEX is also setting up a wide trading range, between 300 and 385. A break of 385 could carry the Nets to 470.

The Dow is looking weaker than the Nasdaq and S&P here; it is the only index trading below the level where the Fed cut interest rates (10,600), a level that was also strong support on the index. However, it looks like the Dow may have retraced to the neckline of an inverse head-and-shoulders bottom here; it would be a plus if the index can hold 10,500, and the Dow looks like it’s trying to turn up here. 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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