Cisco Fallout Continues

Inventory and equipment spending concerns continued to weigh on communications stocks in the wake of cautionary comments from Cisco Systems, and Net stocks dropped on worries about online retailers’ financial health.

As if that wasn’t enough, traders also awaited the outcome of the closest presidential election in more than 100 years, which may not be decided until 5 p.m. tomorrow. Investors appeared to be pricing in a Bush victory, as drug, tobacco and healthcare stocks rose.

The ISDEX dropped 37 to 620, and the Nasdaq fell 111 to 3304. The S&P 500 lost 10 to 1421, and the Dow rose 36 to 10,988. Volume rose to 412 million shares on the NYSE, but declined to 742 million shares on the Nasdaq. Advancers led by 13 to 11 on the NYSE, but decliners led 20 to 13 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

The announced demise yesterday of and pressured shares of e-tailers. Merrill Lynch analyst Henry Blodget expressed concern about the ability of three stocks to raise the financing they will need to continue, and cut their ratings to Neutral: eToys , off 1 to 2 3/8, Webvan , down 1/4 to 1 7/16, and , which lost 3/16 to 1 3/4. , down 1 11/16 to 35 1/4, fell on a Wall Street Jorunal report that the SEC is scrutinizing the company’s treatment of stock deals with other Internet companies.

Cisco , down 3 5/16 to 53 7/16, finally joined in the selling it inspired yesterday on inventory buildups and comments that equipment spending could slow. Broadcom dropped 21 3/8 to 155 1/8, PMC Sierra lost 7 1/16 to 120 13/16, Vitesse dropped 8 3/8 to 64 11/16, JDS Uniphase lost 3 1/4 to 70 7/8, and Juniper fell 16 7/8 to 193 13/16. Technical note: Broadcom may have broken out of a head and shoulders top yesterday, with downside potential to 125.

Art Technology Group fell 10 1/2 to 45 on concern about the strength of the company’s business.

VerticalNet dropped 2 3/8 to 25 7/16 on a USB Piper Jaffray downgrade on concern over the company’s acquisition of

America Online lost 1.89 to 55.72 on news that the Federal Trade Commission is demanding new concessions ahead of a vote tomorrow on the company’s merger with Time Warner. AOL Latin America gained 3/8 to 6 3/4 on a better-than-expected loss.

Oplink Communications dropped 2 1/8 to 23 9/16 despite beating estimates by 3 cents with a breakeven quarter. TMP Worldwide slipped 5/8 to 71 1/2 despite beating earnings estimates. PFSWeb lost 27/32 to 1 15/32 after missing estimates and lowering forward guidance.

Engage lost 3/8 to 3 9/16 on a Chase H&Q downgrade.

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The broken rising wedges or bear pennants in Cisco and the Nasdaq 100 seem to have some force behind them. Based on its breakdown two days ago, Cisco has downside potential to 40-45.

The Nasdaq 100 has downside to 2700-3000 based on its breakdown yesterday. The Nasdaq and Nasdaq 100 may have failed to take out their recent highs around 3500, continuing a cycle of lower highs, which is also a negative. A lower low, below 3026 on the Nasdaq and 2958 on the Nasdaq 100, would be bearish.

The S&P 500 continues to form a much bigger rising wedge, with an apex at least a few weeks away. Even if it continues to form, the index could have quite a bit of upside before the boundaries converge, but a retest of 1300 may be in the cards a couple of months down the road. The entire 1420-1460 range could be tough resistance for the S&P, since it was a big consolidation area back in September. A break below 1420 support would be a negative.

The ISDEX was finally dragged down by the Nasdaq today. To the downside, 600, where downtrend and uptrend lines are converging, should provide support. It faces tough resistance at 675; three previous rallies have failed there. A break above that level would be a real positive.

The Dow faces tough resistance at 11,000. However, given the breakout out of a bull flag and the distance from the previous consolidation, a move to 11,400 is not out of the question. Note the downtrend line that could provide resistance around 11,250. To the downside, we’d like to see the Dow stay above its diamond apex at 10,850, or at least not go below that point by more than 2%.

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