Cisco Leads Techs Higher

Better-than-expected earnings from Cisco Systems drove the Nasdaq higher on Wednesday, but just about everything else traded lower.

The ISDEX slipped 2 to 749. The Nasdaq rose 36 to 3885, but 50 points off its high. The S&P 500 was off 4 to 1478, and the Dow dropped 67 to 10,909. Volume rose to 470 million shares on the NYSE and 725 million on the Nasdaq. Decliners led 13 to 12 on the NYSE and 18 to 17 on the Nasdaq. 24/7 Media, Healtheon and Applied Materials will report earnings tonight, and Dell Computer will report tomorrow. For earnings reports, visit our earnings calendar and reported earnings.

After the bell on Tuesday, Cisco beat estimates by a penny with fourth-quarter earnings of 16 cents a share. The company’s revenues rose 60% to 5.72 billion, above even the most optimistic estimates of $5.6 billion. Cisco rose 2 3/8 to 67 7/8, but pulled back after trading as high as 70 13/16. The stock faces important resistance at $70.

Phone.com soared 13 19/32 on news that it is buying Software.com , up 35 3/4 to 143 1/2, for 1.6105 shares of PHCM for each share of SWCM. Phone.com also announced another coup: Cisco executive Donald Listwin, who had been considered heir apparent to Cisco CEO John Chambers, will become president of Phone.com.

Critical Path fell 5 3/4 to 59 1/4, giving back all of yesterday’s gains, after announcing the acquisition of PeerLogic for 6.4 million shares.

Interwave gained 1 1/8 to 12 7/8 after the company beat estimates by 2 cents with a fourth-quarter loss of 11 cents a share.

PSINet lost 1 7/16 to 18 3/8 on a Chase H&Q downgrade from Buy to Hold. PSI had risen yesterday on a better-than-expected second-quarter loss.

Rhythms fell 1 3/16 to 12 13/16 after Thomas Weisel recommended that investors in the stock sell into strength. The stock gained yesterday on news of the Verizon/NorthPoint DSL merger.

VA Linux gained 4 13/16 to 39 1/16 on a Deutsche Bank Alex. Brown Strong Buy rating.

NBC Internet lost 9/16 to 10 7/16 on news that the company will reduce its workforce by 20%, or 170 employees.

Register.com slipped 1/4 to 18 1/4 after the company announced that it plans to withdraw a secondary offering of 4 million shares because of unfavorable market conditions.

MyPoints.com slipped 7/16 to 13 1/4 on a USB Piper Jaffray downgrade from Strong Buy to Buy. CMGI , which was also downgraded, fell 2 3/8 to 38.

Digital Island lost 1 1/64 to 28 1/2 on a Kaufman Bros. downgrade from Buy to Accumulate. The company met with analysts yesterday.

B2B stocks were lower on lukewarm comments from Jefferies & Co. Commerce One lost 1 5/8 to 49 5/8, again turning back above its recent 52-53 breakout point. Ariba lost 4 3/4 to 137 3/4, but stayed above yesterday’s breakout point of 135. i2 slipped 3/4 to 140 1/8, after turning back yesterday at 148 1/2 at what appears to be the upper boundary of a rising wedge.

Some technical comments on the market: We said the Dow was likely to turn back today, and so far it has. The index closed yesterday right at the upper boundary of its bearish diamond pattern. A close above 11,000 on high volume would just about take that pattern out of play. So far, the index’s decline has been halted by the

10,900 level. The lower boundary of the Dow’s bearish diamond pattern is about 10,450, but we’ll continue to use 10,200-10,300 because of strong support in that range and the requirement of a 3% break of a major pattern. A break of that line could carry the Dow as low as 8,500. Recent support on the Dow is 10,675. The Nasdaq’s rally since bouncing off 3521 last week continues to form converging boundary lines, not a good sign because it means the rally may run out of room. The index rose above its 200-day moving average (3916) this morning, trading as high as 3936, but has since faded back below that key level. A case of buy the rumor, sell the news on Cisco’s earnings? We are still waiting for a high-volume follow-through to last Thursday’s reversal on the Nasdaq.

The break of rising wedges recently on the S&P, Nasdaq and the ISDEX gives us potential for a lot of downside if this rally fails. The Nasdaq’s break of its bearish rising wedge gives it potential downside to 3042. A break and close below 3500 would be a big warning sign. The selling ended last week right at the 62% retracement level (3521) of the move from 3042 to 4289. The decline was also halted by the Nasdaq’s October 1998 trendline. The ISDEX once again turned back at the lower boundary (770) of its bearish rising wedge. The ISDEX needs to get above that level to negate its broken rising wedge. That broken wedge gives the ISDEX potential downside to 560. Above 770 is 790 resistance, and above that, the ISDEX turned back recently at 840, just below its 50% retracement level of 845. Support levels on the ISDEX are 693-700, 650 and 600. The S&P 500 is struggling at 1480-1490 resistance, turning back this morning at 1490. The S&P’s broken rising wedge gives it potential downside to 1361. Critical support is 1390, the index’s October 1998 uptrend line. A break of that trendline could carry the S&P to 1170 or lower, so we do not want to violate that line.

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