Cisco Sends Nets, Techs Sprawling

A rare earnings miss and warning from bellwether Cisco Systems sent technology and Internet stocks sharply lower on Wednesday.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 18 to 366, and the Nasdaq dropped 96 to 2568. The S&P 500 lost 14 to 1337, and the Dow declined 19 to 10,937. Volume rose to 470 million shares on the NYSE, and 846 million on the Nasdaq. Advancers led by a few issues on the NYSE, but decliners led 23 to 11 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 plunged 5 1/4 to 30 1/2 after missing estimates by a penny with 18 cent earnings. Analysts had already reduced estimates to 19 cents a share after two stealth warnings from the company last month. Cisco’s revenues came in $450 million lower than expected at $6.75 billion, and the company’s gross margins also missed estimates. Cisco also warned that the next two quarters will see zero to negative revenue growth, well below estimates. Juniper fell 9 7/9 to 92 5/16, Redback lost 3 7/16 to 39 1/4, and Sycamore dropped 3 1/2 to 23 1/2.

Broadcom , a Cisco supplier, lost 12 7/16 to 80 1/16 after making cautious comments at a Bank of America Securities conference.

Aether Systems fell 5 1/8 to 38 1/2 despite beating revenue and loss estimates, but gross margins came in lower than expected.

CNET , down 3/4 to 15 1/8, matched estimates but warned that future results will be much lower than expected. Agency.com , off 3/4 to 3 1/8, beat estimates, but also warned.

EarthWeb , up 3/4 to 6 3/8, beat estimates. MicroStrategy dropped 3 5/8 to 13 5/16 after beating estimates, but top company officials announced plans to sell shares.

Viant lost 5/32 to 3 31/32 after missing estimates. Ashford.com , off 3/32 to 21/32, issued an earnings warning.

InfoSpace rose 15/16 to 4 19/32 after the company announced a conference call for February 12 to discuss plans to return to profitability.

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

The Nasdaq and Nasdaq 100 broke down out of their rising channels today (first and second charts). The Nasdaq also fell back below its September downtrend line – http://cache.wsrn.com/images/AHT/compx0207log.gif – which we will link to because the break is too small to show up in a smaller chart. While the downtrend line was pierced (the gray line), the black line may provide stronger support around 2500-2550. But the Nasdaqs have clearly broken down, and there isn’t much in the way of support between here and Nasdaq 2300, where the Fed first cut rates a month ago. We may need to look to the S&P 500 for support.

The S&P 500 may well provide critical support for the market. The lower rising channel boundary around 1325 could provide a cushion for the market.

The Dow continues to struggle at 11,000 resistance. A close above 11,007 would be bullish under Dow Theory, the oldest school of technical analysis, particularly if the Dow Transports can stay above 3000; the Trannies continue to hold above that level. But the 11,000 level has been one tough obstacle for the Industrials, reflecting its importance to the health of the market and the economy as a whole. To the downside, we expect that lower trendline at about 10,700 to hold, if the Dow gets that low.

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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