Cisco Tops Expectations

Cisco Systems beat earnings and revenue estimates after the close on Monday, capping a mixed day on Wall Street.

The ISDEX was unchanged at 665 during the day, and the Nasdaq was down 35 to 3416. The S&P 500 rose 5 to 1432, and the Dow surged 159 to 10,977. Volume dried up to 925 million shares on the NYSE and 1.58 billion shares on the Nasdaq. Advancers led by 14 to 13 on the NYSE, but decliners led by 21 to 18 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.

Cisco beat earnings estimates by a penny with 18-cent earnings, and revenues of $6.52 billion topped estimates. It was the 11th straight quarter of accelerating revenue for the company. The stock slipped a point to 54 in after hours trading on booking concerns and worries about financially troubled customers.

VA Linux plummeted 12 1/2 to 17 1/2 after warning that earnings will miss estimates of a 9-cent loss by 5-7 cents. The company blamed the shortfall on weakness in dot-com business. Red Hat slipped 1 1/4 to 15 3/4.

America Online rose 2.43 to 55.86 on news that the company’s merger with Time Warner moved a step closer. The companies would have to open high-speed cable lines to competitors in cities served by Time Warner.

Ask Jeeves , up 1 11/16 to 16 3/4, continued to diversify into the B2B space. The company will partner with General Magic , up 9/32 to 4 21/32, and Nuance , up 13 11/16 to 101 9/16, to offer voice-enabled solutions for corporations.

iXL was down 1/32 to 2 19/32 after announcing that James Gionfriddo will not join the company as its COO.

Broadcom slipped 7/8 to 221 1/2 after announcing the purchase of networking and communications chip company SiByte for about $2 billion in stock. InfoSpace , down 7/8 to 23 5/16, announced the acquisition of speech recognition company Locus Dialogue for 4.3-5.5 million shares. rose 1/2 to 4 31/32 after announcing it will buy back 24% of its outstanding chares.

Razorfish rose 5/8 to 6 3/16 on news of a deal with Deutsche Bank.

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Cisco’s numbers were strong, but the market seems to be in a selling mood. As we said at noontime, the stock was forming a bearish rising wedge or pennant pattern ahead of the report, and it broke down this afternoon. The pattern was technically perfect, even down to the declining volume in the lower half of the chart. The potential downside based on the pattern is 40-45. It may have just been pre-earnings jitters; we’ll see how the stock responds tomorrow.

The Nasdaq 100 also continues to form a bearish rising wedge or pennant. The index tried to break out to the upside on Friday but pulled back in. An upside break with force would be bullish. The downside on the Nasdaq 100 is 3000 if the pa

ttern is a rising wedge, and 2700-2800 if it is a bear pennant. The difference between the two is time: a pennant completes in less than three weeks, a wedge takes three weeks to three months to form. This pattern has been building for eight trading days, so it is still a pennant. If the Nasdaq and Nasdaq 100 fail to take out their recent highs around 3500, they would continue a cycle of lower highs, which is also a negative.

The S&P 500 continues to form a much bigger rising wedge, with an apex at least a month 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.

The ISDEX is holding up well, but it’s hard to imagine the index escaping unscathed from a Nasdaq sell-off. The index is holding above its highest possible downtrend line, and has been showing surprising strength as investors flock back into beaten-down Net stocks. 700 is next resistance on the index. The broken downtrend line at 625 could provide support, and the lower line at about 580-590 will hopefully form a new trendline for the ISDEX.

The Dow was up strong today, but the move came on lower volume. However, given the bull flag and the distance from the previous consolidation, a move to 11,400 is not out of the question. 11,000 has so far capped the index’s rally. 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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