Earnings Warnings Rattle Investors

Stocks fell across the board in rising volume on Tuesday, as earnings warnings from Lexmark and Eastman Kodak unnerved investors.

The ISDEX fell 14 to 779, and the Nasdaq lost 52 to 3689. The S&P 500 fell 11 to 1427, and the Dow dropped 176 to 10,631. Volume rose to 1.1 billion shares on the NYSE and 1.8 billion on the Nasdaq. Decliners led 15 to 12 on the NYSE and 25 to 14 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site.

Only nine ISDEX stocks finished higher. Phone.com gained 4 1/4 to 120 1/8. Investors have been buying the stock since its announced merger with Software.com was warmly received. Other ISDEX stocks that have been strong lately and continued to show strength today include: i2 , up 1 1/2 to 184 1/8, Broadcom , up 4 3/4 to 257, and Juniper Networks , up 2 3/8 to 230 1/4.

Better-than-expected earnings from Palm did little to help the negative mood in the market. Palm rose 3 1/4 to 55 1/2 after reporting earnings of 4 cents a share, 2 cents better than analysts expected.

Bellwether Cisco Systems fell 2 to 55 3/16 a day after closing below 60 and 58 support. Critical support on Cisco is 50.

eBay fell 2 1/8 to 70 1/4 despite positive comments from Goldman Sachs. Yahoo slipped 2 3/4 to 102 3/4, hovering above its May and August bottoms of 99 1/2-99 3/4.

Entrust surged 4 1/4 to 27 1/16 on news of an alliance with Motorola to develop next generation wireless solutions.

Internet Capital Group fell 3 5/16 to 17 11/16 on cash burn concerns. Investors also sold shares of VerticalNet on the assumption that parent company ICGE will have to sell some of its 24 million shares of VERT to raise cash. However, Gerard Klauer said it doesn’t expect ICGE to sell VERT shares, and called the sell-off a buying opportunity.

S1 Corp. lost 1 5/16 to 11 1/4 on an Adam Harkness downgrade from Accumulate to Market Perform. The firm doesn’t believe S1 will have a critical mass of customers using its software until 2002.

The IPO of CoSine Communications priced at 23, opened at 67, and closed at 62 1/2. Another recent IPO, OmniSky , continued to draw buyers, rising 1 1/16 to 22 5/8.

Telescan lost 5/16 to 2 7/8 after GlobalNetFinancial.com , up 1/8 to 7 5/16, terminated the companies’ merger agreement, saying the companies would do better to pursue their strategies separately.

NBC Internet gave back 5/8 to 7. ABN Amro began coverage with a Hold, saying the company will need time to realize benefits from its new strategy announced yesterday.

Wavo gained 1/8 to 13/16 on news of an XML-based content delivery deal with Dow Jones & Company.

Some technical comments on the market: Note: We will now be including charts with the technical market commentary; just click on the link in the story below to go to them. If you have trouble accessing the charts via the email newsletter version, try this link: http://www.afterhourstrading.com/column.html

The Dow, Nasdaq and S&P all ended the day right above critical support. Again. This constant pounding of critical support levels is beginning to look like the market wants to go lower. Compounding the problem is the lack of fear that helps form a bottom, but we’ll get to that in a minute.

After turni

ng back yesterday at the 38% retracement level (3859) of the 4259-3614 decline and the old broken uptrend line from May, a further decline in the Nasdaq today was not unexpected. So far, the sell-off has been halted around 3700, the old October 1998 trendline. Below that, critical support is the August bottom of 3521. To the upside is resistance around 3859. If the Nasdaq can get above 3913, it would both give the Nasdaq a higher high and place the index back above the broken May trendline.

The S&P 500 turned back just below 1460 resistance yesterday and remains below its October 1998 trendline, which is now providing resistance. A move above 1460 would be the first sign the index has room to run. To the downside, critical support on the S&P is 1420 (the black line. Also in the S&P chart, note the gray line, which is the broken October 1998 trendline; and the broken rising wedge, or a rally with converging boundaries, that began the decline). 1420, where the S&P turned up last week, is on a line with the March (1340) and April (1361) bottoms.

The Dow closed back beneath the upper boundary of its old bearish diamond pattern around 10,825 yesterday, so follow-through selling is also not surprising on that index. Critical support on the Dow is 10,500, the October 1998 trendline. To the upside, if the Dow can clear 10,900, the old economy stocks could have room to run. The ISDEX is back below the 787-800 support range. Next strong support is the 750-760 area, and critical support is the May uptrend line at about 725. To the upside, first resistance on the ISDEX is around 800, and above that, two recent rallies have peaked around the 50% retracement level at 850.

Another word on complacency: The volatility index (VIX) peaked at 27 Friday morning and has traded around 24 since, getting up above 25 today. The put-call ratio got as high as .62 on Friday and is now back around .50. Since significant market bottoms usually occur with the VIX above 30 and the put/call ratio above .90, the market may be just delaying a bottom here. The good news is that more bear markets end in October than begin in that legendary month, so it would probably be a long-term positive if the market were to put in a significant bottom next month. Otherwise, the psychology appears to be keeping this market range-bound.

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