Earnings Worries Continue To Drag On Stocks

Stocks shook off early losses on Thursday to trade mixed at midday. Earnings worries weighed on fiber optics stocks.

The ISDEX fell 2 to 728, well off its low of 715. The Nasdaq rose 6 to 3869 after falling as low as 3820. The Dow fell 38 to 3445 and the S&P 500 slipped 1 point to 1445. Volume declined on the NYSE to 425 million shares, but rose on the Nasdaq to 660 million shares. Decliners led 13 to 12 on the Big Board and 20 to 14 on the Nasdaq.

June employment data will be released on Friday. Analysts expect a 275,000 gain in non-farm payrolls, a 4.1% unemployment rate, and a 0.4% increase in hourly wages. Yahoo will kick off earnings season July 11, and Ariba will follow on July 12.

Earnings warnings from Visual Networks , Caprock Communications and Orckit weighed on Internet infrastructure stocks, and concern about IBM’s and Hewlett-Packard’s earnings weighed on the Dow. Visual Networks cratered 14 3/4 to 11 1/2 after announcing that earnings would be 1 cent per share, instead of the 6 cents analysts were expecting. Caprock fell 6 1/16 to 11 7/8 and Orckit fell 4 1/2 to 13 1/2. The warnings hit the leading Internet infrastructure stocks: Corning fell 6 3/4 to 248 5/8, SDL declined 1 13/16 to 273 1/2 after trading as low as 255, JDS Uniphase dropped 6 1/4 to 112 3/4, below recent support, and Juniper Networks fell 5 7/16 to 135 15/16.

i2 Technologies soared 11 to 112 1/4 on positive comments from Paul LeCoque, president of LongView Capital Management. “One of my favorite positions in B2B is i2 Technologies,” he told The Wall Street Transcript. “I look at i2 the way I look at a lot of my semiconductor, data storage, networking and fiber-optic companies. That is, no matter who wins in the B2B exchange and e-commerce marketplace, you’re still going to need supply chain software, and i2 is the dominant provider of supply chain software.”

On2.com gained 15/16 to 5 7/16 after preannouncing positive second quarter earnings.

Mortgage.com gained 3/8 to 1 7/8 on news of an alliance with Wells Fargo.

Wall Street reacted favorably to Interwave’s announcement that it will buy Microcellular Systems. Interwave rose 2 to 14 5/8.

Profit-taking continued to hit Digital Island , off 4 1/8 to 44 1/4. The stock has now given back all its gains from rumors that the company is expected to announce major contract wins.

Phone.com continued to struggle, losing 2 to 65 5/8 despite an SG Cowen Strong Buy rating and $100 price target.

MyPoints.com added 1/4 to 16 5/16 on a Merrill Lynch Buy rating.

Digex gained 2 1/16 to 71 1/2 after Goldman Sachs added the Web hosting firm to its Recommended List.

DoubleClick rose 2 15/16 to 40 7/16 on news that DoubleClick Japan will merge with NetGravity Asia Pacific on Monday.

Bluefly added 3/8 to 2 5/8 on news that it received an additional $3 million from Soros Private Equity Partners, for a total of $9 million so far out of a $15 million commitment.

Some technical comments on the market: The indexes remain range-bound, with sharp moves up and down, but still no break of our trading ranges. This is indicative of a market lacking direction, but given how narrow the trading range has become, it’s not likely to last much longer. The Nasdaq broke through recent support of 3832-3838 this morning but turned around at 3820. However, we may be forming a bear flag after the s

harp move down from 3995; we’ll watch for further developments. Key support on the Nasdaq is at 3725 and 3585, which correspond roughly with the index’s 200-day moving average and October 1998 trendline, hence the importance of both these levels. The index has been rising just above the 200-day moving average for five weeks. This rising resistance, rather than being a positive, might imply an inexhaustible supply of sellers; flat-line resistance is usually more bullish, as it implies that sellers will eventually be exhausted. To the upside, we’ve been saying for some time that the Nasdaq needs to get back above 4000 and take out 4073 to negate its key reversal and bearish rising wedge of two weeks ago. The fact that we turned back just under 4000 is not encouraging, and until we take out the 50% Fibonacci retracement level of 4087, the Nasdaq’s recent rise must be viewed as a bear market rally. The difficulty around this important level is further evidence that this may be the case. One positive on the Nasdaq is that a decline out of a rising wedge is usually rapid; this has not been the case so far. The ISDEX has been consolidating at the top of its three-month trading range, which is a plus, but its recovery has been halted in the 790 area, just above the 38% retracement level from the high (1130) to the low (560). A move above 790 would be bullish, while a move below 700 would give the index room to 600. The Dow continues to have difficulty making much headway, turning back at 10,572 yesterday, maintaining its series of declining peaks since reaching 11,425 in April. A move above 10,620 would break this trend, and a move above 10,700 would break the upper boundary of the Dow’s bearish diamond pattern. To the downside, the Dow has twice found support at 10,336 recently; a move below that would be the first sign that the diamond pattern may resolve to the downside, and a move below 10,200 would confirm that. The S&P 500 is also forming a diamond in the weekly charts, with upper and lower boundaries of 1480 and 1370, respectively. One early warning sign: IBM appears to have broken down out of a symmetrical triangle/diamond formation, which would appear to imply an eventual move below $60.

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