eBay, Juniper Lead Net Rout

Internet stocks were crushed Monday on analyst downgrades to eBay and Juniper Networks.

The ISDEX plunged 43 to 477, a new yearly low, and the Nasdaq lost 151 to 2875. The S&P 500 declined 25 to 1342, and the Dow fell 167 to 10,462. Volume declined to 953 million shares on the NYSE, but rose slightly to 1.72 billion shares on the Nasdaq. Decliners led by 18 to 9 the NYSE and 29 to 9 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.

eBay dropped 8 5/16 to 35 1/8 on a Lehman Brothers downgrade to Neutral from Buy. Lehman said eBay’s core auction business is slowing, and that newer initiatives will take more time and money to implement than estimated.

Morgan Stanley downgraded the networking sector to Neutral based on capital spending concerns. Juniper plummeted 32 1/4 to 122 3/32, approaching our downside target of 120 based on the break of a broadening top. Redback lost 8 3/4 to 72, and Extreme Networks dropped 8 13/16 to 64 1/2.

Technical note: It’s worth taking another look at the Juniper broadening top. A broadening top is usually a series of three higher highs and two lower lows, but can sometimes have a flat top or bottom, and can sometimes go on to make a fourth high. It is considered a major topping pattern, requiring out-of-control trading conditions. Hence, the pattern’s appearance last month was a bearish sign even before it broke. The predicted minimum move is the distance from the peak (#5) to the previous reaction low (#4), from that lower point. The pattern is not considered broken until the stock closes below the reaction low by 3%. The Juniper pattern was 65 points in size, from the 244 1/2 peak to the 179 1/2 reaction low, predicting a minimum downside move to 114 1/2. The closing break came a week ago at 164 1/2. The stock rebounded to 184 the next day, slightly above the break point, but not quite by 3%, then declined 30% in four trading days.

B2B stocks continued to fall apart. Commerce One lost 7 1/8 to 40 1/2 a day after breaking its uptrend from April. The company said its quarter is on track, and analysts called the sell-off a buying opportunity. Ariba fell 8 1/8 to 67 15/16, continuing its decline after falling back below its June breakout point of 83 1/2. 60 is a possible support point, but the stock has room to 49.

Broadcom lost 1 3/4 to 131 1/4. The stock reached its downside potential of 125 this morning, based on its break of a head and shoulders top recently.

Earthlink was one of only two ISDEX stocks to finish the day higher, surging 1 3/32 to 8 1/4 on a deal with America Online and Time Warner to offer its broadband Internet services over Time Warner Cable systems. The deal was an effort to gain approval for the AOL-Time Warner merger from the Federal Trade Commission, which will revisit the issue in 2-4 weeks. The other ISDEX stock rising was Portal Software , which climbed 1 9/16 to 19 5/8 on two analyst upgrades.

VeriSign lost 7 3/4 to 106 after Register.com and Baltimore Technologies teamed up to offer digital certificates to Register.com customers.

@Plan rose 1 15/16 to 7 1/4 after DoubleClick revised the terms of its buyout of the company.

The merged entity of Phone.com and Software.com began trading under a new name and stock symbol: Openwave

. The stock was off 10 to 79 11/16. For more on the new company, click here: http://www.internetstockreport.com/tracker/article/0,1785,1711_515941,00.htm.

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 reached the minimum downside based on the break of the bearish pennants last week, a retest of last Monday’s lows of 2859 on the Nasdaq and 2742 on the Nasdaq 100. That number represents a strong support on the Nasdaq (see chart below). So will it hold? The evidence is mixed. The sell-off has been weaker than expected, so the bears may be running out of steam, but a number of technical indicators, such as momentum and MACD, remain weak, so it’s a coin toss. Also, fear remains at a low level, and buyers have not been rushing in to buy here, so those are two signs that that line may not hold. The maximum downside based on last week’s breakdown is 2500 (2530-2570 on the Nasdaq).

The ISDEX broke its potential broadening bottom to the downside today. The lower trendline could be redrawn to encompass today’s low of 477, but still, it’s not a positive, because it appears to accelerate the downtrend. 400 should be strong support, if it gets that low. To the upside, there’s a lot of resistance, beginning at 500 and then 560. A break above the top line at 680 would mean a bottom is in, and give the index room to 850 or higher.

We continue to watch the S&P 500’s 1994 logarithmic trendline at 1369, which we closed below for the second time on a weekly basis last week. If we close below that line by more than 2%, or 1335, we may have seen the end of the bull market. The index has repeatedly come close to a major technical breakdown over the last month or so, but has somehow escaped from the abyss each time.

The Dow broke a small head and shoulders top this morning, with downside potential to 10,400 or lower. The index will continue to have a bullish posture as long as it stays above 10,369. First major resistance is 10,600, then 10,850 (the old diamond apex), and critical resistance is 11,000, where the index has failed five times.

Special report: For a free introduction to technical chart patterns and an overview of this year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.

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