Fed Cuts Rates Half A Point

Stocks reacted with initial disappointment after the Federal Reserve cut rates by a 50 basis points on Tuesday.

The ISDEX http://www.wsrn.com/apps/ISDEX/ was unchanged at 224, and the Nasdaq slipped 13 to 1939. The S&P 500 lost 1 to 1169, and the Dow declined 23 to 9936. Volume declined to 470 million shares on the NYSE, and 712 million on the Nasdaq. Advancers led 18 to 10 on the NYSE, and 18 to 13 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.

The wireless Web figured prominently in Tuesday’s trading. Yahoo rose 5/16 on a content deal with Verizon Wireless.

Lehman Brothers cut price targets but maintained Strong Buy ratings on Palm , up 1 7/16 to 15 3/4, and Handspring , up 3/8 to 17 15/16. Lehman said Palm may be seeing a slowdown this month, but that handspring appears to be on track.

GoAmerica rose 13/32 to 3 17/32 on an alliance with Research In Motion , which slipped .68 to 28.82 despite a deal with Lucent .

Net2Phone rose 1/4 to 8 15/16 on better than expected numbers. EXFO , up 2 7/8 to 26 1/8, beat estimates by 4 cents with 14-cent earnings.

Most leading stock were mixed ahead of the Fed news. Juniper slipped 5/8 to 57 13/16, and Cisco tacked on 3/4 to 21 9/16.

Ariba rose 5/8 to 12, i2 slipped 5/8 to 17 3/4, Commerce One climbed .33 to 10.75, and PurchasePro slipped 7/32 to 8 1/2.

Check Point finally bounced, rising 2 to 58 7/16. Openwave founds support at 25.20 and rose .81 to 28.31.

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

Given that the market may have been expecting a 75 basis point rate cut, 50 basis points could lead to some disappointment and possibly a retest of the recent lows, but we’ll give the market a while to figure out what it wants to do. But this is the most aggressive Fed rate-cutting in 19 years, and should be bullish for stocks in the longer term. The Nasdaq has a nice lower trendline at 1857 today (1847 tomorrow), the lower boundary of what could be a bullish falling wedge (first chart). The Nasdaq 100 also has a clear lower wedge trendline forming (second chart). Sellers seem to be running out of steam lately, and the chart patterns and price action have so far supported that view. The Nasdaq is also holding above pretty stubborn resistance from mid-1998 in the 1850-1870 range (third chart), so that could add to support in this range. The next support level below 1850 would likely be 1750-1770. Also adding to the trend exhaustion case is that the Nasdaq 100 hasn’t had the kind of rapid descent that would be expected after it broke a bear flag last week (fourth chart), but we’ll wait another day before disregarding that pattern. A break above 1800 by the Nasdaq 100 in the next day or so would negate that pattern. The Nasdaq needs to clear 2028, the July 1998 high, fill a down gap at 2042-2053 to confirm the trend exhaustion, and get back above 2070, the redrawn 1990 logarithmic trendline. After that, the upper boundary of that falling wedge is just under 2100. We are still expecting a significant turn in the market this week, but we may need to retest the lows first.

The most important support for the whole market, in our opinion, is 1125 on the S&P 500 (see chart below). That was a tough resistance level from mid-1998, and we can’t see another strong support on the S&P 500 until 1000, so the S&P must hold that line. The index continues to find support around 1150, but that’s probably more a function of the Nasdaq’s and Dow’s action. To the upside, there is resistance at 1191 (the July 1998 high) and 1198. The index must take out 1214-1215 to be restored to technical health, a level that marked the index’s recent breakdown.

The Dow is so far staying within its two-year trading range, a range it would depart with a break below 9650. But last week’s action was just plain ugly, and the index had its lowest weekly close in two years. However, its lowest daily close was 2796 last March, so a close below that level would be an early warning sign. Below 9650, the next support is 9350 and then 9200. To the upside, 10,000 is first resistance, then 10,100 and 10,200, but the Dow must get back above 10,300 to be restored to technical health.

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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