Hoax Sends Tech Stocks On Wild Ride

A phony press release that said fibre channel firm Emulex was restating earnings and its CEO was resigning amid an SEC investigation took the wind out of a rally Friday morning.

The ISDEX slipped 2 to 814 after rising as high as 821. The Nasdaq lost 1 to 4052, 30 points off its high. The S&P 500 added 1 to 1509, and the Dow rose 18 to 11,200. Volume declined to 325 million shares on the NYSE and 635 million on the Nasdaq. Decliners led 13 to 12 on the NYSE, but advancers led 18 to 16 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.

Emulex fell 68 to 45 before it was halted on the phony press release, which was distributed via Internet Wire, according to news reports. Unlike most hoaxes, this one came from a credible source, and traders took it seriously, although some analysts pointed out that the company would normally have alerted Nasdaq to halt trading in its stock before issuing such dramatic news. Other fibre channel stocks, including QLogic and Brocade , fell sharply on the hoax, but then recovered.

Advertising stocks were strong on a Jupiter Communications report that said Internet advertising should grow by 30% annually over the next five years. DoubleClick rose 4 3/16 to 44 13/16, 24/7 Media gained 1 3/16 to 16 15/16, Engage added 1 9/16 to 11 1/2, ValueClick climbed 1 1/16 to 10 7/8, and Mediaplex surged 2 3/16 to 10 3/16.

Sycamore Networks lost 4 7/8 to 153 1/8 despite beating estimates by 2 cents with 8-cent-per-share earnings.

Razorfish lost 1 3/4 to 12 13/16 on news that company president Mike Pehl was leaving the company three months after assuming the post to spend more time with his family and to “explore the next phase of his professional career.” Pehl was chairman of i-Cube before it was acquired by Razorfish.

The IPO of ServiceWare.com was well-received, pricing at 7, opening for trading at 8 1/2 and rising to 10 1/2 before pulling back to 8 27/32.

Puma Technology slipped 2 1/16 to 21 3/8 despite beating estimates by 3 cents with an 8-cent loss.

eBenX gained 1 to 17 1/2 on a CS First Boston Buy rating and $20 price target.

Some technical comments on the market: The Nasdaq turned back this morning at 4083, right below its old 50% retracement level of 4087. That’s also about as high as the index can go without breaking its downtrend line, and as it has been rising here in a bearish rising wedge, we suspect this rally may have gone about as far as it can go. However, it’s not likely to fall out of bed here, at least not right away: wedges tend to break down about two-thirds of the way through the pattern, and the two-thirds points is still about a week away. A break much below 3950 would break the rising wedge. Important support on the Nasdaq is 3700, the important trendline of the massive symmetrical triangle we talked about yesterday. A strong move above 4100 could give the Nasdaq room to run.

The S&P 500 and the Nasdaq 100 continue to poke their heads out above their downtrend lines, but have yet to do so with much force. Those indexes are also forming converging boundary lines, or “rising wedges,” meaning that their rallies are likely to run out of steam. A break below 3800 on the Nasdaq 100 could set up a test of the lower boundary of a massive symmetrical triangle at 3500. A break below 1500 on the S&P 500 coul

d carry that index back to 1425; critical support on the S&P 500 is about 1400. The ISDEX also has been forming a rising wedge here, and ran right up against the lower boundary of a previous broken rising wedge the last two days. A break much below 770 on the ISDEX would just about break the bearish flag pattern. Support on the ISDEX is at 693-700, 650 and 600. The Dow needs to stay above the 10,950 area to preserve the upside breakout of the diamond formation, and so far it has done that. Resistance on the Dow is 11,200, which it is challenging today. If it is successful here, next resistance is 11,275.

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