IBM, Microsoft Fall On Earnings Reports

IBM and Microsoft fell after hours on Thursday on disappointing results.

The ISDEX rose 7 to 183, and the Nasdaq climbed 41 to 1985. The S&P 500 gained 11 to 1138, and the Dow recouped 137 to 9850. Volume declined to 1.37 billion shares on the NYSE, and 1.87 billion on the Nasdaq. Advancers led by 19 to 11 on the NYSE and 21 to 14 on the Nasdaq.

After the close, Microsoft confused analysts by reporting its numbers in GAAP accounting instead of the pro forma numbers tracked by analysts, and it wasn’t clear whether the company missed or exceeded estimates (kudos to the company for reporting the numbers the same way it will to the SEC; hopefully more companies will follow suit in the wake of the Enron scandal). But the company said business remains tough, and it guided revenues for next quarter slightly lower. The stock fell 2.50 from its 4 p.m. close.

IBM missed revenue estimates by almost $1 billion (the company has shown no revenue growth for five years) and said that business remains tough. The stock fell 5 points from its 4 p.m. close.

Also after the close, Network Associates , Xilinx , Genesis Microchip , and Scientific Atlanta beat estimates. Nortel matched estimates and warned.

During the day, Yahoo , Compaq , Extended Systems and Symantec surged after beating estimates.

AMD , Sonus , Redback , Extreme , and Inktomi fell despite beating estimates.

Apple and Macromedia surged after matching estimates. Travelocity rose despite missing estimates.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the story link at the top of the newsletter.

The market bounced right on schedule today. Now we’ll see how much it gives back tomorrow, with IBM and Microsoft both trading lower after hours and the futures down substantially. There were a few reasons to be wary of today’s bounce. First, Microsoft and IBM were both up strongly during the day, which left the market with plenty of room for disappointment. Second, the advance today was generally unconvincing. NYSE up/down volume hovered around even until the last hour of trading, and almost all the indexes were stopped at resistance (see charts below). So how low can we go? The levels to watch remain 9598 on the Dow (first chart) and 1110 on the S&P (second chart). Below those levels, you can all but stick a fork in this rally. First support on the Dow is 9700, and for the S&P, 1125 and then 1114. Should the market somehow reverse upward tomorrow (it’s an options expiration day, so volatility is not out of the question), the levels to beat are 1139-1145 on the S&P, 9860-9925 on the Dow, 1995-2000 on the Nasdaq (third chart), and 1605 on the Nasdaq 100 (fourth chart). Support to watch on the Nasdaq is 1960 and 1933, and 1580 on the Nasdaq 100. It’s worth noting that at least one Elliott Wave count pegs this as the start of the final bear market leg down to new lows. With that in mind, we offer one observation on timing: the last two bottoms of significance occurred on option expiration days during months when Japanese banks were forced to raise capital; the next such occurrence would be in mid-to-late March.

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