Intel Warning Sends Stocks Lower

Stocks fell across the board Friday on an earnings warning from Intel, but the indexes bounced back from their worst levels.

The ISDEX slipped 5 to 782, but well off its low of 759, and the Nasdaq dropped 108 to 3720, more than 100 points off its low. The S&P 500 fell 19 to 1429, and the Dow lost 95 to 10,670. Volume rose 20% on the NYSE to 575 million, and soared 50% on the Nasdaq to 1.1 billion. Decliners led 16 to 9 on the NYSE and 26 to 9 on the Nasdaq. An international intervention to boost the falling euro provided some support, and the market was also helped by a number of announcements from technology companies that their quarters are on track to meet estimates. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site.

Liberate gained 1 11/16 to 30 13/16 after beating estimates by 12 cents with a 9-cent loss. CMGI slipped 1/4 to 36 3/16 after beating estimates by 28 cents with a loss of $2.17 a share.

Internet advertising stocks were weak. DoubleClick fell 2 3/16 to 37 3/4 on a Thomas Weisel downgrade from Strong Buy to Buy. ValueClick slipped 3/8 to 8 3/16 after warning of weaker-than-expected third-quarter revenues. But the company said the fourth quarter outlook was strong, and it initiated a $10 million stock repurchase plan.

Internet consultant Luminant fell 1 7/16 to 3 3/4 on an earnings warning. The company expects to lose money in the quarter, while expectations were for a profit of 10 cents. The company blamed a decline in dotcom revenues and an increase in debts from such firms that may not be collectible.

InterWorld plummeted 4 53/64 to 4 5/16 after warning that its third-quarter loss will be double what analysts expected.

America Online lost 1 3/4 to 54 1/2. The company proposed formal concessions to the European Commission, which is moving to block AOL’s merger with Time Warner. In the U.S., the Federal Trade Commission also appears to be weighing a move to block the merger.

Cyberian Outpost gained 7/32 to 4 19/32 after beating estimates by 3 cents with a 23-cent loss.

PurchasePro , up 4 1/16 to 79 1/16, continued to gain on positive comments from Lehman Brothers and an announcement of a 2-for-1 stock split. Ariba rose 6 15/16 to 159 1/4.

StarMedia slipped 1/4 to 7 11/16 on a Bear Stearns Neutral rating and comments that the company will have a tough time in the Brazilian and U.S. Hispanic markets despite strong management.

Some technical comments on the market: The Dow, the S&P 500 and the Nasdaq remain well above the critical support levels of 10,500, 1410, and 3500, respectively, although we certainly don’t need any more earnings warnings. Intel’s earnings reports have been looking weak the last couple of quarters and have never really justified the stock’s run-up, so the warning and sell-off aren’t surprising. Let’s hope the problem is limited to Intel, although as we’ve pointed out before, investors haven’t been pleased about the trend of companies using investment gains to meet their numbers while core businesses fail to impress. A trend to keep an eye on in the deluge of earnings reports next month.

The Nasdaq broke its old October 1998 trendline at 3700 on the big gap down this morning, but recovered back above that line. Let’s hope the positive pre-announcements from a number of firms keep it there. Critical support is the August low of 3521; lower than 3500, and the May low of 3042 will almost certainly

be retested. To the upside, the Nasdaq needs to take out 3913 to begin to look healthy. If we look at the Nasdaq’s action from 4259 to 3614 as one move, the first key retracement level is 3859, the 38% Fibonacci level. However, the Intel warning was a shocker, and it might take a couple of days for the market to work it out, so more downside may lie ahead. Again, watch the key support levels for signs that we could be heading into a wider sell-off.

The S&P 500 faces resistance at 1440, 1460 and then 1480-1490. Above 1460 and it begins to look healthy. The Dow faces important resistance at 10,750-10,850; above that and the blue chips begin to look better. The ISDEX is holding up well, finding support repeatedly in the 750-760 area. Critical support is the May uptrend line at about 720. Resistance begins in the 787-800 area, and then the 50% retracement level at 850.

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