Internets, Financials Rally On Jobs Data

Financial shares rallied 3% Friday on hopes that a market-friendly July jobs report could mean the end of Fed rate hikes. Internet stocks rose almost 2%.

The ISDEX gained 12 to 730, but finished 11 points off its high for the day. The Nasdaq added 27 to 3787, but closed 60 points off its high. The S&P 500 rose 10 to close at its high of 1462, and the Dow climbed 61 to 10,767. Volume declined to 948 million shares on the NYSE and 1.43 billion on the Nasdaq. Breadth improved from Thursday, with advancers leading decliners by 16 to 11 on the NYSE and 22 to 16 on the Nasdaq. July’s employment data showed a weaker-than-expected 108,000 jobs loss, but minus departing census workers, the private sector added 182,000 jobs. The unemployment rate was in line with estimates at a 4% rate, but hourly wages came in higher than expected at a 0.4% gain. For earnings reports, visit our earnings calendar and reported earnings.

After the bell on Thursday, Jupiter Communications blew away estimates by 18 cents with earnings of 11 cents a share. The stock rose 3/8 to 25 7/8 after trading as high as 30. Emulex soared 20 3/8 to 67 15/16 after beating estimates by 4 cents with 25-cent earnings. Netpliance slipped 5/8 to 6 7/8 after beating estimates by 3 cents with a 68-cent loss. beat estimates by 8 cents with a 33-cent loss, but the stock slipped 1/16 to 1 9/16.

TIBCO Software gained 2 9/16 to 104 11/16 on news that it is buying XML developer Extensibility for $100 million in stock.

Cisco Systems tacked on another 1 1/16 to 65 7/16 after Morgan Stanley Dean Witter said it expects the company to exceed estimates by a penny next Tuesday. Cisco is expected to report earnings of 15 cents a share. Cisco fell below the important $60 level yesterday, but found support at its 200-day moving average at 58. A close above 70 would be bullish.

CMGI gained 3/4 to 37 on news that it will sell some assets of its Magnitude Network unit to for $6 million in stock. For more on CMGI, click here.

BroadVision rose 13/16 to 35 13/16 after ABN Amro reiterated its Buy rating following an analyst meeting focused on addressing recent weakness in the stock.

Verio gained 2 1/8 to 54 1/2 on news that NTT remains committed to its $5.5 billion takeover bid.

CAIS Internet rose 1 15/16 to 10 on news that it had received a previously announced $40 million cash investment from Microsoft . was unchanged at 15/16 on news that chairman William Razzouk has resigned to pursue other interests.

NBC Internet gained 3/8 to 10 7/8 on a USB Piper Jaffray Buy rating and $16 price target.

Vignette tacked on 1/4 to 40. The stock has risen almost 50% off its Wednesday low of 27 on news of alliances with IBM and Arthur Andersen. The stock turned back today at 42 5/8 after filling a gap down from last week when it broke its uptrend.

Sonus Networks gained another 16 3/8 to 218 1/2, but down from an intraday high of 227 3/16, a day after soaring 24 points on a bullish conference presentation.

Among recent IPOs, Avici gave back 7 1/2 to 156, SpeechWorks rose 11 1/4 to 98 3/4, and Corvis gained 16 3/8 to 108 7/16.

Some technical comments on the market: This seems to be a pattern lately: the markets initially rise on signs of an economic slowdown, but then either don’t follow

through or drift lower. Probably a reasonable response, given that a slowing economy could hurt corporate profits, but one more sign that the market remains uncertain and range-bound. We did build on yesterday’s high-volume reversal, which is a good sign, but we still need a high-volume follow-through rally any time next week to confirm the trend. That said, the Dow and the S&P 500 continue to look like they are forming bearish flag patterns here, so the bigger backdrop continues to look bearish, but the leadership displayed by the financials is a plus. The Nasdaq moved through 3750-3766 resistance today, but then turned back at 3846, about 50 points under its 200-day moving average. Still, we got a higher close today, topping Monday’s close of 3766. The Nasdaq still has potential downside to 3042, due to the break of a bearish rising wedge last week. A break and close below 3500 would be a big warning sign. The ISDEX turned back today at 741, just under the key 750-760 level that marks the lower boundary of its bearish rising wedge that was broken last week. That broken wedge gives the ISDEX potential downside to 560. Above the 750-760 level is 790 resistance, and above that, the ISDEX turned back recently at 840, just below its 50% retracement level of 845. Support levels on the ISDEX are 693-700, 650 and 600. The S&P 500 closed at its high today (1462), just under its 30-day moving average, which is followed closely by at least a few institutions. The S&P also broke a bearish rising wedge last week, with potential downside to 1361. The index found support yesterday at its 200-day moving average (1425). Critical support is 1390, the index’s October 1998 uptrend line. A break of that trendline could carry the S&P to 1170 or lower, so we do not want to violate that line. The Dow cleared resistance around 10,750 today and closed at its high. The index’s recent rally was halted at 10,875, and first support is 10,675. The Dow turned up last Friday after testing the lower boundary of its bearish diamond pattern (10,464, but we’ll continue to use 10,200-10,300 because of strong support in that range and the requirement of a 3% break of a major pattern). A break of that line could carry the Dow as low as 8,500. The upper boundary of the Dow’s bearish diamond pattern is just under 11,000. Recession indicator: short-term treasury bond yields rose above 10-year bond yields last week and have stayed there since. Over the last 40 years, this phenomenon occurring for two consecutive months has presaged a recession within six months 86% of the time. Short-term yields are now threatening to rise above 5-year yields; if they do, the yield curve inversion will be complete. There are positive factors behind the inversion, such as the government’s buyback of long-term bonds due to the federal budget surplus, but it is nonetheless worth keeping an eye on.

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