Irrational Exuberance Returns

Irrational exuberance returned to the stock market this week, as the Nasdaq gained 15% between Wednesday’s low and Friday’s close.

In Friday’s trading, the ISDEX gained 15 to 670, and the Nasdaq rose 64 to 3483. The S&P 500 climbed 8 to 1396, and the Dow rose 83 to 10,226. Volume declined to 1.1 billion shares on the NYSE and 2.1 billion on the Nasdaq. Advancers led by 15 to 12 on the NYSE and 23 to 15 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

eBay , up 3/8 to 57 9/16, and Commerce One , up 6 1/8 to 70, both beat estimates by 3 cents after the close on Thursday, eBay with 4-cent earnings and Commerce One with a 9-cent loss.

E.piphany soared 25 1/8 to 89 7/8 after beating estimates by 15 cents with a 17-cent loss and declaring a 3-for-2 stock split. But Exodus Communications lost 4 1/16 to 34 despite beating estimates, and Ventro , off 1 5/8 to 4 5/16, missed revenue estimates. Open Market rose 15/16 to 4 1/16 despite missing estimates.

Register.com added 7/8 to 7 3/4 after beating estimates by 8 cents with a break-even quarter. GoTo.com , up 1 11/16 to 12 3/4, beat estimates by 11 cents with a 22-cent loss. JDS Uniphase bolted 12 9/16 to 102 1/2 after merger partner SDL posted blow-out numbers. Critical Path rose 4 15/16 to 57 on better-than-expected numbers, and Scient added 3 7/8 to 22 1/16 after beating reduced estimates.

Homestore.com beat estimates by 2 cents with 1-cent earnings, but the stock was off 3 3/8 to 26. NetIQ soared 13 1/2 to 92 after beating estimates by 6 cents with 16-cent earnings. Digital River , up 2 to 6 3/8, and Packeteer , up 6 3/16 to 26 1/4, also beat estimates. Packeteer posted a surprise 1-cent profit, 3 cents ahead of estimates. Kana Communications , up 7 1/8 to 26 1/4, beat estimates by a penny with a 22-cent loss.

Ticketmaster Online , off 1/16 to 12, MP3.com , off 5/8 to 4, and InsWeb , up 1/16 to 2, all beat estimates. AutoWeb , off 1/4 to 3/4, missed by 15 cents with a 29-cent loss.

Some technical comments on the market: Note: We are now including charts with the technical market commentary; just click on the links in the story below to go to them. If you have trouble accessing the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

One last look at our charts from yesterday. The sell-off’s failure to fill the Nasdaq’s October 1999 gap at around 2900 is very significant: it implies that the primary trend even throughout this year’s steep sell-off was bullish. Why? Because it was a major breakout gap, and the market’s failure to fill it means the bullish trend is still intact. As we said repeatedly, old tops make good bottoms: everyone who missed the Nasdaq’s extraordinary run-up from October 1999 to April 2000 got a second chance to get in. This is how bears become bulls. The volume and force behind Nasdaq 3000 is now similar to that around Dow 7500 from October 1997 to October 1998. It’s now support to be reckoned with. If that gap ever fills, we’ll know we’re in trouble.

The Nasdaq finally took a breather this afternoon. The ind

ex cleared its September downtrend line at about 3400 yesterday and kept running. The index is now back below 3500 resistance, around the August 3521 bottom and the 38% Fibonacci level from the 4259 to 3026 decline (3494). Next resistance after that could be 3550-3600 and then 3700.

The S&P 500 is also back above its September downtrend line at about 1380. It also cleared the 38% retracement level of 1391, but finished below 1400 resistance. 1408, that secondary downtrend line, could pose some resistance, as could 1420, where the index broke down recently.

The ISDEX is also back above its September downtrend line at around 625, and the index also took out 650 resistance. Also in that chart, notice how 800 could pose resistance eventually. Next resistance is 700. The Dow took out its September downtrend line around 10,175 this morning and also cleared 10,200 resistance. The whole 10,200-10,300 area could be tough for the Dow; above 10,300 the bulls are clearly in charge. That secondary downtrend line at 10,500 could also pose resistance. 10,000 should be pretty strong support at this point.

One final word on the S&P’s 1994 logarithmic trendline at about 1350. That line represents a 200% advance in 6 years, well beyond the market’s historical average. It’s not likely to hold up forever, but for now it seems okay. A close below that line by 2% would be a big negative.

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