Market Bounces On IBM Rumors

A market desperate for a reason to rally seized on rumors that IBM was telling analysts that its quarter was on track. But tech stocks could come under pressure again on Friday on an earnings warning from Oracle.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 2 to 277, and the Nasdaq climbed 31 to 2183, 112 points off its low. The S&P 500 added 1 to 1241 after once again trading in bear market territory at 1214. The Dow lost 45 to 10,450, 150 points off its low. Volume rose to 1.28 billion shares on the NYSE, and 2.24 billion on the Nasdaq. But breadth was negative: decliners led 15 to 14 on the NYSE, and 21 to 16 on the Nasdaq. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

After the close, Oracle traded down 2 to 17, 4 points off its high, after warning that earnings will come in 2 cents light of estimates at 10 cents a share.

During the day, the National Association of Purchasing Management survey came in at 41.9% for February, slightly less than estimates, and still in a range historically associated with recession.

The market turned up on the IBM rumors, but IBM denied after the close that it had provided any new guidance. Traders didn’t seem to believe the company, as it continued to trade higher after hours. Still, Nasdaq futures were down 40 points on the Oracle warning.

Communications chip companies rallied despite a warning from Applied Micro , which gained 2 15/16 to 29 11/16. Broadcom slipped 1 5/8 to 47 5/8, but 7 points off its low, after one of its largest customers, 3Com , warned. PMC-Sierra surged 5 1/8 to 38 5/8, also 7 points off its low.

TIBCO Software , off 2 1/4 to 11 1/4, continued to suffer after Goldman Sachs cut estimates on the company.

VeriSign rose 5 13/16 to 53 1/2 after announcing an agreement with ICANN to operate the registry for .com, .net and .org names for four additional years.

Travelocity plunged 7 1/4 to 15 and Expedia fell 2 11/16 to 12 15/16 on analyst downgrades after some airlines eliminated Internet commissions.

Ariba rose 7/16 to 16 15/16, off its 15 7/16 low, the day after an uninspiring analyst meeting. Commerce One tacked on 5/8 to 18 1/16, and i2 added 11/16 to 27 9/16.

Cisco bounced 9/16 to 24 1/4 after hitting a new 52-week low of 22 1/4.

Some technical comments on the market: Note: We are now including charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

We said earlier that the market was at a bounce-or-break point, and that we were betting on the bounce; good thing buyers stepped in to prove us right. Some pretty promising signs here, but only if today’s lows can hold: A high-volume intraday reversal ending in positive territory (albeit on negative breadth). The Philadelphia Semiconductor Index held its late November low of 515. And the most critical supports, 10,292 on the Dow and 1215 on the S&P 500, both held.

The Nasdaq may be trying to reform its 1990 logarithmic trendline at 2070, a big plus; we’ll include a link here, since the chart is too big to post here: http://cache.wsrn.com/images/AHT/compx90301.gif. That line provided strong support today, but the index has been headed straight down since breaking its true 1990 trendline at 2388 10 days ago. Still, reforming that trendline to encompass the 1998 lows would be a technically very acceptable outcome to this year-old bear market, so we will set 2070 as critical support on the Nasdaq. The 2028 level was also the July 1998 peak (first chart below); old tops make good bottoms, and that was a major peak for the Nasdaq. To the upside the Nasdaq needs to clear 2250-2300 to restore any amount of technical health to the index (second chart below). Note in that chart that the lowest of three trendlines from September also provided support today.

The S&P 500 has been under pressure since breaking down out of a bear flag or pennant two days ago (first chart). The index held critical support at its recent bottom of 1215 and formed a high-volume intraday reversal. If 1215 can’t hold, the index could be head for 1160-1170. To the upside, the S&P must get back above 1275, the early January low and the September downtrend line (both levels in the second chart below).

The Dow once again held 10,300 support; a close below 10,292 could lead to a retest of the index’s lows in the 9600-9700 area, although 10,200 or so could also provide support. To the upside, the Dow must get back above 10,650 to have a positive bias. One negative sign: the Dow Transports got killed today, closing down 2% to 2868. It’s going to be hard to get an all-clear signal under Dow Theory unless the Transports can get back above 3000.

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