Market Rebounds On Rate Cut Speculation

Speculation by former Fed governor Wayne Angell of Bear Stearns that the Fed could cut interest rates next week pulled the S&P 500 out of bear market territory on Friday.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 2 to 299, 20 points off its low, and the Nasdaq climbed 17 to 2262 after bouncing at 2156, its lowest level since December 1998. The S&P 500 fell 6 to 1245; at its 1215 low, it was down 20.4% from its closing high of 1527. The Dow dropped 84 to 10,441, 148 points off its low. Volume declined to 1.21 billion shares on the NYSE, and 2.18 billion on the Nasdaq. Decliners led 17 to 13 on the NYSE, and 20 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.

Sun Microsystems slipped 1/8 to 20 11/16 after warning that revenues will come in at 7-9 cents a share, much less than the 15 cents analysts expect. But the company also announced a $1.5 billion stock buyback program. Sun’s warning seem to do more damage to the rest of the market than it did to its own stock.

Wireless stocks were hit a trifecta of negative news. Qualcomm fell 5 7/8 to 62 1/4 after the company said third-generation mobile technology could be delayed until 2004 or 2005. Motorola warned, and Nokia was downgraded by Goldman Sachs. Surprisingly, wireless data firms like Openwave and Aether , already hard-hit, rose on the day.

InfoSpace rose 25/32 to 4 7/32 on news that CEO Naveen Jain was buying share of the company.

Network Appliance slipped 1/8 to 34 3/16 despite a $1 billion deal with Intel .

Priceline.com rose 3/16 to 2 19/32 on a Legg Mason Strong Buy rating and $6 price target, on the belief that the worst is behind the company and it should achieve profitability by June.

Stamps.com slipped 3/32 to 3 3/32 on a better than expected loss. Value Click lost 7/32 to 4 5/8 after beating estimates with 4-cent earnings but warning. Rhythms , up 1/32 to 1 1/16, topped loss estimates.

Cisco rose 7/8 to 26 7/8 after holding once again at 25 support.

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

For once, the Nasdaq showed better strength than the overall market, rallying to close up on the day after being down 4%. This is the second straight day the index has tried to reverse under 2200; we’ll look for follow-through to the upside on Monday. We’d like to see a strong rally back above 2400 by the end of the month, and back above the 1990 logarithmic trendline at 2388 that was broken on Tuesday (first chart). The Nasdaq will first have to clear resistance at 2300 and 2350. To the downside, below 2150, the next strong support is 2028, the July 1998 top (see second chart for both support levels). As we said yesterday, the good news is that the previous four times the Nasdaq hit a new two-year low, it was 1% higher three weeks later and 30% higher a year later. Here’s hoping the techs hold true to form.

The S&P 500 broke support from its early 1999 lows at about 1225, but managed to rebound at 1215. The next strong support is the July 1998 peak of 1190 (both supports in the first chart). To the upside, the S&P needs to get back above its September downtrend line at about 1290 (second chart).

The Dow held the important 10,300 level, but the index could go as low as 10,100 without a major technical breakdown. To the upside, first resistance on the index is 10,500, followed by 10,600-10,650. Critical resistance is 11,000. The Dow Transports recovered back above 2900 today. The Transports must get back above 3000 and stay there, and the Dow must close above 11,007 to get an all clear signal under Dow Theory.

Let’s take a look at some long-term trendlines to get a sense of where we are here. The Dow and S&P (first and second charts) broke their 1994 logarithmic trendlines last year. The Dow has traded sideways since then, while the S&P has continued to fall. It shows two possible scenarios for the Nasdaq if it can’t recover its 1990 trendline at 2388.

Finally, a look at the main supports of the bull market that began in 1982 shows the next major trendlines at about 8250 on the Dow, 1000 on the S&P 500, and about 1350 on the Nasdaq. We’ll get a strong rally long before those lines ever come into play, if they ever do come into play, but they are worth taking a look at.

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