Merger News Not Enough To Boost Nets, Techs

Another Merger Monday failed to boost Internet and technology stocks, as investors sold shares ahead of quarterly earnings reports.

The ISDEX fell 18 to 719, the Nasdaq dropped 42 to 3980, and the S&P 500 declined 3 to 1475. The Dow gained 10 to 10,646 on strength in cyclical issues, but pulled back at the critical 10,700 level. Volume fell to 819 million shares on the NYSE and 1.39 billion on the Nasdaq. Advancing issues led 16 to 12 on the Big Board, but decliners led 21 to 19 on the Nasdaq.

Yahoo will kick off earnings season tomorrow after the close, and Ariba will follow on Wednesday. Juniper Networks will report on Thursday. The Producer Price Index for June will come out on Friday.

Yahoo fell 6 1/2 to 110, below key support at 111, after Merrill Lynch analyst Henry Blodget said he essentially sees no upside to tomorrow’s earnings report. Yahoo is expected to report earnings of 10 cents per share, up 100% from a year ago. Blodget said he expects Yahoo’s report to be “strong but slightly less robust than the first quarter,” due to weakness in Internet advertising. Revenue is expected to grow 8% sequentially to $247 million, page views are expected to grow 7.5% to 672 million, and monthly unique visitors are expected to increase 9% to 157 million.

Shares of DoubleClick fell 4 1/4 to 31 11/16, reaching our downside target of $32 based on the stock’s drop out of a descending triangle at $40 recently. The stock’s 52-week low is 30 1/2. iWon has replaced DoubleClick with Engage for advertising services. Salomon Smith Barney defended DoubleClick, pointing out that iWon accounts for less than 4% of the company’s revenues. Engage gained 1 1/8 to 13 3/16.

eBay fell 1 5/8 to 48 1/8, continuing its move below key support at 50, which it broke on Friday.

Fiber optics stocks rose after JDS Uniphase announced it will buy SDL for 3.8 shares of JDSU for each share of SDLI. SDLI rose 25 3/8 to 320 11/16, but down from a high of 396 reached in pre-market trading. JDSU fell 15 1/16 to 101 1/8, weighing on the Nasdaq and Nasdaq 100 indexes. Recent IPOs rose on the news, with Stratos Lightwave adding 3 1/4 to 35 3/16, New Focus bolting 17 5/32 to 98 21/32, and Avanex gaining 19 5/8 to 126 3/8. But fiber optics leader Corning fell 12 11/16 to 244.

Extreme Networks gained 10 3/4 to 112 on rumors that it would be acquired by Juniper , up 3/16 to 147 1/2.

Sycamore Networks gained 7 7/8 to 134 13/16, extending its gains after a $420 million contract win on Friday. Wit SoundView reiterated Strong Buy on the stock, and raised its price target from $150 to $170.

Phone.com gained 5 3/4 to 68 1/8 on bullish comments from SG Cowen. The stock has struggled around $70, despite positive comments from a number of brokerage firms.

Embarcadero Technologies gained 4 5/8 to 32 1/4 after announcing it is moving into the Asia/Pacific market.

NetZero gained 3/4 to 6 after Oracle CEO Larry Ellison and NIC announced an online store to sell the NIC, a $199 Net appliance, that includes NetZero’s free Internet access.

NorthPoint Communications gained 1 3/4 to 12 13/16 on rumors that WorldCom may acquire the company. Covad , up 5/16 to 18 3/16, and Network Access , up 5/8 to 9 7/8, rose on that rumor and Legg Mason Buy ratings.

SonicWALL rose 6 to 97 on a Janney Montgomery Scott Buy rating and $145 price target.

Project Software , up 7/8 to 20 3/4, and Ariba , up 2 to 95 3/8, rose on news of an alliance between the two.

RSA Security rose 1 3/8 to 73 7/8 after increasing the number of authorized shares from 150 million to 300 million, signaling a possible stock split.

ebookers.com fell 13/16 to 6 3/16 on cash burn concerns, but well off its intraday low of 5 1/4.

NetRadio soared 1 to 2 13/16, but down from an intraday high of 4, on news of an alliance with Microsoft WebTV Networks.

Portal Software gained 2 1/2 to 62 1/4 on news of an alliance with Hewlette-Packard to certify Infranet, Portal’s real-time customer management and billing solution, with HP MC/ServiceGuard.

VA Linux gained 3 1/8 to 36 on a New York Times report that the Chinese government may use the Linux operating system.

iBasis gained 2 5/16 to 40 on news of insider buying.

Some technical comments on the market: The Dow turned back right at the upper boundary of its bearish diamond pattern today, at 10,703. Given today’s light volume, that’s probably a positive, as a low-volume breakout of the pattern would be suspect. We are consolidating below key levels on the Nasdaq, Dow and S&P 500. A clear and convincing break of 10,700 could carry the Dow substantially higher, to as high as 12,700. Conversely, a break below the lower trendline at 10,336 could carry the index as low as 8,300. A big swing between those two numbers, so wait for the break to be sure you’re on the right side of the market. The Nasdaq stands less than 100 points from 4073, where its recovery rally stalled out recently, but has drifted down since turning back just above 4050 on Friday. A move above 4073 and then the 50% retracement level of 4087 could give the index room to 4300, based on the 250-point trading range the index has been mired in since turning back at 4073. Also, there is a gap down from 4188 to 4094 from April 11, adding to the resistance in this area. A break of 4100 would pretty much take out all three numbers (4073, 4087 and 4094). Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. The index has been rising just above its 200-day moving average for five weeks. This rising resistance, rather than being a positive, could imply an inexhaustible supply of sellers; flat-line resistance is usually more bullish, as it implies that sellers will eventually be exhausted. Also, the index may be forming a broadening formation, with a flat bottom along 3820-3830; this too could be bearish, as could the index’s weakening breadth. The ISDEX has been consolidating at the top of its three-month trading range, which is a plus, but its recovery has been halted in the 790 area, just above the 38% retracement level from the high (1130) to the low (560). Weakness in household names like Yahoo and eBay is a negative. A move above 790 would be bullish, while a move below 700 would give the ISDEX room to 600. The upper boundary of the right shoulder of the S&P 500’s head-and-shoulders pattern is 1480-1488. The lower boundary of the pattern is around 1370. A decisive break of either boundary would determine direction on that index. And finally, two classic positives: the Dow Industrials and Transports are finally moving up together, and the advance-decline line on the NYSE has been steadily improving.

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