Microsoft Warns

Microsoft issued a rare profit warning after the close on Thursday, capping another down day in the stock market.

The ISDEX fell 28 to 446, and the Nasdaq lost 94 to 2728. The S&P 500 declined 19 to 1340, and the Dow dropped 119 to 10,674. Volume declined to 1.05 billion shares on the NYSE and 1.75 billion on the Nasdaq. Decliners led by 16 to 11 on the NYSE and 26 to 12 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.

Microsoft lowered estimates by about 5% after the close, and the stock traded down 3 points to about 52. Oracle beat estimates by a penny and traded up slightly to about 28.

During the day, AOL rose 1.55 to 50 after the FTC approved the merger with Time Warner in a little more than an hour. Earthlink , which will gain access to the combined company’s broadband network under the deal, rose 9/32 to 7 11/16.

Intermedia Communications plummeted 5 1/2 to 6 3/4 after a judge did not stop the company’s merger with WorldCom , but said a waiver allowing WorldCom to purchase ICIX subsidiary Digex could open the company to damages from DIGX shareholders, who had sued to stop the merger. Digex rose 1 9/32 to 30 17/32.

Corning fell 3 to 69 despite saying that earnings will be at the high end of estimates. Nortel rose 2 5/16 to 38 3/4 after reaffirming estimates.

Cisco slipped 5/16 to 50 13/16 after announcing yet another acquisition, of privately-held CDMA wireless network developer ExiO Communications for $155 million. After the close, the stock dropped to 49 1/2 on the departure of a top company official.

C-bridge Internet , down 7/16 to 3 3/8, and Organic , off 1/32 to 1 1/8, issued earnings warnings.

MarchFirst rose 1/4 to 1 7/8 on a $150 million investment from private equity firm Francisco Partners.

BroadVision slipped 1 5/16 to 20 3/4 on an ABN Amro downgrade on pricing pressure concerns.

Visual Networks surged 1 13/32 to 3 7/16 after Sprint announced the expansion of a service based on the company’s technology. slipped 1 1/16 to 22 11/16 on Prudential comments about the Amazon/ venture having a greater out-of-stock position than any other online retailer.

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:

The Microsoft warning may change the picture, but the Nasdaq, Nasdaq 100, S&P 500 and S&P 100 are all trying to form complex inverse head-and-shoulders bottoms (see the following four charts). As long as the S&P 500 holds 1320 and the S&P 100 holds 700, those patterns will still look good. The Nasdaq and Nasdaq 100 can’t go much lower than their closes today and look okay, so we may be looking for new patterns on those indexes. However, so far the reaction to the Microsoft warning doesn’t appear to be cataclysmic. So while the Nasdaq 100 breached the neckline of its inverted head-and-shoulders bottom yesterday, the general market picture still looks good to us. There are two sets of gaps that could be filled before we turn up (see arrows); the first set was filled today, and the second set would be filled at

1325/700 on the S&P indexes, and 2615/2554 on the Nasdaq indexes. A close above the 3050 level on the Nasdaq and Nasdaq 100, and above 1390 on the S&P 500 and 740 on the S&P 100, should just about complete the bottom. We should note that a harder-than-expected landing for the economy could lead to renewed selling, and we still have a few weeks of earnings warning season to get through. With so many firms reporting a significant slowdown, hopefully the Federal Reserve will take notice.

The ISDEX also fell back into its inverted head-and-shoulders pattern yesterday, but should hold also hold its recent lows if it gets that far. The index filled a gap at 449 today. The second one would be filled at 406.

The Dow broke its ascending triangle today, but could be forming a rectangle as long as its holds 10,600, with upside potential to about 11,200. A clean break of 10,900 would be a good sign, while a break of 10,600 would be a negative.

Special report: For a free introduction to technical chart patterns and an overview of this year’s action in the stock market, visit,1785,2571_500051,00.html.

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