Nasdaq Puts Together A Winning Streak

The Nasdaq shook off a dismal profit outlook from Yahoo to post its first three-day winning streak since September 1 on Thursday. But investors turned fickle again after the bell, as Ariba traded lower despite blowing away earnings estimates and raising forward guidance.

The ISDEX http://www.wsrn.com/apps/ISDEX/ surged 21 to 380 during the day, and the Nasdaq soared 116 to 2640. The S&P 500 rose 13 to 1326, and the Dow tacked on 5 to 10,609. Volume rose to1.4 billion shares on the NYSE, and 2.8 billion on the Nasdaq. Advancers led by 16 to 12 on the NYSE, and 27 to 11 on the Nasdaq. The Producer Price Index for December will be reported tomorrow. 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.

It was a very busy after-hours session. Ariba blew away earnings estimates after the bell, reporting 5 cents a share instead of the 2 cents analysts expected, and the company raised forward guidance. But traders sent the stock 3 points lower to $40. Also after hours, DoubleClick rose 1 to 12 after beating reduced estimates but warning about first quarter results. Rambus missed estimates by a penny, and Hewlett-Packard and Gateway issued earnings warnings.

During the day, Yahoo fell 4 7/16 to 26 1/16 after meeting earnings estimates of 13 cents a share. Revenues for the quarter came in $4 million light at $311 million. But the company’s outlook for the year was what really caught analysts by surprise: Yahoo said full-year earnings will come in at 33-43 cents a share due to economic weakness, well under analysts’ 57-cent estimate. The company also guided full-year revenues down to $1.2-$1.3 billion from estimates of $1.4 billion.

eBay shook off Yahoo’s earnings warning to rise 1 9/16 to 40 7/8, continuing to gain on a positive presentation by CEO Meg Whitman.

Cisco recovered 1 3/4 to 38 a day after saying that the slowdown in capital equipment spending was affecting the company. Juniper Networks , up 10 to 129 13/16, has been stealing market share from Cisco. Juniper reports earnings Tuesday.

Broadcom , a major Cisco and Motorola supplier, rose 4 5/16 to 114 1/4 despite anemic profit news from both companies.

Rational Software surged 6 1/16 to 45 3/16 after the company’s 20-cent earnings beat estimates by 2 cents. SG Cowen downgraded a host of Internet enabling software stocks on recent weakness in business, including Rational Software, BroadVision , off 3/8 to 14 13/16, Vignette , up 15/16 to 13 7/16, BEA Systems , up 3 15/16 to 60 3/16, Serena , down 9/16 to 29, and TIBCO , up 2 7/8 to 42 1/2.

Digital River rose 1 5/8 to 4 3/4 after pre-announcing better than expected results and saying it expects to achieve profitability in the first quarter.

Extended Systems soared 4 11/16 to 19 1/16 after pre-announcing better than expected results.

PurchasePro rose 2 1/4 to 18 on a deal with Honeywell , which is being acquired by GE .

Audiohighway.com , halted at 3/8, filed for Chapter 11 bankruptcy protection.

VerticalNet , up 15/16 to 5 7/8, and SierraCities , up 1/32 to 1 11/16, called off their merger due to market conditions.

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

Tomorrow’s a real coin toss. The Nasdaq closed right at its September downtrend line (first chart) at 2660, and will either gap up through it or reverse back down. Ariba’s numbers were bullish, Gateway and Hewlett-Packard warned, and the PPI comes out at 8:30 a.m. Should be one interesting day. We don’t know if the index has the power to get through that line just yet, but the action remains very positive, with the index posting its first three-day winning streak since Sept. 1. The Nasdaq began to form a rising wedge in the last couple of days (second chart), but because volume was rising within the pattern instead of falling, the formation was bullish instead of bearish, which the index proved by breaking above that upper trendline this morning. Always keep an eye on volume within patterns.

The ISDEX closed right under critical resistance (385), and could be headed to 470 if it can close above 400. Amazing considering Yahoo’s earnings warning. As we said last night, bottoms occur when investors become inoculated against further bad news, long before the fundamentals improve.

The S&P 500 broke out of an ascending triangle this morning (first chart), and could be headed for a bout with its downtrend line at about 1445 (second chart).

The Dow continues to find resistance at 10,600, the level where the Fed cut interest rates. Not a good sign for the overall market; remember that healthy markets move in sync, so the Dow needs to catch up soon. The Dow retraced to the neckline (10,500) of an inverse head-and-shoulders bottom yesterday, and continues to try to turn up. Critical support on the Dow is 10,300, while a close above 11,007 would confirm a new bull market under Dow Theory.

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