Net Stocks Have Positive Day

Internet shares rose Thursday, buoyed by merger rumors and funding news.

The ISDEX gained 3 to 772 as the Dow fell 142 points, the S&P 500 dropped 9 and the Nasdaq shed 14 after being up earlier in the day. Decliners led advancers 16 to 13 on the NYSE. Decliners led 21 to 18 on the Nasdaq. Trading declined to 845 million shares on the NYSE and to 1.39 billion on the Nasdaq as traders marked time ahead of Friday’s Producer Price Index for May, expected to show a 0.2% increase.

Microsoft fell 1 15/16 to 69 3/16 on the heels of a judge’s order that the software giant be split in two. Linux play Red Hat , which had risen in anticipation of the Microsoft announcement, fell 1 9/16 to 23 3/16 as traders took profits.

MicroStrategy continued its recovery, rising 6 3/8 to 46 7/8. The troubled company is rumored to be close to securing a vital round of financing. Extended Systems continued its winning ways, up 7 3/8 to 72 1/4.

Breakaway Solutions , another big gainer, soared 8 3/8 to 41 5/16, continuing a strong run since completing a $39 million private placement last Monday.

Rumors of a merger with European ISP Chello Broadbam helped Excite@Home to gain 1 3/4 to 21 15/16.

Yahoo fell victim to profit-taking, down 1 3/16 to 143 5/16. The stock was added to Morgan Stanley Dean Witter’s Model Portfolio on Wednesday. MP3 gained 3/8 to 17 1/4, down from an intraday high of 19 3/4, on follow-through from Wednesday’s Wall Street Journal report that said the online music company could be close to settling its copyright infringement case with Time Warner .

Positive comments from Lehman Brothers and Goldman Sachs helped Cisco , which continued to improve, gaining 25/32 to 63 21/32.

OneMain soared 3 5/16 to 12 on news that EarthLink was buying the regional ISP for $308 million in cash and stock, or $12.27 per OneMain share.

A positive earnings report pushed ePlus up 3 1/2 to 27 1/2. The Internet-based B2B supply chain management solutions company reported Q4 net of $0.25, more than double the $0.12 First Call mean.

webMethods continued its strong run after announcing a partnership with Oracle Corp. to provide solutions for the deployment of global B2B exchanges. webMethods will be a preferred solution provider for integrating buyers and suppliers to trading networks and exchanges built on the Oracle Exchange platform.The shares were up 13 to 159.

NaviSite fell 7/16 to 54 1/2 ahead of its earnings. After the close, the company reported a Q3 loss of 29 cents a share, 10 cents better than the First Call estimate, but the stock declined to 50 1/2 in after-hours trading. Rumors that the earnings would be strong had caused a stock run up in recent days.

Network Appliance displayed technical strength, gaining 4 to 82 1/8. Other issues showing strength were Exodus Communications , up 4 5/8 to 94 1/2, S1 Corp , up 1 9/16 to 37 7/16, and Sportsline.com , up 1 1/4 to 17 7/8. For a report on Sportsline, click here.

AOL fell 2 13/16 to 54 11/16, in the process flashing a MACD sell signal in the 60-minute chart.

Juniper Networks gained 12 15/16 to 237 5/8, extending its gain from talk of a co-marketing deal with Nortel . InfoSpace , up 1/4 to 56, following positive comments by Merrill Lynch analyst Henry Blodget made positive comments yesterday.

Some technical comments on the market: The Nasdaq still appears to be short-term positive; however, we continue to run into resistance just under the 3900 level (we turned back at 3890 today). The next resistance level after that is 3950-4000 (3982). If we get through those levels, a 50% Fibonacci retracement to 4100-4200 is likely. We do not want to go below 3725. We appear to have broken a bearish flag pattern in the Nasdaq to the upside; this is a good sign, and probably signals a Minor Reversal of the downtrend. The ability to ignore negative news is also a positive. However, we have bearish flag patterns in a number of key issues, such as Cisco and Amazon.com , that bear watching. The Dow is more troubling; the break below 10,700 is a negative, but the good news is it came on declining volume. The index continues to fail at its 50- and 200-day moving averages and appears to be developing a descending triangle, a bearish sign. And as we’ve said before, the Dow and other broader indices are still developing larger bearish patterns in the weekly charts that need to be broken to resume a new bull phase: “diamond” patterns in the Dow and S&P 500, and either a head and shoulders or diamond in the S&P 100. The S&P 500 turned back at the upper boundary of its diamond pattern last Friday.