Net stocks head lower on cautious eBay comments

Shares of Internet stocks were lower on Friday morning after Merrill Lynch analyst Henry Blodget said he doesn’t see much upside to eBay’s quarterly earnings report. The broader market fell on continued weakness in financial shares.

The ISDEX lost 3 to 727. The Dow fell 130 and the S&P 500 fell 8 points. But the Nasdaq rose 18 on strength in semiconductor issues. Volume rose on a triple-witching Friday, with 600 million shares changing hands on the NYSE and 725 million on the Nasdaq. Decliners led advancers 14 to 11 on the NYSE and 18 to 15 on the Nasdaq. Housing starts fell 3.9% in May, the lowest number in a year.

Shares of eBay fell 3 3/16 to 60 7/8 after Blodget said he doesn’t expect much upside on either earnings or revenue when the firm reports next month. The company usually beats expectations handily. Yahoo! fell 3 5/16 to 136 3/8.

Red Hat rose 1 3/16 to 24 9/16 after reporting a first quarter loss of 2 cents a share, 2 cents better than analysts expected.

On the downside, Covad Communications fell 7 3/8 to 17 7/8 after predicting lower DSL installation rates. The company also announced the acquisition of privately-held BlueStar Communications for 8 million shares. Rhythms NetConnections fell 2 15/16 to 15 9/16 and NorthPoint Communications fell 1 9/16 to 12 11/16.

Shares of E*Trade rose 5/16 to 17 7/16 after Donaldson, Lufkin & Jenrette reiterated its Top Pick and $31 price target.

Chase H&Q added Digital Island to its Focus List . Shares were up 1 15/16 to 34 3/4.

Open Market recovered 1/2 to 16 1/4 a day after three class action lawsuit were filed against the company alleging false and misleading statements. The twelve month high was $65 3/8 on March 9.

Shares of S1 Corp. continued on the defensive, down 1 3/16 to 29 2/4, but up from an intraday low of 28 3/8.S1’s shares fetched $129 < as recently as last February.

PSINet declined 1/2 to 29 5/8 after announcing it had completed the acquisition of Metamor Worldwide .

DualStar Technologies (DSTR) rose 7/16 to 4 3/4 after trading as high as 5 7/16. The company, which offers high-speed Internet access and cable television, announced an $55 million investment from a unit of Peco Energy .

Internet infrastructure firms continued to receive positive comments. Prudential began coverage on several issues with Strong Buy ratings: Cisco , down 1/4 to 66, Juniper Networks , down 1 9/32 to 114 1/4, Foundry Networks , up 2 5/16 to 108 3/4, Alteon WebSystems , up 7/16 to 76 7/16, and Extreme Networks , up 1 to 87 7/16. Digital Lightwave gained 5 3/16 to 94 3/4 on a CE Unterberg Towbin Buy rating.

Shares of GoTo.com rose 1 15/16 to 19 a day after signing a deal to be a premier search partner on CNET .

Some technical comments on the market: Another failure at our key resistance levels; hopefully it’s just a pullback before another assault. However, I’m beginning to have my doubts that the market can surmount these levels; they’re hugely significant, particularly on the S&P 500, and I don’t know if the bulls have the conviction to do it. That said, I’m hoping the market proves me wrong. Again, watch for breaks of our trading range for the first sign of the market’s direction: 3700 and 3900 on the Nasdaq; 10,500 and 10,775 on the Dow; and 1480 on the S&P 500. The downside caution level on the S&P 500 is in the 1370-1410 range. The consolidation just beneath important levels is a positive, as are

bullish cup-and-handle formations on the Nasdaq and SPX. But our bearish moving average crossover on the Nasdaq occurred yesterday, and the 50-day moving average is now below the 200-day moving average for the first time since October 1998. However, in this bull market, that usually has been a contrary indicator, often coming after the worst is over. What does give me pause, however, is our bearish “diamond” formations in the weekly Dow and SPX charts, which appear rarely, and then usually only before a bear market. There’s also a bearish descending triangle developing on the Dow, with an upper boundary at about 10,775, and what could be a head-and-shoulders pattern on the S&P 100 (OEX). All classic topping patterns.