Nets Again Lead The Pack

Internet stocks continued their sudden resurgence on Thursday, rising another 3%.

The ISDEX gained 21 to 642, and the Nasdaq rose 67 to 3400. The S&P 500 added 4 to 1425, and the Dow slipped 10 to 10,888. Volume declined to 530 million shares on the NYSE, but was unchanged at 1 billion shares on the Nasdaq. Advancers led by 14 to 11 on the NYSE and 21 to 13 on the Nasdaq. October unemployment data is due out tomorrow morning. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Liberate was the latest beaten-down Net name to lead the ISDEX higher, rising 2 5/16 to 20 15/16.

Saudi Arabia Prince Alwaleed bin Talal, undeterred by his failed investment in in the mid-20s, announced that he will double his investment in America Online to $2 billion. AOL rose 1.70 to 53.70.

PSINet imploded 3 3/4 to 3 1/32 after the company warned that it would miss 4th-quarter estimates, and announced that president and CEO Harold Willis will step down.

Foundry Networks rose 6 1/2 to 82 3/8 on a Lehman Brothers Buy rating.

Genuity slipped 1/16 to 6 1/8 after beating estimates by 3 cents with a 24-cent loss. NetZero lost 3/32 to 1 25/32 after beating estimates by 3 cents with a 22-cent loss. Looksmart , up 1 1/16 to 9 15/32, beat estimates by a nickel with a 7-cent loss.

BroadVision rose 1 1/2 to 32 7/8 on an alliance with IBM .

InterTrust added 3/8 to 10 3/8 on a Wall Street Journal story that said the company could benefit from the alliance between Napster and Bertelsmann to encrypt music files to be sold through subscriptions.

Handspring surged 9 9/16 to 81 3/8 on a CIBC Strong Buy rating and $90 price target.

Internet infrastructure leaders rebounded. Cisco Systems , which reports earnings Nov. 6, rose 2 5/16 to 54 7/16. JDS Uniphase gained 2 1/16 to 80 5/8, and Juniper Networks rose 8 5/16 to 191 11/16.

Red Hat added 1 1/2 to 16 13/16, continuing to gain on comments from a Microsoft official that Linux on the PC represents the greatest threat to the software giant.

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We’re already seeing signs in this rally that we don’t like. We’ll focus today on the large-cap Nasdaq 100. The index filled a gap at 3326 today that had formed an island reversal, and then pulled back, failing to take out its highest downtrend line. But the bigger problem is the small bear pennant that is forming off the lows; given the 500-point “pole” on that pattern, a break of 3200-3250 could carry the index as low as 2700. Also, if the Nasdaq and Nasdaq 100 fail to take out their recent highs around 3500, we would continue to have a cycle of lower highs, which is also a negative. Given that the only thing on the

horizon is Cisco’s earnings, we have to wonder if there could be some disappointment there, or at least some selling on the news.

Also, as we mentioned last night, the S&P 500 looks like it may already be forming a bearish rising wedge. Oddly, even if it continues to form, the index could have quite a bit of upside before the boundaries converge, but a retest of 1300 may be in the cards a couple of months down the road. The entire 1420-1460 range could be tough resistance for the S&P, as it was a big consolidation area back in September. This is pure speculation, but given the imminent possibility of lower lows on the Nasdaq 100, and the possibility further down the road of a retest of 1300 on the S&P, we have to wonder if there aren’t significantly lower lows ahead for the Nasdaq and Nasdaq 100.

The ISDEX cleared its highest possible downtrend line this morning, and is showing surprising strength as investors flock back into beaten-down Net stocks. Can the trend continue? 650 and 700 are next resistance on the index. That lower line at 575 will hopefully form a new trendline for the ISDEX.

The Dow is taking a well-deserved breather after a 1,350-point run-up off its lows. We’ll keep an eye on 10,850, the Dow diamond’s apex (first chart) and a tough resistance level on the way up, but, except for lower volume than we would like to see on the up move, the index looks very good. We’re going to remove the bear flag on the index and instead replace it with a very nice uptrend (second chart). Interesting that the index closed right about at 10,900 yesterday, a level that was very good support back in August before the run-up to 11,400. The Dow looks like it could be headed for another test of 11,400. Given the strength in the Dow Transports, a close above 3000 on the Transports and 11,400 on the Dow would be bullish under Dow Theory, the oldest school of technical analysis. The divergence between old and new economy stocks could continue.

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