Nets Gain, Blue Chips Sink

Internet stocks rose Tuesday morning, bucking weakness in blue chips, as the ISDEX climbed to the top of a two-month trading range.

The ISDEX rose 26 to 774, just under major resistance at 800. The Nasdaq began the day strong, ran into resistance at 4050, and fell back below 4000, down 3 to 3986. The Dow never got above water, falling 122, while the S&P 500 declined 13. Volume rose sharply on the Nasdaq to 800 million shares, and rose on the NYSE to 460 million shares. Decliners swamped advancers 17 to 9 on the NYSE, and led 19 to 15 on the Nasdaq. Oracle is set to report earnings after the bell.

You could have thrown a dart at the ISDEX and earned money, as only eight issues traded lower. Broadcom soared 18 1/4 to 165 3/4 on news that it will be added to the S&P 500. Ariba bolted 6 to 87 5/8, clearing a two-month base.

Shares of Digital Island soared 11 3/16 to 45 11/16 on news that the company will team with tech giants Compaq , Intel and Microsoft to build the world’s largest streaming media network. The firms will make a combined equity investment of $45 million in Digital Island to support its infrastructure development.

Industry leaders returned to form. Shares of eBay bolted 4 1/2 to 64 3/8, Yahoo! gained 6 7/8 to 145 15/16, CMGI rose 2 1/4 to 56 1/8 and Inktomi gained 6 3/4 to 145.

Shares of Red Hat climbed 1 5/8 to 27 on news that Dell will announce plans to expand customer support for Linux software, putting it on a par with Dell’s support for Microsoft Windows.

Exodus Communications rose 7 1/8 to 111 7/8, down from an intraday high of 114 7/16, ahead of its 2-for-1 stock split after the close. Sonus Networks rose 7 3/4 to 120 3/4, down from an intraday high of 126 7/8, a day after the company’s post-IPO quiet period ended. fell 3/8 to 1 5/8 after it announced that revenues will be below expectations for the rest of the year, but that the loss for the current quarter will be slightly better than expected due to a 15% layoff and a renegotiated agreement with Express Scripts .

Engage rose 1 11/16 to 17 1/16 on news that parent company CMGI and Compaq have made a combined investment of $75 million in the company, in exchange for 5 million shares of common stock.

Some technical comments on the market: The Nasdaq ran into resistance at 4050 today, just below the 50% retracement level of 4087, and headed back below 4000. Not positive action, especially given the sizeable increase in trading volume over yesterday. That said, the Nasdaq, Nasdaq 100 and the ISDEX generally look positive here, and we’re nearing an important level at ISDEX 800. However, I think the two most important numbers to watch are 1480 on the S&P 500 and 10,375 on the Dow: the upper and lower boundaries, respectively, of their bearish diamond patterns. A clean break of either number should tell us a lot about the market’s direction. On the S&P, a close above 1507, the 78.6% retracement level, would be a real plus; interestingly, the index’s recent rallies have all ended when the futures reached the 1508 level. A break of the Dow’s lower diamond boundary would set up a test of the base of its bearish descending triangle in the 10,200-10,300 range. A break of 10,200 would probably send us to about 9,500 on the Dow (the move predicted by the descending triangle), although a break of the diamond pattern would predict an ultimate downside of 8,400 or lower. A break of 10,775 to the upside would be bullish.

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