Nets Rebound, But Broader Market Falls

Internet stocks rose on Tuesday as leading issues rebounded from recent woes. But the broader market finished at the lows of the day, ahead of the Federal Reserve’s decision on interest rates.

The ISDEX rose 4 to 715. But the Nasdaq fell 53 to 3858, the Dow declined 38 to 10,504, and the S&P 500 slipped 4 to 1450. Volume rose more than 10%, to 1.03 billion shares on the NYSE and to 1.47 billion on the Nasdaq. Advancing issues led 16 to 12 on the NYSE, while decliners led 23 to 16 on the Nasdaq. The Federal Reserve will announce its decision on interest rates at 2:15 p.m. tomorrow. Most analysts expect no change in interest rates and will be watching the Fed’s statement for hints on future direction.

Leading Net stocks that had been beaten down in recent sessions led the ISDEX higher. Yahoo! gained 6 21/32 to 125 31/32, Inktomi gained 4 11/16 to 119 3/4, but down from an intraday high of 125 1/2, Amazon.com recovered 2 9/16 to 36 1/2, MP3 gained 2 11/16 to 15 1/8, and DoubleClick added 2 11/16 to 39 15/16.

The IPO market continued to show signs of life. Click Commerce priced at 10 and rose to 17 5/8, Stratos Lightwave priced at 21 and rose to 34 1/8 after trading as high as 56 1/8, and Marvell Technology priced at 15 and went to 77 before ending the day at 55. But eFunds and BusyBox.com barely changed from their respective $13 and $5 offering prices.

Merger Monday carried on into Tuesday for Net issues.

Media Metrix will acquire Jupiter Communications in a marriage of Internet research firms. Jupiter shareholders will receive 0.946 MMXI shares per share of JPTR. Media Metrix fell to 4 7/8 to 23 3/8 on the news, while shares of Jupiter declined 1 7/8 to 21 1/8. For more on the deal, click here.

Ariba fell 1 3/16 to 91 on news that it will acquire privately-held SupplierMarket.com for 6.3 million shares, apparently putting Ariba into competition with FreeMarkets , which fell 2 to 44 9/16, extending Monday’s slide. CIBC World Markets and Banc of America reiterated Strong Buy ratings on Ariba, while Prudential rated FreeMarkets an Accumulate. For more on the story, click here.

Wireless Internet deals abounded.

GoAmerica gained gained 1 1/4 to 16 after trading at an all-time high of 19 5/16 on news of wireless Internet alliances with Hewlett-Packard and EDS .

Shares of Aether Systems gained 5 1/16 to 196 on news of an alliance with Microsoft to market Windows-based Pocket PCs powered by Aether’s Enterprise ISP service. W.R. Hambrecht initiated coverage with a Buy rating and $275 price target.

Shares of InfoSpace gained 2 1/4 to 59 1/8 on a Merrill Lynch Buy reiteration after the company appointed Rand Rosenberg CFO. Merrill analyst Henry Blodget reiterated his positive views on InfoSpace, saying the company is in the best position to become the operating system software for the wireless Internet.

Phone.com fell 6 to 68 despite a Strong Buy rating and $125 price target from W.R. Hambrecht. The firm believes Phone.com is the wireless carrier best positioned to profit from the growth of the wireless Internet.

Expedia climbed 1/2 to 15 3/4 after receiving $50 million in financing from Technology Crossover Ventures and $10 million from Microsoft, its parent company.

VerticalNet gained 15/16 to 37 3/4 on a W.R. Hambrecht Strong Buy ratin

g and $60 price target.

Go.com gained 13/16 to 11 15/16 on a JP Morgan Buy rating and price target of $32. Network Appliance gained 3/4 to 82 13/16 on a Chase H&Q Strong Buy rating.

WebMethods gained 15 1/8 to 150 7/8 on news that Atlas Commerce, a leading provider of advanced software for collaborative Internet markets, will embed WebMethods’ technology in its Atlas Metaprise Software, enabling accelerated integration of back office applications with industry and private Supply Chain eHubs.

Some technical comments on the market: The major indices ended at their lows of the day on higher volume, the latest in a recent string of days of distribution, or professional selling. The indexes are winding up in tighter and tighter patterns. The Dow is bound by 10,670-10,750 to the upside and 10,375-10,400 to the downside, the boundaries of its bearish diamond pattern. The S&P 500 is bounded by its diamond pattern boundaries of 1480 and 1370; interestingly, its rallies are now running out of steam when the September futures hit the 1480 level. The primary patterns in play are all bearish: rising wedges on the S&P 500 and the Nasdaq have been broken to the downside, and both indices may be forming bearish flag patterns in the 60-minute charts, perhaps signaling another leg down. To the upside, the Nasdaq needs to negate the rising wedge by moving decisively back above 4000 and then taking out 4073 to negate the key reversal last Thursday. To the downside, major support is 3725 and 3600 (3583). The ISDEX managed to hold key support at 700 yesterday, a nice sign of strength considering all the leading issues that have come under fire lately. A clean break of 700 would give the ISDEX room to 600, while a close above 790 would be bullish. The Dow Transports rose strongly today, ending a miserable losing streak for that index, but the interest rate-sensitive Utilities index fell sharply.

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