Nets, Techs Move Higher

Internet and technology shares continued to rally on earnings news Friday morning. But blue chips continued to tread water, held back by weakness in drug stocks.

The ISDEX rose 22 to 821, powering above 800. The Nasdaq added 40 to 4215. The S&P 500 added 5 to 1500, but the Dow fell 15 to 10,773. Volume declined slightly to 445 million shares on the NYSE, but fell 10% on the Nasdaq to 800 million shares. Advancing issues led 13 to 11 on the NYSE and 18 to 17 on the Nasdaq. June’s Producer Price Index came in at a 0.6% increase, as expected, but the core declined a better-than-expected 0.1%. The retail sales report came in stronger than expected, however. For earnings reports, visit our earnings calendar and reported earnings.

The story of the day was earnings. Juniper Networks rose 4 1/2 to 174 and gained 5/8 to 6 1/2, both on better-than-expected numbers. But a number of stocks fell despite beating estimates, including RSA Security , off 7 1/2 to 71 1/4, Keynote , off 15 13/16 to 67 3/8, and Broadbase Software , down 6 5/16 to 32 11/16. HomeGrocer fell 1 1/8 to 6 7/8 despite better-than-expected numbers, dragged down by an earnings miss and warning from merger partner Webvan , which fell 1 27/32 to 7 15/32. Sonus Networks fell 9 5/16 to 182 1/2 after missing analysts estimates. Extended Systems cratered 36 1/8 to 51 on an earnings warning.

Business-to-consumer stocks led the ISDEX higher. gained 4 15/16 to 39 15/16 after a strong defense and Buy rating from Salomon Smith Barney. The firm expects Amazon to finish the March 2001 quarter with $666 million in cash.

eBay soared 7 9/16 to 61 on a CS First Boston Strong Buy rating and $72 price target. gained 1 7/16 to 39 7/8 on a CS First Boston Buy rating and $45 target.

Yahoo gained 4 15/16 to 127 1/2 after Yahoo Japan posted strong earnings numbers.

Commerce One continued to gain in the wake of Ariba’s bullish earnings report, adding 5 1/16 to 65. The company reports earnings after the bell on Tuesday. The stock broke out of a three-month symmetrical triangle yesterday at 52, with potential upside to 85 or higher, based on the high (65) and low (29) points of the pattern. The stock has gapped up two days in a row.

Alteon WebSystems gained 10 11/16 to 135 on a Business Week report that the company could be a takeover target. But Vignette declined 2 1/8 to 50 1/8 despite a positive mention in the magazine.

Covad continued to rise, adding 1 1/8 to 23 1/8 on a Banc of America Buy rating. NorthPoint , up 11/16 to 14 5/8, and Rhytms , up 1 3/8 to 17 b3/4, received Market Perform ratings.

MarketWatch added 2 to 24 1/4 on a First Albany Strong Buy rating and $35 price target.

Some technical comments on the market: The ISDEX and the Nasdaq continue to look good here, but the S&P 500 continues to look like it’s about to fall out of bed in the next day or two, so we’ll begin there. We mentioned yesterday that the S&P 500 was forming a rising wedge in the 60-minute chart; that pattern continues to wind tighter. The rule of thumb is that a rising wedge usually breaks down about two-thirds of the way through the pattern. That means the S&P 500 should decline at about the end of today or the start of Monday, at about the 1507 level, just beneath our important 78% retracement l

evel of 1508. At the outside, the pattern has at most two to three days until the apex is reached. A rising wedge, or an uptrend with converging boundaries, is never a good thing for two reasons: first of all, it implies a rally that can only go so far, and second, it usually only occurs in bear market rallies. A lot has been made lately of broken downtrends, but only one bear market in history never broke its downtrend at some point. You guessed it: the 1929-1932 Great Bear. So a broken downtrend in itself sometimes means no more than a good short-term rally. We’ve seen a few rising wedges recently in the S&P and the Nasdaq; not a definitive sign that this is a rally in a primary bear market, but it is one piece of evidence in that direction. The Dow’s upside, if it hasn’t been capped already, is likely to be capped in the 11,000 area, the upper boundary of its bearish diamond pattern. To the downside, we want to stay above the breakout points of 1488 and 10,700, respectively, on the S&P and Dow, although we could conceivably go as low as 10,620 on the Dow, where it broke its 2 1/2-month downtrend.

The ISDEX has continued to move higher after piercing key resistance at 790. Next up is the 50% retracement level of 845, and if we treat the ISDEX’s trading range (700-790) as a rectangle, the ISDEX could be set up for a run to 880. There is a lot of congestion in the 850 area from early April, however. To the downside, 700 has proven strong support; a break of that number could give the index room to 600. The Nasdaq appears to be set up for a run to its 62% retracement level of 4337. It broke higher out of a barely-formed symmetrical triangle this morning. It has now filled a gap down from 4188 to 4094 from April 11. A break below 4073 would negate the index’s breakout. Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. A thought: if this is a bear market rally, then in the last week we’ve had the last two beaten-down groups rally: first the cyclicals, and now the Nets.

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