Nets, Techs Sell Off On Earnings Warnings

Internet and technology shares led the market lower Wednesday morning on earnings warnings from Entrust Technologies, BMC Software and Computer Associates. Continued concern about the departure of Oracle COO Ray Lane didn’t help.

The ISDEX declined 5 to 746, but well off its low of 736. The Nasdaq fell 68 to 3923, and the S&P 500 fell 7 to 1461. The Dow gained 3 to 10,563 on strength in financials and cyclicals, despite weakness in the index’s technology issues. Volume was in line with Friday, with 450 million shares changing hands on the NYSE and 620 million on the Nasdaq. Advancers led 14 to 12 on the NYSE, but decliners led 21 to 14 on the Nasdaq. June employment data will be released on Friday, and Yahoo will kick off earnings season July 11. Ariba will follow on July 12.

Entrust Technologies lost more than half its value, falling 39 1/2 to 37 5/8. The company warned that second quarter earnings will be two cents a share, well under the eight cents analysts were expecting. The company attributed the shortfall to delays in closing public-key infrastructure (PKI) sales. Merrill Lynch and Goldman Sachs downgraded Entrust. Merrill said the company’s top five customers account for about 40% of sales. VeriSign , off 6 5/8 to 176 3/4, RSA Security , down 5 7/8 to 68 3/8, and Baltimore Technologies , off 63/64 to 15 1/2, fell in sympathy.

OneSource Information Services soared 1 7/8 to 9 1/4 after preannouncing second quarter earnings of a three-cent loss to breakeven, much better than estimates for a 16-cent loss.

Positive analyst comments failed to help a number of issues. ABN Amro reiterated Buy ratings on Ariba, off 2 to 96 7/8 after failing to set a new cycle high above 99 1/2 on Monday, and Commerce One , off 1/4 to 44 1/4. i2 Technologies fell 1 to 102 despite a Wit SoundView Strong Buy. Wit said recent weakness in the stock was a buying opportunity, and said it expects a strong quarter.

InterNAP Network gained 1 1/8 to 43 1/6 after NorthPoint Communications
said it will use the company’s facilities for corporate DSL connectivity. added 15/16 to 4 3/4 after soaring 2 points on Monday, for a two-session gain of almost 150%. Intraday high is 5. Hearst Communications is considering increasing its stake in the company.

Vignette declined 1 9/16 to 50 3/16 after announcing that its tender offer for OnDisplay had met with greater than 90% acceptance. OnDisplay fell 2 1/4 to 79 3/8. gained 13/16 to 37 13/16. The stock has attracted the attention of value managers after its sharp recent decline.

Shares of Interwoven continued to look strong, adding 3 11/16 to 121 3/4.

Some technical comments on the market: We said we would look for confirmation today that the market’s recent rise was more than just holiday buying, but we may be in for disappointment. The Nasdaq moved lower from the open this morning and doesn’t seem to want to move back up. This consolidation near the lows could lead to a further move down. Near-term support is in the 3832-3838 area, but key support is at 3725 and 3585. To the upside, we’ve been saying for some time that the Nasdaq needs to get back above 4000 and take out 4073 to negate its key reversal and bearish rising wedge of two weeks ago. The fact that we turned back just under 4000 is not encouraging, and until we take out the 50% Fibonacci retracement level of 4087, the Nasdaq’s recent rise must be viewed as a bear market rally. The difficulty around this important level is further evidence that this may be the case. One positive on the Nasdaq is that a decline out of a rising wedge is usuall

y rapid; this has not been the case so far. The ISDEX has been consolidating at the top of its trading range, which is a plus, but its recovery has been halted in the 790 area, just above the 38% retracement level from the high (1130) to the low (560). A move above 790 would be bullish, while a move below 700 would give the index room to 600. We also said on Monday that the Dow would have difficulty moving much higher after its recent 200-point rally, because of its series of declining peaks since reaching 11,425 in April. A move above 10,620 would break this trend, and a move above 10,700 would break the upper boundary of its bearish diamond pattern. To the downside, the Dow has twice found support at 10,336 recently; a move below that would be the first sign that the diamond pattern may resolve to the downside, and a move below 10,200 would confirm that. The S&P 500 also is forming a diamond in the weekly charts, with upper and lower boundaries of 1480 and 1370, respectively. One piece of good news: the NYSE advance/decline line has been rising recently after a two-year decline.

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