New Year, Same Old Story For Techs, Nets

Internet and technology stocks began the new year the same way they ended the last one: on a down note.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 36 to 325, and the Nasdaq declined 126 to 2344. The S&P 500 declined 28 to 1292, and the Dow lost 125 to 10,661. Volume rose to 497 million shares on the NYSE, but declined to 897 million on the Nasdaq. Decliners led 16 to 13 on the NYSE and 22 to 14 on the Nasdaq. The National Association of Purchasing Management survey fell to its lowest reading since the last recession a decade ago, giving hope that the Federal Reserve will soon cut rates, but inflation pressures were higher than expected. The big economic report for the week will be Friday’s employment report. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

Internet stocks continued to get hit on fears of low capital expenditures. Inktomi again led the parade lower, falling 4 7/16 to a two-year low of 13 7/16, on downgrades from Merrill Lynch and Robertson Stephens.

Robbie Stephens downgraded a host of stocks in the Internet infrastructure space, among them: CacheFlow , down 3 to 14 1/16, Netegrity , off 10 3/8 to 44, Quest Software , down 3 5/16 to 24 3/4, EMC , off 10 3/16 to 56 5/16, Certicom , down 2 3/8 to 18, Internet Security , down 15 15/16 to 62 1/2, NetIQ , off 21 1/16 to 66 5/16, Network Appliance , down 12 9/16 to 51 5/8, Network Engines , down 1 1/2 to 2 11/16, Verisign , down 14 1/16 to 60 1/8, and Veritas , off 20 3/4 to 66 3/4.

Robbie Stephens maintained its Buy rating on CheckPoint , which fell anyway, off 26 3/16 to 107 3/8.

An earnings warning from Intershop , off 10 3/8 to 4 3/4, sent e-CRM software stocks lower. Art Technology fell 5 11/16 to 24 7/8, and BroadVision lost 2 5/32 to 9 21/32.

Ariba fell 9 1/16 to 44 9/16, and Commerce One dropped 6 to 19 5/16.

Cisco Systems fell 3 1/2 to 34 3/4 on concern that the company could warn. The company makes an important presentation Jan. 10.

Terra Lycos was one of the few bright spots, rising 1/16 to 10 5/8 on strong holiday sales.

Some technical comments on the market: Note: We are now including charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

Volume, the number of new lows and market internals are much improved on this retest of the Nasdaq’s 1990 logarithmic trendline at 2300 (first chart), giving us hope that 2300 may hold. The Nasdaq’s breakdown out of a rising wedge or bear pennant Friday (see second chart) gives the index downside to anywhere from 2300-2000. Gaps were filled today at 2224 and 2340 on the Nasdaq 100 and the Nasdaq and 328 on the ISDEX, but gaps remain at 1275 and 668 on the S&P 500 and 100. Hopefully those gaps will fill in the next day or so and we can reverse upward tomorrow. We continue to watch the January indicator, which basically says that as the first five days and the month of January go, so does the year, so we want those first five days to be positive.

The S&P 500 broke out of a bear pennant or flag, setting up a potential retest of the 1250 level. That pattern gives the index potential downside all the way to 1200; let’s hope we fill the gap at 1275 and turn up from there.

The Dow failed at critical 10,900 resistance Friday for the fifth time. A clean break of 10,900 would likely carry the index to 11,500, with the caveat that it could face resistance at 11,000, 11,200 and 11,400. To the downside, 10,600-10,650 is strong support, and is so far holding. A break of the lower support at 10,300 would likely lead to a retest of the 9700 lows. A close above 11,000 on the Dow and 3000 on the Dow transports (100 points from here) would be bullish under Dow theory, the oldest school of technical analysis, and could be bullish for the whole market.

Special report: For a free introduction to technical chart patterns and an overview of this year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.

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