Nothing But Net

Investors continued to return to Internet stocks on Wednesday, as the ISDEX was the only index sporting a gain at midday. The rise was attributed to the end of tax-loss selling by mutual funds.

The ISDEX gained 7 to 629, but the Nasdaq declined 35 to 3334, weighed down by negative earnings outlooks from Altera and WorldCom. The S&P 500 dropped 10 to 1419, and the Dow lost 67 to 10,902. Volume declined to 560 million shares on the NYSE, but rose to 1 billion on the Nasdaq. Decliners led by 13 to 12 on the NYSE and 18 to 16 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

The tax-loss theory was supported by the stocks that led the ISDEX higher: the top five ISDEX gainers were CMGI , up 3 1/8 to 20, WebMD , up 2 1/8 to 13 1/2, InfoSpace , up 2 13/16 to 22 15/16, DoubleClick , up 2 1/4 to 18 1/2, and Yahoo , up 5 3/4 to 64 3/8.

Internet infrastructure leaders were weak on the WorldCom news, which added to fears that telecom service providers will cut capital spending. Cisco Systems , which reports earnings Nov. 6, slipped 1 3/8 to 52 1/2. Thomas Weisel reiterated Strong Buy on Cisco, saying the firm believes Nortel’s problems are company-specific. JDS Uniphase lost 1 7/16 to 80, Corning was off 2 11/16 to 73 13/16, and Juniper Networks dropped 6 3/4 to 188 1/4.

Covad tacked on 1/2 to 5 3/4 after announcing the resignation of Robert Knowling as chairman, CEO and president. Frank Marshall has been named interim CEO, and founder Charles McMinn was named chairman.

Earthlink lost 1/4 to 6 1/4 on a Goldman Sachs downgrade to Market Perform from Outperform, on weaker organic narrowband growth.

ClickSoftware added 5/8 to 3 11/16 on a partnership with i2 , which gained 6 9/16 to 176 9/16.

Lionbridge slipped 25/32 to 9 3/32 despite beating estimates by 2 cents with a 2-cent loss. Stamps.com , off 9/16 to 3 3/8, beat estimates by 5 cents with an 80-cent loss. But @Plan rose 15/16 to 5 13/16 on a modest earnings warning.

ONI Systems lost 7 7/8 to 73 3/16 despite beating estimates by 4 cents with a 14-cent loss.

Mortgage.com , down 1/32 to 1/16, announced yesterday that it will cease operations.

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

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.

Not a good sign that volume is higher on the Nasdaq. We finally got a follow-through day yesterday, on the ninth day of the Nasdaq’s attempted rally, only to sell-off on higher volume today. However, given the negative news from Altera and WorldCom, it could have been worse. The Nasdaq and Nasdaq 100 need to fill gaps that formed downside reversals and continue higher before we can call the indexes’ recovery complete. Those gaps will be fil

led at 3401 on the Nasdaq and 3326 on the Nasdaq 100. Also look at where we turned back today on the Nasdaq: right at the index’s highest downtrend line.

The ISDEX also turned back today at its highest possible downtrend line. 650 and 700 are next resistance on the index.

The Dow is taking a well-deserved breather after a 1,350-point run-up off its lows. We’ll keep an eye on 10,850, the Dow diamond’s apex (first chart) and a tough resistance level on the way up, but, except for lower volume than we would like to see on the up move, the index looks pretty good. The index could still be forming a bear flag (second chart).

The S&P 500 cleared its highest September downtrend line, and also looks good, but it too could be forming a bear flag. The entire 1420-1460 range could be tough resistance for the S&P, as it was a big consolidation area back in September.

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