Profit Worries Send Investors Scurrying

Investors worried about next month’s earnings reports abandoned shares of Internet and technology companies on Monday.

The Nasdaq dropped 106 to 3767 and the ISDEX fell 40 to 727, as an earnings warning from Citrix Systems outweighed a positive preannouncement from Corning. The Dow declined 49 and the S&P 500 fell 10 points. Volume was a light 755 million shares on the Big Board, where decliners barely edged advancers. Nasdaq volume was 1.27 billion, with decliners leading 25 to 15. Traders awaited Wednesday’s Consumer Price Index, which is expected to show a 0.2% increase.

Share of DoubleClick fell 6 to 44 1/16 on concerns that the stock market decline and weak IPO market could hurt revenues. Other online advertising and marketing firms also fell. 24/7 Media declined 2 5/16 to 16 13/16, ValueClick lost 2 3/4 to 12 and Engage fell 1 45/64 to 16 25/32. After the close, Engage announced that it lost 22 cents a share in the 3rd quarter, beating Zacks estimates of a loss of 28 cents. The stock rose to 17 1/2 in after-hours trading.

Internet infrastructure plays rose on the Corning news. Corning gained 18 to 230. JDS Uniphase rose 5 1/2 to 116 1/16 and Juniper Networks advanced 9 to 233 1/16. Shares of recent IPO Sonus Networks soared to a new high, up 20 7/8 to 112 7/8. Sycamore Networks gained 4 7/16 to 102 1/8 after Donaldson, Lufkin & Jenrette reiterated a buy rating and raised its price target to $110. Shares of ZipLink soared 2 3/4 to 7 7/8.

Shares of MicroStrategy cratered after the stock’s huge recent run-up, falling 23 1/2 to 38 3/4. The company is rumored to be close to securing a round of $100 million in financing. However, Merrill Lynch said it sees no change in the company’s fundamentals or financing situation.

Shares of Caldera Systems gained 2 5/8 to 14 3/8 on news that IBM will offer some Thinkpad laptop computers with Caldera’s OpenLinux 2.4 operating systems.

Onvia.com rose 1 9/16 to 10, down from an intraday high of 11 5/8, after announcing it had agreed to buy Zanova Inc., a provider of business Internet software, for $21 million in stock.

Shares of iBasis soared 7 1/2 to 32 7/8 after announcing that China Mobile Telecommunications has chosen The iBasis Network for global Internet telephony.

eToys fell 5/32 to 6 13/32 after announcing that it will buy certain assets of eParties, a unit of eCompanies, for $1.6 million in stock.

Shares of IntraWare rose 27/32 to 16 31/32 after announcing that it will buy Janus Technologies for $24 million to complement its hardware and software online procurement business.

Shares of leading Internet stocks headed lower.

eBay fell 6 21/64 to 66 27/32. The online auction site has come under fire recently for bogus bids and competitive business practices. Shares of Yahoo! fell 5 3/4 to 137 7/16.

Shares of America Online continued to show weakness, falling 2 to 52 9/16 on a SoundView downgrade from Strong Buy to Buy, on concern about Time Warner fundamentals. Amazon.com fell 3 7/8 to 48 5/16.

Shares of Ariba fell 4 27/64 to 75 1/4. The stock failed to break out of a wide two-month trading range, ranging from 49 to 83. Shares of Commerce One fell 1 5/16 to 52 1/2, CMGI declined 4 3/16 to 56 7/8, and Internet Capital Group dropped 4 11/16 to 34 5/8.

Ventro rose 1 3/16 to 33 3/4, extending Friday’s gains. The company, which operates five vertical marketplaces, is expected to announce a sixth soon.

Some technical comments on the market: Not a pretty day. The Dow, Nasdaq and S&P 500 all closed at the lows of the day; the only plus is that it came on light volume. The Nasdaq’s continued failure at 3900 is starting to look like a negative. An awful lot of money went into the index in the 3800-4100 range. Those traders who were sitting on huge losses now have a chance to get out at even or close to even, which is the source of this monumental struggle. A convincing break of either 3900 or 3725 will tell us which side is likely to win this battle. If we can clear 3900, our next resistance level is 3950-4000 (3982), and if we clear that, a 50% Fibonacci retracement to 4100-4200 is likely. A break of 3725 would likely take us back to 3600. One sign of potential trouble is that we are a few days from a bearish moving average crossover on the Nasdaq. The Dow still looks troubled after its break below 10,700, and a further break below 10,650 Friday confirmed the downtrend. The next important level is 10,550, which we finished just above today; a break of that would tip the equilibrium to the downside. The Dow continues to fail at its 50- and 200-day moving averages and appears to be developing a bearish descending triangle. And the Dow and other broader indices are still developing larger bearish patterns in the weekly charts that need to be broken to resume a new bull phase: “diamond” patterns in the Dow and S&P 500, and either a head and shoulders or diamond in the S&P 100. The S&P 500’s upper boundary is at 1480, where it turned back recently; a decisive break of that level could be the first sign that we are headed higher.

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