Same Old Story: Cisco Beats By A Penny

Cisco Systems reported earnings after the bell on Tuesday that beat estimates by a penny. The company’s revenues blew estimates out of the water, and the stock rose after hours.

Stocks were mixed ahead of the earnings report. The ISDEX slipped 2 to 751, and the Nasdaq fell 14 to 3848. The S&P 500 added 3 to 1482, and the Dow rose 109 to 10,976, a critical level, on strength in cyclical issues. Volume rose to 990 million shares on the NYSE and 1.45 billion on the Nasdaq. Advancers led 15 to 12 on the NYSE, but decliners led 22 to 18 on the Nasdaq. Traders were cheered by a better-than-expected increase in second-quarter productivity. Applied Materials will report earnings tomorrow and Dell Computer on Thursday. For earnings reports, visit our earnings calendar and reported earnings.

After the bell, Cisco beat estimates by a penny with fourth-quarter earnings of 16 cents a share. The company’s revenues rose 60% to 5.72 billion, above even the most optimistic estimates of $5.6 billion. Cisco ended the day down 55/64 to 65 3/8, but rose to 68 in after-hours trading. The stock has resistance just under $70.

DSL stocks were mixed during the day on news that NorthPoint will merge its DSL business with Verizon . NPNT shareholders will receive $2.50 per share in cash and one share in the new NorthPoint. Verizon will own a 55% stake in the new company. NorthPoint slipped 9/16 to 14 7/16 on the news after trading as high as 19. Copper Mountain , up 8 1/2 to 78 3/4, and Rhythms , up 1 3/4 to 14, rose in sympathy, but Covad slipped 5/8 to 17 9/16.

PSINet gained 1 7/16 to 19 3/4 after reporting a second-quarter loss of $1.12 a share, 23 cents better than estimates. CAIS Internet gained 5/32 to 9 1/2 after beating estimates by 2 cents with a $1.17 loss.

But HealthStream fell 3/4 to 2 on news of growing losses. For more on HealthStream click here.

Ameritrade slipped 1/16 to 13 after CEO Tom Lewis resigned for personal reasons. Chairman and co-CEO Joe Ricketts will fill in on an interim basis.

The IPO of AOL Latin America priced at 8, opened at 7 15/16, and rose to 8 15/32 after trading as high as 9 3/4. For more on the stock, which combines the volatility of an Internet stock with the uncertainty of emerging markets, click here.

DoubleClick lost 3 3/4 to 34 7/8 on news that the company had restructured its agreement with AltaVista.

TheStreet.com gained 1 3/32 to 6 1/8 on news of a $7.5 million investment from Paul Allen’s Vulcan Ventures. Also, the company licensed Go2Net’s proprietary message board platform. Vulcan took a 5% stake in TSCM, and Vulcan and GNET each took an option to buy an additional 7.45% of TSCM stock within six months at a “substantial premium to yesterday’s closing price.”

BroadVision , off 2 5/16 to 33 1/8, formed an alliance with Commerce One , up 13/16 to 51 3/8. Commerce One traded above its previous breakout point of 52-53 and rose as high as 55, a 50% retracement of its recent decline from 70 to 40, before fading. Ariba rose 7 1/4 to 142 1/4, breaking above 135 resistance. But i2 fell 2 1/2 to 140 7/8 after turning back at 148 1/2 at what appears to be the upper boundary of a rising wedge.

Juniper Networks gained 6 1/2 to 158 3/4 o

n an SG Cowen Strong Buy rating and $200 price target.

InterNAP slipped 1 to 29 after trading as high as 32 1/16 on a Dain Rauscher Wessels Strong Buy Aggressive rating and $53 price target.

Digital Island gave back more than half of yesterday’s 5-point rise, falling 3 to 29 5/16 after meeting with analysts.

Sonus Networks finally cooled off, losing 14 5/16 to 246 13/16 after trading as high as 281. The stock ran up more than 100 points after a bullish conference presentation last week.

Some technical comments on the market: The Dow is right at the upper boundary of its bearish diamond pattern. A close above 11,000 on high volume would just about take that pattern out of play, but given the importance of this level, the Dow is more likely to pull back here. We pointed out at noontime that the Nasdaq’s rally since bouncing off 3521 last week has been forming converging boundary lines, not a good sign. The Nasdaq moved sideways this afternoon and may be trying to roll over here. That could change tomorrow, as Cisco’s earnings appear to have been well-received, at least initially. However, as we have pointed out before, the Nasdaq has formed no bottom here that is comparable to the inverse head-and-shoulders it formed at its bottom in late May, and we are still waiting for a high-volume follow-through to last Thursday’s reversal. And as we pointed out yesterday, the indexes are all at important resistance points. The S&P 500 is struggling at the bottom of 1480-1490 resistance. The Nasdaq is just below its 200-day moving average (3911). And the ISDEX turned back at 769 today, right at the lower boundary of the rising wedge that it broke recently.

The break of rising wedges recently on the S&P, Nasdaq and the ISDEX gives us potential for a lot of downside if this rally fails. The Nasdaq’s break of its bearish rising wedge gives it potential downside to 3042. A break and close below 3500 would be a big warning sign. The selling ended last week right at the 62% retracement level (3521) of the move from 3042 to 4289. The decline was also halted by the Nasdaq’s October 1998 trendline. Both developments are positives for techs to build on, if the index can hold onto them. The ISDEX needs to get above 770 quickly to negate its breakdown out of a bearish rising wedge. That broken wedge gives the ISDEX potential downside to 560. Above 770 is 790 resistance, and above that, the ISDEX turned back recently at 840, just below its 50% retracement level of 845. Support levels on the ISDEX are 693-700, 650 and 600. The S&P’s broken rising wedge gives it potential downside to 1361. Critical support is 1390, the index’s October 1998 uptrend line. A break of that trendline could carry the S&P to 1170 or lower, so we do not want to violate that line. The lower boundary of the Dow’s bearish diamond pattern is about 10,450, but we’ll continue to use 10,200-10,300 because of strong support in that range and the requirement of a 3% break of a major pattern. A break of that line could carry the Dow as low as 8,500. Recent support on the Dow is 10,675.

Chart of interest: Nokia’s recent top was a broadening formation, a series of higher highs and lower lows comprising 5-7 swings, each just a few weeks apart. In Nokia’s case, it went on to make a fourth top, a common occurrence in a broadening pattern. It’s a kindred pattern to the diamond, both signaling active, excited markets getting whipped around by the latest news or rumor: conditions that usually occur only at tops.

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