Sellers Take A Break

Sellers took a break on Tuesday, focusing on a good earnings outlook from GE and strong long-term growth projections from Cisco. A weaker than expected retail sales report raised rate cut hopes ahead of next week’s Federal Reserve meeting.

The ISDEX http://www.wsrn.com/apps/ISDEX/ added 4 to 232, and the Nasdaq gained 43 to 1966. The S&P 500 climbed 3 to 1183, and the Dow slipped 30 to 10,177. Volume rose to 610 million shares on the NYSE, and 930 million on the Nasdaq. Decliners swamped advancers by 20 to 10 on the NYSE, and led 19 to 16 on the Nasdaq. 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.

Cisco rose 1 7/16 to 20 1/4 after CEO John Chambers said that the current business environment remains difficult, but that the sector should see long-term 30-50% growth rates. Juniper , which is also presenting at the Merrill Lynch Global Communications conference, rose 3 9/16 to 53 1/4.

Cisco’s comments that it plans to move into the security market appeared to have no effect on companies in that sector. Check Point rose 3 1/16 to 67 1/2, and Internet Security rose 3 15/16 to 41 1/4.

B2B stocks were strong. webMethods surged 4 1/6 to 28 1/16 on a deal with Best Buy. Ariba added 11/16 to 12, Commerce One rose 2 1/2 to 21 3/8, and Commerce One tacked on .28 to 11.12. PurchasePro added 1/4 to 10 1/4 despite an announcement that founder and CEO Charles Johnson plans to begin selling shares.

Sonus Networks rose 3 1/4 to 25 3/16 on a multi-year deal with Qwest .

Engage slipped 1/8 to 27/32 despite beating estimates by a nickel with a 21-cent loss.

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

Not sure if anyone else has noticed this, but everyone on CNBC seemed to stop trying to call a bottom yesterday and started predicting lower lows. The most common levels cited have been 1500 and 1800 on the Nasdaq. When every market expert agrees on something, you can bet good money that they’re wrong. That tells us that either the market will bottom here, or it will go a lot lower than anyone expects. A cycle turn is due some time in the next week or so, so at least an intermediate bottom might not be a bad bet here. Emphasis on the word bet: There are important levels that must be taken out to the upside to have any sort of confidence on the long side, and we’ll get to those levels in a moment.

The other fallacy we keep hearing is that we need a high-volume capitulation day for the bear market to end. The only major bear market that ended in a one-day reversal was a five-month panic in 1938-1939. This bear market will end when we least suspect it, for reasons we can’t begin to fathom, but the odds are very high that it will not end on a high-volume sell-off. At some point, sellers will just plain run out of steam. We’re seeing some evidence of that here. And finally, everyone thinks that the Dow’s break of 10,300 is the start of Armageddon, or at least a retest of the 9650-9732 lows. That means that what will likely happen is either modestly lower lows, like we’re ge

tting, or much lower lows. What better place to bottom than here? There are no major supports, so no one’s looking for it. Besides, bear markets don’t respect support, so it’s better for it just to decide to turn higher at some point. The one psychological negative here we’re noticing is a lot of anger toward the Fed: that’s a plus because it means that investors are no longer in denial, but a negative because bear markets tend to end in despair, not in anger. Could support an intermediate turn here, but maybe not a major bottom. We’ll see when it happens; the market will tell us. In the meantime, the indexes are showing the kind of indecision today that could mark a turn, assuming buyers follow through to the upside.

The Nasdaq held the lower trendline of what could be a bullish falling wedge (first chart) yesterday, with the lower line touching on the December and January closing lows; that lower line is declining at 5 points or so a day, so we’ll place it at 1917 for today and 1912 for tomorrow. The next strong support on the index is at about 1850-1870 (second chart). The last couple of down days look like potential exhaustion gaps, meaning sellers could be running out of steam. To the upside, the Nasdaq needs to get above 2201.68 to begin to fill those gaps. The upper boundary of that falling wedge is around 2100, and next resistance after that is 2252. If the Nasdaq can close above 2252, a bottom is likely in, and the index could be headed for about 2900. The index formed a small gap at 1924-1930 on the open today that may need to be filled at some point.

The S&P 500’s next strong support is 1125. To the upside, first resistance is 1191, and then 1214-1215. The S&P 500 and the Dow could form dojis, potential reversals that require follow-through, if they can close near the unchanged level.

The Dow broke critical support at 10,300 yesterday, but Armageddon has so far failed to materialize; an uptrend line from March 2000 is so far providing support around 2100. A retest of the 10,000 level and the 9600-9700 lows are not out of the question if the index can’t get back above 10,300. After 10,300, 10,450-10,500 is next resistance, and then 10,600-10,700. GE is recovering somewhat today after its recent breakdown, but the Transports are getting crushed, a big negative because of their importance to the health of the economy as a whole.

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

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