Stocks Battle Back From Steep Plunge

Stocks battled back from a steep plunge on Monday that was fueled by an earnings warning from Hewlett-Packard and continued uncertainty over the outcome of the presidential election.

The ISDEX dropped 22 to 531, its lowest close of the year, and the Nasdaq fell 62 to 2966, a level not seen in more than a year. The S&P 500 lost 14 to 1351, and the Dow fell 85 to 10,517. Volume rose to 1.12 billion shares on the NYSE and 2.04 billion shares on the Nasdaq. Decliners led by 16 to 12 on the NYSE and 25 to 13 on the Nasdaq. The Federal Reserve meets Wednesday, and the Consumer Price Index will be reported Thursday. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Only 3 of 50 ISDEX stocks ended the day higher: DoubleClick , up 7/16 to 14 7/8, Sycamore Networks , up 1 to 60 3/8, and Cisco Systems , which rose 3/8 to 50 7/16.

Ariba broke support at 100 and lost 9 1/8 to 91 3/8 on an Upside Today story questioning EDS CoNext, the joint venture between Ariba and Electronic Data Systems . Commerce One lost 5 15/16 to 52, and i2 dropped 18 3/16 to 117.

Streamline.com , which was halted unchanged at 5/32 and never reopened, became the latest e-tailer to shut down.

Entrust , off 5/8 to 25 3/8 but well off its low of 21 5/16, announced the resignation of CFO David Thompson, who will join TrinTel Communications.

Even good news didn’t help stocks. InterNAP , off 3/4 to 15 7/8, was added to Chase H&Q’s Focus List and upgraded to Strong Buy.

coolsavings.com , off 1/8 to 1 1/8, issued an earnings warning but said it expects to achieve profitability in the second half of 2001.

Liquid Audio , up 15/16, and EMusic , up 1/32 to 25/32, rose on a New York Times article that said Bertelsmann has been in acquisition talks with the two companies.

Juniper Networks continued to struggle, off 6 1/2 to 164 7/16. Technical note: The stock on Friday broke a broadening top, as previously noted, with downside potential to 120. A close above 180 would negate the breakdown; interesting that the stock rallied to 179 today and then turned back.

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

The Nasdaq 100 reached its downside target of 2700 (2742) this morning, based on the breakdown out of a bear pennant last week. The Nasdaq found support at a line across the 1996-1998 tops and the 1999 lows (see chart below). Also, the index filled a gap from October 1999 at 2875 this morning, another sign that this support could hold, if only for a day or two. 2800 is important for one other reason: the 61.8% retracement from the Nasdaq’s 1357-5132 run-up is 2799. Below that, in Fibonacci terms, the bears are in charge. The fact that the Nasdaq was unable to finish positive today could indicate that the sellers are not yet done.

We continue to be concerned about the S&P 500’s repeated piercing of its 1994 logarithmic trendline, which is at 1369 this month. If we close below that line by more than 2%, or 1335, we may have seen the end of the bull market. The next major trendline, the 1984 trendline that marked support

until 1995, is below 1000 on the S&P 500. A retest of the 1998 lows would touch that line. Not that we would necessarily go that low, but the index’s bearish behavior at this important trendline has us worried. Is this the start of a major bear? Time will tell, but as we’ve said before, that 1994 trendline is unsustainable over the long-term, representing long-term returns of greater than 20% a year. At some point, be it now or years from now, that line will break.

The Nasdaq hasn’t touched its 1984 trendline in 10 years, and that line is so far from here that it would take a bear market of cataclysmic proportions to reach it. But the 1990 trendline is not too far from here, at about 2300-2400 (see chart below for both trendlines). As we said last week, downside of 2500 is not out of the question on the Nasdaq, given the 500-point trading range the index broke down out of today at 3000. Also, a “measured bear” move would also be complete at 2500. In short, a measured bear move would repeat the distance of the first move (5132-3042, or 41%) from the second peak of 4289. A 41% down move from 4289 would take the Nasdaq to about 2530.

The ISDEX is forming a potential broadening bottom, and touched that lower trendline at 510 today. An unusual bottoming formation, but a potential positive on the index.

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