Stocks Cheer Greenspan Speech, But Nets Led Lower By Yahoo

Stocks rose on the belief that a speech by Fed Chairman Alan Greenspan signaled no imminent interest rate increases. But Internet stocks fell on worries about Yahoo’s earnings report, due out after the close.

The ISDEX fell 10 to 709. The Nasdaq rose 32 to 4112, the S&P 500 gained 10 to 1485, and the Dow soared 10,778 on strength in cyclical issues, in the process taking out its 200-day moving average and the critical 10,700 level. Volume rose to 445 million shares on the NYSE and 770 million on the Nasdaq. Advancing issues led 14 to 11 on the Big Board and 19 to 17 on the Nasdaq.

Yahoo will kick off earnings season after the close, and Ariba will follow tomorrow. Juniper Networks will report on Thursday. The Producer Price Index for June will come out on Friday.

Yahoo continued to struggle, falling 8 1/8 to 101 7/8, after breaking key support at 111 yesterday. Analysts have been making cautionary comments about the company for weeks, based on weakness in Internet advertising. This morning, Morgan Stanley Dean Witter analyst Mary Meeker said the company may lower forward guidance and announce that it will increase spending. Lehman Brothers also reportedly made cautious comments on Yahoo. A technical comment on Yahoo: the stock fell out of a broadening formation yesterday. While this did not occur at a top, it nonetheless carries bearish implications, potentially signaling a decline to as low as 70, based on the size of the formation 110-150.

eBay continued to struggle since falling below critical support at 50, losing 3 9/16 to 44 1/2. DoubleClick fell 2 3/16 to 29 1/2, a new 52-week low.

Art Technology and competitor BroadVision continued to diverge, on news that Art had won a major contract from Kmart. Art rose 8 9/16 to 118 7/16, while BroadVision fell 4 5/16 to 35 9/16. Vignette fell 5 to 41 7/8.

Inktomi recovered 5 15/16 to 114 7/16, a day after falling sharply on news that Yahoo had completed its switch to Google.

Alteon WebSystems soared 28 1/8 to 129 1/16 after announcing that it will become profitable in the fourth quarter, three quarters ahead of expectations.

GoAmerica rose 9/16 to 13 3/8 on a Chase H&Q Buy rating and $30 price target.

DSL stocks rose after Morgan Stanley Dean Witter began coverage. NorthPoint Communications gained 1 to 13 13/16; NorthPoint has been the subject of rumors that WorldCom may be interested in acquiring the company. Covad rose 1 1/2 to 19 1/4, Network Access rose 1 1/2 to 11 7/16, and Rhythms rose 2 5/16 to 16 1/2.

VerticalNet rose 2 5/8 to 41 1/2. The stock has been the subject of positive analyst comments recently.

Fiber optics stocks continued to rise a day after JDS Uniphase announced it will buy SDL . Recent IPOs continued to rise on the news, with Sonus Networks bolting 23 1/8 to 172 1/8 and New Focus rising 13 1/8 to 112 1/8. Extreme Networks gained 8 17/32 to 120 17/32, continuing to rise on rumors that it would be acquired by Juniper , up 5 3/8 to 152 15/16.

Some technical comments on the market: A good day on the Dow: the index broke its downtrend in place since reaching 11,100 in late April, and moved above its 200-day moving average at 10,747, a level it has struggled with re

peatedly. However, this morning’s rally stopped at another important point: 1488 on the S&P 500, the tip of the right shoulder of that index’s bearish head-and-shoulders pattern. As the S&P 500 is a better representation of the overall market, that’s probably a more important number; a break of that would give the bulls cause for celebration. To the downside, the lower boundary of the head-and-shoulders is around 1380. The Dow may have broken its bearish diamond pattern to the upside this morning. However, volume was not spectacular, and the fact that the rally is being led by beaten-down cyclical issues is cause for suspicion; they can be the last issues to rally. And don’t forget, we want to break the diamond by 3% on high volume; that would put the index north of 11,000. Those reservations aside, the Dow looks very good here, and may have room to rally. The ISDEX remains above important support at 700, but with Yahoo and eBay looking troubled, Internet issues may be in for some tough going here. The ISDEX has been consolidating at the top of its three-month trading range, which is a plus, but its recovery has been halted in the 790 area, just above the 38% retracement level from the high (1130) to the low (560). A move above 790 would be bullish, while a move below 700 would give the ISDEX room to 600. The Nasdaq is back above 4000, but has yet to take out its previous reaction high of 4073. A move above that number and then the 50% retracement level of 4087 could give the index room to 4300, based on the 250-point trading range the index has been mired in since turning back at 4073. Also, there is a gap down from 4188 to 4094 from April 11, adding to the resistance in this area. A break of 4100 would pretty much take out all three numbers (4073, 4087 and 4094). Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. The index has been rising just above its 200-day moving average for six weeks. This rising resistance, rather than being a positive, could imply an inexhaustible supply of sellers; flat-line resistance is usually more bullish, as it implies that sellers will eventually be exhausted. Also, the index may be forming a broadening formation, with a flat bottom along 3820-3830; this too could be bearish, as could the index’s weakening breadth. And finally, the advance-decline line on the NYSE has been steadily improving, and the index is just short of an all-time high (661).

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