Stocks Continue to Digest Gains

Last week’s exuberance in the stock market has given way to cautiousness, as traders continue to digest gains and look for clues as to the market’s next move.

The old-new economy dichotomy that fueled the Nasdaq at the start of the year resurfaced. The Nasdaq gained 35, but continued to run into resistance around the 3850 level. The Dow declined 40, while the S&P 500 gained 1. The ISDEX gained 2 to 760. NYSE volume was 429 million shares, while 685 million shares changed hands on the Nasdaq, ahead of Monday’s pace. Advancers led decliners by 14 to 12 on the NYSE and 20 to 15 on the Nasdaq. gained 1 17/32 to 3 5/16, resuscitated by a sponsorship contract with The stock broke out of a two-month trading range on high volume. Healtheon/WebMD continued to show technical strength, up 1 1/16 to 19 13/16. gained 2 1/2 to 10 1/8. Barnes & made a $20 million investment in Fatbrain unit MightyWords, and Paul Allen’s Vulcan Ventures made a $10 million investment in the “digital marketplace for the written word.”

24/7 Media gained 2 57/64 to 18 1/4. Prudential initiated coverage with a Strong Buy rating and a price target of $48. The company also announced the acquisition of iPromotions, an incentive marketing programs company. Open Market gained 2 1/16 to 16 1/16.

Ariba began the day strong, but then took a breather after its strong recent run, down 9/16 to 79 15/16. Robertson Stephens initiated coverage of the B2B leader with a Buy rating. Ariba also announced that it had been selected by specialty metals marketplace MetalSpectrum to implement its online marketplace. B2B stocks showing strength included Fairmarket , up 8 3/4 to 63 1/2, PurchasePro , up 1 3/16 to 34 1/8 to extend Monday’s 28% gain, and WebMethods , up 9 13/16 to 128 3/8.

Webvan Group gained 1/4 to 6 1/8. Goldman Sachs reiterated its Recommended List rating after the company announced the introduction of non-grocery items such as books, consumer electronics, videos, DVDs, housewares, office supplies, toys, BBQ, lawn/garden, pets and flowers.

AOL gained 1 1/8 to 56 3/16 after Jeffries & Co. Internet analyst Fred Moran reiterated his “buy” rating and $110 18-month price target. He expects shareholders to approve the merger with Time Warner when they meet June 23. He expects total revenue for fiscal 2000 to grow to $6.88 billion, up 44 percent, and raised his earnings estimate to 55 cents per share, up from previous forecasts of 35 cents.

Cisco pulled back 3/8 to 62 7/8 after failing to break its downtrend line.

Some technical comments on the market: The Nasdaq has completed a move from a reverse head and shoulders bottom to the 3,800 level it is at currently; this also coincides nicely with a 38% Fibonacci retracement of the index’s move from 5132 to 3042. The market most likely will consolidate here or pull back to around 3700 before resuming its move up. The 3850 and 3950-4000 levels are likely to pose some resistance; if the Nasdaq can break through them, it should complete a 50% Fibonacci move to the 4100-4200 level.
The S&P 100 (OEX) seems to be
arguing for a new bull phase, having broken through a major trendline last week. That index too formed a reverse head a

nd shoulders pattern in the 60-minute chart. However, the 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. We will be following these patterns as they develop.

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