Stocks Decline; Internet Advertising Worries Remain

Stocks fell across the board Thursday morning. Shares of Yahoo! continued to weaken amid Internet advertising concerns.

The ISDEX fell 9 to 768 and the Nasdaq declined 36 to 4027. The Dow fell 60 to 10,436 after testing important support at 10,382, and the S&P 500 was off 16 to 1462. Volume was in line with Wednesday on the NYSE, where 455 million shares changed hands, and rose about 7% to 750 million shares on the Nasdaq. Decliners again led advancers, by 15 to 9 on the Big Board and 19 to 16 on the Nasdaq. Micron Technology is set to report earnings after the close.

Shares of Yahoo! fell 5 1/2 to 137 5/16, a day after a Lehman downgrade to neutral. Merrill Lynch analyst Henry Blodget said he expects a good quarter from Yahoo!, but cautioned against expecting much upside due to Internet advertising weakness. Blodget recently issued a similar caution on eBay , off 3 1/8 to 58 5/8.

The stars continued to align for Red Hat , which soared 3 3/16 to 35 1/16 on news that Intel will use Linux software. VA Linux bolted 5 3/8 to 43 5/8.

Inktomi rose 3 1/8 to 150 7/16. The company announced the launch of search operations in Korea.

Shares of Webvan soared 1 5/32 to 7 11/16 on reports that the firm is expected to beat expectations this quarter. rose 2 1/4 to 60 7/16 on news of a partnership with AT&T Wireless to develop and market the delivery of promotions and discounts to AT&T Digital PocketNet customers.

Kana Communications rose 3 15/16 to 60 9/16 after Banc of America began coverage with a Buy rating and $77 target.

Shares of Lycos were raised from Buy to Strong Buy by Chase H&Q. The merger with Terra Networks is expected to be completed this fall.

F5 Networks rose 3 9/16 to 50 1/4 after First Union began coverage with a Buy rating and positive comments on improved competitiveness. fell 1 7/8 to 5 1/16 after Dain Rauscher Wessels downgraded the company to Neutral and said it could have problems meeting earnings expectations for the rest of the year.

Lightspan Partnership rose 15/16 to 6 1/2 on news of a $2.5 million contract with the New York City Board of Education to provide online educational content in 551 schools.

Some technical comments on the market: We could be forming rising wedges on the Nasdaq and S&P 500. A quote from Edwards & Magee, Technical Analysis of Stock Trends (1948), the primary text on technical patterns: “The Rising Wedge is a quite characteristic pattern for Bear Market Rallies. It is so typical, in fact, that frequent appearance of Wedges at a time when, after an extensive decline, there is some question as to whether a new Bull Trend is in the making, may be taken as evidence that the Primary Trend is still down.” The Nasdaq continues to struggle with the 50% retracement level (4087); we turned back at 4073 yesterday and today. On the downside, the Nasdaq’s rising wedge appears to have a lower boundary of about 3925. The ISDEX is holding up well, and could be forming either a cup-and-handle or ascending triangle, and is just below major resistance at 800. A break of that level would be a real plus for Net stocks. However, the two most important numbers to watch are 1480 on the S&P 500 and 10,382 on the Dow: the upper and lower boundaries, respectively, of their bearish diamond patterns. A clean break of either number should tell us a lot about the market’s direction. The Dow bounced off 10,382 this morning. On the S&P, a close above 1507, the 78.6% retracement level, would be a real plus. A break of the Dow’s lower diamond boundary would set up a test of the base of its bearish d

escending triangle in the 10,200-10,300 range. A break of 10,200 would probably send us to about 9,500 on the Dow (the move predicted by the descending triangle), although a break of the diamond pattern would predict an ultimate downside of 8,400 or lower. A break of 10,775 to the upside would be bullish.

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