Stocks Drop, But Nets Outperform

Stocks climbed back from a steep drop on Thursday, only to get clobbered by a Salomon Smith Barney downgrade to Compaq.

Stocks sold off in the morning on concern about possible future Fed rate hikes, then climbed back to even before the Compaq news hit. The Nasdaq finished down 63 to 3877, the S&P 500 dropped 12 to 1442 and the Dow lost 129 to close at 10,398, just below the important 10,400 level. But the ISDEX outperformed, gaining half a point to 731. Volume rose to 1.1 billion shares on the NYSE, but declined to 1.54 billion shares on the Nasdaq. Declining issues barely led advancing ones on the NYSE, and led 21 to 18 on the Nasdaq. Liberate , off 1 9/16 to 24, and Intraware , down 1 1/16 to 18 3/4, both beat earnings estimates after the bell.

Shares of Juniper Networks and Broadcom boosted the ISDEX. Juniper rose 11 5/16 to 147 3/4 on news that it had signed a co-marketing agreement with Nortel Networks . The deal had been expected for some time. Juniper also rose yesterday on news that it had been added to Lehman’s annual Uncommon Values list. Broadcom bolted 17 to 205 ahead of its addition to the S&P 500. For more on the ISDEX’s recent performance, click here. fell 3 9/16 to 36 5/8 on news that six airlines plan to band together to launch their own Web site offering low-priced airline tickets. Janney Montgomery Scott downgraded the stock from Buy to Accumulate, but Merrill Lynch analyst Henry Blodget came to Priceline’s defense. He noted that the new industry service will sell unfilled seats, only a small part of Priceline’s business. Blodget also said that airline ticket sales will decline to less than 50% of Priceline’s gross profit next year.

Yahoo! , down 4 11/64 to 119 3/8, and , off 11/16 to 37 3/16, declined on cautionary comments by Lehman Brothers, which doesn’t see much upside to Yahoo’s upcoming earnings report and cautioned that Amazon’s may come in on the light side. Lehman also said it may lower second half revenue estimates for Amazon due to lack of traction in the company’s new areas. It was a Lehman bond analyst who sent shares of Amazon sprawling last week on concern that the company may run out of money next year. Amazon CEO Jeff Bezos was out in force yesterday defending his company, saying he expects to fund operations from cash flow in the final quarter of this year.

Shares of DoubleClick added 1 3/64 to 33 3/16 on news that the company had entered into an agreement with RealNetworks to sell advertising, sponsorships and e-commerce solutions across the network in 16 countries outside the U.S. RealNetworks declined 9/16 to 48 3/8 despite a W.R. Hambrecht Buy rating and $60 price target.

VeriSign rose 4 3/4 to 176 1/2 after CS First Boston reiterated a Strong Buy after a positive conference call with management.

Internet infrastructure plays, which led the Nasdaq’s recent run up, were mixed. SDL Inc. fell 9 9/16 to 278 3/8 on news that it will build two new facilities and expand operations to meet demand. Corning rose 2 to 266 1/2 on positive comments and a $325 price target from Merrill Lynch. JDS Uniphase continued to struggle, off 5 3/18 to 116 1/2.

EarthLink declined 1/16 to 14 3/4 despite news of a national distribution deal with Hewlett-Packard. The company will become the leading ISP for HP Pavilion consumer PC sales. gained 13/32 to 2 13/32 on news that it had been selected by GE Capital Auto Financial Services to auction off-lease automobiles to dealers across North America.


et video application service firm Virage was welcomed in its IPO debut, rising to 17 1/16 after pricing at 11. gained 23/32 to 5 7/8 on news of an alliance with Palm and word that it had settled misleading ad charges with the Federal Trade Commission. Palm gained on better-than-expected earnings.

NetRatings gained 2 3/8 to 29 1/2 on news that it will build and measure a custom Internet audience panel for Yahoo. gained 3/8 to 9 13/16 on Buy ratings from Dain Rauscher Wessels and Stephens Inc. bolted 1 to 5 15/16 after it announced that it had added more than 50 new clients for its customer acquisition services during the last month.

Some technical comments on the market: What a day. We broke bearish flag patterns to the downside this morning on the Dow, S&P 500 and the Nasdaq, and all three moves were confirmed by MACD sell signals in the 60-minute charts. The strong moves up this afternoon did not negate this morning’s breaks on the Dow and S&P. The Nasdaq did move back into its flag formation but did not negate its MACD sell signal. The indexes may have simply been filling downside gaps created at the open, but the Nasdaq’s action is potentially more positive. We’ll watch our key levels to see. The selling reversed today at 3838, just above last week’s 3832 low. Key support on the Nasdaq is at 3725 and 3585; the 200-day moving average is just under 3750. To the upside, the Nasdaq needs to move decisively above 4000 and take out 4073 to negate its key reversal and bearish rising wedge that was broken last week. The Dow flirted with the lower boundary of its bearish diamond pattern (10,375-10,400) today, a very significant level because it implies a 2,000-point move to the downside if definitively broken. The significance of the diamond boundary is underscored by the fact that it sits on the Dow’s long-term trendline dating from November 1994, the start of this great bull market. However, the weak break of the diamond pattern could give the index room to rally. The index has run into significant resistance in the 10,600 area. A secondary pattern in play on the Dow is the bearish descending triangle, with a lower boundary around 10,200-10,250; a break of that number would predict a decline to about 9,500. The S&P 500 also is forming a diamond in the weekly charts, with upper and lower boundaries of 1480 and 1370, respectively. That pattern also sits on the index’s long-term trendline. The ISDEX is holding up very well and remains above important support of 700; a clean break of that number would give the ISDEX room to 600, while a close above 790 would be bullish. In short, we are wound up in a very tight trading range bound by Dow 10,400-10,600. A decisive break of either level should dictate direction, but between those numbers you’re likely to get whipsawed. And finally, traders are predicting massive trading volume tomorrow because of index rebalancing. Remember that diamond patterns require high volume to be broken. Also, the Friday before a holiday weekend is almost always positive; a down day tomorrow would be a negative signal.

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