Stocks Drop On Earnings Jitters

Stocks fell across the board Wednesday after high-profile earnings warnings from Computer Associates and other technology companies. Chip stocks were big losers after an analyst said their economic cycle may be peaking.

The ISDEX fell 21 to 730, just above its low for the day. The Nasdaq dropped 128 to 3863, the S&P 500 fell 23 to 1445 and the Dow declined 75 to 10,483. But volume declined from last week to 972 million shares on the NYSE and 1.3 billion on the Nasdaq. Breadth was even on the NYSE, but decliners led 24 to 16 on the Nasdaq. June employment data will be released on Friday, and Yahoo will kick off earnings season July 11. Ariba will follow on July 12.

Entrust Technologies lost more than half its value, plummeting 40 59/64 to 36 3/16. The company warned that second quarter earnings will be two cents a share, well under the eight cents analysts were expecting. The company attributed the shortfall to delays in closing public-key infrastructure (PKI) sales. Merrill Lynch, Goldman Sachs, DLJ and Sands Brothers all downgraded Entrust. Merrill said the company’s top five customers account for about 40% of sales. VeriSign , off 16 1/2 to 166 7/8, RSA Security , down 5 3/8 to 68 7/8, Baltimore Technologies , off 2 3/16 to 14 5/16, and ISS Group , down 2 15/16 to 97, fell in sympathy. H.C. Wainwright reiterated a Buy on RSA and said it sees no weakness in the company’s PKI licensing.

Exodus Communications fell 3 1/4 to 40 3/4 after Merrill Lynch removed the company from its top 10 list. Ariba , off 1 15/16 to 96 15/16, was added to Merrill’s list. ABN Amro reiterated Buy ratings on Ariba, which has been struggling at its cycle high of 99 1/2, and Commerce One , off 5/8 to 43 7/8. i2 Technologies fell 2 to 101 despite a Wit SoundView Strong Buy. Wit said recent weakness in the stock was a buying opportunity, and said it expects a strong quarter.

BroadVision gained 2 1/2 to 54 9/16 after IDC ranked the firm the top e-commerce software applications company.

Internet Capital Group fell 1 45/64 to 33 11/32 despite Merrill Lynch reiterating near-term Accumulate and long-term Buy ratings on the stock. Merrill said the company’s financial picture is beginning to clear, and that the stock may be at a good entry point.

Accrue Software fell 3 7/16 to 32 1/2 despite being named the top pick for the third quarter at Adams, Harkness and Hill.

OneSource Information Services gained 1 17/32 to 8 29/32 after preannouncing second quarter earnings of a three-cent loss to breakeven, much better than estimates for a 16-cent loss.

InterNAP Network lost 3/8 to 41 9/16 after NorthPoint Communications said it will use the company’s facilities for corporate DSL connectivity. added 11/16 to 4 1/2 after soaring 2 points on Monday, for a two-session gain of more than 100%. Hearst Communications is considering increasing its stake in the company.

Vignette declined 1 11/16 to 50 1/16 after announcing that its tender offer for OnDisplay had met with greater than 90% acceptance. OnDisplay fell 2 to 79 5/8.

Shares of Interwoven continued to look strong early but pulled back, up 1/4 to 118 5/16.

Internet infrastructure plays, which led the Nasdaq’s recent run up, dropped sharply. Corning fell 19 1/4 to 255 1/8, SDL fell 19 to 274 15/16, and JDS Uniphase droppe

d back below 120, down 8 13/16 to 119 3/8.

Some technical comments on the market: The Nasdaq moved lower from the open this morning and never looked back, in the process dragging the Dow and S&P 500 down with it.The only good news is it came on declining volume. Near-term support on the Nasdaq is in the 3832-3838 area, but key support is at 3725 and 3585. To the upside, we’ve been saying for some time that the Nasdaq needs to get back above 4000 and take out 4073 to negate its key reversal and bearish rising wedge of two weeks ago. The fact that we turned back just under 4000 is not encouraging, and until we take out the 50% Fibonacci retracement level of 4087, the Nasdaq’s recent rise must be viewed as a bear market rally. The difficulty around this important level is further evidence that this may be the case. One positive on the Nasdaq is that a decline out of a rising wedge is usually rapid; this has not been the case so far. 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 index room to 600. We said on Monday that the Dow would have difficulty moving much higher after its recent 200-point rally, because of its series of declining peaks since reaching 11,425 in April, and indeed the index struggled today. A move above 10,620 would break this trend, and a move above 10,700 would break the upper boundary of the Dow’s bearish diamond pattern. To the downside, the Dow has twice found support at 10,336 recently; a move below that would be the first sign that the diamond pattern may resolve to the downside, and a move below 10,200 would confirm that. The S&P 500 also is forming a diamond in the weekly charts, with upper and lower boundaries of 1480 and 1370, respectively. One piece of good news: the NYSE advance/decline line has been rising recently after a two-year decline.

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