Stocks Give Back Some Gains

Stocks gave back a third of Wednesday’s huge gains on Thursday, as an anthrax scare at the Federal Reserve accelerated profit-taking.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 5 to 122, and the Nasdaq lost 45 to 1650. The S&P 500 dropped 15 to 1073, and the Dow lost 104 to 10,037. Volume fell to 1.15 billion shares on the NYSE, and 1.78 billion on the Nasdaq. Decliners led 20 to 11 on the NYSE, and 23 to 11 on the Nasdaq.

After the close, United Online reported a surprise profit.

During the day, Cisco and QLogic gave back very little of yesterday’s huge 25% gains. For more on QLogic, see market commentary below.

Aether surged 25% on takeover rumors.

Hotels.com , formerly the Hotel Reservations Network, continued to get hit on concern about competition from Expedia .

Research In Motion fell 11% on reports of a delayed contract with AT&T .

Kana plunged 21% on news of the departure of its CFO.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the internetstockreport.com story link at the top of the newsletter.

No harm, no foul today. The Dow (first chart) came close to negating yesterday’s downtrend breakout, but managed to hold on. 10,015 is critical support for tomorrow, although 9960 could be considered just as important. Below that, this could be just another bear rally. The Nasdaq (second chart) and S&P 500 (third chart) are comfortably above critical 1640 and 1064 support, respectively. A higher low at those levels could set up an inverse head and shoulders bottom, with 1696 and 1100 the breakout points. We need the Nasdaq and S&P to follow through; the Dow broke out a month ago without follow-through from the other indexes, and it ended badly. QLogic (fourth chart) had an unusual bullish reversal yesterday. The stock closed Tuesday at the low of the day after selling off all day, creating a long red candlestick (a close lower than the open). The stock gapped up yesterday all the way above Tuesday’s open, continued higher and closed at the highs of the day. That candlestick pattern, called a “kicking” formation, shows tremendous buying pressure, and is thus considered a pretty reliable reversal pattern. The stock is so far holding its 20- and 50-day moving averages. And finally, a look at Nasdaq and NYSE TRIN, the buy-sell pressure index developed by Dick Arms. The Nasdaq pattern (fifth chart) last week was textbook bullish: four straight closes around 2.0 or higher, and one extremely high close at just under 6, showing a high level of capitulation. The NYSE (sixth chart) also had the rare two straight 2.0 closes, but wasn’t nearly as bullish as the Nasdaq pattern. Last week’s reading, one of the highest ever on the Nasdaq, sets up a very good test of the reliability of Arms’ signals. Tech should follow through with a significant rally as soon as next week.

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