Stocks Mixed Ahead Of Earnings Reports

Stocks traded mixed Monday in advance of quarterly earnings reports. Yahoo fell to key support ahead of its earnings report tomorrow, while fiber optics stocks gained on merger news.

The ISDEX fell 8 to 730 and the Nasdaq declined 16 to 4007. The Dow gained 21 to 10,657 and the S&P 500 was unchanged at 1479. Volume fell sharply from Friday, to 350 million shares on the NYSE and 635 million on the Nasdaq. Advancing issues led 14 to 11 on the Big Board, but decliners led 18 to 17 on the Nasdaq.

Yahoo will kick off earnings season tomorrow after the close, and Ariba will follow on Wednesday. Juniper Networks will report on Thursday. The Producer Price Index for June will come out on Friday.

Yahoo fell 4 1/8 to 112 3/8, bouncing off critical support at 111, after Merrill Lynch analyst Henry Blodget said he essentially sees no upside to tomorrow’s earnings report. Yahoo is expected to report earnings of 10 cents per share, up 100% from a year ago. Blodget said he expects Yahoo’s report to be “strong but slightly less robust than the first quarter,” due to weakness in Internet advertising. Shares of DoubleClick fell 3 to 32 15/16, reaching our downside target of $32 based on the stock’s drop out of a descending triangle at $40 recently. eBay fell 1 9/16 to 48 3/16, continuing its move below key support at 50, which it broke on Friday.

Fiber optics stocks rose after JDS Uniphase announced it will buy SDL for 3.8 shares of JDSU for each share of SDLI. SDLI rose 31 5/16 to 326 5/8, but down from a high of 396 reached in pre-market trading. JDSU fell 13 13/16 to 102 3/9, weighing on the Nasdaq and Nasdaq 100 indexes. Osicom gained 1 7/8 to 81 3/4 and recent IPO Stratos Lightwave added 2 1/16 to 34. But fiber optics leader Corning fell 10 15/16 to 245 3/4.

Extreme Networks gained 8 11/16 to 109 15/16 on rumors that it would be acquired by Juniper , up 5/8 to 147 15/16.

Sycamore Networks gained 7 9/16 to 134 1/2, extending its gains after a $420 million contract win on Friday. Wit SoundView reiterated Strong Buy on the stock, and raised its price target from $150 to $170.

Phone.com gained 4 3/4 to 67 1/8 on bullish comments from SG Cowen. The stock has struggled around $70, despite positive comments from a number of brokerage firms.

Embarcadero Technologies gained 5 7/8 to 33 1/2 after announcing it is moving into the Asia/Pacific market.

NetZero gained 5/8 to 5 7/8 after Oracle CEO Larry Ellison and NIC announced an online store to sell the NIC, a $199 Net appliance, that includes NetZero’s free Internet access.

DSL stocks Covad , up 5/16 to 18 3/16, and Network Access , up 5/8 to 9 7/8, rose on Legg Mason Buy ratings.

RSA Security rose 1 1/2 to 74 after increasing the number of authorized shares from 150 million to 300 million, signaling a possible stock split.

ebookers.com fell 3/4 to 6 1/4 on cash burn concerns, but well off its intraday low of 5 1/4.

Some technical comments on the market: We are winding up for a big move, and it could break soon. The lack of profit-taking after last week’s strong gains is a positive. We are consolidating below key levels on the Nasdaq, Dow and S&P 500. However, given the importance of these numbers, we want to see high volume behind any upside break to the indexes’ trading ranges. The Dow is just below the upper boundary (10

,700) of its bearish diamond pattern; a clear and convincing break of that number could carry the index substantially higher, to as high as 12,700. Conversely, a break below the lower trendline at 10,336 could carry the index as low as 8,300. A big swing between those two numbers, so wait for the break to be sure you’re on the right side of the market. The Nasdaq stands less than 2% from 4073, where its recovery rally stalled out recently. A move above 4073 and then the 50% retracement level of 4087 could give the index room to 4300, based on the 250-point trading range the index has been mired in since turning back at 4073. Also, there is a gap down from 4188 to 4094 from April 11, adding to the resistance in this area. A break of 4100 would pretty much take out all three numbers (4073, 4087 and 4094). Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. The index has been rising just above its 200-day moving average for five weeks. This rising resistance, rather than being a positive, could imply an inexhaustible supply of sellers; flat-line resistance is usually more bullish, as it implies that sellers will eventually be exhausted. Also, the index may be forming a broadening formation, with a flat bottom along 3820-3830; this too could be bearish, as could the index’s weakening breadth. 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). Weakness in household names like Yahoo and eBay is a negative. A move above 790 would be bullish, while a move below 700 would give the ISDEX room to 600. The upper boundary of the right shoulder of the S&P 500’s head-and-shoulders pattern is 1480-1488. The lower boundary of the pattern is around 1370. A decisive break of either boundary would determine direction on that index. And finally, two classic positives: the Dow Industrials and Transports are finally moving up together, and the advance-decline line on the NYSE has been steadily improving.

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