Stocks Rally, Then Fade As Fed Leaves Rates Unchanged

Stocks initially rallied but then drifted lower after the Federal Reserve voted to leave rates unchanged. The Fed said it sees signs that the economy is slowing, but nonetheless maintained its tightening bias.

The ISDEX gained 15 to 730. The Nasdaq rose 81 to 3940, the Dow added 23 to 10,527, and the S&P 500 gained 4 to 1454. But all four indexes finished off their best levels of the day. Volume rose to 1.06 billion shares on the NYSE and 1.65 billion shares on the Nasdaq. Breadth was positive, with advancers leading 17 to 11 on the Big Board and 23 to 16 on the Nasdaq.

Yahoo! declined 2 9/16 to 123 3/8 on news that it will buy pre-IPO EGroups, an e-mail service provider, for more than $400 million in stock. It was the second time this week that a company that had been slated to go public was bought out. Ariba announced on Tuesday that it is buying pre-IPO

The marriage between Media Metrix and Jupiter Communications announced yesterday continued to get a lukewarm reception. Media Metrix fell 2 3/16 to 21 3/16, while Jupiter declined 2 3/16 to 18 7/8. For more on the story, click here.

S1 Corp. was the latest Net stock to rebound from recent woes, leading the ISDEX higher with a gain of 4 1/16 to 24. CMGI rose 4 5/8 to 49 3/8. added 1 1/2 to 38 after CEO Jeff Bezos defended the company and said it will be able to fund operations from cash flow by the end of the year. Lehman Brothers bond analyst Ravi Suria said recently the company will run out of cash in the first quarter of 2001. ABN Amro initiated coverage of Amazon with a Buy rating and $50 price target.

Internet infrastructure plays resumed their leadership. Juniper Networks rose 9 9/16 to 136 after being named one of Lehman Brothers’ 10 annual Uncommon Values. Networking stocks figured prominently on the list, with Cisco , Nortel and Tellabs making the cut. Corning rose 11 1/2 to 264 1/2, SDL Inc. gained 9 7/8 to 287, and JDS Uniphase tacked on 3 1/2 to 122 1/2, stemming a sharp recent decline.

Companies continued to announce wireless Internet strategies. RealNetworks added 4 11/16 to 48 7/8 on news of an alliance with Nokia to provide Internet media technology for future mobile devices. edged up 1/16 to 68 1/16 on news that ALLTELL will license the company’s UP Link Server to enable Internet access for wireless customers. CS First Boston reiterated Strong Buy.

AskJeeves gained 1 1/16 to 17 7/8 on news that its natural-language answering service is now available to Palm users.

24/7 Media rose 1 1/4 to 14 3/8 after unveiling its 24/7 Media Wireless Network that will enable advertisers to deliver ads via the company’s wireless ad server.

Aether Systems continued to gain on news of its wireless alliance with Microsoft , up 5 to 201. Merrill Lynch reiterated its Buy rating and $350 price target.

After the market closed, Palm announced earnings of 3 cents per share, beating estimates by 2 cents. Palm, which lost 1/2 to 26 3/8 in regular trading, rose more than $1 in after-hours trading. soared 1 5/8 to 6 7/8 after Goldman Sachs added the beaten-down company to its Recommend List, based on valuation. Goldman lowered FY 2000 earnings estimates to 43 cents a share from 50 cents, and lowered its price target from $20 to $15. Goldman expects a long-term growth rate of 22.5%. gained 5/32 to 5 3/16 despite a USB Piper Jaffray downgrade from Strong Buy to Buy. The firm said may miss revenue estimates. The firm also downgraded and reduced estimates for Ameritrade , which gained 5/16 to 12 5/16. gained 1/8 to 40 1/8 on news that the company will expand into Europe.

eToys added 15/16 to 6 on an ABN Amro Outperform rating and $12 price target.

Webhire gained 1 3/8 to 3 11/16 on news of a $16 million investment led by Korn/Ferry International and Softbank.

Expedia gained 1 3/8 to 17 after Legg Mason initiated coverage with a Strong Buy. Other Internet travel stocks received Buy ratings.

Quokka Sports gained 1/16 to 7 on an FS Van Kasper Strong Buy rating and $18 price target.

Some technical comments on the market: Stocks gained, volume rose and breadth improved, and still a disappointing day. Stocks faded after the Fed announcement, indicating that the good news may already have been priced in. The Nasdaq turned back at 3975, below key resistance of 3982-4000, and the Dow continued to struggle with the 10,600 level. And today’s action did nothing to nullify the bearish flag patterns forming in the Dow, S&P 500 and Nasdaq 60-minute charts; in fact, their boundaries were reinforced. The Dow is bound by 10,670-10,750 to the upside and 10,375-10,400 to the downside, the boundaries of its bearish diamond pattern. The index turned back at 10,615 yesterday and 10,620 today, just under its 50-day moving average, and has repeatedly struggled at its moving averages. The 200-day moving average is around 10,750. The S&P 500 is bounded by its diamond pattern boundaries of 1480 and 1370. And the primary patterns in play are still bearish: rising wedges on the S&P 500 and the Nasdaq have been broken to the downside. To the upside, the Nasdaq needs to negate the rising wedge by moving decisively back above 4000 and then taking out 4073 to negate the key reversal last week. To the downside, major support is 3725 and 3600 (3583). The Nasdaq’s 200-day moving average is now just under 3750. The ISDEX continues to rebound nicely. A clean break of 700 would give the ISDEX room to 600, while a close above 790 would be bullish. Thought for the day: If the Fed already sees signs of slowing, and the most recent rate hikes are months from being felt, is it possible the economy will slow more than analysts predict?

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