Stocks Rebound From Earnings, Rate Concerns

Stocks finally bounced on Monday, reversing last week’s steep decline on earnings and interest rate worries.

The ISDEX gained 13 to 707. The Nasdaq tacked on 65 to 3728, the S&P 500 gained 13 to 1433, and the Dow rose 63 to 10,575. Volume dropped sharply, to 380 million shares on the NYSE and 680 million shares on the Nasdaq. Advancers led by 14 to 10 on the NYSE and 18 to 17 on the Nasdaq. The big economic report for the week is Friday’s July employment data. Among the companies reporting earnings tonight are and, parent of this Web site. For earnings reports, visit our earnings calendar and reported earnings.

Juno Online soared 1 5/8 to 9 5/8, but down from an intraday high of 11 1/2, on news of a broadband access deal with Time Warner .

Akamai gained 2 1/16 to 80 on news that it will extend its alliance with IBM . announced that it will offer airline and hotel reservations in Japan. But the stock slipped 3/4 to 23 3/4 after trading as high as 26 on the news.

DoubleClick also slipped despite good news, falling 1 3/4 to 35 1/8 despite a Buy rating from Donaldson, Lufkin and Jenrette. The stock gave back some of its gains from Friday’s run-up on news of an agreement with the Federal Trade Commission on consumer privacy issues.

Cisco Systems gained 2 5/16 to 65 1/8 on news of a DSL deal with Cable & Wireless HKT . Cisco reports earnings next Tuesday (August 8). fell 1 1/4 to 4 13/16 on analyst downgrades after the company reported revenues that were below estimates.

Earthlink recouped 1 to 12 1/2 after CS First Boston defended the company, which was downgraded by Morgan Stanley Dean Witter on Friday.

S1 gained 2 5/8 to 23 3/4 ahead of its earnings, due out after the close tomorrow. Radware gained 5 1/2 to 33 1/2 ahead of its earnings, due out tonight. gained on news that it will become Lycos’ auction partner in several European countries.

EDGAR Online added 7/32 to 3 7/16 on news of an alliance with America Online .

Some technical comments on the market: A decent rally, but not overwhelming, in line with what we expected given the technical damage done to the market last week. The Nasdaq dropped as low as 3615 this morning, not quite enough to fill the gap at 3585. The decline was halted by a more important support point: the index’s October 1998 trendline. The last time the index broke that line, it went all the way to 3042. We will watch the quality of this rally closely; given last Monday’s break of a rising wedge, the Nasdaq still has downside potential back to 3042. Critical support is 3550-3585. To the upside, resistance is likely around 3820-3830, and then again at the 200-day moving average at 3875. We should note that we see no bottom here equivalent to the inverse head-and-shoulders that the Nasdaq formed in the 60-minute charts at the start of the rally that began in May. The ISDEX is back above the important 700 level. To the upside, the ISDEX is likely to run into resistance at the lower boundary of the rising wedge it broke on Friday; that boundary is now around 730. The broken wedge gives the ISDEX potential to return to 560, its May low. A closing break of the index’s recent intraday low of 692 would be a warning sign; we closed right at 693 on Friday. To the upside, above 730 is 790 resistance. Above that, the ISDEX turned back rec

ently at 840, just below its 50% retracement level of 845. The S&P 500 also broke a bearish rising wedge last Monday, and fell as low as 1414 on Friday. Critical support is 1390, the index’s October 1998 uptrend line. A break of that trendline could carry the index to 1170 or lower, so we do not want to violate that line. To the upside, the S&P is likely to face resistance here, in the 1435-1440 range, and then again in the 1450-1460 range. The Dow turned back Friday after testing the lower boundary of its bearish diamond pattern (10,464, but we’ll continue to use 10,200-10,300 because of strong support in that range and the requirement of a 3% break of a major pattern). A break of that line could carry the Dow as low as 8,500. The upper boundary of the Dow’s bearish diamond pattern is 11,000. Near-term resistance for the Dow is likely in the 10,600-10,675 area.

Historical note: The Dow broke a broadening top in early August 1957 and fell another 15% before bottoming in late October. A particularly relevant comparison because the first half of the Dow’s diamond pattern was a broadening formation completed earlier this year. Like most key reversal patterns, the Dow’s decline in 1957 went well beyond the move predicted by the broadening top. The downside target based on a break of the Dow’s diamond pattern would be 8,500, but as we’ve said before, 7,500 would not be out of the question if the pattern were to resolve to the downside. The Nasdaq 100’s top in April may have been a three-week diamond pattern, with predicted downside of 3650. However, the resulting change in direction carried the index all the way to 2897.

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