Stocks Sell Off On Good Earnings Reports

Traders continued to sell stocks reporting better-than-expected earnings, and are already looking ahead to third-quarter earnings. Microsoft was one company guiding third-quarter numbers lower, and its stock was hit as a result.

The ISDEX fell 15 to 795, and the Nasdaq dropped 82 to 4094. The S&P 500 declined 11 to 1482 and the Dow lost 35 to 10,704. Volume declined to 421 million shares on the NYSE and 673 million on the Nasdaq. Declining issues led 15 to 10 on the NYSE and 22 to 12 on the Nasdaq. Traders are wary ahead of Fed Chairman Alan Greenspan’s Senate Banking Committee testimony on Thursday after yesterday’s stronger-than-expected Consumer Price Index. For earnings reports, visit our earnings calendar and reported earnings. Among the companies reporting tonight are ExciteAtHome, About.com, e.piphany, Exodus and PurchasePro.

CNET fell 4 1/2 to 27 11/16 on news that the company will buy Ziff-Davis for $1.6 billion. Each share of ZD common stock will be converted into 0.3397 shares of CNET, and each share of ZDNet will be converted into 0.5932 shares. ZD rose 1 11/16 to 13 1/16 and ZDZ gained 2 7/8 to 15 3/4.

Commerce One reported a loss of 10 cents a share, 3 cents better than estimates, and revenues rose 1,400% to $62.7 million. But the stock dropped sharply, off 7 7/8 to 58 11/16, on concerns about sequential license growth and market share loss. Technical note: the stock’s recent breakout from a three-month symmetrical triangle remains in effect as long as the stock stays above the breakout point of $52.

DoubleClick fell 3 7/16 to 32 1/16 despite reporting a second-quarter loss of 3 cents a share, 2 cents better than estimates. But Donaldson, Lufkin & Jenrette noted that the numbers were driven by better-than-expected interest income. ING Barings and USB Piper Jaffray downgraded the stock on concerns about second-half growth.

RealNetworks lost 8 1/4 to 49 3/4 despite reporting earnings of 6 cents a share, a penny better than expectations. CS First Boston reiterated a Buy on the stock. Broadcom lost 5 to 240 3/4 despite beating estimates by 4 cents with 23-cent second-quarter earnings. Merrill Lynch reiterated Buy on Broadcom. i2 Technologies also suffered despite beating estimates, off 7 3/16 to 131 13/16. Foundry Networks fell 20 13/16 to 103 5/16 despite better-than-expected earnings.

A few stocks managed to buck the trend. E*Trade , up 9/16 to 18 1/2, Travelocity.com , up 15/16 to 20, and Digital Lightwave , up 2 3/16 to 116, all rose after beating estimates.

IPO Support.com soared 21 to 35 on its first day of trading.

NetRadio rose 19/32 to 3 on news of an alliance with cable ISP RoadRunner.

Stratos Lightwave rose 6 3/16 to 40 3/4 on BusinessWeek Online comments that the stock was undervalued compared to New Focus , Sonus and Avanex .

Some technical comments on the market: The S&P 500 negated its recent breakout this morning, falling back below the 1488-1490 level. The break of its rising wedge yesterday means the index is likely to return to the 1440 level, where the wedge began, but first it must get through support in the 1475-1480 area. 1470 may a

lso provide support, as it is the lower boundary of what could be a larger rising wedge forming since the 1361 level in May. Critical support on the index is 1380. The Nasdaq is close to the lower boundary (4050) of its rising wedge in the daily and weekly charts, a troubling pattern because the wedge encompasses all of the index’s rally since bottoming at 3042. A break of 4050 could carry the index all the way back to 3042, and potentially lower, and the rising wedge is evidence that the Nasdaq’s recent run has been a bear market rally. Again, we will wait for the breaks for confirmation. It is a disappointment to be back below the hard-won 4100 level, and a further break below 4073 would negate the index’s recent breakout. Below that, recent support is in the 3820-3830 range, and key support is at 3725 and 3585. The Nasdaq turned back at 4289, just under its 62% retracement level of 4337. The ISDEX turned up this morning just above its recent 790 breakout point. To the downside, 700 has proven strong support; a break of that number could give the ISDEX room to 600. To the upside, the index turned back at 840 two days ago, just under the 50% retracement level (845). The upper and lower boundaries of the Dow’s bearish diamond pattern are 11,000 and 10,200-10,300, respectfully. Its recent breakout occurred in the 10,620-10,700 level, so we don’t want to go below 10,620.

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