Stocks Sell Off on Inflation Data

Traders were in a profit-taking mood after a stronger than expected increase in the Consumer Price Index for June. Even stocks that beat earnings estimates sold off.

The ISDEX fell 24 to 813, and the Nasdaq dropped 93 to 4181. The S&P 500 fell 15 to 1495 and the Dow lost 78 to 10,725. Volume rose to 437 million shares on the NYSE, but declined to 692 million on the Nasdaq. Declining issues led 15 to 10 on the NYSE and 23 to 12 on the Nasdaq. The Consumer Price Index showed a 0.6% rise for June; analysts had expected a 0.4% rise. The core came in at 0.2%, in line with estimates. While the increase was mainly due to energy prices, traders nonetheless were bracing for Fed Chairman Alan Greenspan’s Humphrey-Hawkins testimony on Thursday. Microsoft and Intel report earnings after the bell today. Internet stocks reporting tonight include DoubleClick, Commerce One, I2, and Check Point Software. For more earnings reports, visit our earnings calendar and reported earnings.

Traders were in a sell-on-the-news mood. Go2Net posted earnings after the bell on Monday of 22 cents a share, seven cents better than estimates and up more than 200% from a year ago. But the stock, which rose as high as 64 in after-hours trading, fell 4 1/8 to 53 7/8. WebTrends reported earnings of 7 cents a share, a penny better than expected, and fell 3 1/8 to 39 3/8. ISS Group also declined on better-than-expected numbers, falling 16 5/8 to 90 3/8. But Interwoven added 23/32 to 71 7/32 after posting a second-quarter loss of 2 cents a share, 3 cents better than expected.

Digital Island also beat estimates, but fell 5 1/2 to 39 1/8 on news that it will acquire SoftAware Networks for $450 million in cash and stock.

DLJ Direct sent online brokers lower after missing earnings estimates. DLJ declined 3/4 to 7 11/16, E*Trade fell 1 3/16 to 17 15/16, and Ameritrade was off 5/8 to 13.

DoubleClick , which reports after the bell tonight, declined 1 9/16 to 35 15/16 despite news of an alliance with Modem Media . DoubleClick has been plagued for weeks by concerns about a decline in Internet advertising. Commerce One added 5/8 to 65 ahead of its earnings report tonight on a USB Piper Jaffray Strong Buy. And Check Point gave back 11 51/64 to 249 ahead of its earnings. The stock had a strong run-up yesterday.

ExciteAtHome added 1/2 to 20 1/16 on news that Dutch ISP Chello Broadband will link its operations with the non-U.S. businesses of ExciteAtHome. rose 13/32 to 3 5/8 after the U.S. House of Representatives defeated a bill that would have banned most forms of online gambling.

GoAmerica gained 3/4 to 14 5/16 on news of an alliance with Staples. continued to soar on news that it is seeking $39 million to help it become cash-flow positive, rising 2 17/32 to 12 1/4.

Some technical comments on the market: The S&P 500 broke its rising wedge to the downside this morning. It did so on a gap down at the open, underscoring the significance of the move. The break sets up a likely return to the 1440 level, where the wedge began, but first the index will have to get through 1475-1490 support. Note: the S&P did not trade above the upper boundary of the wedge yesterday afternoon, as we reported in yes

terday’s Market Close, but turned back right at the upper boundary; a glitch in our data feed led to the misreading. Critical support on the S&P 500 is at 1380. The Nasdaq is still forming a rising wedge in the daily and weekly charts, a troubling sign because it encompasses all of the index’s rally since bottoming at 3042. The classic interpretation of this would mean that the Nasdaq is in a bear market rally. The Nasdaq turned back at the upper boundary of the rising wedge yesterday (4289). A break of the rising wedge to the downside, below 4050, would imply a return to the 3042 level, and potentially lower. Again, we will wait for the breaks for confirmation. Should this be the end of the rally, then the Nasdaq has turned back about 1% from its 62% retracement level of 4337. A 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 ISDEX turned back yesterday at 840, just below its 50% retracement level of 845. A break of 850 resistance would likely carry the index to 880, while a break below 790 would negate the ISDEX’s recent breakout. To the downside, 700 has proven strong support; a break of that number could give the index room to 600. The upper and lower boundaries of the Dow’s bearish diamond pattern are 11,000 and 10,200-10,300, respectfully. The index turned back just under 10,850 resistance yesterday (10,847). 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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