Stocks Wobble But They Don’t Fall Down

Stocks fell on earnings warnings from Altera and WorldCom on Wednesday, but pared their losses considerably by the close. Internet stocks continued to outperform, finishing the day down fractionally.

The ISDEX slipped less than a point to 621, and the Nasdaq declined 36 to 3333. The S&P 500 dropped 8 to 1421, and the Dow lost 71 to 10,899. Volume declined to 1.2 billion shares on the NYSE and 2.01 billion on the Nasdaq. Advancers led by a hair on the NYSE, but decliners led 21 to 18 on the Nasdaq. The National Association of Purchasing Management survey showed economic contraction for the third straight month. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

Internet stocks’ outperformance was attributed to the end of tax-loss selling by fund managers, a theory that was supported by the same five stocks that led the ISDEX all day: CMGI , up 4 to 20 7/8, WebMD , up 1 to 12 3/8, InfoSpace , up 3 to 23 1/16, DoubleClick , up 2 1/4 to 18 1/2, and Yahoo , up 5 3/4 to 64 3/8.

Internet infrastructure leaders were weak on the WorldCom news, which added to fears that telecom service providers will cut capital spending. Cisco Systems , which reports earnings Nov. 6, slipped 1 3/8 to 52 1/2. Thomas Weisel reiterated Strong Buy on Cisco, saying the firm believes Nortel’s problems are company-specific. JDS Uniphase lost 2 3/4 to 78 3/4, Corning was off 3 1/4 to 73 1/4, and Juniper Networks dropped 11 1/2 to 183 1/2.

Red Hat surged 2 7/8 to 15 3/8 on comments from a Microsoft official that Linux on the PC represents the greatest threat to the software giant.

Covad tacked on 5/8 to 5 29/32 after announcing the resignation of Robert Knowling as chairman, CEO and president. Frank Marshall has been named interim CEO, and founder Charles McMinn was named chairman.

Earthlink lost 1/4 to 6 1/4 on a Goldman Sachs downgrade to Market Perform from Outperform, on weaker organic narrowband growth.

ClickSoftware added 5/8 to 3 11/16 on a partnership with i2 , which gained 1 1/2 to 171 1/2.

Lionbridge slipped 3/4 to 9 1/8 despite beating estimates by 2 cents with a 2-cent loss. Stamps.com , off 5/8 to 3 1/4, beat estimates by 5 cents with an 80-cent loss. But @Plan rose 1 1/16 to 5 15/16 on a modest earnings warning.

ONI Systems lost 7 13/16 to 73 1/4 despite beating estimates by 4 cents with a 14-cent loss.

Some technical comments on the market: Note: We are now including charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

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We finally got a follow-through day yesterday, on the ninth day of the Nasdaq’s attempted rally. Today started out a little worse than we would like to have seen, but the market came back nicely by the close, so we’ll call it a pullback in an uptrend. I

ntel made some pretty positive comments after the close, which should help stocks tomorrow; investors had feared another warning from Intel. The Nasdaq and Nasdaq 100 need to fill gaps that formed downside reversals and continue higher before we can call the indexes’ recovery complete. Those gaps will be filled at 3401 on the Nasdaq and 3326 on the Nasdaq 100. Also, look at where we turned back today on the Nasdaq: right at the index’s highest downtrend line.

The ISDEX also turned back today at its highest possible downtrend line. 650 and 700 are next resistance on the index.

The Dow is taking a well-deserved breather after a 1,350-point run-up off its lows. We’ll keep an eye on 10,850, the Dow diamond’s apex (first chart) and a tough resistance level on the way up, but, except for lower volume than we would like to see on the up move, the index looks pretty good. The index could still be forming a bear flag (second chart). Interesting that the index closed right about at 10,900, a level that was very good support back in August before the run-up to 11,400.

The S&P 500 looks like it may already be forming a bearish rising wedge. However, even if it continues to form, the index could have quite a bit of upside before the boundaries converge, but a retest of 1300 may be in the cards a couple of months down the road. The entire 1420-1460 range could be tough resistance for the S&P, as it was a big consolidation area back in September.

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