Techs Down On Ciena Warning

Tech stocks fell Tuesday on an earnings warning from Ciena. Blue chips weakened after Senate Democrats said the economic stimulus bill is dead.

The ISDEX fell 5 to 158, and the Nasdaq lost 17 to 1838. The S&P 500 declined 4 to 1090, and the Dow slipped 1 to 9685. Volume rose to 1.77 billion shares on the NYSE, and 2.10 billion on the Nasdaq. Decliners led by 17 to 13 on the NYSE, and 21 to 14 on the Nasdaq.

After the close, Sun Microsystems slipped on a Salomon Smith Barney Neutral rating. WebEx , Maxim and Cymer topped estimates. Aether missed estimates, and Liberate reaffirmed guidance.

During the day, Tyco continued to get battered on accounting and debt concerns.

Cisco gained 1% ahead of its earnings report tomorrow night.

Ciena fell 11% on an earnings warning, hurting other telecom equipment stocks like Juniper .

Dell slipped 1% after reaffirming estimates but saying that demand remains weak. The company also suggested that Compaq and Hewlett-Packard may be stuffing the channel to improve results and their merger chances. Both stocks were down 2%-3%.

Veritas fell 7% on company comments at the Goldman Sachs tech conference.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the story link at the top of the newsletter.

The Nasdaq (first chart) found support at a declining trendline and formed a doji star today. A gap up and white candlestick tomorrow would create a bullish reversal. Support for tomorrow is at about 1820, and resistance is 1850-1880 and then 1900. The S&P 500 (second chart) held its recent 1081 low today. Support for tomorrow is 1075-1082, and resistance is 1098-1101. We still expect that index to test 1052 at a minimum before this correction is over. One bearish sign is that ADX, a trend strength indicator, has clearly turned up on the S&P, an indication that this sell-off may be gathering steam (see arrow in the bottom of the S&P chart). The Dow (third chart) formed one very large doji star today; a lot of volatility there. Support is 9600, and resistance is 9775. The blue chips seem to be forming some sort of broadening pattern or flag here; either one should have a downside bias to it. Finally, note the strength in semiconductor stocks in the SOX (fourth chart); not sure what’s going on there, but it’s potentially a bullish divergence in favor of tech stocks.

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