Techs, Nets Finally Rally

Internet and technology shares finally managed to rally on Tuesday, but the Dow continued to slide on earnings concerns. scored a stunning win over Yahoo.

The ISDEX recouped 17 to 779, while the Nasdaq rose 68 to 3794. The S&P 500 gained 7 to 1451, but the Dow slipped 20 to 10,788. Volume rose to 470 million shares on the NYSE and 735 million on the Nasdaq. But breadth was negative, with decliners leading by 14 to 11 on the NYSE and 18 to 17 on the Nasdaq. Engage reports earnings tomorrow, and CMGI and Liberate report on Thursday. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site. soared 1 7/16 to 6 after Yahoo made the company a featured merchant, effectively replacing , which fell 2 9/16 to 40 1/4. Yahoo gained 1 7/16 to 106 1/2.

Cobalt soared 14 1/4 to 55 3/8 after announcing it will be acquired by Sun Microsystems at a ratio of 0.5 SUNW shares for each share of COBT, or about $2 billion. VA Linux surged 5 7/8 to 50 on the news.

Mediaplex , off 1 7/8 to 6 3/8, warned that third-quarter revenues will be lower than expected. Engage , which reports tomorrow after the bell, slipped 5/16 to 8 11/16, but DoubleClick added 7/16 to 40 3/8.

America Online slipped 5/16 to 55 1/4 on reports that the company’s merger with Time Warner may be blocked by the European Commission.

Allaire , off 1 5/16 to 9 1/8, continued to lose ground after warning yesterday of a third-quarter 5-20 cent loss instead of a 7-cent profit. The company, which has been sliding since 38 at the start of the month, told Internet Stock Report last week that there was no reason to account for the stock’s decline. Four analysts made positive comments about the company during the slide. The last one, Dain Rauscher Wessels, reiterated Strong Buy on Friday, and cut that rating to Neutral today, saying that Allaire appears to have both a positioning and an execution problem. For more on the story, click here.

Portal Software gained 3 7/16 to 43 5/16 on an alliance with Sin, Inktomi and Redback Networks to create an integrated broadband delivery framework. lost 7/16 to 5 7/8 despite an announcement that the company’s Internet postage service will be integrated into Microsoft’s Works software. Pitney Bowes filed a patent infringement suit against the company yesterday.

Juniper Networks gained 14 1/4 to 206 1/2 on a Salomon Smith Barney Buy rating and comments that the company’s clients are financially strong.

Resonate rose 1 1/8 to 31 on a content delivery alliance with Akamai , up 1 3/8 to 61 1/4.

Some technical comments on the market: We thought the Nasdaq would try to rally off its old October 1998 uptrend line (3700) today, and so far it has. It is interesting to note, however, that the rally has so far run into resistance at 3808: the point at which the index broke its May uptrend line yesterday. A lot of traders no doubt bet that that line would hold, and they’re sel

ling at the chance to break even. If the Nasdaq can break above this range, let’s say through 3820, it will face resistance about every 50 points starting at 3850. We’ve been in this range a long time. Below 3700, the Nasdaq could find a bottom in the 3521-3600 range; lower than 3500, and the May lows (3042) will likely be retested. The ISDEX has found support in the 750 range, a long way from its May trendline, which is at 720. To the upside is 790-800 resistance.

The Dow is struggling after falling back into the bearish diamond pattern it broke out of last month. That boundary, 10,850, is now first resistance on the Dow. To the downside, we won’t panic until the Dow crosses 10,500, the October 1998 trendline. The S&P 500 faces resistance at 1460. First strong support below that is 1435-1440, and then 1425. Critical support is around 1405.

One problem complicating any bottom here is complacency: the volatility index, the VIX, gained 1 to 23 yesterday. Not very impressive considering that the contrary indicator had a big spike up to 40 at the Nasdaq’s bottom in May. A move to 30 or higher would be nice to see here. Also, the put/call ratio is still a very low .65; the Nasdaq spiked up to around .90 at its May bottom. It’s hard to get a significant bottom without a high level of fear.

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