Techs, Nets Restrained By Blue Chips

A strong rally in technology and Internet stocks faded late in the day on Wednesday, restrained by weakness in blue chip stocks. IBM traded 7% higher after the close after beating estimates.

The ISDEX http://www.wsrn.com/apps/ISDEX/ gained 18 to 407, and the Nasdaq climbed 64 to 2682, 74 points off its high. The S&P 500 added 2 to 1329, and the Dow fell 68 to 10,584, weighed down by an earnings miss from 3M. Volume rose to 1.33 billion shares on the NYSE, and 2.8 billion on the Nasdaq. Advancers led by 15 to 13 on the NYSE, and 23 to 15 on the Nasdaq. The Consumer Price Index was in line with expectations, but the Fed Beige Book survey showed economic weakness, weighing on stocks when it was released in the afternoon. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

i2 Technologies beat estimates by a penny after the close, with 9-cent earnings. The stock added 2 1/4 to 56 after hours, after trading up more than 5 points during the day.

During the day, Intel lost 1 1/16 to 30 5/16 after beating estimates, but guiding first quarter results down 15% sequentially, much worse than analysts expected. However, traders were encouraged by the company’s claims that business will improve in the second half of the year, and a big boost in capital equipment spending sent chip equipment stocks soaring.

Juniper rose 7 to 135, but 10 points off its high, after blowing away earnings and revenue estimates and raising forward guidance. Earnings were 24 cents a share, 6 cents ahead of estimates. Applied Micro surged 9 5/8 to 80 after beating earnings estimates but coming in light on revenues. Broadcom rose 10 3/4 to 128 5/8, and PMC Sierra soared 11 9/16 to 91 1/2.

Handspring slipped 3/8 to 44 1/2 after trading as high as 50 3/8 after topping estimates by 9 cents with a 7-cent loss.

Support.com rose 2 1/4 to 14 3/4 after beating estimates. Ameritrade , up 1/16 to 9 7/8, matched estimates.

VA Linux fell 1 15/16 to 7 3/16 on an earnings warning. Netopia slipped 17/32 to 5 7/8 after missing estimates.

Allaire , up 13/16 to 8 3/4, will be acquired by Macromedia for 0.2 MACR shares and $3 in cash for each ALLR share. Chicago Board of Options Exchange officials announced an investigation into unusual trading in ALLR options yesterday.

WebTrends fell 4 to 28 7/8 despite announcing that it will be acquired by NetIQ for 0.48 NTIQ shares per WEBT share.

General Magic rose 15/32 to 2 1/2 on news that voice recognition partner Nuance will power General Motors’ new voice-driven OnStar system.

Aether rose 2 3/4 to 42 11/16 on a deal with E*Trade .

Yahoo rose 2 5/8 to 30 on takeover rumors.

NorthPoint was halted at 1 13/32 after filing for bankruptcy protection.

USinternetworking fell 1 to 4 1/16 after lowering forward guidance.

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The Nasdaq peaked today at the upper trendline of a new rising channel (first chart), which could mean that this rally has just about run its course; we’ll see if IBM’s bullish earnings can change that tomorrow. The gap up this morning was enough to break the September downtrend lines on both the Nasdaq and Nasdaq 100 (second and third charts), which also ran into a rising channel boundary today. It’s possible the indexes could break above those channel boundaries, but we think the indexes are more likely to take a breather in the next day or two, and one may have started today. Opening gaps were created today at 2618.55 on the Nasdaq and 2470.72 on the Nasdaq 100. The maximum downside expected on any pullback would be to about 2400 on the Nasdaq, the lower boundary of the rising channel.

The ISDEX broke above 400 resistance today and could be headed for 450-470. However, the Nets are up 40% in a little more than a week, so we wouldn’t be surprised to see a pullback there, either. The ISDEX created a gap at 388.5 today.

The S&P 500 also took out its September downtrend line today, at about 1440, but then closed below it. The index also formed a gravestone doji, trading strongly higher during the day only to finish back at the unchanged level, a potential reversal sign.

The Dow held 10,500 support yesterday and took out 10,600 resistance, but then pulled back to close under 10,600 today, continuing to lag the Nasdaq and S&P. This is the only big negative we see in this market; the sector rotation that has dominated this market since mid-1999 has yet to end well. Healthy markets move in sync, and it might take another Fed rate cut for that to happen. Critical support on the Dow is 10,300, while a close above 11,007 would confirm a new bull market under Dow Theory.

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