Techs, Nets Take A Breather

Blue chip issues rose on Tuesday as technology and Internet shares took a breather. Traders awaited a U.S. Supreme Court ruling that could decide the outcome of the presidential election.

The ISDEX slipped 6 to 506, and the Nasdaq lost 43 to 2971. The S&P 500 declined 4 to 1375, and the Dow climbed 82 to 10,808. Volume slipped to 496 million shares on the NYSE and 911 million on the Nasdaq. Decliners led by 14 to 11 on the NYSE and 21 to 14 on the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our after hours trading site.

In another sign that technology and Internet stocks may have found some sort of bottom, DoubleClick rose 2 1/16 to 14 despite warning that it will lose 3 cents in the quarter, a nickel below estimates.

It was a day of rumors in the market, the wildest of which was that Disney may make a play for Yahoo , up 2 7/8 to 36 3/4. At its peak, Yahoo’s market cap was three times higher than Disney’s.

Web hosting stocks were strong on a Wall Street Journal Interactive report that Sprint is interested in making an acquisition in the space. Possible targets include Digital Island , up 1 9/16 to 6 15/16, PSINet , up 5/8 to 1 23/32, and Data Return , which gained 1 7/16 to 7 5/8.

Linux stocks were strong on news of a major deployment by IBM . Red Hat gained 1 7/16 to 8 5/8, and VA Linux climbed 1 11/32 to 10 3/4.

Interactive Pictures added 7/16 to 1 13/16 on an alliance with IBM.

InfoSpace rose 3/16 to 11/38 after announcing that Lucent will market its products worldwide. Lucent itself was rumored to be an acquisition target of either Nokia or Nortel .

Ariba dropped 7 1/4 to 79 5/8, back below 83 1/2 resistance, on a Lehman Brothers downgrade to Neutral, saying the company’s $25 billion market cap overstates its growth prospects. Commerce One lost 2 to 41 3/4 despite a Lehman Outperform rating.

Covad fell 7/16 to 2 5/8 despite guiding 2001 loss estimates lower.

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The Nasdaq 100 retraced to yesterday’s breakout point of 2895 (first chart), although it could still go a little lower before hitting the descending neckline of its inverted head-and-shoulders bottom. If it can hold here, the index has minimum upside potential to 3350. It is a significant reversal pattern, much stronger than the index’s bottom in May. However, we should also note that the pattern formed off the Nasdaq 100’s low could be a rising wedge (second chart), setting up a potential retest of the lows. An odd way to form a bottom; hopefully the index will rally from here.

The ISDEX also retraced to the neckline of its inverted head-and-shoulders pattern (500). If it can hold, the index has minimum upside potential to 620.

The S&P 500 could be forming either an ascending triangle, with upside potential all the way to 1450, or a rising wedge, setting up a possi

ble retest of 1300. Confusing signs, but given the solid bottom in the Nasdaq 100, we would tend to side with the bullish view until proven otherwise. A break of the rising wedge lower trendlines on either index would be a negative sign.

The Dow is playing catch-up today, breaking out of a small symmetrical triangle with upside potential to 11,000. Again, we do not want to see sector rotation. A strong, broad-based rally would be more in keeping with a major bottom.

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