Traders Give Back Thursday’s Gains

Traders continued to find much to dislike in quarterly earnings reports on Friday, as they sold off bellwethers like America Online and erased almost all of Thursday’s gains in the process.

The ISDEX fell 28 to 801, and the Nasdaq dropped 90 to 4093, both ending at the lows of the day. The S&P 500 fell 15 to 1480 and the Dow was off 110 to 10,733. Volume declined to 966 million shares on the NYSE and 1.53 billion on the Nasdaq. Declining issues led 17 to 11 on the NYSE and 2 to 1 on the Nasdaq. Priceline will report earnings before the bell on Monday.

America Online announced fourth-quarter earnings of 13 cents a share, 2 cents better than expected. Revenues came in at the lower end of expectations at $1.93 billion, and advertising revenues were also a little light. The stock fell 4 1/16 to 57 1/2.

Inktomi was one of the few companies reporting earnings to see its stock rise. But after trading as high as 135, the stock ended up 1/16 to 129 1/2. The company reported third-quarter earnings of 4 cents a share, 2 cents ahead of expectations.

Alteon Websystems crushed earnings estimates, reporting fourth-quarter earnings of 17 cents a share, 14 cents better than expected. Alteon also said it will buy Pharsalia for $221 million in stock. Alteon gained 9 7/16 to 143 3/4. also beat estimates handily, reporting a fourth-quarter loss of 10 cents a share, 9 cents better than expected. The stock rose 12 1/16 to 100 7/16, finishing just above resistance at 99 after trading as high as 107 1/4. SG Cowen raised revenue and earnings estimates on the stock.

Handspring reported a fourth-quarter loss of 13 cents a share, 6 cents better than expected. The stock rose 2 9/64 to 41 1/2 on positive comments by CS First Boston.

JDS Uniphase rose 6 3/8 to 134 1/2 on stronger-than-expected numbers from merger partner SDL .

But most stocks beating estimates received rough treatment, resuming a trend that began earlier this week.

Allaire fell 7 1/16 to 40 23/32 despite reporting second-quarter earnings of 7 cents a share, 2 cents better than estimates.

BroadVision fell 4 to 41 3/8 after reporting earnings of 4 cents a share, two cents better than expected. An upgrade to Strong Buy by SG Cowen didn’t help the stock. CNET reported second-quarter earnings of 3 cents a share, 2 cents better than expected, but the stock declined 1 9/16 to 30 13/16. CNET was downgraded to Buy from Strong Buy by Thomas Weisel on concern that the company’s acquisition of Ziff-Davis will increase its exposure to the riskier advertising model.

Media Metrix reported a second quarter loss of 10 cents a share, a penny better than estimates, but the stock slipped 3/16 to 27 13/16. Autoweb posted a second-quarter loss of 13 cents, four cents better than expected. But the stock fell 3/8 to 2 7/32 on lighter than expected revenues and a USB Piper Jaffray downgrade to Buy from Strong Buy.

Scient announced earnings of 6 cents a share, a penny ahead of estimates. But that stock too was punished, falling 8 13/32 to 54 1/32.

Ventro reported one of the few misses, and traders punished the stock as a result. The company’s second-quarter gross revenue came in at $24 million, well below $30 million estimates. Analysts expressed concern about the health of the Chemdex vertical, and several analysts downgraded the company. The stock fell 6 3/8 to 14, and competitor SciQuest lost 2 19/32 to 10 19/32.

E-stamp lost 7/32 to 1 17/32 despite beating estimates by 3 cents with a 63-ce

nt second-quarter loss. Deutsche Bank Alex. Brown cut the stock to Market Perform from Buy.

The day wasn’t all earnings news. Shares of rose 9/16 to 1 19/32 on news of a merger offer from privately-held MilleniumHealth.

Quokka Sports slipped 3/16 to 8 13/16 after announcing that it will acquire Total Sports, which owns The Total Sports Network, for $130 million.

Two IPOs were welcomed by the market. Talarian , a developer of data exchange software, priced at 16 and closed at 22 5/16. Corio , an Application Service Provider, priced at 14 and closed at 19 11/16.

Some technical comments on the market: The major indexes gave back most of yesterday’s gains, and in the case of the S&P 500, all and then some. The S&P 500 may be providing some clues as to where we’re headed next. Since its breakdown out of a small rising wedge three days ago, the index has been forming a rectangle, bounded by 1480 to the downside and 1500 to the upside. While this is a neutral pattern and could break either way, it carries some bias as a continuation pattern, meaning the break is more likely to be in the direction before the consolidation, which in this case is down. A clean break of 1480, where we finished today, should carry the S&P to about 1460, perilously close to the lower boundary of the large bearish rising wedge at 1470. A clean break of the larger wedge would imply downside potential of 1361, where the wedge started in May. The S&P traded as low as 1478 today, but recovered by the close. Conversely, a clean break of 1500 could carry the index to 1520, the upper boundary of the rising wedge. A break of 1500 could lead to a challenge of the upper boundaries, respectively, of the Dow’s diamond pattern (11,000), the S&P 500’s large rising wedge (1520), and the Nasdaq’s large rising wedge (4300), all bearish patterns. In yesterday’s rally, the Dow got past previous resistance in the 10,850-10863 range, only to turn back down at 10,874. A break of 10,620 to the downside would negate the index’s recent breakout.

Nets and techs didn’t finish at their lows of the day yesterday, but they made up for it today. Critical support on the Nasdaq is 4050, the lower boundary of the bearish rising wedge; a break of that level would imply potential downside to 3042, where the wedge began. To the upside, the Nasdaq’s rally stalled at 4289, the wedge’s upper boundary and just under the 62% retracement level of 4337. The ISDEX held at key support yesterday (790), preserving its recent breakout. To the upside, the index turned back recently at 840, just below its 50% retracement level of 845. If Net stocks can get past 850 resistance, they could go to 880. Other observations: the S&P 100 and the Nasdaq 100 are right at the lower boundary of bearish rising wedges (their May trendlines, just like the S&P 500 and the Nasdaq Composite). And the Semiconductor Index, which has led the market higher since May, broke that trendline from May yesterday. The indexes could bounce from today’s level, but this looks like a market that wants to go lower. Have a good weekend.

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