Tyco Sends Stocks Lower, Then Higher

Stocks staged a high-volume reversal on Wednesday, falling on growing accounting concerns but then turning around after Tyco executives said they were buying one million shares of the company’s stock.

The Federal Reserve left interest rates unchanged and said there are signs the economy is recovering, but that risks remain weighted to the downside. Fourth-quarter GDP came in on the plus side, a positive surprise that was driven largely by defense spending and auto sales.

The ISDEX http://www.wsrn.com/apps/ISDEX/ slipped 1 to 175, and the Nasdaq rose 20 to 1913. The S&P 500 gained 13 to 1113, and the Dow surged 144 to 9762. Volume rose to 1.99 billion shares on the NYSE, and 2.06 billion on the Nasdaq. Advancers led by 18 to 12 on the NYSE, and 19 to 16 on the Nasdaq.

After the close, Netegrity and Speechworks beat estimates, and Brocade and Emulex received Buy ratings from Merrill Lynch.

During the day, Tyco plunged on new financial revelations, but recovered strongly after top executives said they were buying one million shares of the company’s stock. However, the amount they bought was only about one-third the amount they had returned to the company in unreported transactions, according to the New York Times, which said Enron officials had followed the same practice.

AOL fell on in-line results. Applied Materials rose on comments that it sees a second half recovery.

CNET plunged on its results. Veritas fell despite topping estimates.

Digital Insight and Newport surged on their results, but Advanced Fibre and RealNetworks were little changed on their earnings reports.

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

An impressive turnaround today, and on high volume to boot. The Dow (first chart) even managed to climb back above the important 9700 level, but the S&P (second chart) stopped just shy of the equally important 1114-1117 level. Both the Dow and S&P bounced at the 38% retracement levels off the September lows, another plus for the bulls. If the S&P can follow the Dow higher, this rally may have legs, at least through the usual end-of-the-month/start-of-the-month rally. The internals weren’t very impressive, but fear was high, based on a close above 1.0 on the put-call ratio and a spike above the 200 day moving average on the VIX (third chart), the options volatility index. It would have been bearish if the VIX had held that 200 DMA breakout, but it did not. On the other hand, the VIX fell so hard off its highs that it shows at least some complacency creeping back in. We’ll watch both indicators to see what they do tomorrow. The major indexes have all had breakdowns that predict substantially lower prices from current levels, but at least for now, the trend should be up. S&P 1117-1118 looks like a very good dividing line here; long above, and short below. The Dow has support at 9700, 9600 and 9500, and faces tough resistance in the 9850-9935 area. The S&P has support at 1110, 1098 and 1080; resistance is 1117-1118, 1125 and 1140. The Nasdaq (fourth chart) has support at 1850, and resistance at 1915-1920, 1935, 1965 and 1980-1985. Both the Nasdaq and the Dow had bullish divergences in RSI and stochastics today, which failed to make a lower low when the indexes did.

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