Waiting for Cisco

Blue chips surged on Monday, but technology and Internet shares pulled back ahead of Cisco’s earnings due out after the close. Also, polls showed that the presidential race had narrowed to a statistical dead heat.

The ISDEX slipped 3 to 661, and the Nasdaq was down 5 to 3446. The S&P 500 rose 9 to 1436, and the Dow surged 162 to 10,980. Volume dried up to 415 million shares on the NYSE and 725 million shares on the Nasdaq. Advancers led by 13 to 12 on the NYSE and by a handful of issues 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.

VA Linux plummeted 12 to 18 after warning that earnings will miss estimates of a 9-cent loss by 5-7 cents. The company blamed the shortfall on weakness in dot-com business. Red Hat slipped 1 1/16 to 15 15/16.

Internet infrastructure leaders slipped ahead of Cisco’s earnings due out after the close tonight. Cisco was down 1 1/18 to 55 1/8, JDS Uniphase lost 2 to 79 1/4, and Juniper Networks was down 4 1/18 to 212. Technical note on Cisco: the stock may be forming a bearish rising wedge or pennant ahead of its earnings report. See technical commentary below.

America Online rose 1.37 to 54.8 on news that the company’s merger with Time Warner moved a step closer. The companies would have to open high-speed cable lines to competitors in cities served by Time Warner.

Ask Jeeves , up 2 3/16 to 17 1/4, continued to diversify into the B2B space. The company will partner with General Magic , up 19/32 to 4 31/32, and Nuance , up 14 5/8 to 102 1/2, to offer voice-enabled solutions for corporations.

iXL was unchanged at 2 5/8 after announcing that James Gionfriddo will not join the company as its COO.

Broadcom slipped 2 5/8 to 219 3/4 after announcing the purchase of networking and communications chip company SiByte for about $2 billion in stock. InfoSpace , down 15/16 to 23 1/4, announced the acquisition of speech recognition company Locus Dialogue for 4.3-5.5 million shares.

kforce.com rose 1/2 to 5 after announcing it will buy back 24% of its outstanding chares.

Razorfish rose 5/8 to 6 3/16 on news of a deal with Deutsche Bank.

Some technical comments on the market: Note: We are now including charts in the technical market commentary. If you can’t get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

Special report: For a free introduction to technical chart patterns and an overview of this year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.

Cisco is forming a bearish rising wedge or pennant pattern here, and may already be breaking down, an ominous sign ahead of its earnings report tonight. The pattern is technically perfect, even down to the declining volume in the lower half of the chart. The potential downside based on the pattern is 40-45. It may just be pre-earnings jitters; we’ll know soon enough. Anything less than Cisco’s usual report of a penny above estimates, revenues at the high end, and strong forward guidance, could be met with selling.

The Nasdaq 100 also continues to form a bearish rising wedge or pennant. The index tried to break out to the upside on Friday but pulled back in. An upside break with force would be bullish. The downside on the Nasdaq 100 is 3000 if the pattern is a rising wedge, and 2700-2800 if it is a bear pennant. The difference between the two is time: a pennant completes in less than three weeks, a wedge takes three weeks to three months to form. This pattern has been building for eight trading days, so it is still a pennant. If the Nasdaq and Nasdaq 100 fail to take out their recent highs around 3500, they would continue a cycle of lower highs, which is also a negative.

The S&P 500 continues to form a much bigger rising wedge, with an apex at least a month away. Even if it continues to form, the index could have quite a bit of upside before the boundaries converge, but a retest of 1300 may be in the cards a couple of months down the road. The entire 1420-1460 range could be tough resistance for the S&P, since it was a big consolidation area back in September.

The ISDEX is holding up well, but it’s hard to imagine the index escaping unscathed from a Nasdaq sell-off. The index is holding above its highest possible downtrend line, and has been showing surprising strength as investors flock back into beaten-down Net stocks. 700 is next resistance on the index. The broken downtrend line at 625 could provide support, and the lower line at about 580-590 will hopefully form a new trendline for the ISDEX.

The Dow is up strong today, but the move is coming on lower volume. However, given the bull flag and the distance from the previous consolidation, a move to 11,400 is not out of the question. 11,000 has so far capped the index’s rally. To the downside, we’d like to see the Dow stay above its diamond apex at 10,850, or at least not go below that point by more than 2%.

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