Warnings, Windows XP Flaw Sink Stocks

Stocks fell sharply Thursday on an earnings warning from Juniper Networks and on news of a major security flaw in Microsoft Windows XP.

Blue chips didn’t escape the selling either. Hopes for an economic stimulus package dimmed, a failed terrorism insurance bill hit insurance companies, Argentina was rocked again by turmoil, and JP Morgan got hit on news that its exposure to the Enron debacle could amount to about $1 billion. Investors ignored better than expected weekly unemployment claims and the Philadelphia Fed survey.

The ISDEX http://www.wsrn.com/apps/ISDEX/ fell 10 to 172, and the Nasdaq plunged 64 to 1918. The S&P 500 lost 9 to 1139, and the Dow dropped 85 to 9985. Volume declined to 1.44 billion shares on the NYSE, but rose to 2.02 billion on the Nasdaq. Decliners led 18 to 12 on the NYSE, and 24 to 12 on the Nasdaq.

After the close, Manugistics beat estimates and raised guidance; Liberate and Cognos topped estimates; Western Digital raised guidance; and Research In Motion matched estimates but warned.

During the day, Microsoft fell 4% on news of the security flaw. Analysts downplayed the issue, noting that the company’s releases usually contain flaws and that the company has already produced a patch.

Juniper fell 18% after announcing that revenues will come in as much as 25% below estimates. Jabil fell 14% on an earnings warning.

Palm rose on better-than-expected results, but Saba and Riverstone Networks plunged on their results. JDS slipped after announcing that it is buying IBM’s optical transceiver business.

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.

After holding its September uptrend line for three straight days, the Nasdaq (first chart) gapped below it today and kept falling, taking out the critical 1935 level and the 200-day moving average at 1931 too. A pretty clear signal that the uptrend is done for now, and the index is due for at least some corrective action here. However, a bounce could start as soon as the next day or two, based on a high closing TRINQ reading showing high selling pressure and a nice jump in the put-call ratio, both of which suggested that bearishness was quick to pick up. The most bullish scenario we can imagine at the moment would be a hard sell-off for the rest of the month to get rid of the excessive bullish sentiment, setting up a potential rally in January. First resistance on the Nasdaq is 1931-1941, and the first significant support is 1852, the 50-day moving average. The Dow (second chart) and S&P (third chart) are faring better so far, holding onto their uptrend lines from December 14. However, those rising trendlines will be higher tomorrow, at about 10,050-10,060 on the Dow and 1150 on the S&P, and will thus likely become resistance unless there is a very strong open in the morning. The Dow has support at 9900, and 9750 is critical support. First support on the S&P is 1136-1137 and then 1125-1132. The 1120 and 1110 levels are critical. If the S&P is a broadening top, it gives a minimum downside target of 1077 if 1110-1120 support is broken. One piece of evidence in support of that pattern was the retracement to the middle of the pattern, a common occurrence in broadening tops before breakdowns. Tomorrow is an options expiration day, and thus could be volatile after today’s action.

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

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