Will Apple Computer Short-circuit Rally?

The bulls might have resumed control of the stock market on Thursday, but an earnings warning from Apple Computer after the close could test their mettle on Friday. Apple warned that earnings will come in about 30% below expectations.

During regular trading, the ISDEX soared 26 to 777, and the Nasdaq bolted 122 to 3778. The S&P 500 charged ahead 31 to 1458, and the Dow soared 195 to 10,824. Volume rose to 1.2 billion shares on the NYSE and 2 billion on the Nasdaq. Advancers led decliners by almost 2-to-1 on the NYSE and the Nasdaq. For earnings reports, visit our earnings calendar and reported earnings. For after hours quotes and news, visit our new after hours trading site.

Big-cap Internet leaders recovered some of their recent losses. Yahoo regained 4 to 94 3/8 on positive comments from Merrill Lynch analyst Henry Blodget and others. The stock broke down at 99 1/2-99 3/4 yesterday, the May and August bottoms, and needs to get back above 100 to repair the technical damage. eBay gained 4 3/8 to 67 7/8, and Amazon rose 1 5/8 to 39 1/2.

Priceline recovered 1 to 11 13/16 a day after falling 40% on an earnings warning that carried the rest of the Net sector down with it. A technical comment and chart on Priceline: When Priceline was at $25, we said it looked like there could be further downside ahead, and here’s why: the stock broke a descending triangle, a flat-bottomed pattern with a descending upper boundary, at $32 back in July. As the size of the pattern was 18 points from peak (50) to trough (32), that gave the stock downside potential to $14, or 18 points below the break. For more on the Priceline story, click here.

The acquisition of Global Crossing’s Web hosting business by Exodus was back on today. Exodus, off 4 1/4 to 49, will pay about $6.5 billion in stock, and said the deal will be accretive to EBITDA in 2001. Navisite gained 1 1/2 to 29 3/8, and Data Return added 2 7/8 to 18 7/8. Digex , which is being bought by WorldCom and was pursued by both Exodus and Global Crossing, fell 6 7/8 to 47 7/8.

Telecom equipment stocks weathered a report by Sanford Bernstein that said growth in telecom equipment spending should slow from 28% this year to less than 20% next year. Cisco Systems added 1 1/4 to 58 9/16 and Nortel gained 3 1/16 to 62 1/2, But Juniper Networks slipped 1/16 to 224 15/16 despite comments that it could be added to the S&P 500. Cisco announced acquisitions of privately held Vovida Networks and IPCell technologies for $369 million in cash.

WebMD soared 2 9/16 to 13 13/16 after announcing the elimination of 1,100 jobs and a restructuring the company said will save $250 million a year. The company will divest its plastics and filtration technologies subsidiaries.

Intraware gained 1/8 to 8 1/2 after beating estimates by 11 cents with a 33-cent loss.

Netcentives rose 3/4 to 7 after pre-announcing better than expected results.

PDA stocks were strong. Handspring soared 7 7/16 to 74 3/4, and Palm rose 1 15/16 to 50 13/16.

Copper Mountain , which dropped 10 points yesterday on various rumors of weakness in DSL business, recovered 3/8 to 39. The stock has been battered by rumors for weeks.

Some technical comments on the market: Note: We will now be inc

luding charts with the technical market commentary; just click on the links in the story below to go to them. If you have trouble accessing the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

We said yesterday that we had signs of at least a short-term bottom here, so today’s rally was not surprising. The market was very oversold, as oversold on a technical basis as it has been all year, and there were a number of confirming indicators, like dojis (reversal patterns) in the Dow and S&P and a spike up in the put/call ratio. A market can’t go higher until fear shakes out weak positions. So is this just a bounce, or the beginning of a new bull leg? There are a number of possibilities that could make this just a bounce: an end-of-the-month rally, end-of-quarter window dressing, and the week between Rosh Hashanah and Yom Kippur is seasonally positive. And we still have October ahead, and investors haven’t been too impressed with earnings as of late. So it might not be a major bottom, but it could give us a few positive days here. We’ll watch for signs that the rally might be reversing back to the downside. And if any of the recent lows are taken out in the weeks ahead – 10,575 on the Dow, 1420 on the S&P or 3,614 on the Nasdaq – look out.

On the plus side, the S&P 500 broke its downtrend from the start of the month by a sizeable amount today, and the Nasdaq finished right above its downtrend line. The Dow, however, turned back right at its downtrend line at about 10,850. If the Dow can get above 10,900, the old industrials could have room to run. Not bad, considering that 8 of the 30 Dow stocks have warned for this quarter. To the downside, critical support on the Dow is the October 1998 trendline. That line is just under 10,600 now, so a move below last week’s low of 10,575 would be a big negative.

The S&P 500 finished just below 1460 resistance, a pretty important level. A move above that could give the S&P room to run. Next resistance would be 1480-1490. To the downside, critical support is the March uptrend line at 1420 (the black line. Also in the S&P chart, note the gray line, which is the broken October 1998 trendline; and the broken rising wedge, or a rally with converging boundary lines, that began the decline). 1420, where the S&P turned up last week and yesterday, is on a line with the March (1340) and April (1361) bottoms.

The Nasdaq finished just above its downtrend line from the start of the month, but Apple is likely to result in some pullback tomorrow. Support could be found at 3750 and 3700, and then critical support is the October 1998 trendline around 3600. Lower than 3600, and that trendline would be broken for the first time since the May lows. Below that, critical support is the August bottom of 3521; lower than that, and the Nasdaq could be headed for trouble. To the upside, in case the bulls aren’t shaken by Apple’s warning, next resistance is at 3800, and then about every 50 points thereafter. The first major Fibonacci test comes at 3859, the 38% retracement level of the 4259-3614 decline. The ISDEX is back above 750-760 support. Next resistance is in the 787-800 range. Above that, two recent rallies have peaked around the 50% retracement level at 850. The selling on the ISDEX stopped just below 740 the last two days, above the May uptrend line at about 725.

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