Yahoo Beats Earnings Estimates

After leading Internet and technology issues lower during the day on Tuesday, Yahoo announced earnings after the bell that beat analysts estimates. The broader market rose on the belief that a speech by Fed Chairman Alan Greenspan signaled no imminent interest rate increases.

The ISDEX fell 23 to 696 to close below the important 700 level. The Nasdaq fell 24 to 3956 after trading above 4000 earlier in the day. The S&P 500 gained 5 to 1480, but turned around at the important 1488 level. The Dow rose 80 to 10,726 on strength in cyclical issues, but had its gains cut in half by the close. Volume rose strongly from Monday, to 980 million shares on the NYSE and 1.7 billion on the Nasdaq. Advancing issues led 16 to 13 on the Big Board, but declining issues led 21 to 18 on the Nasdaq. Ariba will report earnings tomorrow, and Juniper Networks will report on Thursday. The Producer Price Index for June will come out on Friday.

Yahoo fell 4 1/4 to 105 3/4 and traded as low as 99 7/8. The stock broke key support at 111 yesterday. However, the company rose to 117 in after-hours trading. Analysts had been making cautionary comments about the company for weeks, based on weakness in Internet advertising. But Yahoo surprised with earnings of 12 cents per share, beating analysts estimates (10 cents) and the whisper number (11 cents). Revenues ($270 million) and page views (680 million) also topped estimates estimates. In the conference call, Yahoo said less than 10% of its advertisers are financially questionable, and said the Internet shakeout could benefit the company. The company’s comments were less cautious than analysts had been predicting. Click here for conference call information.

Yahoo led leading Internet issues lower during the trading day. eBay continued to struggle since falling below critical support at 50, losing 3 15/16 to 44 1/8. However, the stock rose to 46 in after-hours trading. DoubleClick fell 3 3/16 to 28 1/2 during regular trading, a new 52-week low, but rose above 30 in after-hours trading. Merrill Lynch analyst Henry Blodget lowered 2000 and 2001 revenue estimates for DoubleClick and predicted further weakness in Internet advertising. InfoSpace fell 6 5/8 to 43 3/8 on concern that Yahoo may increase spending on wireless initiatives.

CMGI fell 2 1/2 to 36 1/2 during regular trading, but rose above 38 in after-hours trading. The company announced the formation of a joint venture company with Compaq .

Commerce One bucked the downtrend, rising 2 1/4 to 42 on a Thomas Weisel Buy rating.

Art Technology fell 1 7/8 to 108, despite news that it had won a major contract from Kmart. Competitor BroadVision fell 5 to 34 7/8. Vignette fell 5 7/8 to 41 on concerns about compatibility with Java-based and Microsoft application servers, but Salomon Smith Barney dismissed the worries.

Inktomi recovered 7 13/16 to 116 5/16, a day after falling sharply on news that Yahoo had completed its switch to Google and on negative comments in the California Technology letter.

Alteon WebSystems soared 30 3/16 to 131 1/8 after announcing that it will become profitable in the fourth quarter, three quarters ahead of expectations.

GoAmerica rose 1/2 to 13 5/16 on a Chase H&Q Buy rating and $30 price target.

DSL stocks rose after Morgan Stanley Dean Witter began coverage. NorthPoint Communications gained 11/16 to 13 1/2; NorthPoint has been the subject of rumors that WorldCom may be interested in acquiring the company. Covad rose 1 1/8 to 18 7/8, Network Access rose 2 1/2 to 12 7/16, and Rhythms gained 1 27/32 to 16 1/32.

VerticalNet rose 1 5/8 to 40 1/2. The stock has been the subject of positive analyst comments recently.

Fiber optics stocks continued to rise a day after JDS Uniphase announced it will buy SDL . Recent IPOs continued to gain on the news, with Sonus Networks bolting 28 to 177 and New Focus rising 18 1/16 to 117 1/16. Extreme Networks gained 11 to 123, continuing to rise on rumors that it would be acquired by Juniper , up 1 7/16 to 149. Redback Networks rose 7 3/16 to 164 1/2 ahead of its earnings report, due out Thursday.

Some technical comments on the market: A mixed day in the markets, which is disappointing considering the strong start and rising volume. This kind of whipsaw action reflects uncertainty, which is never a positive; hopefully Yahoo’s earnings will help quell those jitters. The Dow managed to finish above 10,700, but pulled back after breaking its 200-day moving average (10,747) and its downtrend since reaching 11,100 in late April. The index has repeatedly struggled around its moving averages. The day’s biggest negative was that the rally stopped at another important point: 1488 on the S&P 500, the tip of the right shoulder of that index’s bearish head-and-shoulders pattern. As the S&P 500 is a better representation of the overall market, that’s probably a more important number; a break of that number would give the bulls cause for celebration. To the downside, the lower boundary of the head-and-shoulders is around 1380. The Dow may have broken its bearish diamond pattern today. However, volume was not spectacular, and the fact that the rally is being led by beaten-down cyclical issues is cause for suspicion; they can be the last issues to rally. And don’t forget, we want to break the diamond by 3% on high volume; that would put the index north of 11,000, the point at which a pure drawing of the lines would place the Dow diamond’s upper boundary anyway. Those reservations aside, the Dow looks good as long as it stays above 10,700, and it may have room to rally here. The ISDEX broke key support at 700, but that may be suspect, given that analysts’ concerns about Yahoo may have been wrong or premature. The ISDEX has been consolidating at the top of its three-month trading range, which is a plus, but its recovery has been halted in the 790 area, just above the 38% retracement level from the high (1130) to the low (560). A move above 790 would be bullish, while a substantial break below 700 could give the ISDEX room to 600. The Nasdaq has yet to take out its previous reaction high of 4073. A move above that number and then the 50% retracement level of 4087 could give the index room to 4300, based on the 250-point trading range the index has been mired in since turning back at 4073. Also, there is a gap down from 4188 to 4094 from April 11, adding to the resistance in this area. A break of 4100 would pretty much take out all three numbers (4073, 4087 and 4094). Recent support on the Nasdaq is in the 3820-3830 range, and key support is at 3725 and 3585. The index has been rising just above its 200-day moving average for six weeks. This rising resistance, rather than being a positive, could imply an inexhaustible supply of sellers; flat-line resistance is usually more bullish, as it implies that sellers will eventually be exhausted. Also, the index may be forming a broadening formation, with a flat bottom along 3820-3830; this too could be bearish, as could the index’s weakening breadth. And finally, the advance-decline line on the NYSE has been steadily improving, and the index is just short of an all-time high (661).

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