Yahoo Leads 5% Drop In Net Stocks

Lowered expectations from Yahoo, Lucent and Motorola sent stocks sprawling across the board on Wednesday.

The ISDEX dropped 34 to 630, and the Nasdaq fell 72 to 3168. The S&P 500 lost 22 to 1364, and the Dow declined 110 to 10,413. Volume soared to 1.38 billion shares on the NYSE and 2.31 billion on the Nasdaq. Decliners led by 19 to 8 on the NYSE and 27 to 12 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.

Yahoo plummeted 17 9/16 to 65 1/8. The company beat estimates by a penny with 13-cent-a-share earnings, in line with the whisper number. Revenues of $295.5 million beat estimates of $280-$285 million. But the company stressed in the conference call that it expects the difficult Internet advertising environment to continue for the next several quarters, and that marketing costs will likely rise faster than revenue. DoubleClick , which reports earnings tomorrow, dropped 3 3/16 to 21 1/2. eBay fell 5 15/16 to 52, and dropped 2 5/8 to 27 13/16, a new 52-week low.

Technical note on Yahoo: We said back in July that Yahoo could be head to $70, based on a break of a 40-point broadening pattern at 110. The stock subsequently recovered, but investors got another chance to get out in September, when the stock broke a bear flag at about 105. The 40-point “pole” on that flag predicted a move to 65. Also, notice the 15-point rectangle that broke down at 125 in late August, predicting a move to 110. That break was also a warning sign, as rectangles normally break in the direction of the current trend, which was up at the time.

Cisco gained 1/32 to 51 5/16, recovering from a low of 48, below critical support of 50. Sonus Networks , which beat earnings after the bell, gained 5 5/16 to 41 1/2, and Redback Networks , which also beat earnings after the bell, lost 7 11/16 to 112 7/8. Juniper Networks , which reports tomorrow, added 1/16 to 206.

WebEx gained 1 1/8 to 36 5/8 on a Wit SoundView Strong Buy rating. MarchFirst rose 1 1/4 to 11 1/4 on a JP Morgan Buy rating and $17 price target.

RSA Security rose 1 7/8 to 49 7/16 on news of a collaboration with Intel .

i2 rose 6 5/8 to 175 5/8 in an otherwise weak B2B sector.

Vignette surged 4 1/4 to 29 1/2 on no news. The company announced that it will report earnings October 25, which traders may have taken as a sign that the company will meet or beat estimates. Aether was also strong, up 6 1/2 to 82 5/16.

Akamai soared 4 to 45 3/4 on a deal with NetRadio. CAIS Internet rose 1 to 5 3/8 on deals with Hughes Network Systems and Hilton Hotels.

Inktomi finally broke, plummeting 12 5/8 to 78. As we’ve said since last week, the stock may be forming a descending triangle, similar to one that Priceline broke down out of at 32. A close below 87 would be a clean break of that pattern, which we got today. The size of that pattern is about 70 points; it’s not likely that Inktomi is going to 20, but it could have significant downside ahead, perhaps to support at 50.

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In our elusive quest for a bottom, we will point out the latest positive signs. Fear crept into the market in a big way today, with the volatility index spiking up to 32 1/2 at its peak, settling back to 31 at the close. The put/call ratio soared to 1.42 at its peak before pulling back to .91. Both good signs. Also interesting is where the selling stopped: just above a line with the Nasdaq’s 1999 peak; a technical truism is that old tops make good bottoms. Today could qualify as a successful retest of the May 3042 low, but there has been so much technical damage done that we’ve got to wonder whether the final bottom is in. To the upside, we want to see the Nasdaq get back above 3300, a small downtrend within a downtrend, then 3500-3521, its previous bottom and main downtrend line. If the index can recover any where above 3000, it could form a rectangle between 3000 and 4300. Also, there is a gap at 2900 that could be a downside lure here.

The S&P 500 held its 1994 logarithmic trendline at about 1350, a very important level. A break of that line, which has never been broken, could carry the index as low as 1200. First resistance is at 1380.

The ISDEX broke support at 650, the lower end of a 200-point trading range. Next support is 600, and then the May low of 560. First resistance is the ISDEX’s downtrend line at about 675. The Dow broke its April trendline at about 10,400 but recovered to close above it. Resistance is at 10,500 and 10,600, and critical support is the April low of 10,200.

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