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Traders Sell The News

January 8, 2009 nnyq.com edit The Federal Reserve gave traders everything they wanted on Wednesday: they cut short-term interest rates by 50 basis points and announced their willingness to cut rates further if necessary. But traders sold on the news, sending technology and Internet stocks lower in rising volume.

The ISDEX http://www.wsrn.com/apps/ISDEX/ lost 16 to 421, and the Nasdaq fell 65 to 2772. The S&P 500 declined 7 to 1366, but the Dow added 6 to 10,887. Volume rose to 1.3 billion shares on the NYSE, and 2.4 billion on the Nasdaq. Advancers led 17 to 13 on the NYSE, but decliners led 20 to 17 on the Nasdaq. Fourth quarter GDP came in much lower than expected at 1.4%, the slowest rate of growth for the economy in six years. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

AOL Time Warner, off 1.75 to 52.56, matched 15-cent estimates and affirmed full-year views. On a combined basis, the companies earned 28 cents a share.

Amazon.com fell 1 15/16 to 17 after beating estimates by a penny with a 25-cent loss, but the company warned that first quarter revenues will be 15-20% below estimates. Amazon said it will cut 1,300 jobs, or 15% of its workforce, and said it still expects to reach profitability by the end of the year.

Adobe, off 8 3/4 to 44, and Applied Materials, down 2 3/32 to 50 11/32, also warned. Advanced Fibre rose 3 3/16 to 23 3/4 after beatings estimates, but Aware, off 4 7/8 to 16, and PeopleSoft, down 7 7/8 to 41 1/16, didn't fare as well despite better than expected results.

RealNetworks, down 17/32 to 10 7/32, matched estimates. Digital Island, up 1/32 to 6 1/32, said it expects to breakeven by mid-2002 and has the cash to get there.

Broadcom fell 3 to 109 15/16 after trading as high as 121 3/16 on rumors of a deal with Cisco.

New Focus soared 10 7/8 to 60 1/4 after blowing away estimates by 7 cents with 4-cent earnings. TIBCO dropped 7 7/8 to 38 on negative comments from Morgan Stanley.

DiamondCluster, up 2 13/16 to 35 1/2, matched estimates and lowered forward guidance. F5 Networks, up 1 3/8 to 17, topped estimates, as did Oplink, up 1/16 to 19 15/16, and Digital Impact, up 1/2 to 4 5/8.

PurchasePro slipped 1 to 26 1/2 on an expanded relationship with AOL Time Warner, including PPRO's first offline advertising campaign.

Genuity, off 1/8 to 4, met estimates but lowered forward guidance. eLoyalty climbed 1 25/64 to 10 3/8 on a positive preannouncement.

NetPerceptions, off 1/16 to 3 1/2, and Autoweb.com, down 1/16 to 15/32, both fell on earnings warnings. LifeMinders, down 1 to 2 3/4, missed estimates by a wide margin.

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

Note: There will be no technical commentary tomorrow; it will return on Friday.

The bulls couldn't have asked for a better set-up heading into the Federal Reserve meeting - and they couldn't have punted more if they were the Giants' Brad Maynard on Super Bowl Sunday. Instead of breakouts, the bulls got the three Rs: Rejection on the Dow, Resistance on the S&P 500, and just plain Rolling Over on the Nasdaq. The good news is that a second Fed rate cut has marked a major bottom 95% of the time since 1913, the only exception being 1929. And all three indexes managed to finish the month of January in the black, a good omen for the rest of the year. We may get a small pullback here, but the average one-year gain in the stock market after two Fed rate cuts is 28%.

We'll start with the Dow, which came close to a major breakout, but was rejected at its September downtrend line (the first chart). A close above 11,007 would be bullish under Dow Theory, the oldest school of technical analysis, particularly if the Dow Transports can stay above 3000; the Trannies closed above 3100 today. To the downside, we expect that lower trendline just under 10,700 to hold, if the Dow gets that low.

The S&P 500 ran into resistance at the juncture of a broken support line (the gray line) and its upper channel boundary (the black line). A potential new channel line at 1360 could provide some support (the blue line). Maximum expected downside would be that lower black channel line at 1310.

The Nasdaq just plain rolled over today, taking out yet another support (the blue line). 2700 could provide some support, the top of a gap at 2618.55 (the corresponding gap in the Nasdaq 100 is 2470.72) that the index has so far refused to fill. Given the index's action, which has been weaker than the Dow and S&P lately, those gaps may finally be ready to fill. The Nasdaq had its first distribution day (selling off on rising volume) since January 2, the day before the surprise Fed rate cut, breaking a four-week string of near-perfect performance. The maximum downside expected on the Nasdaq is about 2550, the lower channel boundary (black line) in that chart.

The one genuinely bullish pattern remaining after today is the Nasdaq 100, which has broken out of what looks to be a bull flag or pennant (the small blue and gray lines in the first chart), giving the index upside potential to 3200-3300. We'll keep an eye on that breakout to see if it holds.

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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