Cisco Rises, But Sends Everyone Else Lower

Published by: wktd 2009-01-09

Cisco Systems rose Tuesday on better-than-expected earnings, but sent everyone else lower on inventory and equipment spending concerns. Traders awaited the outcome of what was billed as the closest presidential election in 40 years.

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The ISDEX slipped 2 to 662, and the Nasdaq added 1 to 3417. The S&P 500 rose 1 to 1433, and the Dow lost 8 to 10,969. Volume declined to 400 million shares on the NYSE, but rose to 790 million shares on the Nasdaq. Decliners led by 14 to 11 on the NYSE and 19 to 14 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.

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Pets.com plummeted 1/2 to 1/8 after announcing it will shut down operations. The company announced the layoff of 255 of its 320 employees, and said it will sell the majority of its assets. The company, which still has $30 million in cash, said it took the action now so it could return something to shareholders.

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Cisco, up 2 to 57 1/8, beat earnings estimates by a penny with 18-cent earnings, and revenues of $6.52 billion topped estimates. It was the 11th straight quarter of accelerating revenue for Cisco, which guided forward estimates higher. The company said gross and operating margins will continue to contract. But what worried investors were comments that equipment spending appears to be slowing for everyone but Cisco, and the company's inventory backlog, which sent shares of competitors and communications chip suppliers lower. Cisco also said it is facing competition from hundreds of start-ups, but that enterprise and service providers appear to favor established companies. Broadcom dropped 38 to 181, PMC Sierra plummeted 26 1/4 to 127 9/16, Vitesse dropped 9 to 71 3/8, JDS Uniphase dropped 3 11/16 to 73 3/4, and Juniper slipped 1 15/16 to 216 7/8. Cisco said circuit, voice and IP spending have been most affected by the slowdown, while network spending has been less affected.

Inktomi rose 2 3/4 to 68 11/16 on an alliance with Teleglobe. Merrill Lynch had expressed concern that Inktomi could get hit by the Cisco fallout.

SierraCities.com rose 1 23/32 to 5 31/32 on news that it will be acquired by VerticalNet for $7 a share.

24/7 Media rose 9/16 to 5 15/16 after the company's Sabela Media subsidiary settled a patent infringement case brought by DoubleClick, which rose 13/16 to 20 1/16. DoubleClick also settled patent litigation with L90, off 1/8 to 6 1/8.

Homestore.com lost 1 3/8 to 37 5/8 after the Justice Department broadened its antitrust investigation into the company.

CAIS Internet slipped 1/2 to 4 after missing loss estimates. Women.com, off 1/8 to 1 3/16, beat estimates, and The Knot, off 1/4 to 2, matched estimates.

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

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

Cisco appears to have survived its breakdown out of a bearish rising wedge or pennant yesterday. However, it's interesting to note that redrawing the lines off today's lows gives the stock a new rising wedge, with an apex much further out. The stock may yet retest 45.

The Nasdaq 100 broke down today out of a bearish rising wedge or pennant. The fact that the break occurred on a gap down gives it some credence. The downside target based on the pattern is 2700-3000. Again, we're not sure if these patterns were just Cisco pre-earnings jitters, but the break implies that there could be further weakness in techs. We'll see what develops from here. If the Nasdaq and Nasdaq 100 fail to take out their recent highs around 3500, they would continue a cycle of lower highs, which is also a negative.

The S&P 500 continues to form a much bigger rising wedge, with an apex at least a few weeks away. Even if it continues to form, the index could have quite a bit of upside before the boundaries converge, but a retest of 1300 may be in the cards a couple of months down the road. The entire 1420-1460 range could be tough resistance for the S&P, since it was a big consolidation area back in September.

The ISDEX continues to hold up well. It faces tough resistance at 675; three previous rallies have failed there. A break above that level would be a real positive. To the downside, 600, where downtrend and uptrend lines are converging, should provide support.

The Dow faces tough resistance at 11,000. However, given the breakout out of a bull flag and the distance from the previous consolidation, a move to 11,400 is not out of the question. To the downside, we'd like to see the Dow stay above its diamond apex at 10,850, or at least not go below that point by more than 2%.