The Nasdaq returned to the level where it started the year on Friday, as technology and Internet stocks suffered yet another steep drop.

The ISDEX http://www.wsrn.com/apps/ISDEX/ dropped 15 to 348, and the Nasdaq fell 63 to 2498, 28 points above where it started the year. The S&P 500 lost 10 to 1322, and the Dow declined 65 to 10,815. Volume declined to 439 million shares on the NYSE, but rose to 840 million on the Nasdaq. Decliners led 15 to 12 on the NYSE, and 22 to 10 on the Nasdaq. 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.

Network Appliance surged 3 7/8 to 39 1/16 after topping estimates by a penny with 11-cent earnings and said it sees little slowdown in business. Competitor EMC fell 2.25 to 57.25.

Portal Software plunged 2 11/16 to 8 17/32 on a Merrill Lynch downgrade.

EarthLink rose 1 9/32 to 10 3/16 after the company and Sprint announced amended alliance terms, renewing speculation that Microsoft will make a play for EarthLink.

Register.com rose 7/8 to 7 11/16 after the company's 6-cent earnings beat breakeven estimates.

Audible soared 15/16 to 1 13/16 on a $10 million investment from Microsoft.

Cisco Systems fell 1 15/32 to 28 17/32, continuing its slide after missing estimates and warning earlier this week. Cisco supplier PowerOne plunged 5 5/8 to 26 9/16 on an earnings warning.

Digital Insight rose 7/16 to 15 1/8 after beating estimates. ScreamingMedia.com slipped 29/32 to 3 1/16 despite besting estimates. Mainspring was unchanged at 2 9/16 despite beating estimates and warning.

Jupiter MediaMetrix slipped 1/4 to 6 3/16 after missing estimates by a penny. Mercator, down 2 7/16 to 8, also missed by a penny. Razorfish, off 9/32 to 1 19/32, and Organic, unchanged at 1 1/4, matched estimates.

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The S&P 100 and 500 (first and second charts) are about as low as they can go without breaking their uptrends off their December lows. 685 on the S&P 100 and 1320 on the S&P 500 is the point where we want to see this market turn back up, and even at those levels sellers are doing damage to those lines.

The Nasdaq broke back below its September downtrend line (first chart) this morning, but the S&P 500 is holding well above its September downtrend line, which is around 1310 or so (second chart). 2496 on the Nasdaq represents the 61.8% retracement level of the 2251-2892 gain, so that is an argument in favor of holding the 2500 level. The good news is that the Nasdaq only needs to get to 2550 or so to reclaim its September downtrend line, so we'll know quickly on any rebound if the index has the strength to get through that line.

The Nasdaq and Nasdaq 100 could be forming much larger inverse head and shoulders bottoms here - if the indexes can turn up soon. Taking out those necklines could send the indexes well above 3000, but these are purely speculative observations at this point, especially considering that the indexes haven't even begun to turn up yet.

We expect the Dow to hold its October uptrend line at about 10,750, about 50 points from here. To the upside, the Dow continues to struggle at 11,000 resistance. 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 continue to hold above that level. But the 11,000 level has been one tough obstacle for the Industrials, reflecting its importance to the health of the market and the economy as a whole.

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