Nets’ Big Gains Raise Hope of Sell-Off’s End
Beaten-down Internet stocks enjoyed their best rally in two months Thursday, as a wave of buying raised hope among some experts that the stock market’s downturn has run its course.
Shares of such Net leaders as Yahoo, Amazon.com and EBay surged as investors rushed into the stocks, sending trading volumes soaring.
Their rebounds spurred a sharp reversal in the Nasdaq composite index, which fell as much as 2.6% in early trading, then rocketed to close up 25.83 points, or 1%, at 2,565.83.
The Dow Jones industrials closed up 119.05 points, or 1.1%, at 10,793.82.
Losers still outnumbered winners 3 to 2 on the New York Stock Exchange and 11 to 8 on Nasdaq.
Still, the market’s turnaround led some analysts to conclude that the recent pullback is over.
Past market downturns have ended on days that were similarly marked by severe morning sell-offs and even more energetic afternoon buying. Such “reversal” or “climax” bottoms occur when the supply of sellers runs out, at least short-term.
Analysts cautioned, however, that stocks exhibited mixed signals Thursday. Many big-name technology stocks such as Microsoft and Cisco Systems posted only modest gains for the day.
And America Online mustered only a partial recovery to finish down $3.50 at $83.94 after hitting $76.94. It was hammered early in the day by news that Microsoft may reduce its Internet access fees to compete with AOL. Microsoft added 81 cents to $85.75.
Nonetheless, “there is a fair amount of evidence in my mind that this could have been a climax bottom for the market,” said John Bollinger, a well-known money manager and the head of EquityTrader.com. “However, the real question on people’s minds is, was it a climax bottom for Internet stocks, and on that question I’m not sure we have an answer.”
The aggressive buying in some Net stocks recalled the heady gains they boasted before peaking in April.
Yahoo sank $11 early on before reversing to close up $7.38 at $128.38. EBay lost $5.47 initially, then zoomed to close up $17.13 at $92.88.
What’s more, three Net-related new stock issues made strong debuts. HomeStore.com, a Thousand Oaks-based real estate information provider, went public at $20 a share and closed at $22.75. Internet Capital Group, a Net venture investment firm, went public at $12 and rocketed to $24.44. And Mission Critical Software, a networking software firm, was priced at $16 and jumped to $25.44.
Trading activity surged in Internet stocks as well as the market as a whole. Volume was 1.17 billion shares on Nasdaq and 859 million on the NYSE. But neither figure was close to a record.
Before Thursday, shares of many leading Net companies were down 50% to 70% from their April highs as occasional rallies since then were repeatedly snuffed out.
Some experts doubt the Internet sector can sustain a concerted rebound. If the stocks begin to rise, many individual investors who bought them on dips in recent months may try to exit at break-even or with smaller losses.
That could short-circuit any rallies. In Wall Street parlance, Internet stocks must grapple with “overhead supply.”
While momentum could carry Internet stocks higher for a couple of days, the real test could come with the next sell-off, said Doug Fairclough, chief investment strategist at ClearStation.com, a technical-analysis Web site.
The sector may “retest” the lows set early Thursday, and it would be a bearish sign if stocks fall below those levels. “Not until we see the next down day can we say whether they’ve put in their lows,” Fairclough said.
Bargain hunters should wait until the sector is clearly on the mend before buying, Bollinger said. Though they would miss the chance of getting in at the lowest possible point, they would cut the risk of doing so just before the stocks take another tumble, he said.
“Wouldn’t you rather buy these things 10 or 15 or 20 points higher with some sense of confidence that they’re no longer in a free fall?” Bollinger said.
Brian Belski, chief investment strategist at George K. Baum & Co., is skeptical about short-term prospects for the market overall, with the Nasdaq index still down 10.4% from its July peak.
“Even though the market closed strong, it wasn’t indicative of the type of [overwhelmingly strong] reversal this bull market has exhibited in the past two or three years,” he said.
Markets face a key test today when the government releases July employment data.
Rising interest rates--in part reflecting fears that the Federal Reserve will tighten credit further when policymakers meet Aug. 24--have been vexing stocks.
Market Roundup, C6
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EBay’s Wild Ride
After diving at the opening of trading, shares of Ebay rocketed to a 23% gain for the day--leading a dramatic rebound in Internet stocks. Intraday trading on Nasdaq:
Close: $92.88
Note: All times Pacific
Source: Bloomberg News
