Internet Stock Sell-Off Drags Market Down
A sell-off in big-name tech stocks, particularly sagging Internet issues, drove Wall Street sharply lower Tuesday and left little doubt that the market’s powerful rally of recent months has given way to a budding downturn.
With Intel, Cisco Systems, Yahoo and Dell Computer all tumbling, the Nasdaq composite index plunged 94.13 points, or 3.9%, to 2,310.79, its worst drubbing in percentage terms since Oct. 5 and the third-biggest point decline ever.
The Dow Jones industrial average sank 158.08 points, or 1.7%, to 9,133.03, as falling stocks outnumbered winners by 2 to 1, though in modest trading volume.
In the Internet sector, the Interactive Week index of 50 Net-related stocks plummeted 6.7% as nearly all Net shares dropped. What’s more, some analysts who focus on stocks’ chart patterns warned that key Net stocks were reaching price levels that could spark heavy selling if they are breached.
The latest Net stock sell-off was triggered by the surprise announcement Tuesday that Web search engine Lycos will be merged into Barry Diller’s USA Networks. The terms of the deal clearly disappointed investors, who hammered Lycos’ stock.
But analysts noted that most Net shares have been sliding since peaking in January. “We’ve had more than the first sign of trouble” in Internet stocks, said Ricky Harrington, a veteran analyst at Interstate/Johnson Lane, a regional brokerage firm in Charlotte, N.C.
The market overall, meanwhile, has struggled in recent weeks as long-term interest rates have risen amid fresh signs of strength in the U.S. economy, and as several influential Wall Street analysts have warned that a sell-off was overdue.
The blue-chip Standard & Poor’s 500 index, for example, peaked on Jan. 29 and has fallen 5% since. The Dow is down 5.3% from its high of 9,643.32 on Jan. 8.
Big-name tech stocks, which were strong even into late January, were slammed Tuesday. Intel slumped $6.69 to $125.31, Dell lost $6.25 to $97.81 and Cisco sank $6 to $95.94.
Despite the large percentage losses Tuesday, analysts noted that trading volume of 736 million shares on the New York Stock Exchange and 915 million on Nasdaq was well below average.
Low volume on a down day is considered to be a good sign, indicating that the market’s problem may be more a dearth of buyers than a surge of sellers.
Still both the Dow and several top Internet stocks flashed warning signs that more trouble could lie ahead.
The Dow dropped below its so-called 50-day moving average, a key indicator to technical analysts who study the market’s price and volume patterns. That means the Dow fell below its average closing price over the last 50 days.
As for Internet stocks, many dropped to near the intraday lows they hit in a sell-off last month. Amazon.com, for example, whose recent intraday low was $92.56 on Jan. 21, slid $9.13 to close at $100 on Tuesday.
Amazon.com also dipped below its 50-day moving average line Tuesday. Other Internet stocks, such as Yahoo, Broadcom and Broadcast.com fell to near their 50-day lines.
The stocks’ brief rebound late last month was uninspiring, some traders said.
“All you got was a three- to 3 1/2-day bounce, and that tells you something,” said Jeff Cooper, an author of three books on trading and a co-founder of the Tradehard.com Web site.
If leading stocks do fall below their January troughs, that would create a pattern of lower highs and lower lows, which would be very bearish, some traders said.
Thus, Tuesday’s selling raised new questions about whether the Net-stock “bubble” has burst, or whether the stocks are merely “correcting” before another run-up.
The issue is important because some market watchers view Net stocks as an important barometer of market sentiment.
But as with the market overall, Net stock trading volumes have been falling, which may indicate there is no panic move to jettison the stocks.
“The volume has been declining on the way down,” said Brian Belski, chief investment strategist at George K. Baum & Co. “Are they breaking down? Yes, in the near-term. Is this cataclysmic for the Internet stocks? No. It’s healthy and much-needed.”
For the broad market, one depressed sector faced even more bad news Tuesday: The Russell 2,000 index of smaller stocks fell 2% after sinking below its 200-day moving average Monday.
Because it measures a longer period, an index or individual stock’s decline below its 200-day line is more bearish than sliding under the 50-day line.
Among the few bits of good news for the market was a modest rally in the bond market, pushing the 30-year Treasury bond yield down to 5.30% from 5.35% on Monday.
Yields fell even though the government’s $15-billion five-year note auction drew only mediocre demand. The average yield was 4.77%.
The Treasury auction continues today with the sale of $10 billion in 10-year notes and concludes Thursday with the sale of $10 billion in 30-year bonds.
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Down They Go (Again)
Most Internet-related stocks peaked between late December and late January, and most of the major names have lost more than a third of their value from their record highs. A sampling of Net stocks:
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52-wk Tues. Tues. % drop Stock High Low close chg. from high America Online $177.50 $24.88 $147.94 -$11.06 -17% Go2Net 142.50 10.63 99.00 -13.50 -31 Excite 125.00 18.00 85.13 -8.00 -32 EBay 321.00 25.25 212.88 -18.13 -34 Doubleclick 114.63 13.50 74.75 -5.25 -35 Yahoo 222.50 15.19 140.75 -17.88 -37 Inktomi 94.88 15.38 57.88 +4.38 -39 Amazon.com 199.13 9.50 100.00 -9.13 -50 Theglobe.com 97.00 27.00 47.88 -9.38 -51 CDNow 39.25 7.00 18.88 -0.69 -52 Broadcast.com 289.50 32.75 113.00 -9.00 -61 Ubid 189.00 30.00 60.75 -8.25 -68 S&P; 500 index 1,279.64 957.28 1,216.14 -27.63 -5
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Source: Reuters
Market Roundup, C7
Internet index, C8
