Internet Stocks Rally, but Broad Market Falls
Ravaged Internet stocks got at least a temporary reprieve Friday when bargain hunters propped up shares of leading companies, but that wasn’t enough to keep the broad market from falling again after a sell-off in shares of IBM.
Yahoo, Amazon.com, Broadcast.com and EBay finished higher after losing 40% or more of their market values in the last two weeks.
For the moment, the rallies silenced the debate about whether the Internet stock bubble has burst.
But while some Wall Street analysts prodded investors to scoop up shares at lower prices, others predicted that bottom-fishers will be hurt when the sell-off resumes.
“They came down so quickly they’ll probably bounce” a bit, said Stan Weinstein, editor and publisher of the Professional Tape Reader newsletter in Hollywood, Fla. But “this time a rally in the Internets is a selling opportunity.”
The Dow Jones industrial average dropped 143.41 points, or 1.6%, to 9,120.67.
A sharp drop in IBM accounted for about half the loss. IBM shed $17.25, or 8.8%, to $179.75 after a disappointing earnings report Thursday.
The Dow is now down slightly for the year. The Nasdaq composite index gave up 5.84 points, or 0.3%, to 2,338.88.
The Internet stock rally showed how deeply ingrained the “buy-on-the-dip” mentality has become among individual investors.
“It takes prolonged downside activity . . . to really dampen investor enthusiasm given the nature of the markets we’ve had,” said David Simons, managing director of Digital Video Investments, an institutional research firm in New York.
“One or two weeks doesn’t do it,” he said.
In fact, electronic bulletin boards frequented by small investors were peppered with messages advising that people dive into Net stocks.
“Do not sell!” implored one investor on a Yahoo message board. “We are close to the bottom, and you will miss the big run-up! Why sell when you are down over 50% already?”
Yahoo rose $21, or 7.9%, to $286 and Amazon.com climbed $17, or 16%, to $123. EBay improved $15, or 8.3%, to $196.75, and Broadcast.com surged $27.75, or 25.6%, to $136.25.
The stocks were helped by a report by Keith Benjamin, Internet analyst at BancBoston Robertson Stephens, who wrote that “underlying fundamentals remain better than ever” in leading stocks and that “the long-term trend for the stocks will be up.”
After a furious rally burned itself out, Internet shares have tumbled hard for two weeks. Through Thursday, Yahoo was off 40% and Amazon.com was down 47%.
But, Benjamin said, Internet stocks have roared back from past slides.
From July to January, Amazon.com suffered five “corrections” of between 14% and 45%, but still surged overall, he said.
By at least one measure, Internet stocks were poised for a bounce Friday. So-called technical analysis, which studies the price and volume action of stocks, indicated the stocks might rally.
Specifically, big stocks such as Yahoo and Amazon.com fell Thursday to what’s known as their 50-day moving average lines, but rebounded from those points Friday.
A moving average shows the general trend in a stock price over a certain period. It’s calculated by tallying a stock’s closing price over a certain number of days and then dividing by the number of days--in this case, 50.
That they bounced off their 50-day lines was a signal to some investors that the stocks had hit their lows--at least for the moment.
That prompted investors to buy on the assumption that a rally would ensue.
The 50-day moving average “might not mark the low of the stock, but it is a point where a stock like Yahoo is going to put up a little bit of a battle,” said Doug Fairclough, chief investment strategist at ClearStation.com, a technical-analysis Web site.
It’s far from certain, however, that the rally will last. After jumping early Friday, many Internet issues closed off their highs as the broad market weakened throughout the day.
Among Friday’s highlights:
* IBM tumbled after the computer maker’s fourth-quarter profit fell short of some analysts’ expectations. Though Big Blue beat consensus estimates by 2 cents a share, some investors were expecting an even better performance.
* The yield on the 30-year Treasury bond edged down to 5.08% from 5.13% on Thursday as investors fearing a possible correction in stocks sought safety.
* Showing that initial public offerings of Internet stocks remain in demand, three Net-related companies soared in their first day of trading. Allaire Corp., a developer of software for the World Wide Web, jumped $23.75 to $43.75. Covad Communications Group, which provides high-speed Internet access over copper telephone lines, rose $27.38 to $45.38. NVidia Corp., a maker of computer processors for three-dimensional graphics software, rose $7.69 to $19.69.
Meanwhile, worries over Brazil’s economy battered overseas markets.
In Asia, Japan’s Nikkei-225 stock average fell 0.6% and Hong Kong’s Hang Seng index fell 3.1%. In Europe, Germany’s DAX-30 index fell 3%, Britain’s FTSE-100 fell 2.7%, and France’s CAC-40 fell 3.2%.
In currency trading, the dollar closed at 114.54 Japanese yen, up from 113.68.
Market Roundup, C4
