Better-than-expected quarterly earnings at such Internet leaders as America Online and Yahoo Inc. aren't translating into better demand for their stocks.
In fact, just the opposite: Shares of the big three Net firms--AOL, Yahoo and Amazon.com--have been slumping post-earnings. At best, these once high-flying stocks are stuck in trading ranges that have prevailed since spring.
At worst, the shares are exhibiting troubling "technical" signs that could portend more disappointment for their investors.
On a fundamental level, the problem may be that the companies' financial results didn't meet the high hopes of enough investors, even though profits reported by AOL on Wednesday and by Yahoo two weeks ago topped Wall Street estimates.
"The law of large numbers is beginning to take hold," said David Simons, managing director of research firm Digital Video Investments in New York. The companies' former hyper-growth in revenue and subscribers has slowed to merely superb growth, he said. Compared with the triple-digit growth of smaller Net firms, the numbers seem tepid.
"This explains why Internet IPOs have done so well while Internet stocks overall have been lagging" the market, Simons said.
Technically, the picture is not encouraging, some analysts say. (Technical analysis is the study of price and volume patterns on stock charts, which can yield clues about a stock's direction.)
Specifically, the three stocks are again falling near so-called support levels. A support level is a price at which a stock has stabilized in the past. Support occurs when a stock dips to a point at which investors think it is cheap and step in to buy.
Yahoo's support, for example, comes in around $125. The stock closed Thursday at $145.13, down $6.75. It was at $178 on July 2.
Yahoo has already touched its support level five times this year.
Although it's encouraging that the stock has rebounded each time, each test of a support level raises the odds that it will fall below it. Eventually, the number of buyers at that price wears thin.
"Repeated assaults on support tend to lead to lower prices," said John Bollinger, a technical analyst and head of EquityTrader.com. "Each time you go down, you use up a little bit of that support."
Another worrisome technical sign: The 50- and 200-day moving averages of the three stocks are converging. These lines are the average of a stock's closing prices over a certain period. The averages are "moving" because a new price is added each day while the oldest one is dropped. A 50-day line is a barometer of short-term performance and the 200-day measures longer-term action.
Recently, the 50-day lines of Amazon.com and Yahoo have threatened to drop below the 200-day averages--usually a bad sign for a stock's trend. The weakest stock technically is Amazon.com, which skidded $18.25 on Thursday to $107.19 after reporting soaring quarterly sales but a huge loss.
With its 50-day moving average around $120 and its 200-day at $111, another sell-off today could push Amazon's 50-day average below the 200-day for the first time. The stock itself fell below the 200-day average on Thursday.
Some analysts say that going sideways for a lengthy period may help the stocks in the long run. Because the spikes that appear during buying frenzies are unsustainable, the stocks need to consolidate their gains of the last two years and build foundations for further advances, optimists say.
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Amazon: Fighting the Current?
Amazon.com's share price has weakened "technically" Thursday, falling below its 200-day moving average. Daily price moves and latest, with 50-and 200-day moving averages:
Thursday: $107.19, down $18.25
Source: Bridge Information Systems