Is Tech Sell-Off Fueling Internet Rally?

Coincidence? Even though big-name technology stocks such as Dell Computer and Intel have been pummeled recently, many Internet names have rallied sharply from their late January or early February lows.

Leading tech stocks are being yanked lower by fears that personal computer sales are slowing. Disappointing sales growth data spurred a sell-off in Dell two weeks ago, and shares of Compaq Computer were pounded Friday on similar worries.

On Tuesday, Intel was hammered after at least one analyst downgraded the stock on sales concerns.

Meanwhile, Internet stocks, after undergoing a brutal sell-off earlier this year and looking troubled as recently as two weeks ago, have been surprisingly resilient.

“They’ve showed a great deal of strength in the past two to two and a half weeks,” said Richard Dickson, technical analyst at Scott & Stringfellow, a regional brokerage firm in Richmond, Va. “I find it amazing.”

The comeback in Internet issues may be occurring in part because of the weakness in the mainstream techs. As money has peeled off of the big-name techs, some cash may have gone into beaten-down Internet stocks.

At a minimum, the Internet resurgence points up the continuing faith of individual investors--some might call it mania--in the sector.

“It says the public still thinks Internet stocks are the place to be,” said Michael Kahn, chief technical analyst for Bridge News.

Net stocks plunged hard in January when their sizzling 1998 rally finally burned itself out. Given that decimated stock sectors rarely muster another head of steam quickly, some observers thought that was the end of the Internet-stock love-fest.

That looked to be the case as recently as mid-February. Two weeks ago, for example, Net bookseller Amazon.com was hitting fresh two-month lows.

But nothing about Internet stocks is true to form. It has helped that one of the most widely followed Net analysts, Morgan Stanley Dean Witter’s Mary Meeker, published a report Feb. 9 saying Internet “fundamentals continue to be outstanding and we think will only get better.”

To technical analysts, who study stock price and volume patterns, major Net-stock indexes found “support” in the middle of last month. That means they declined to a level they’d previously hit, then managed to hold there.

That set the stage for the latest rally. In fact, the Interactive Week Internet index now may be forming a bullish “triangle” pattern that could presage another advance, some analysts say.

However, few experts predict the Net stocks will score huge gains immediately. Indeed, many of the stocks sank Tuesday along with the rest of the tech sector, a possible sign that their recovery is ready to stall, Kahn said.

“You can’t say, ‘Gosh, it’s a buy right here,’ ” he said, but added, “I’m much more bearish on techs in general than on the Internet” sector.