Pulse: Tech Sputters to Close as Any Strength Is Sold

It should have come as no surprise that the Nasdaq closed lower today after spending much of the day in positive territory. Or should it?

The Nasdaq ended the day down 27.06, or 0.7%, at 3658.46 after trading as high as 3753.95. TheStreet.com Internet Sector index finished up 2.30, or 0.3%, at 705.47, though it had traded as high as 724.34.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 2.30 +0.3% 705.47 TSC E-Commerce 0.55 -1.4% 39.17 TSC E-Finance 9/16 -1.3% 44 7/16 Nasdaq 27.06 -0.7% 3658.46

There have been enough analysts recommending that investors sell into any strength in the technology sector, so it should not have been too surprising to see the Nasdaq give back its gains. The Nasdaq, however, has rebounded after a bad day as recently as Monday, so investors may have felt a recovery was in the works when the market pushed higher this morning. But in the end, sellers won out as negative sentiment, supply, and concern ahead of Friday's employment report won out.

We spoke with one daytrader who was being whipsawed around like many other traders in the past few days. The daytrader said he was betting the market would continue to go down; he shorted in the biotech sector today and "got killed" when biotechs rallied earlier today. As for tech stocks, the daytrader said that while he is not staying away from tech, "I'm just not sure where it's going from here. I don't have a strong feeling if its over- or undervalued."

The daytrader said that he expects some buying interest in tech to emerge as the month progresses, because the Nasdaq has bottomed in August in each of the past three years, "and CNBC keeps spouting every day about how you have to be in the market into an election." But, he said that because everyone knows about those patterns, they no longer may be the smart play, and "smart money" could continue to sell into any strength.

The one area that the daytraders are participating in, he said, is initial public offerings. Because only larger institutions can short them, he said daytraders have a better shot at getting those stocks to move and make money.

Among the day's big movers, Juno Online Services (JWEB Quote) closed down 2 1/16, or 22%, at 7 3/16 after the free Internet service provider was downgraded by a couple of firms after reporting quarterly numbers last night. Salomon Smith Barney cut its rating on the stock to neutral from buy. Also, Chase H&Q cut the stock to market perform from buy. Rising costs to acquire customers and increased competition were listed as reasons for the downgrades.

On the upside, Pegasus Solutions (PEGS Quote) soared 3 7/8, or 36.5%, to 14 1/2 after the company blew away earnings estimates last night. Pegasus reported earnings of 17 cents a share, 9 cents better than the First Call/Thomson Financial estimate.

2:13 P.M.: Inktomi, Vignette Bounce Back

Gains in the tech sector this afternoon seem to be reigned in by investors who are heeding the advice from many analysts to sell into strength. Some stocks have been on a wild ride, falling one day only to bounce back the next.

The Nasdaq was up 31, or 0.84%, to 3716.5, though it had traded as high as 3753.95 earlier today. The Nasdaq would likely attract more buying interest and short covering if it was able to get above the high near 3768 that it reach during the past two sessions. TheStreet.com Internet Sector index was up 11.09, or 1.58%, to 714.26 after trading as low as 695.60.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 11.09 +1.58% 714.26 TSC E-Commerce 0.06 -0.15% 39.66 TSC E-Finance 1/16 +0.14% 45 1/16 Nasdaq 31 +0.84% 3716.5

Over at RealMoney.com our own technical guru, Gary B. Smith, was griping about the price action in the Nasdaq this week. His suggestion for traders: "Wait it out."

With the Nasdaq trading down 179 last Friday, up 103 on Monday, then down 82 yesterday, he claims the waiting game is the best course of action. Smith says it's too risky for investors to play the market volatility. In an e-mail correspondence, he said that to play the volatility you have to count on an up/down bounce and "exactly when you do that is when the market starts to trend, like it did last week!"

A couple of real-life examples of what Smith's talking about? Sure. Electronic commerce software maker Vignette (VIGN Quote), which was down about 15% yesterday, is up 17% today, without any news behind the move. Investors apparently liked Vignette trading below 29 yesterday, and when the stock started to go up, those who shorted it were forced out of their positions. It was lately trading at 33 7/8.

Inktomi (INKT Quote) closed below 100 yesterday for the first time since April 17. That was enough for some buyers to step in. The maker of search and traffic control technolgy was up 4.3% today.

Elsewhere, shares of Pegasus Solutions (PEGS Quote) were soaring, up 36.5%, after the company announced last night that it bested quarterly numbers. The company, which makes electronic software for hotels, reported earnings of 17 cents a share, far above the First Call/Thomson Financial estimate of 8 cents. It was upgraded to strong buy from buy by Legg Mason.

Legg Mason analyst Thomas Underwood wrote that Pegasus addressed the two issues he felt were depressing the stock -- concern over industry consortia and its ability to successfully integrate the acquisition of RezSolutions, a hotel reservations provider. He increased 2001 earnings estimates to 81 cents from 51 cents.

"While we do not expect PEGS to exceed numbers as significantly as it did in the current quarter, there is a long history of 20% yearly earnings growth, and several catalysts could lead to earnings surprises," Underwood wrote.

Action for traditional Internet plays

Traditional Internet stocks were seeing some support as well. Yahoo! (YHOO Quote) was up 1.6%. And eBay (EBAY Quote) was gaining 2.7%.

Finally, we came across this story from the Seattle Times regarding Amazon.com (AMZN Quote) and what the company is doing to retain employees in the face of recent troublesome corporate happenings. The article claims that Amazon has offered employees a more lucrative stock-options package to keep them on board. According to the article, Amazon CEO Jeff Bezos wrote in an e-mail last week that full-time employees hired before July 24 are eligible to have their options repriced at $30 a share if their original exercise price was greater than $29.75. Amazon was recently up 1 5/16, or 4.3%, to 31 5/8.

10:36 a.m.: Nasdaq, TSC Internet Index Recovering in Tentative Trading

After an early setback, the Nasdaq was pushing to the upside, getting help from gains in the overall market.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 13.51 +1.9% 716.68 TSC E-Commerce 0.25 +0.6% 39.97 TSC E-Finance 0.03 +0.1% 45.03 Nasdaq 39.40 +1.1% 3724.92

In early trading, the Nasdaq was up 39, or 1.1%, to 3725 after trading as low as 3652, roughly equal to the level where traders began searching for bargains on Monday. Continued gains in the Dow were helping the Nasdaq. However, the market's lethargic recent performance, a lack of upside catalysts, an increased supply of stock and hesitation in front of Friday's employment report were limiting a strong move to the upside.

In other tech news, check out Justin Lahart's insight on a growing practice, month-end mark-ups, in a TSC story that ran last night.

Among stocks in the news, Juno Online Services (JWEB Quote) was down 12.5% despite last night posting quarterly numbers that beat Wall Street estimates. The free Internet service provider lost $1.11 a share compared with the $1.23 loss estimate from First Call/Thomson Financial. Still, Salomon Smith Barney cut its rating on the stock to neutral from buy.

Salomon analyst Lanny Baker writes that despite Juno's beating per-share estimates and having in-line revenue, he felt that rising subscription acquisition costs and a competitive ISP environment "challenge Juno's ability to reach current subscription and revenue targets." Salomon has done underwriting for Juno Online.

Shares of NetB@nk (NTBK Quote) were up 6.9%. Yesterday, the company announced a strategic alliance with Ameritrade (AMTD Quote) that will offer reciprocating services to the customers of both businesses.

Under the agreement, each new Ameritrade applicant will have the opportunity to apply for a NetB@nk checking account without having to enter any additional information. As an incentive, approved applicants will be paid a bonus for funding their new NetB@nk accounts. NetB@nk customers will be offered discount brokerage services through Ameritrade's AmeriVest with no account setup or maintenance fees, and automatic transfer of idle cash from their brokerage accounts to their NetB@nk checking accounts.

Salomon Smith Barney analyst Matthew Vetto spoke positively of the agreement, indicating it provided a more comprehensive offering for Ameritrade's customers without added infrastructure costs.

"While this agreement is not strikingly different from many other marketing alliances announced throughout the industry, we view it as an additional step by Ameritrade to build a more integrated online financial services model that may include brokerage, banking, credit, mortgages, advice, bill pay services," Vetto writes. "In contrast to competitor E*Trade (EGRP Quote), however, Ameritrade has chosen to build this platform through a series of alliances with premiere, well-known brand names rather than either 'buy' or 'build' decisions, which can be costly and bulk up its infrastructure." Salomon has not done underwriting for Ameritrade.