Pulse: Net Stocks End Mixed Despite Boost in Nasdaq

Throw out all the talk that August is a boring month where nothing happens. This market is too big for that. And enough people must have stuck around to bid the Nasdaq up to 4200 level.

The Nasdaq ended the day up 102.53, or 2.5%, at 4206.34. Internet stocks, which outperformed Wednesday, closed mixed. TheStreet.com Internet Sector index closed down 2.89, or 0.3%, at 840.46 as Net stocks saw some profit-taking from Wednesday's run-up.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 2.89 -0.3% 840.46 TSC E-Commerce 0.43 +1.0% 45.28 TSC E-Finance 0.06 +0.1% 49.03 Nasdaq 102.53 +2.5% 4206.34

A guy named Bob, who asked not to be identified but has managed money for himself and others, weighed in with some thoughts following one of our earlier pieces. His comments show that TheStreet.com has the smartest readers around.

"Doesn't anyone get it? The market's action is being dictated, overall, by one thing ... we had 'October in April' and there are no real sellers left. December is now the most dangerous month on the horizon," he wrote via e-mail.

When asked why December, here was his reply:

I'm anticipating a solid though jagged rally from now till the middle of December. Mind you this is an assessment of present potential, not a prediction, so it will change as the market's action changes. But the reasons December looks tough are: 2001 is shaping up to be a tough year for stocks, both from a historical point of view (first term of president) and from a growth point of view (I think the Fed has overdone the tightening cycle). But if day-to-day indicators still show big seasonal gains then the fear of the Fed will return to boot even though the economy is actually slowing overall. It wouldn't be the first time in recent years that the Fed's inflation paranoia got carried away even as the overall economy was faltering (best example being Greenspan's anti-inflation rhetoric in the summer of '98). The election is looking like a lose-lose proposition: Bush or Gore? That's a choice?

The market is becoming increasingly preemptive and anticipatory: Fearing what happened last January and March, beginning in December those who can will begin to prepare for it by reducing margin debt (selling) and taking profits aggressively. Combine that with greater than usual tax-loss selling by individuals.

If a solid rally ensues from here, limited "headroom" for overall valuations will once again become a problem by December (because it's already a problem in market-leading stocks). With people asking themselves "what's the upside risk vs. the downside risk," caution will begin to rule ... and caution is like a "hold" recommendation: It means sell.

The mechanics of money investment have, in recent years, begun to overshadow all other facts. Up till October 31st mutual funds will do their tax-loss selling (which may have already begun but will certainly begin in September). But on November 1st it's likely they stick to their pattern and the selling stops, and they go hog wild into the market for the momentum plays. However, this will likely lose steam within 45 days for the reasons noted above and because it will end their period of window dressing. So the question will be "Now what?" The market hates uncertainty. December will be all about uncertainty.

Pretty solid analysis and better than much of the other stuff that's out there. Thanks Bob.

Now, on to the numbers.

Among the better performers were a number of infrastructure plays that CIBC World Markets began coverage of with buy ratings. Redback Networks (RBAK Quote) finished up $12.38, or 9%, to $149.38; Extreme Networks (EXTR Quote) climbed $8.81, or 10.5%, to $93.06; and Foundry Networks (FDRY Quote) climbed $7, or 8%, to $93.06.

On the downside, Yahoo! (YHOO Quote) continued to suffer from the hangover it received earlier in the week when Lehman Brothers attacked it. Yahoo! finished down $1.75, or 1.4%, at $121.50.

2:01 p.m.: Who Says Nasdaq Volume Is Low?

Who says there's weak volume as we head into the Labor Day weekend?

At sister site RealMoney.com, technical analyst Helene Meisler was bemoaning talk about low volume in the Nasdaq, saying volume has actually been pretty decent. "Two weeks ago, the Nasdaq was trading around 1.2 billion shares each day. This week, volume has actually increased as we get further into the week, with Wednesday's volume reaching 1.5 billion shares. I don't know what statistics these folks are looking at because 1.5 billion shares is not low volume in my book."

Meisler goes on to say that cumulative volume over a number of sessions is higher than it was at the July peak when the Nasdaq was at 4270. "That is not bearish, and it couldn't provide such a positive reading if the volume was as low as all those folks would have you believe," she said.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 4.19 +0.5% 839.16 TSC E-Commerce 0.74 +1.65% 45.59 TSC E-Finance 0.13 +0.26% 49.09 Nasdaq 78.6 +1.92% 4182.4

And the trades are pushing stocks in positive territory. Lately, the Nasdaq was up 78.6, or 1.92%, to 4182.4, with semiconductor stocks leading the way higher. TheStreet.com Internet Sector index was down 4.10, or 0.5%, to 839.16, giving back some of yesterday's 5.5% gain.

A number of Internet stocks were bouncing around based on research reports. Redback Networks (RBAK Quote) was up 8.7%. CIBC World Markets began coverage of the computer network systems company with a buy rating. CIBC also began coverage of Extreme Networks (EXTR Quote) with a buy rating. It was up 7%. And Foundry Networks (FDRY Quote), which received the same buy rating, was up 5.0%.

Akamai (AKAM Quote) was down 1.1% even though Wit SoundView began coverage of the company with a buy rating. Akamai helps speed up the delivery of Internet content.

On the downside, shares of Scient (SCNT Quote) were down 8.4% after First Union Securities downgraded the stock to buy from strong buy. Scient provides electronic commerce consulting services. Analysts said the company's management indicated the new business pipeline shrank in the May to July period, though it began rebuilding in August. "Management remains upbeat on its long-term prospects, but acknowledges the challenges of its revenue shift to more enterprise driven business," they wrote.

10:42 a.m.: Just When You Thought it Was Safe to Go to the Beach, Tech Stocks Move Higher

It was supposed to be a nice, quiet, holiday week. But those that stuck around apparently are intent on making waves while others are swimming in them.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 2.3 -0.27% 841.0 TSC E-Commerce 0.39 +0.87% 45.26 TSC E-Finance 1/8 -0.26% 48 27/32 Nasdaq 69.7 +1.70% 4173.5

The Nasdaq was building on yesterday's gains, up 70 in early trading. TheStreet.com Internet Sector index, which rose 44 yesterday, was down marginally to 842 today.

Gail Dudack, equity market strategist at UBS Warburg, was taking a somewhat cautious view of the market despite recent gains. In her morning report, Dudack notes that the market has performed better than it typically does in August, with the Nasdaq up 8.9% this month. Then comes the "But."

"But it may be too early to bring out the champagne," she writes. "The DJIA and [S&P 500] are encountering resistance at their March highs and the Nasdaq is sputtering a bit at its July high. And, the tough part may still lie ahead. September wears the crown as the killer month, showing losses in 27 of the last 50 years (54%), the most of all months. June and August are tied for second at 23 each."

But note, in a conversation we had with Dick Dickson, technical analyst with Scott & Stringfellow earlier this week, he said he was more positive about seeing some follow-through buying near-term in part because the market's performance in August was strong when it was not supposed to be.

Business-to-business stocks were a source of strength in yesterday's session and were back on the offensive today. Our own Joe "B2B" Bousquin took a look at yesterday's performance which came on virtually no fresh news, but general enthusiasm for the sector. Without much fundamental news behind the gains, stocks in the sector are susceptible to profit taking, particularly during a holiday week.

PurchasePro(PPRO Quote), which has added nearly 50% in the past four sessions, was up another 0.9% today following a bullish research note from Lehman Brothers. Lehman analyst Patrick Walravens said that even with the latest rally, PurchasePro was "woefully undervalued" compared to other companies in its space. He notes that PurchasePro was trading at 14 times 2001 revenue compared to Ariba (ARBA Quote) at 80 times, Commerce One (CMRC Quote) at 32 times and FreeMarkets (FMKT Quote) at 25 times.

Walravens sees two major catalysts for the recent surge in the B2B sector: regulatory clearance of certain industry consortia and optimism over September activities. He notes that both Ariba and Commerce One are planning trade events in mid-September and he would expect product and partnership announcements and demonstrations of new product features at the events. In addition, he says that gains have been magnified by short traders buying back stock as the sector rises. Lehman has not done underwriting for PurchasePro.

Also in the B2B space, I2 Technologies (ITWO Quote) was up 1.9%. ABN Amro began coverage of the supply-chain software maker with a buy rating. WebMethods (WEBM Quote), which makes software allowing computer systems to communicate with each other, and often has volatile moves due to a small float, was up 9.1%.

Alloy Online (ALOY Quote) was down 1.8%. Alloy, which provides content, commerce and entertainment for Generation Y, beat estimates with a 31-cent loss vs. the 34-cent loss Street estimate. Analysts at W.R. Hambrecht reiterated a strong buy rating on the stock and a $30 price target, saying that business was strong across all units.