More Bloodletting in Net Stocks

SAN FRANCISCO -- The bleeding continued in the Internet sector, with few signs of coagulation, at midafternoon Wednesday. And according to one technical analyst, it ain't over yet.

"I think some of them are going to drop in half again from current levels," said Robert Dickey, director of technical research with Dain Rauscher Wessels.

Dickey said Net stocks are in a normal and orderly correction right now, but as people begin to "throw in the towel" and get margin calls, he expects volume and losses to accelerate and panic selling to ensue. The time frame could be anywhere from the next two weeks to the end of July, though he expects it to happen sooner rather than later.

"The way these things trade, which is volatile and emotional, the odds are that it will end on a selling climax -- huge volume and a huge price move," he said.

Dickey said additional 50% declines could be seen on some of the Net stocks with less visibility and less quality than those that are perceived to be the industry leaders. He sees some support in TheStreet.com Internet Sector index around 440 or 450, which was a low from Feb 18, but that is not necessarily a bottom. That is roughly the same level that Morgan Stanley Dean Witter analyst Mary Meeker reportedly told Morgan sales people last week. The index was down 22.7, or 4%, at 534.1 in recent trading.

Dickey said he bases his dire forecast partly on the notion that Internet stocks are being traded more on "emotion" than fundamental factors, "and emotion always ends in a climax."

"I guess the word is avoid them for now," he said. "You don't want to be the first to own them. There will be a much more comfortable and easy buy point later."

IPO Madness

IPO madness used to refer to Internet stocks that showed triple-digit percentage gains in their first day of trading. Today, things have come full circle and even a high-profile IPO like barnesandnoble.com (BNBN), which went public just last week, is now trading below its offering price.

barnesandnoble.com was off 2 15/16, or 15%, at 17 1/16 recently, which was below its offering price of 18. The online effort of Barnes & Noble (BKS) was hurt by the parent company's decision to terminate its proposed acquisition of Ingram Book Group. Barnes & Noble was down 1/8, or 0.5%, at 27 1/4.

Bearing Down

Online brokerages continued to get pummeled on the interest-rate concerns and on competition concerns after Merrill Lynch (MER) announced its intentions to go into the online brokerage business on Tuesday.

E*Trade (EGRP) was down 3 5/16, or 8%, at 36. Ameritrade (AMTD) was off 4 15/16, or 6%, at 74 13/16, while Schwab (SCH) was down 5 13/16, or 6%, at 93 11/16. Merrill was off 5 1/16, or 7%, at 70 3/16.

Morgan Riding the Rambus

Shares of Rambus (RMBS) have bounced back after Tuesday's 10-point slide.

In a note released today, Morgan Stanley Dean Witter analysts write that Intel (INTC) delivered samples of its 820 chipset (code named Camino) with Rambus DRAMs as main memory to some of its customers during the week of May 17. Based on testing, they write that Intel should be able to begin production shipments and formally introduce it with a 600 MHz or faster version of its Pentium III toward the end of the third quarter. Rambus was up 4 3/32, or 6%, at 71 1/8.

Internet stocks? Technicians don't know a thing, I'm buying. Close to a bottom, I'm holding. Margin calls are hurting, I'm selling. Party is over, I'm shorting.

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