Internet Stocks Flirt With a Rally Before Closing off Their Highs

When is a rally not a rally?

When it doesn't have conviction behind it.

Internet stocks were higher much of the day and had the makings of a rally before slipping late in the day. TheStreet.com Internet Sector index closed up 9.59, or 1.4%, at 679.45, but was as high as 692.33 earlier in the session.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 9.58 +1.4% 679.44 TSC E-Commerce 1.91 +2.0% 98.97 TSC E-Finance 1 19/32 +2.9% 55 3/4 Nasdaq 0.97 0.0% 2688.18

The Internet sector may just have been following the rest of the Nasdaq Composite Index lower. The Nasdaq ended down 0.97 points at 2688.18 after reaching a high of 2729.30. Sharp losses in Dell (DELL) along with declines in semiconductor stocks hurt the Nasdaq. Dell closed down 2 3/4, or 6.7%, at 38 9/16 after warning late Monday that a 25% increase in computer memory-chip component prices used in its PCs would probably dent its third-quarter profit margins.

Net stocks rallied along with the rest of the market following an as-expected Consumer Price Index report this morning. But little follow-through suggested gains may have been made on short-covering. In addition, there were concerns that the European Central Bank would raise interest rates when it meets Thursday and unsubstantiated rumors that the Federal Reserve would raise interest rates by 50 basis points.

Internet stocks were also lacking news. The sector is awaiting Wednesday's earnings report from America Online (AOL) after the close. Sources told TheStreet.com that there were rumors that AOL was indicating that it would hit the consensus estimate of 13 cents, but not the whisper number. According to Earnings Whispers.com, the whisper number for AOL is 15 cents.

Other Net bellwethers also fared well. Yahoo! (YHOO) finished up 4 1/2, or 2.6%, at 174 7/8; Amazon.com (AMZN) ended up 2 9/16, or 3.5%, at 76 5/8; and eBay (EBAY) closed up 4 1/8, or 3%, at 133 5/8.

A number of stocks that reported earnings after the close today soared in advance of those numbers. RealNetworks (RNWK) closed up 7 13/16, or 8%, at 103 3/8. It reported its first profit, 5 cents per share for its third quarter versus the First Call/Thomson Financial estimate of a 4-cent gain. It compares to a 4-cent loss a year ago.

Excite@Home (ATHM) reported a loss of 1 cent, in line with estimates and an improvement over the 2-cent loss a year ago. Excite@Home also reported it had 840,000 customers at the end of the quarter, a 35% increase from the 620,000 it had at the end of the second quarter. Ahead of its numbers it closed up 2 1/16, or 5%, at 40 5/8

Also, Juniper Networks (JNPR) reported a loss of 4 cents for its third quarter vs. an 82-cent loss a year ago and far better than the 12-cent loss estimate. It ended up 7 3/16, or 3%, at 235 15/16.

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