As the Ride Grows Wilder, Investors Should Dial 411

Aw, Henry Blodget had his chance!

This past weekend, James J. Cramer challenged the analyst to raise Merrill Lynch's price target on Yahoo! (YHOO). The Internet titan had closed at 253 on Friday, and Blodget's target was well shy of the new mark. But Blodget demurred. Two trading days later, Yahoo! is at 348, in what's nothing short of a startling move by a score of technology and telecom stocks.

Check out this group of stocks:

In Flight Companies with market caps over $5 billion that gained over 20% in the week ended Dec. 6.
Adc Telecom	20.6%
Analog Devices	27.9
Apple Computer	22.7
Bea Systems	30.4
Echostar Commun	20.2
Epcos	27.9
E-Tek Dynamics	20.1
Freeserve Plc Adr	71.3
I2 Technologies	39.5
Infospace.Com	34.3
Internap Ntwrk Svs	33.9
Intertrust Techs	38.5
Liberty Digital	24.7
Microstrategy	42.8
Network Solutions	39.1
Parametric Tech	24.5
Sdl	20.7
Teradyne	27.5
Verisign	20.4
Vitria Technology	78.6
Yahoo	24.2
Source: Baseline

What the heck is going on? Readers of TheStreet.com have had some hint of what's been happening already. Several weeks ago, Cramer came up with an index of Red Hot stocks, giving us the first sign that something odd was unfolding. Then, he and Matt Jacobs, a member of his staff steeped in tech, started a rotisserie competition based on swiftly rising B2B e-commerce stocks. This is where the heart of the action has been lately.

But the movement seems to be widening. While the chart (which TSC columnist Jim Griffin recently labeled the "Parabolic Portfolio") shows some of the familiar faces, notably Yahoo!, it also includes a handful of other ideas like semiconductors and computers -- hardly Red Hots of the recent past.

But as the game widens, it becomes more dangerous. Wall Street pros talk about insane valuations, shouting their throats dry. Individuals, watching the improving stock prices, pour more money into funds aimed at these stocks. Liquidity follows hard, and the stocks start heading higher.

That's a familiar paradigm, buttressed by improved earnings outlooks and modestly improving fundamentals. The nitro for this ride, however, may be coming from a couple of one-off events. The smaller is that the year-end is coming hard upon us, and fund managers are nervous about losing ground -- any ground. They are desperate to hold winners like Qualcomm (QCOM) and America Online (AOL), and they're eager to dump losers. They don't want to have a horde of cash on their books when they cross the finish line.

The bigger piece, however, might be a rapidly diminishing fear of Y2K-related problems. Some investors sat back in the past few months, expecting some kind of skid ahead of Y2K. The skid isn't coming, and that money is racing back into the market, lest these clever investors look like fools. It's hard to measure how much liquidity that represents, but it would seem to be something. And that money is primarily chasing the hot stocks in tech and telecom.

So is this the new world of perfection, one that's even better than the last world of perfection? I would urge some caution. This move is focused in some roaring stocks, and some of the old generals are not participating so fully. For instance, Dow newcomers Microsoft (MSFT) and Intel (INTC) are flagging, unable to keep pace with the new pack of technology companies. In fact, Mister Softee and Intel act more like gracious Dow companies these days than rock-and-roll tech stocks. Time for them to move to the Big Board.

At times like this, I read as much as I can to figure out what's happening. I avoid redundant stories like the dead-tree WSJ's story on Stuart, the goofy Ameritrade (AMTD) office boy. You could've read that on TSC back in April! More to the point, Griffin had a great piece over the weekend looking at the Nasdaq's move.

I also check out our message boards and read Cramer, Herb Greenberg and others. Cramer loves the tech side of this market, and Greenberg finds himself inexplicably bullish. Capitulation on Herb's part? Is everyone capitulating? There's a lot of cash flying into the stock market right now, shares are gyrating madly and you have to grab for every piece of information you can find to make sense of it all.

Lots of money is getting made in this white-knuckle Yuletide season. Stay on your guard.

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