Moving Into New Feeding Grounds

The New Face of Wall Street

SAN FRANCISCO -- If a picture is worth a thousand words, then the charts of stocks such as Metrocall and Cytogen say volumes about what's happening on Wall Street these days.

I selected Metrocall (MCLL Quote) and Cytogen (CYTO Quote) for charting privileges for a myriad reasons, but mainly because theirs are among the most dramatic. (FYI, Metrocall fell 6% to 9 11/16 today while Cytogen jumped 14% to 13 7/16.) Also, they are representative of the two sectors that have enjoyed the most stunning gains, namely technology, especially wireless, and biotech.

But rest assured, many names several notches below the "household" variety have enjoyed similar ascents thus far in 2000 as the S&P 500 and market breadth have sagged. Others include SmartServe Online (SSOL Quote), Ariad Pharmaceuticals (ARIA Quote), Neoware Systems (NWRE Quote), and Atlantic Pharmaceutical (ATLC Quote).

To some degree, companies of this ilk are the "untouchables" of financial journalism. As I've found with past columns, writers can unintentionally find themselves moving small- and micro-cap stocks because of their relatively low trading levels. It's hard to be a "responsible" journalist in this arena because if you move a stock up, you're labeled a "tout," and if you cause it to decline, you're branded a "bully" for picking on Wall Street's equivalent of the 165-pound weakling.

These stocks may be like Elliott Ness, but they've also got "underground buzz," as The Night Watch's Eric Gillin said. When a company with a $325 million market cap such as PageNet (PAGE Quote) is consistently among the most actively traded stocks on the Nasdaq Stock Market, the Fourth Estate ignores it at the risk of becoming totally irrelevant.

In case I missed the charts, my sources were eager to point them out while I was in New York last week for a combo platter of personal and business reasons. With a variety of market pros, the conversation wasn't about the recent weakness in the Dow Jones Industrial Average or Microsoft (MSFT Quote) or even Qualcomm (QCOM Quote). Instead, my Deep Throats invariably wanted to discuss the incredible gains produced by some of the aforementioned stocks and others you've probably never heard of. (If you have heard of them and went long at the right time, congrats.)

By the way, PageNet was unchanged today at 3 1/8 on 12.2 million shares, good enough to make it "lucky" No. 13 on the OTC's most-active list.

The "Whys?" Have It

Forgive the preamble. The question (of course) is why these stocks, why now?

Without getting into the "fundamental" story for each former wallflower now enjoying the unbridled passion of traders, the "easy" answer is that this activity is just the latest example of the free-for-all, casino-like nature of this market.

"There is no orderly market. Fundamentals don't matter," declared one strategist I met with last week (but who nonetheless is trying to ride the wave in his own portfolio).

Think of it this way: The "momentum" daytraders are like sharks. That is, they can't stop moving. In the early stage of the bull market, they feasted on "big game" fish like Microsoft and Dell (DELL Quote). Last year, they moved on to the Qualcomms and JDS Uniphases (JDSU Quote) of the world. Now, they're scouring the bottom of the proverbial ocean for tasty -- but tiny -- morsels that are unlikely to keep them satiated for very long.

"It's all about what sector is hot and which are the cheap stocks" in that sector, Sam Ginzburg, managing director of equity trading at Gruntal, said today. "Buying begets buying. That's why you're seeing breakout days. It's crazy. They're new-age '49ers." (Hint: He's not talking about football.)

Satya Pradhuman, director of small-cap research at Merrill Lynch, agreed that daytraders can move small-caps to "levels you wouldn't think they'd reach in such a short time." But, "you need a fundamental reason for why these groups should work" in the first place, he added.

In that light, Pradhuman said that expectations tech spending will accelerate this year "suggests the type of stock we invest in will broaden and investors will search further down in capitalization. That's not to say a lot of good news isn't priced in. But the greater risk is if you're out of the sector."

Among the smaller names Merrill recommends are Asyst Technologies (ASYT Quote), L3 Communications (LLL Quote), and Commscope (CTV Quote). The company has done underwriting for all three.

As optimistic as he is about the tech names, the small-cap strategist surmised the big gains in biotech have been spurred largely by aggressive growth managers who've become "severely overweighted" in technology. "The success of those stocks [has] forced managers to look elsewhere for growth and caused significant spikes in biotech-type names," he said. "Biotech [stocks] have moved so severely investors should look more cautiously."

Caution. Now there's a concept few investors are employing these days. But it's petty to begrudge them their profits (paper or otherwise). Along those lines I'd like to share the philosophy of John Bollinger, president of EquityTrader.com.

"The market is right, 100% of the time, and unless you are one with the market you are wrong," Bollinger wrote in an email Friday evening. "Arguing with the market is simply wrong, 100% of the time. We are all anxious to achieve wealth via the market. To do so, one must be one with the market, not at odds with it."

The odds (and technical analysis) say stocks with charts like the ones above will eventually -- and suddenly -- fall from their dizzying heights. But, for now, the rest of us can only imagine the dazzling views.