Fueled by Economic Data, Net Sector Ends in Rally Mode

Tame economic data certainly helped fuel Thursday's rally in the stock market. It is a purely fundamental phenomenon, which is why we'll focus on technical factors in this space.

Bolstered by a friendly National Association of Purchasing Management report, technology stocks were in full-blown rally mode. The Nasdaq ended the day up 181.59, or 5.3%, at 3582.50, while TheStreet.com Internet Sector index closed up 58.29, or 7.4%, at 849.92. If you had to say that something held the market back from even stronger gains, it would be tomorrow's employment report.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 58.29 +7.4% 849.92 TSC E-Commerce 2.06 +4.3% 49.74 TSC E-Finance 1 3/8 +3.1% 46 1/8 Nasdaq 181.59 +5.3% 3582.50

Among the best-performing stocks, VeriSign (VRSN) closed up 19 3/16, or 14%, at 154 9/16, while Network Solutions (NSOL), which is being bought by VeriSign, closed up 17 1/2, or 11.8%, at 165 5/16. Yahoo! (YHOO) closed up 7, or 6%, at 120 1/16, while eBay (EBAY) added 4 13/16, or 7.7%, to 67 3/8. RealNetworks (RNWK) added 4 1/4, or 11.7%, to 40 9/16.

Business-to-business stocks had a huge day and our own James Cramer wrote earlier that the stocks may be getting some relief from the insider selling that has contributed to the recent decline in B2B names. 724 Solutions (SVNX) screamed up 8 7/16, or 24%, to 43 15/16; Vignette (VIGN) added 2 7/16, or 8.8%, to 30; Broadcom (BRCM) gained 14 9/16, or 11%, to 144 5/8; and i2 Technologies (ITWO) tacked on 10 1/16, or 9.4%, to 116 3/4. Among Internet infrastructure plays, Redback Networks (RBAK) climbed 12 3/16, or 14.5%, to 96 1/16, while Juniper Networks (JNPR) gained 14 5/16, or 8%, to 189 1/2.

Dick Dickson, technical analyst with Scott & Stringfellow, was not ready to completely buy into the rally yet. Dickson said that the volatility seen in the tech sector of late was investors trying to decide which way the sector was going to go. He said that bottoms generally end in low volume and low volatility, and while the sector has seen low volume, it remains volatile, suggesting that a bottom has not been reached yet.

Dickson said sellers are still out there, but are waiting in the wings to see how far the up move goes. He said he "wouldn't be surprised" if they emerged around the 3700 level in the Nasdaq, though it could be as soon as tomorrow pending the take on the employment report.

Dickson said he remained bearish on the tech stocks, but not the overall market due to a supply-demand imbalance and the expectation that sellers are waiting in the wings. He added that he would be taking profits in technology at this time. While he would not discount the technology sector trading higher, he said it would be following the rest of the market, not leading it. He said tech stocks would rally slower than the rest of the market, but sell off quicker if it happens.

"I may be 100% wrong on this, but I think the leadership in this market is going to start with the staple stocks, the financial stocks, the defensive stocks overall," he said.

Dickson already laid out his upside target of 3700, saying he would need to re-evaluate if it closed above there, though a real re-evaluation would not occur until it finished above 4000. On the downside, he did not expect the recent lows to be reached, but could test support around 3300.