Yesterday's late rally may have created some false hope because the market was back on the defensive early today.

The

Nasdaq

, which erased most of a 200-point loss Monday and closed on its highs, was down 77.89, or 2.3%, to 3286.32 in early trading today.

TheStreet.com Internet Sector

index was down 22.53, or, 2.8%, at 795.85.

Among the early movers were the principles in Monday's two mergers.

webMethods

(WEBM)

, which dropped 17% on news it was buying

Active Software

(ASWX)

, was down 1 1/8, or 2%, to 70 7/8 early today. Active Software, which fell 3% yesterday, was down 7/16, or 1%, to 31 15/8. Also,

Vignette

(VIGN)

, which fell 20% on news it would be buying

OnDisplay

(ONDS)

, was down another 1 7/8, or 5%, to 33. OnDisplay was down 3, or 6%, at 51 1/8. Our own

Joe "B2B" Bousquin

took a closer look at the mergers and what they meant for the sector in a

piece, yesterday.

Elsewhere,

Lehman Brothers

published a mostly positive note on

Amazon.com

(AMZN) - Get Report

. Analyst Holly Becker, previously of

Salomon Smith Barney

, wrote that a recent meeting with Amazon management reinforced her view that the company "has built an incredibly valuable, powerful brand that the company is rapidly evolving into a world class retailer." However, she noted, Amazon's challenges "as significant: It must continue to grow at a rapid clip, while lowering costs dramatically."

Becker concluded by reiterating a buy rating based on her longer-term view of the company, but claims the stock "will continue to tread water" until there is more insight as to whether it will meet near-term cost reduction targets and whether its newer business will gain traction. It was down 2 1/4, or 4%, to 49 5/8 in early trading. Lehman Brothers has not done underwriting for Amazon.

Finally, Salomon Smith Barney reduced earnings estimates on

E*Trade

(EGRP)

,

Ameritrade

(AMTD) - Get Report

and

DLJdirect

(DIR)

.

Salomon Analyst Matthew Vetto wrote the reductions were due to a softening in trading volumes. He wrote that while near-term market conditions remain choppy, "we remain bullish on the long-term growth prospects for the industry." But Vetto also noted that with both Ameritrade and E*Trade down sharply this year, it actually allowed investors an "opportunity to build positions at washed out prices."

In early trading, E*Trade was down 1/4, or 2%, at 16 1/4; Ameritrade was down 1/16, or 0.5%, at 12 51/2, while DLJdirect was flat at 9 3/8.