Pulse: Investors Tip Their (Rally) Caps to Net Stocks

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OK! It's the weekend. You can take those rally caps off now. But don't forget to put some sunscreen on.

Tech stocks rallied for the third straight day, pausing ever so slightly this morning before moving progressively higher throughout the afternoon. The

Nasdaq

ended the day up 71.32, or 1.7%, at 4246.18.

TheStreet.com Internet Sector

index climbed 42.04 points, or 5.1%, to 862.47. Friendly inflation data this morning, which did not threaten views that the

Federal Reserve

will not raise interest rates any time soon, provided some support, though the market has been celebrating good earnings most of the week.

Among the best-performing stocks were the traditional Internet companies that had been down for the count before strong numbers from

Yahoo!

(YHOO)

earlier this week. After pausing yesterday, Yahoo! was back on the offensive today, gaining 5 7/16, or 4.4%, at 128.

Also,

Amazon.com

(AMZN) - Get Report

closed up 7 1/2, or 21%, at 42 1/2 following a positive research note on the company's cash-flow projections from

Salomon Smith Barney

(see story below). Both

eBay

(EBAY) - Get Report

and

priceline.com

(PCLN)

closed higher after

Credit Suisse First Boston

initiated coverage of the e-commerce plays (details below). eBay finished up 7 3/4, or 14.5%, at 61 3/16 after receiving a strong buy rating, while priceline, which received a less stellar buy rating, added 1, or 2.6%, to 39 7/16, though it traded as high as 40 11/16. Also, America Online

(AOL)

closed up 3 7/8, or 6.7%, at 62 1/8, while Lycos

(LCOS)

closed up 4 5/16, or 9.6%, at 49 3/16.

Frenkel Warning!!!!!

Those readers who do not want to hear comments from Steven Frenkel, market strategist with

Ladenburg Thalmann

, should read

Katie Hobson's

story on e-tailers that ran a little while ago. We'll see you again on Monday.

The

poll we ran earlier this week asking whether we should talk to him came up 51% against to 49% for. Since about 77 readers indicated they did want to hear from him and since this is not a democracy, we'll publish some more comments from the controversial technical analyst.

When we last spoke to Frenkel on

June 9, he had a target of 2800 on the Nasdaq. In reality, the market rallied and Frenkel's call was proved wrong, something he readily admits.

Frenkel claims he changed his forecast on June 20, the day after the Nasdaq closed above its May 1 high of 3982 (it closed right around 3990 on the 19th). When his call was proven wrong, Frenkel said, he was forced to change it. "The worst thing anyone can do in my position is stick with a wrong position forever. I won't do that," he said.

Frenkel said individual stocks he had been charting showed dramatic selloffs and were leveling out, suggesting to him they could turn around.

"It's not an exact science. Whoever says it is is an idiot," said Frenkel, who himself has been called an idiot in this

space before. "I'm an artist as well as a professional. And we should have some poetic license to be wrong and to get in sync. A lot of people would envy my track record, believe me. Calling a

top and having it move down 2,000 points was pretty good."

What is Frenkel forecasting now? He sees the Nasdaq going to 4861 by the end of August. If it closes above 4861, he said he would need to change for a longer-term bullish stance.

And while some of the Frenkel bashers (if they are still reading) would take issue again with him flip-flopping, Frenkel said anyone is more than welcome to listen to his daily commentary on the

Ladenburg Web site (click on "In The Media").

"I don't hide. I'm out there," he said.

2:00 p.m. EDT: Mo' Mo! Powerful Rally in DOT, Nasdaq Heralds Return of Momentum

Traditional Internet plays were faring well midday as the

Nasdaq maintained the momentum that started earlier in the week.

TheStreet.com Internet Sector

index, the

DOT, was rocketing 41, or 4.9%, to 861 in recent trading. The Nasdaq was up 48, or 1.1%, to 4223. Gains have been fueled by a benign

Producer Price Index

report, though there was some hesitation following an upward revision to May

retail sales

numbers.

Leading the charge were some names that you may have heard of.

Amazon.com

(AMZN) - Get Report

was up 21.1% following a positive research note on the company's cash flow projections from

Salomon Smith Barney

(see story below). Also,

eBay

(EBAY) - Get Report

was benefiting from a positive note from

Credit Suisse First Boston

, which initiated coverage of the online auctioneer with a strong buy rating. It was up 13.8%.

priceline.com

(PCLN)

, which did not fare as well on the rating front as eBay with a buy from Credit Suisse First Boston, was nevertheless up 4.6%. And

Yahoo!

(YHOO)

, which got the ball rolling with strong earnings numbers on Tuesday, was back on the offensive, up 3.6%.

According to one daytrader, momentum traders are back and are looking for stocks that have potential to show strong numbers, such as Yahoo!,

Ariba

(ARBA)

and

Juniper Networks

(JNPR) - Get Report

, and are putting some money to work in those stocks.

He said the momentum traders also have returned to the IPO market due to the better market conditions and are playing around with those stocks more than in the recent past. He said there also is a lookout for companies that could be potential merger targets that may be scooped up.

And while sentiment is good, the daytrader said the follow-through has slowed somewhat today, suggesting the market could be getting a little tired. And while traders are more comfortable holding positions longer than they were during recent rallies in June, he said if it appears as though there is some profit taking going on "everyone could rush for the door at the same time." In addition, he said that there are still a lot of insiders who may not have gotten out when the going was good earlier in the year and may be poised to take advantage of the recent gains to book some profits, which could lead to a pullback.

The daytrader said there is little threat from the

Federal Reserve, which is contributing to the good times. "Right now it's a pretty good environment," he said. "The Fed has done a good job reining in growth and there's still some restraint in the pipeline."

10:51 a.m.: Tech Giving Back Portion of Early Gains; DOT Remains Strong

Technology stocks have given back early gains after the market took a closer look at this morning's economic data.

The

Nasdaq

was still up 17 to 4192 in recent trading after pushing as high as 4224.11.

TheStreet.com Internet Sector

index was up 24 to 845. The market had earlier cheered a friendly

Producer Price Index

report, however an upward revision in May retail sales hurt Treasuries and took some of the steam out of stocks.

Juniper Networks

(JNPR) - Get Report

was moving higher after besting earnings estimates last night. It was up 4 11/16, or 2.6%, to 173 5/8 after gaining close to 12% in yesterday's session. Juniper reported second-quarter earnings of 8 cents a share, beating the

First Call/Thomson Financial

estimate of 4 cents. But what got research houses excited were revenues of $113 million versus expectations of $77 million. And revenues were up 77% versus the first quarter.

Dain Rauscher Wessels

analyst Sanjiv Wadhwani upped revenue estimates for 2000 to $515 million from $324 million and his 2001 revenue estimate to $950 million from $483 million and earnings estimates 30 cents for 2000 from 27 cents and 2001 earnings to 40 cents from 33 cents. He also upped his price target on Juniper to 250 from 175.

Wadhwani wrote that the stock has a "premium valuation, but consistent with the company's significant market opportunity in our opinion." Dain Rauscher Wessels has done underwriting for Juniper.

Elsewhere, online grocer,

Webvan

(WBVN)

was down 19% after it

reported a wider-than-expected loss of 17 cents a share for the second quarter versus the 16-cent loss estimate.

Merrill Lynch's

Henry Blodget gave Webvan a "B+" grade for the quarter. He wrote that while the company is executing well and revenue growth exceeded expectations, "operating margin targets for mature markets (12%) are aggressive, especially with regard to delivery and distribution center costs. We believe the company is having trouble achieving the order density required to achieve these targets in the San Francisco Bay Area (which could signal a demand issue): to address this it has launched Webvan At Work (catering to small businesses) and begun serving Sacramento out of the Oakland distribution center."

Blodget also reduced earnings estimates on the company for what he said was the third time since initiating coverage six months ago. He wrote that he did not see any near-term catalysts for the stocks, and at 9 1/4, or $3 billion, Webvan was trading at 5.5 times 2001estimated revenue of $550 million, which was a premium to

Amazon.com's

(AMZN) - Get Report

2001 earnings revenue multiple of 3.3 times.

Amazon.com was among the better performing Internet stocks, up 13.8%, after

Salomon Smith Barney

put out a note in support of the company that addressed recent concerns that the online retailer could run out of money by March of 2001. Analyst Tim Albright wrote that he expected Amazon will end the March quarter of 2001 with $666 million and March 2002 with $757 million.

"Clearly we believe the concerns over Amazon¿s bankruptcy are overstated. Just like we cringed when we saw Jeff Bezos named as

Time's

"Man Of The Year" in January (one of the all-time great sell signals) we were relieved at

BusinessWeek's

recent cover page story on Amazon questioning its viability (buy signal). Amazon is not going to run out of money within the next year or the next ten years. Our sense is that we will look back and view these past several weeks as one of the great buying opportunities in the stock."

But Albright goes on to say that the "biggest risk" in Amazon's story exists in its June-quarter results. "While we are not going to hazard a gun-slinger guesstimate on the quarter, we sense that our $610 million revenue estimate may be a stretch, but that the company should show an upside surprise on the spending lines (we are estimating an EPS loss of $0.32.). Should the company show sequential growth on the top line (against $574

million last quarter) and upside against the EPS line we'd expect the stock to move back up into the high $40's to mid $50's by the end of Q3." Salomon Smith Barney has not done underwriting for Amazon.

Finally,

Credit Suisse First Boston

initiated coverage of

eBay

(EBAY) - Get Report

with a strong buy rating and a 72 price target, and

priceline.com

(PCLN)

with a buy rating and a 45 price target.

Regarding eBay, CSFB analyst Heath Terry wrote that "the network effect of the most buyers attracting the most sellers and vice versa, will continue to insulate eBay from competition. We further believe that the head start will allow the company to compete in most any market as it leverages its large global user base and its dominance of the U.S. market." He added that eBay is currently being valued at a multiple below other major consumer e-commerce companies and based on its history of profitability, "lower risk profile and powerful operating model," he felt it should be trading at a premium to the group. It was up 14.5% today.

Regarding priceline, Terry wrote that the company was "on its way to becoming part of a select group of leading consumer internet companies," and the company's potential was "far from factored into" its share price. It was trading up 1.8%.