The market has worshipped at the Moloch of the Internet, and this is what comes of it.

At least this is one version of what is happening on a morning when Wall Street is facing steep declines. Perhaps this view's not an entirely just one. There are, after all, worries about Brazil and chatter over an impending devaluation in China. We're seeing a market that, by most accounts, has gotten way ahead of itself.

But it takes some lapse in sentiment, some crisis of confidence, for stocks to break lower. The falloff in Internet stocks -- the icons of the market's drive off its October lows -- is providing one. That these stocks have come back down to the level where many of them saw their most active buying -- in other words, the point where many investors got in -- will make them one of the keys to the market today. A lot of paper profits have gone by the wayside, and there is now a danger that investors, faced with a loss, will really unload.

What makes declines in these issues especially dangerous, points out Bill Meehan, market analyst at

Cantor Fitzgerald

, is that they ran so high, so fast, that many got to be more than 200% above their 40-day moving averages. "Needless to say," said Meehan, "there aren't very substantial support levels until you get substantially lower than you are now."

"These are the ultimate sentiment indicator," said Dan Mathisson, head stock trader at

D.E. Shaw Securities

of the Internet stocks. "They led the market up, and now they're leading them down."

This is all happening in the context of one of those vicious cycles the world's markets sometimes get into, where the U.S. goes down, which sends Asia down, which sends Europe down and so on. As usual, it will probably take the U.S. to stop this cycle because global investors see it as the litmus test for the world. The question for today is not whether stocks will go down at the open -- they almost certainly will -- but whether investors will step in and buy the dip.

"That's the $64 question," said Meehan. "I don't buy, but then again, I haven't bought a dip since October. This market is extraordinarily dangerous. We've got bullish sentiment at the highest levels since '87." When sentiment levels run that high, the market is priced for a perfect world -- which, of course, the world is not.

"I think the bears are winning this one," said Mathisson. "Everything across the board is down. The market's had a very different feel to it, almost for the last 2 weeks. I think the smart way to play this is to stay away until you see a little upside momentum."

At 9 a.m. EST, the

S&P 500

futures were off 7.1, more than 17 below fair value, indicating a drop at the open.

The expected declines in stocks are again bolstering the Treasury market. The 30-year was up 24/32 to 102 18/32, dropping the yield to 5.04%.

In the decline that the major markets around the world have seen today, Japanese stocks fared the best. Technology stocks did poorly, hurt by the tech selloff in the U.S., and bank shares saw profit-taking off their recent rally. The

Nikkei

dropped 91.02 to 14,154.4.

Worries that the trouble in Brazil could spread from Latin America to China, forcing a devaluation of the yuan, hurt Hong Kong stocks badly. The

Hang Seng

slipped 310.05, or 3.1%, to 9738.52.

Other Asian bourses also saw heavy selling. Most notable was Korea, the market that came the furthest off its lows this fall. The

Kospi

fell 31.46, or 5.4%, to 550.48.

European markets were all sharply lower. In Frankfurt, the

Dax

was down 170.57, or 3.3%, to 4986.1. In Paris, the

CAC

was off 139.72, or 3.4%, to 4014.31. In London, the

FTSE

was off 173.5, or 2.9%, to 5848.8.

Friday's Wake-Up Watchlist

By Brian Louis
Staff Reporter

    AT&T

    (T) - Get Report

    is considering selling its Internet-access business to

    @Home

    (ATHM) - Get Report

    in exchange for $1 billion in @Home stock,

    The Wall Street Journal

    reported, citing people familiar with the situation. On Tuesday, @Home announced it was buying

    Excite

    (XCIT)

    for $6.7 billion.

    Primestar

    , a direct-to-home satellite provider, said it's selling its satellite businesses to

    Hughes Electronics

    (GMH)

    in two transactions for $1.8 billion.

    IBM

    (IBM) - Get Report

    after the close yesterday reported fourth-quarter earnings of $2.47 a share, 2 cents higher than the 21-analyst

    First Call

    expectation and up from the year-ago $2.11.

    Morgan Stanley Dean Witter

    downgraded Big Blue to outperform from strong buy. Several other firms, meanwhile, maintained their current ratings on IBM.

    (Earnings estimates from

    First Call

    :)

    Air Products & Chemicals

    (APD) - Get Report

    posted first-quarter earnings, excluding items, of 55 cents a share, a penny shy of the 12-analyst view, but up from the year-ago 53 cents, which excludes items.

    Bergen Brunswig

    (BBC) - Get Report

    has acquired

    Stadtlander Drug

    , a subsidiary of

    Counsel

    , for about $400 million, a total which includes the assumption of about $91 million in debt. As part of the transaction, Bergen obtained the option to purchase, or the right to vote, all of Counsel's shares of

    PharMerica

    (DOSE)

    , representing about 9% of PharMerica's outstanding shares.

    Dominion Resources

    (D) - Get Report

    posted fourth-quarter earnings of 28 cents, beating the 14-analyst view by a penny, but down from the year-earlier 47 cents, which excludes an item.

    Bear Stearns

    upgraded Excite to buy from neutral.

    Fortune Brands

    (FO)

    posted earnings of 55 cents a share, in line with the eight-analyst view, and up from the year-ago 51 cents a share, which excludes items.

    Knight Ridder

    (KRI)

    posted fourth-quarter earnings of 86 cents a share, excluding a charge, beating the 10-analyst view by a penny and up from the year-earlier 74 cents, which excludes a gain.

    Tribune

    (TRB)

    posted fourth-quarter operating earnings of 72 cents a share, beating the 17-analyst view of 70 cents and up from the year-earlier operating earnings of 62 cents.

    USX-U.S. Steel Group

    (X) - Get Report

    posted earnings of 63 cents a share, excluding items, blowing away the 16-analyst view of 32 cents, but down sharply from the year-ago $1.52, excluding items.

    Now this week's items from the

    oft-wrong Inside Wall Street Column in

    BusinessWeek

    . The column has bullish things to say about

    Great Atlantic & Pacific Tea

    (GAP)

    , stating in part: "Whispers are that management recently embarked on a restructuring of the company to make it a more desirable buyout candidate." Meanwhile, Debra Levin, an analyst at

    Morgan Stanley Dean Witter

    says the stock is worth about 40. It closed yesterday at 29 7/8.

    International Microcomputer Software

    (IMSI)

    is rumored to be thinking of spinning off its e-commerce operations and taking it public. Brian Swift, chairman and director of research of

    Security Research Associates

    says the company's management wants to capitalize on the hot Internet market and could spin out its

    ArtToday.com

    operations via an IPO and keep or sell its other retail business.

    An unidentified New York investment manager is betting that Rakesh Kaul, chief executive officer of

    Hanover Direct

    (HNV)

    , will opt for taking the company's Internet operations public.