That Queasy Net Feeling

The trader has some theories about Tuesday's Net shakeout.
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Got that queasy Net feeling? Too much too soon? Those big up moves shake you out? Welcome to the club. I got shook out of a couple of Net faves Tuesday.

I felt miserable at the end of the day, particularly about selling

Inktomi

(INKT)

, which, of course, climbed considerably after I had scaled out of it. But stocks just don't go up 10 and 15 points a day, even Net stocks. And moves such as those we just had are more typical of the end of a run than at the beginning.

So, what could cause the Net to stall? What could cause the choppy, toppy action we saw Tuesday to be vindicated by events? Let's get the checklist out.

First is the

Yahoo!

(YHOO)

factor. Overlay Yahoo! on top of the

DOT

. (Traders are constantly overlaying

x

on top of

y

with the hopes of seeing some pattern. Spotting patterns makes you more money than it loses you, so traders buy into the logic of charts.) You will see that in each of the last three quarters Yahoo! led the DOT.

There are a couple of reasons. One is that Yahoo! is the quintessential Net grower, loved by all. It tends to run up in anticipation of a great quarter and then it delivers a great quarter. People then sell on that quarter and analysts come out and say that perhaps we have seen a short-term top in the Net because Yahoo! is the Net's finest.

This self-fulfilling analysis then shakes out a ton of holders and the group nosedives. (Relax, each time it has been a buy of a lifetime. I can't rule that out from happening again.) That run-up may have been what we saw Tuesday when Yahoo! charged up 20 points and then reversed right back down in the time it took to stick a straw in a

Diet Doctor Pepper

.

Another possibility is the bugaboo of supply. Sure enough, we got our first secondary from the November Net crop, when, after the close,

Earthweb

(EWBX)

filed a relatively small deal. The importance of this event, however, should not be minimized. Earthweb and

theglobe.com

(TGLO)

were the two new deals that re-ignited the Net embers.

Those eye-popping IPOs got a whole new generation of e-traders juiced. We have to watch closely to see if a torrent of secondaries could be on the horizon.

A third possibility is that the Yahoo!-

broadcast.com

(BCST)

deal represented the height of merger-mania and that we will get a sell-off when we see whatever this major Internet announcement is Wednesday that fanned the Net flames Tuesday.

Anything this hyped, that ignited this much speculation -- and I heard everything from Lycos to break free from Diller's chains to

AOL

(AOL)

to buy

CVS

(CVS) - Get Report

to compete with

Amazon.com

(AMZN) - Get Report

(of course the source meant

CBS

(CBS) - Get Report

) -- has to lead to some disappointment.

The fourth possibility is that the money coming into the mutual fund winners tails off sooner than I thought. I figured we have at least 10 days of constant PR about the winners, with the concomitant in-flows, allowing us to have continued squeezes up on DOT-names.

There is always the possibility that these funds stop flooding in, or, heavens to Betsy, that the managers actually get vertigo and WAIT (I know, not in their vocab) for lower prices. Of all of the worries, I regard this as the least likely, simply because I still would not recognize the managers of these hot funds if I bumped into them in the elevator. I know in three weeks, though, I sure will.

In any case, as I pass my

Tunnel Diner

on the right, the one with the red-hot griddle, I am reminded, there is nothing wrong with taking something off the grill before it burns, especially one set at 451 Fahrenheit.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long America Online and Yahoo!!, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.