Why So Glum?

Wall Street looks for a reason to sell, but a big tech conference won't provide it.
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Wall Street demands answers. Always. Of everyone. "I don't know" or "We'll see" might be the truth -- but on the Street, that answer is a professional death wish.

So how to explain this past week's selloff of Internet stocks? Well, those without an answer come up with one, and last week's was "profit-taking." It's a plausible notion, and traders and journalists alike rolled out this hackneyed cliche to somehow explain the pain Net-stock holders were feeling.

But what was really going on? Truth is, the fall in Net stocks was, strangely, another sign of the growing integration of Internet companies into the family of technology investing. The Net is no longer the redheaded stepchild of tech stocks; instead, it now moves with the rest of the tech sector. So the selloff in Net stocks was part of a broader selloff across the technology universe. And though it was slim -- the

Nasdaq Composite Index

is off just 4.6% from a high on April 26 -- it was happening at a scary time.

Which brings to mind another old Wall Street saw: "Buy at AEA and sell at H&Q." The former is the

American Electronics Association's

November gathering of tech investors and companies. And the latter was last week.

At the

Hambrecht & Quist Technology Conference

at the

Westin St. Francis

hotel, a few thousand professional money managers

gathered to take the pulse of some 300 tech companies. Each of the past three summers has seen a steep selloff in tech stocks, and investors were looking for tipoffs on anything that started to stink.

"The timing is always good at this conference," says Todd Bakar, Hambrecht & Quist's director of research. "People have tended to avoid technology stocks in the summer months, particularly because Europeans tend to take the month of August off. You get a lot of people out on vacation, which affects third-quarter results." This soft period means that only companies with stellar growth can handle the summer sales speed bump. The rest of 'em? Well, that's why investors came to H&Q.

Better still, H&Q has become one of the leading underwriters for Internet stocks, with a fat research team and banking deals across the Internet spectrum. So if any Net stocks were slipping in any way, the news would come from this show.

But alas, the old Wall Street axiom wasn't working too well because if investors were finding reasons to sell, they weren't talking about it. "I'm really just checking up on the companies we own," says Jerry Apodaca of the San Francisco-based hedge fund

Apodaca Investment Group

. "And I like what I'm hearing. So I'm spending this time to look for some other companies in electronic banking and the hosting space, beyond

Checkfree

(CKFR)

and

Exodus

(EXDS)

-- I'm looking for new names."

But outside of Internet stocks, that's been a tricky business. "It's proving to be more of a stockpickers' year," Bakar says. "It's not a year where all tech goes up or all tech goes down. In traditional tech, you really have to go back and identify those companies that do well and accelerate. Product cycles tend to be more important than economic cycles. Other than the Internet, some of the more traditional tech has been tricky."

Which, of course, would explain why every Net company presentation was crowded. A presentation by

InfoSpace.com

(INSP) - Get Report

, a company with $9.4 million in 1998 revenue, was overflowing with blue-suited investment types, while a presentation by

Computer Associates

(CA) - Get Report

, with $5.09 billion in 1998 revenue, was a ghost town.

And yet there was hardly a hint of bad news from the Internet companies, which makes one think perhaps last week's selloff was "profit-taking" after all.