With Earnings Behind, the Net Stocks Are Safe for a Trade

Now that earnings season is finishing, Internet issues should trade in more predictable patterns.
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The griddle's cool and the Net stocks seem good for a trade, but is it really safe to get back in?

There is no doubt that the mutual fund troika of

Yahoo!

(YHOO)

,

America Online

(AOL)

and

Amazon.com

(AMZN) - Get Report

is suffering some growing pains. (I am long the first two and have no position in the latter.) But the growing pains have nothing to do with the companies' previous quarters. They beat the benchmarks -- handily.

The decline has to do with mutual funds dumping the big ones in favor of a new group of Net stocks that's more infrastructure, less portal-oriented, as well as a newfound addiction to the cyclicals.

That change can be told by the way stocks trade: There are blocks of the Big Three that are trading to the downside. Mutual funds trade blocks (sizable piece of business, in the 25,000 to 50,000 range), while individuals trade in odder, smaller amounts. In fact, the troika trades as if it were like

Microsoft

(MSFT) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

or

Cisco

(CSCO) - Get Report

-- also for sale by big-momentum mutual funds, by the way -- not

DoubleClick

(DCLK)

or

Inktomi

(INKT)

.

I don't know when this stuff stops. I do know that the big mutual funds are struggling with underperformance currently, chiefly as a function of being in love with the stocks everybody owns, like

Pfizer

(PFE) - Get Report

,

General Electric

(GE) - Get Report

and Microsoft, that aren't beating the

Dow

. The mutual funds want some cyclicality --

Dow Chemical

(DOW) - Get Report

,

Boeing

(BA) - Get Report

,

International Paper

(IP) - Get Report

-- and they want fewer high-growth stocks. They want

EMC Insurance

(EMCI) - Get Report

, not

EMC

(EMC)

! (I'll go into this more with the cyclical rewrite for this weekend.)

Am I worried about the switch? Considering that I am still long Microsoft, GE, Cisco, Yahoo! and AOL, I guess I ain't shakin'. I have long since decided that I have to own what I like, not what

(JAVLX)

Janus Twenty likes. Last year that cost me. I should have just liked what those guys did. But it worked for me for 18 other years, so I am not going to start liking what someone else's work shows them to like.

But I am not oblivious to what is happening in the market. I am too much of a trader to be that way.

So here is how I see it: Mutual funds trade on earnings while daytraders trade on announcements. We are now through with earnings with the completion of the Amazon conference call. All that awaits us are announcements, which create enthusiasm and bring daytraders to the fore.

With the earnings announcements behind us, we will resume a more "normal" pattern of trading up on news events, and if there is one thing the Net companies know how to do, it is stuff a press release onto the wires.

We have to be honest about what drives stocks higher. We have to recognize that the Net is still a discrete section of the market that trades by its own rules. When the big mutual funds get involved, they destroy the karma of the stocks and rid them of their maniacal moves -- most of which have been up!

With the earnings out of the way, the mutual funds should get out of the way and the Net should be safe again for a trade. Of course, there will still be liquidation of the Big Three by some funds, but the triumvirate will still be the way the game is played by many other big boys to show they have heard of the Net, if only as a function of liquidity and massive sponsorship, which these funds love.

Random musings:

Don't forget end-of-the-month buying, which accentuates winners -- cyclicals again.

Those of you who think you need to insult me in order to get my attention for me to read my email don't know me. I read

everything

.

The ad hominem stuff turns me off big time, especially because

most of the time

you have something valuable to say, but you think that without putting in the zingers at the beginning, like "Hey Cramer, you ^@%@%@ dolt who never reads his mail, have you looked at the way xDSL is being rolled out?" I won't read it.

Wrong! I am interested in xDSL, but I'm not interested in being insulted. Don't treat me like I am some sort of online dead-tree joker who doesn't read his mail. I know why you do it; any time I send a letter to a dead-tree guy at a newspaper, it might as well go to the dead-letter office. Many of those guys treat readers as a necessary nuisance, people who have to read their stuff in order to get advertisers -- the real customers -- to pay the bills. You pay the bills here. You are the customer, and I won't insult you

unless

you insult me. Then it's no more Mr. Nice Email Guy.

Have it your way, but if you start your email with an insult, I tend not to focus on the substance of your comments.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Microsoft, General Electric, Cisco, Inktomi, 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.