SAN FRANCISCO -- The Internet sector kept on bleeding Tuesday and traders who rummaged through the medicine chest for a buy-on-the-dips Band-Aid came up empty-handed once more.

TheStreet.com Internet Sector

index finished down 20.96, or 3.9%, at 519.07. It has dropped around 170 points since hitting its July 6 high of 689.16. Meanwhile, online brokers took it on the chin as well after an analyst report cast doubt on the growth of online trading. And one observer said investors shouldn't look for a turnaround anytime soon.

Today's losses continued to weaken the technical outlook in the sector. Robert Dickey, director of technical research at

Dain Rauscher Wessels

, told

TSC

the weakness in the sector could continue until there is a "selling climax," involving sharp losses and heavy volume.

"It's not months away," he said. "It may be weeks away, it may be days away, but it's not today."

Dickey said it may be too late for Net-stock holders to get out, adding that those not on margin should attempt to ride out the selloff. He said TheStreet.com Internet index was approaching support at around 500, its lows for June, and that those lows should be tested. If that level does not hold, he sees potential for another 10% correction, which would take the index to the 450 level, or roughly where it was trading Feb. 10.

In fact, Feb. 10 was a good example of what Dickey was talking about when he said the sector needs to see a climax. On that day, the DOT dropped 28 points to a low of 428 before rebounding to close at 451. That turned out to be the start of a two-month rally that took the sector to its peak of 824 in April.

Rough Waters in the Internet Sea

Net stocks got off to a positive start, helped by rumors that

Yahoo!

(YHOO)

was in talks to merge with

Excite@Home

(ATHM) - Get Report

. The rumors came from

Business Week Online

, which said the companies had been in talks for six weeks about a deal in which Yahoo! would buy Excite@Home for an amount greater than its current market value of $17 billion.

But as they did Monday, traders took advantage of early strength in the sector to get out of positions. And at midmorning, Excite@Home President George Bell flat-out denied the companies were in talks, which led to selling in both Yahoo! and Excite@Home. Yahoo! finished the day down 6 15/16, or 5%, at 125 3/8, while Excite@Home closed up 7/16, or 1%, at 43 3/8 after reaching a high of 49.

Sentiment in the sector remained negative due to interest-rate concerns and seasonal factors. But the sector got some unwelcome news on online brokerages from

Credit Suisse First Boston

analyst Bill Burnham. Burnham wrote that online brokerage volumes were weak in July and the sector could see its first-ever sequential decline in volume during the third quarter. Burnham blamed weakness in Internet stocks for the woes, as many online traders trade Internet stocks.

TheStreet.com E-Finance

index ended down 7 7/16, or 11%, at 61 1/16.

Ameritrade

(AMTD) - Get Report

closed down 2 3/4, or 11.5%, at 21 1/4, while

E*Trade

(EGRP)

finished off 4 5/16, or 15%, at 24 11/16.

Schwab

(SCH)

ended down 5 9/16, or 13%, at 36 7/8.

Among some of the other big losers in the sector were

RealNetworks

(RNWK) - Get Report

, which closed down 7 3/32, or 9.7%, at 66 1/4; and

Inktomi

(INKT)

, which closed down 7 13/16, or 7%, at 99 7/16.

America Online

(AOL)

finished down 3 15/16, or 4%, at 88 15/16 and

eBay

(EBAY) - Get Report

slid 7, or 8%, to 84 1/4.

A rare positive was the performance of

Amazon.com

(AMZN) - Get Report

. After dropping as low as 89 5/8, Amazon closed up 7/8, or 0.9%, at 94 7/8.

Also showing the negative sentiment in the sector was the performance of two Internet IPOs.

1-800-Flowers.com

(FLWS:Nasdaq) closed down 2 13/16, or 13%, at 18 3/16. And

Quotesmith.com

(QUOT:Nasdaq), an Internet-based insurance service, also closed below its offering price, down 1 5/16, or 12%, at 9 11/16.

Recent IPOs also took a hit.

Sofware.com

(SWCM)

closed down 6 7/8, or 20%, at 27 5/8 and

E-Loan

(EELN)

ended down 6 3/4, or 19%, at 28 9/16.