Last Day of 1998 Could Be Shaky for Net Stocks

The stage is set for more profit-taking. Meanwhile, index funds gear up to buy AOL ahead of its addition to the S&P 500.
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SAN FRANCISCO -- A light-volume week and post-holiday infatuation with most any announcement that had to do with the Internet sent prices of a number of stocks soaring this week. But many of those same stocks gave back a healthy chunk of those gains yesterday and set the stage for even more profit-taking on the last trading day of 1998.

In early trading,

TheStreet.com Internet Sector

index was down 1.9%, suggesting further profit-taking to start the day.

America Online

(AOL)

will command the market's attention as it will be added to the

S&P 500

after the close. Much of the focus on the stock will be late in the session when funds that are indexed to the S&P 500 will be buying the stock. AOL was down 3 1/16 to 144 3/8 this morning.

Online brokerage firms have been among the hottest of the hot Internet stocks this week, but those jumping on the bandwagon saw how quickly things could turn yesterday and they continue to decline this morning. Some cautionary words from

The Wall Street Journal

and market analysts prompted profit-taking in these firms.

E*Trade

(EGRP)

was off more than 15% yesterday to 50 13/16 and lately was off 2 1/2 to 48 3/8, though it still is up close to 40% since Dec. 21.

Ameritrade

(AMTD) - Get Report

was down 8% yesterday but remains almost 45% higher for December.

National Discount Brokerage

(NDB)

dropped a sharp 24% yesterday and is down a further 14.1% today. The price action of these stocks is typical of a sector that garnered huge play over the holiday season, though investors are showing some caution after the huge moves.

Ray Dirks, head of research at

Security Capital

, said there may have just been some profit taking going on with many of the brokerage stocks as settlement of the trades will be in 1999 so tax implications will be for next year. But Dirks said he would not recommend these companies until the end of the first quarter when a more clear base for the stocks can be established.

"It may be overdone -- they're not bargains," said Dirks.

The greatest threat to the online brokerages, Dirks said, is more competition, particularly from the larger brokerage houses that currently do not have a presence online. There also are questions over whether they will be able to break into offering other financial products that will allow them to grow.

"Where the money is going to be made is still up in cyberspace somewhere," said Dirks.

But establishing an online trading service can still grab the market's attention. Shares of

Track Data

(TRAC)

rose 3 7/8, or 108%, to 7 11/16 yesterday after the financial information provider said it would offer online trading to its customers at the end of the first quarter. Track Data provides real time financial market data, financial data bases, historical information, analytical services and data manipulation tools.

Those who jumped on the ride in

SkyMall

(SKYM)

this week were punished yesterday after CEO Robert Worsley sold 675,000 shares of stock to acquire shares from cofounder Alan Ashton, who had resigned. Shares of SkyMall peaked at 48 on Tuesday before ending 12 5/8 lower at 27 3/4 yesterday. It has dropped a further 6 3/4 to 21 1/4 today.

Investors may also be booking profits in

uBid

(UBID)

,

eBay

(EBAY) - Get Report

and

Amazon.com

(AMZN) - Get Report

among others that dropped yesterday.

But the dips in many of these stocks will present buying opportunities for others, particularly after the first of the year when many institutions will be looking to put money to work. Despite the many unjustified run-ups, it appears it will take more than a few warnings to calm the Internet frenzy.