Last-Hour Blues No Match for a Solid Tech Stock Rally

Big Internet names rebound after the long selling period.
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SAN FRANCISCO -- A short-covering bounce, or the start of something big?

TheStreet.com Internet Sector

index closed up 23.64, or 4.8%, at 513.55. The DOT reached a low of 452.90 in the first hour of trading before roaring back as traders sensed enough was enough, while shorts booked some profits. By the end of the day, though, shorts were being squeezed in a big way, which led to outsized gains in a number of stocks that had been beaten up badly in recent weeks.

John Murphy, president of

murphymorris.com

technical analysis, said Friday will be a key day for the sector from both a technical and a fundamental standpoint. Murphy said with the sector sensitive to changes in interest rates, Friday's employment report

looms large in terms of whether today's recovery will continue.

Contributing to the early decline was yet another challenge to

America Online

(AOL)

.

The Wall Street Journal

reported that

Microsoft

(MSFT) - Get Report

may take aim at AOL by offering low-priced or free Internet access. AOL closed down 2 7/16, or 2.8%, at 85, but was helped out by the recovery in the sector as it bounced off a session low of 76 15/16.

The day also was a positive one for the beleaguered Internet IPO market.

Internet Capital

(ICGE:Nasdaq), a venture capital firm, closed up 12 7/16, or 104%, at 24 7/16.

Among the day's big winners was

eBay

(EBAY) - Get Report

, which closed up 15 9/16, or 20%, at 91 5/16 on volume of 13 million.

DoubleClick

(DCLK)

closed up 12 11/16, or 19%, at 80 3/8.

priceline.com

(PCLN)

ended up 11 7/8, or 18%, at 78 1/8 and

Amazon.com

(AMZN) - Get Report

closed up 8 13/16, or 10%, at 97 1/4.

A number of recent IPOs that have seen their prices plummet during the selloff also came up big.

Phone.com

(PHCM)

closed up 15 7/8, or 35%, at 61 1/4.

Drugstore.com

(DSCM)

ended up 10 1/4, or 30%, at 44.

Murphy said a lot of technicians have been watching the June 15 low in the DOT of 495.17, which was broken yesterday and led to some technical selling early today. He said a close above there on Friday could indicate a low was in place and lead to a relief rally as the sector is oversold.

"I don't want to place too much importance on one day's activity," he said. "But the group is very oversold and it might be indicating a short-term bottom. I don't think you can say much more at this point."

Friday is important for other reasons as well. On a weekly basis, the DOT was still holding below its closing price of 556.09 from last Friday. That would appear to be unreachable were it not for the fact that one of the most important economic reports of the month is coming out on Friday.

Murphy said technicians also are watching a head-and-shoulders pattern in The DOT and a neckline that was holding around 525 that was broken on Friday, and if it gets above that again, "a lot of people might be re-evaluating."