Net Stocks Still Drooping as Index Teeters at a Key Level

Techies see 500 on the DOT as a reaction point that could determine the course of the coming weeks.
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SAN FRANCISCO -- As Internet stocks' swoon continues, TheStreet.com Internet Sector index has become a focus of technicians tracking the decline.

Technicians have been focusing on the 500 level in the DOT for the past few weeks, for a simple reason. When the sector broke down in the spring, the DOT reached a June 15 intraday low of 495.17 before closing that day at 504.08. So technicians see 500 as the point at which the index is most likely to either bounce or sharpen its decline. The next area of support comes in around 450.90, the closing price from Feb. 10 and about 10% below the 500 level.

Wednesday the DOT was down 16.67, or 3%, at 502.40, trading to a low of 498.89. Note that technicians normally focus on closing prices rather than intraday levels, and technicians often look for a "clean break" of support/resistance levels, so a closing price of 499 does not automatically tell the techies the index is heading for 450.

Whether you follow technical analysis or think it's a bunch of mumbo-jumbo, one thing was perfectly clear Wednesday: The Internet sector remained in big trouble, with no relief in sight.

Rising interest rates have contributed to the recent weakness, but a rally in the Treasury market on bullish refunding news didn't turn the Net stocks around.

Meanwhile, the vast supply of Internet stocks at investors' disposal continued to drag down the sector, though the performance of today's Internet IPO was solid, all things considered.

Internet Initiative Japan

(IIJI:Nasdaq), an Internet service provider, was recently up 4 15/16, or 21%, at 27 15/16. Much has been made of the four IPOs that closed below their offering prices on

Tuesday, suggesting investors are growing finicky, forsaking the past practice of jumping at any and all dot-coms.

As for the Net bellwethers, they continue to lead the ongoing selloff in the sector. If the strongest Internet stocks don't perform well, why should the others? Even most of these Net blue-chips are considered vastly overvalued by traditional standards.

Amazon.com

(AMZN) - Get Report

, for instance, continues to spend now at the expense of current profits, something that many other companies are doing in the hopes of being in the ballgame when things shake out. Unfortunately, investors seem to be growing more profit-oriented, so many spend now/profit later companies have been hurting. Amazon was recently down 2 7/8, or 3%, at 92.

America Online

(AOL)

has been hammered on competition fears both in the U.S. and abroad, with a lot of concern over its subscriber growth. Investors have gotten used to huge incremental growth in AOL and the rest of the Net sector, and when it hasn't come, fears among investors have been heightened. AOL was recently down 7/8, or 1%, at 87 15/16. It is now trading at about half of the 175 1/2 high it reached on April 6.

How Low Can Net Stocks Go?

The end is near -- buy.

The end is near -- sell.

Waiting for blowout to buy.

Holding out hope for short-covering rally.