Net Stocks Take Their Cue From Amazon

One expert notes a 'dramatic rotation' out of technology stocks, which could continue for the near term.
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SAN FRANCISCO -- The fortunes of the tech sector and Internet stocks appear to be resting squarely on the performance of Amazon.com (AMZN) - Get Report.

The

Nasdaq

along with other Internet stocks traded to lows after Amazon.com pushed below the 170 level. It had traded at 170 1/16 early in the session before falling below 170 at around 11:10 a.m. It reached a low of 165, but recouped some of its losses and was recently trading down 20 7/16, or 10.6%, at 173 1/16.

Some traders are taking advantage of weakness to get into stocks at a cheaper price, but trading has been extremely choppy throughout the session.

John Murphy, president of

murphymorris.com

, which provides technical analysis of financial markets, said a "dramatic rotation" out of technology stocks and into other sectors providing more value has been going on for more than a week and could continue for the near term. Regarding Internet stocks, Murphy said

The Street.com Internet Sector

index has performed poorly since peaking April 13, and the index's recovery in the past week was not strong enough to turn technicals positive, particularly while it lagged at the same time the Nasdaq was making new highs.

Murphy says the key to how long the correction will last is April lows. For the

TSC

index, the April low is 543.65, made April 20. It was down 22.2, or 3%, at 635.7 around midsession.

"That will be a big test to determine whether it's another pullback or if it's more serious," he said.

Likewise, Murphy said he is looking at the April lows in a number of companies. Amazon.com traded to a low of 151 April 15. Other stocks he's eyeing are

America Online

(AOL)

and its April low of 112 and

Yahoo!

(YHOO)

, which is already close to its April low of 155. AOL was down 5, or 3.5%, at 138. Yahoo! was down 3 1/2, or 2%, at 170.

Going for Growth

Fresh off its market-moving earnings

report, Amazon.com presented at the

Hambrecht & Quist Technology Conference

. CFO Joy Covey reiterated the need to keep spending aggressively to take advantage of its "critical window of opportunity" over the next year or two.

Covey said the Internet's vast potential and the speed at which it's evolving are driving Amazon's decisions. "That means making bold investments, moving quickly and sacrificing short-term for long-term growth," she said. "We have a near-term focus on growth, not because growth is all we care about, but because growth drives the model."

The company reported its first-quarter results after the markets closed Wednesday. Concerns about increased investments and a slower rate of revenue growth have helped push the stock down today.

"I love the company, and it was a fantastic quarter," said Nick Moore of money manager

Jurika & Voyles

, who used to own Amazon.com. But the revenue growth is slowing, and a lot of the revenue growth for the first quarter came from new product areas. "They are shifting from hyper-growth," said Moore, "to just plain superior growth."

New sites for Germany and the U.K. generated $25 million in the quarter, said Covey. A quarter of revenue came from newer segments of the business, including music, video and gifts.

-- Suzanne Galante