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MARKET SAVVY | SAVVY CONFIDENTIAL: A Briefing for Investors

Internet Stocks Tumble Below Key Levels

May 25, 1999|WALTER HAMILTON

To Wall Street's technical analysts, Monday's Internet-stock plunge was even worse than it looked.

More troubling than the price drops themselves was that several big-name Internet stocks dipped below "support" levels.

A support level is a price at which investors have bought a stock during past declines, thus supporting it from falling even lower. In other words, it's the price at which a stock has previously rebounded.

However, several top Internet stocks have sunk below support lines in recent days, indicating their shares may have further to fall, analysts say.

Active traders who have bought Internet-stock dips in the past are unwilling to do so now, said Dodge Dorland, chief investment strategist at Landor Investment Management in New York. Instead, they're increasingly "shorting" Internet stocks--meaning they're betting that share prices will keep skidding.

"Traders will use any rallies right now to sell into," Dorland said.

Added Youssef Squali, Internet-stock analyst at Ladenburg Thalmann & Co. in New York: "This time around, [individual] investors are getting panicky a little bit."

Until Monday, Yahoo's support line was about $150. However, it broke below that level by tumbling $13.44 to $137.88.

"Anyone who buys Yahoo now will be a catching a falling knife," Dorland said.

Other stocks falling below support include EarthWeb, MarketWatch.com and EarthLink Network.

Internet stocks that are at or nearing their support levels include MindSpring Enterprises, Infoseek, Broadcast.com, CMGI and DoubleClick.

This isn't to say Internet stocks won't bounce back. But technical analysts say that before investors buy in, the stocks should first show signs of firming.

Another good sign, Dorland said, would be when both the Nasdaq composite index and shares of IBM, a leading technology stock, are back in up-trends, he said. That would indicate that selling pressure on the tech sector has abated.

Jitters over Internet stocks can be seen most clearly in the performance of some recent initial public offerings. After surging to enormous gains in their first trading days, demand has fallen off and prices have wilted.

Since closing at $60 on May 11, for example, shares of TheStreet.com have sunk to $33.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

In Need of Support

Yahoo's stock price sank below $150 on Monday, a key level from which shares have rebounded in the past. Daily trading ranges and closes:a

Monday close: $137.88

Source: Bridge

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