Let buyer beware...
Tuesday December 29 4:23 PM ET
As Net fever mounts, some fear for market health
By Richard Melville
NEW YORK (Reuters) - Wall Street is getting concerned about Internet fever.
The contagious but ostensibly benign condition, marked by a sudden and severe swelling of share
price, may actually mask an underlying malady, namely a return to the kind of speculation known to
presage market downturns.
''We're ending the second half very much like we ended up the first half, with a high degree of
speculation and a general feeling of invincibility,'' said Charlie Crane, chief market strategist at Key
Asset Management. ''It sets us up for some sort of retracement. Whether that is as convulsive as the
one in August was remains to be seen.''
Crane said the frenzy bears resemblances to some market manias of the past, but noted one
difference that has extended and broadened its effects.
''There have been periods where certain groups -- biotech was one -- have gotten superbly hot and
when just a little news could create a huge move,'' he said. ''But not everybody can set up a biotech
subsidiary.''
In contrast, just about any company can launch a Web site, making for a much more egalitarian rally.
Recent history indicates a well-publicized Web site launch, or even a hint one may be forthcoming,
can lift a laggard from the discard pile.
Most recently, SkyMall Inc. (Nasdaq:SKYM - news), an in-flight shopping catalog company, and
Active Apparel Group Inc. (Nasdaq:AAGP - news), a designer and marketer of sportswear, soared
Monday after Internet-related announcements.
Neither is close to being a player on the Internet, nor is either company mulling a full-scale shift to
Web-based sales.
Nevertheless, shares of both shook off years of market underperformance and rocketed higher
Monday and extended those gains Tuesday, SkyMall after reporting higher Web-based sales and
Active Apparel after launching a Web site.
Analysts warn that when sentiment reverses, the downturn is likely to be every bit as intense as the
rally.
''It's the biggest speculative bubble we'll ever see in our lives.'' J.P. Turner & Co. director of equity
research Rick Berry said of the Internet spree.
''All these companies are worth 30 percent of their market capitalization and within the next 12
months, you'll see a lot of these stocks trading at their IPO prices with everyone rushing to the exit
doors.''
Oddly, investors just months ago got a lesson in how hard momentum stocks -- so dubbed because
short-term traders latch on hoping to benefit from the wave of interest -- can fall.
During the market tumble between mid-July and early September, losses in shares of Internet
bellwether companies like Amazon.com and America Online Inc. reached more than 30 percent, as
the Dow Jones Industrial Average skidded some 19 percent.
Of course, the share prices of those companies now stand at levels more than double their mid-July
values, while the Dow has struggled to just barely exceed its old highs.
To some degree, the Internet itself is acting as an enabler for the market's recent addiction. Market
analysts point to day traders, many of whom are believed to be trading over the Internet, for
intensifying the latest bidding war for stocks with a mere whiff of Internet potential.
Shares of cruiser motorcycle maker Bikers Dream Inc. more than doubled on word the company
was close to announcing its electronic commerce plans. In addition to motorcycle production, the
company operates a chain of stores where it sells its motorcycles, parts and accessories.
Chairman and chief executive Herm Rosenman said on Tuesday that the company's previously
disclosed plans to open up shop on the World Wide Web were a ''run of the mill'' approach to the
Internet. Shares of Bikers Dream were up 4-1/16 to 6-5/8 late on Tuesday, a nearly 160 percent
gain.
And even the sketchiest of rumors of pending Web sites, spread of course on a variety of Internet
stock chat boards, have become jet fuel for the next wave of Internet plays.
One such stock, G-III Apparel Group surged about 300 percent on word the company was planning
to launch an electronic commerce site. A spokesman confirmed the plans, which were the subject of
extensive speculation on Internet chat postings early Tuesday.
(Reuters/Wired) |
