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The Correction Is Now: ISDEX Highs, Lows & Volumes

'Doppler valuation' seems to be in full effect, and Wall Street says a correction for Internet stocks is coming but the truth is it's already here and has been wallowing in self pity for over a month now.

In July when values flirted with all-time highs like Bill Clinton at a intern welcome party, we warned that the valuations couldn't be sustained. Since then ISDEX dropped 30%, right in line with the 20% to 30% drop from the top we said it could hit.

date open high low close volume
4/21/98 179.19 185.66 173.11 178.55 59,150,300
4/22/98 180.88 184.04 167.41 171.79 66,366,800
4/20/98 175.70 183.37 171.08 176.48 62,942,400
4/17/98 176.56 182.77 169.31 174.77 100,258,300
7/7/98 176.36 180.73 163.02 166.02 113,059,400

July 7's upward blip revisited the April highs for ISDEX when anything Internet-related was soaring on the mere hint of hooking up a modem or selling a book across continents. The all-time high for ISDEX came April 21, 1998 at 185.66. The group of 50 stocks traded at a 130.20 as of August 17.

The April anomaly took us by surprise and probably set up a lash back from the top but not from the all-time bottom. History buffs will want to see this next table which shows where ISDEX sat in the doldrums days of April and May 1997 when Wall Street believed Internet stocks were DOA:

date open high low close volume
4/23/97 69.87 72.34 65.76 68.83 10,724,700
4/28/97 68.58 71.80 66.02 69.05 6,413,000
4/22/97 69.88 72.20 66.25 68.68 9,257,900
4/30/97 69.83 72.94 66.25 70.06 8,727,100
5/1/97 71.00 74.13 66.92 70.67 8,441,100

The amazing part is that in the year April '97 to April '98 from these detritus-dwelling moments, investors would have had a healthy return if they had gone against the tide and bought, bought, bought. Likewise, those that joined the hype board hoopla party brigade this past April and bought now feel the queasy stomach of the morning (or month) after.

The old axiom is not 'buy high, sell low,' but rather 'buy low and sell high.' We get e-mails daily from folks who came in after midnight and Cinderella had already gone pumpkin smashing.

One of the key differences between 1997 and 1998 Internet stock investing shows up in the volume of shares traded. As late as November and December of last year total share volume for ISDEX counted in the 20 million range for the entire group of stocks. Average volume for Yahoo! (NASDAQ:YHOO) alone today is more than 8 million shares. The top volume days for ISDEX now reach in the 128 million shares traded per day range.

date open high low close volume
4/16/98 171.64 183.94 165.41 179.16 128,794,200
7/7/98 176.36 180.73 163.02 166.02 113,059,400
7/6/98 169.25 177.66 162.82 172.27 105,819,700
7/21/98 170.98 178.58 162.32 168.21 101,138,100
4/17/98 176.56 182.77 169.31 174.77 100,258,300

The question running throughout the highs, lows and voluminous journey is simply: are Internet stocks overvalued now that they are prime-time on Wall Street? The answer is yes and no. Each Internet company must be evaluated on its own merits. To say Internet stocks are over or undervalued generalizes the diverse nature of each company and its sector.

We believe: aggregators to be overvalued to today's earnings but undervalued to potential earnings; security stocks to be over ignored relative to the market potential but overbought relative to their lack of consolidation awareness; ISPs to be undervalued relative to the potential user universe but overvalued relative to the snail pace the Web is delivered.

The drop from the top has come. Wall Street sees it but has it heard it?

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