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Net stocks take a beating

The Dow follows the Nasdaq's downward spiral, with Internet issues taking the brunt of the punishment.

Stocks fell hard today, with Internet issues taking an especially harsh beating.

The Dow Jones Industrial Average again blew this way and that through most of the day, but in stark contrast to yesterday, the Nasdaq Composite Index headed straight south.

By the afternoon, the Dow took the Nasdaq's downward spiral to heart and followed suit. The blue chip index tumbled 71.83 points, or 0.77 percent, to close at 9,264.08. The technology-heavy Nasdaq shed 2.93 percent, or 70.72 points, to close at 2,344.77.

"There's some well-deserved profit-taking going on, especially in the heated tech sector," said Peter Coolidge, a trader at Brean Murray. "The swings we've had in the market over the past week show how investors are nervous and skittish about the market."

Coolidge added that investors are asking whether this market is fully priced, whether it can go any higher, and whether the momentum it has had during the past two years can carry it any further. He also noted that earnings so far have generally been positive.

The Internet sector seems to be taking an unusually hard hit this week, with Net bellwethers falling across the board.

For example, Amazon.com tumbled 6.19 percent, America Online dropped 4.38 percent, and E*Trade plunged 10.55 percent. Web portals Yahoo and Excite sank 7.73 percent and 11.13 percent, respectively. Lycos, the one bright spot among Net issues, soared 11.63 percent mainly on speculation that the company is an acquisition target.

"Some of the air is being taken out of the Internet bubble," said Coolidge. "It's starting to look like the market is trying to adjust the Internet stocks that seemed to have gotten ahead of themselves."

In the past, a drop in Net issues has been seen as a buying opportunity for some, but it remains to be seen if that theory will hold true this time.

"It's a good start, but it still hasn't gotten valuations to a bargain level," Coolidge said.