A near-term market rally could be imperative to revive a sluggish forward IPO calendar. Nothing would be better served by a pop in the broader market right now than the IPO market, which depends upon a favorable investment appetite to get the deals in the pipeline done.

This is not just a plea to halt the hemorrhaging of technology stocks; there is historic precedent that suggests tech stocks may be poised for an extended rally. Over the past 15 years, the Nasdaq Composite has averaged a 16.78 percent return from October to March.

And while investors have hacked high-tech valuations amid a flood of earnings disappointments, the market's wholesale panic may be premature. According to a recent technology report by Arnold Berman, a strategist at Wit Soundview, "In years past, performance of the technology stocks in the last half of September has not been a good predictor of the subsequent action in technology stocks in the fourth quarter or in the often-wonderful mid-October-to-mid-March time frame."

TRICK OR TREAT?

Mr. Berman explains, "Technology investors typically spend the last two weeks of the third quarter watching the tape for pre-announcements or biting their nails about the back-end-loaded pattern of the third-quarter business flows." So while the pattern that emerges at the end of September has been a good indicator of what lies ahead in the market, a much better indicator, says Mr. Berman, is the last half of October.

As the end of October rapidly approaches, investors will be watching for signs of life among the sectors, hoping that this year will be in line with the rule and not serve as the exception and join 1997, which failed to follow the trend after the Asian fall-out led by Indonesia. Still, Mr. Berman warns, "There is no law that says the usual seasonal patterns of technology spending or technology-stock performance have to apply this year." He says that the European market may drag down the U.S., or that earnings reports on tap will not meet expectations or, worse, companies will produce solid third-quarter numbers but investors will dump their tech stock anyway.

Nasdaq has been inherently skewed toward the large-caps like Intel, Cisco Systems, and Microsoft, potentially overexaggerating an almost 25 percent nosedive since the beginning of September. As a result, these tech heavyweights will have to join any market rally for an October-to-March pop to occur.

PANNING FOR GOLD

Whatever will happen in the broader market in the coming months, investors continue to find pockets of strength in the IPO market. Favoring new issues from the telecommunication/networking companies (that is, anything fiber optic-related) and the biotech arena, investors remain selective in the companies they reward with opening-day gains. The success of the fiber optic companies is so well-documented that investors are willing to attach valuations on the companies playing in this space with the near-recklessness that marked the investment market in 1999.

However, sustaining the opening-day pop in the aftermarket has been less of a sure thing. Witness Corvis, a Columbia, Maryland-based designer of products that allow service providers to manage traffic over long distances entirely in the optical domain. Corvis recorded an opening-day gain of 135 percent as the stock soared from its offering price of $36 to close at $84.72 on July 28. The stock has since slipped 24 percent and closed Wednesday at $64.25.

A similar situation surrounded Support.com, a Redwood City, California-based provider of personalized help-desk type services over the Internet. After recording an impressive 133 percent gain to $32.63 from an offer price of $14 per share in its debut in mid-July, the shares of Support.com have since fallen some 37 percent to close Wednesday at $20.38.

BIOTECH OR BUST

While still well above their offering prices, Corvis and Support.com's inability to sustain the IPO pop is in contrast to other companies, particularly within the biotechnology sector. One such company is Bruker Daltonics, a Billerica, Massachusetts-based designer of life science tools. The company priced its IPO at $13 in early August, and saw the stock gain a solid 77 percent gain to close its first day of trading at $23.06. Because of the sector's financing boom -- 36 IPOs in the second half of 2000 -- Bruker has been able to maintain the operating momentum. The company's stock closed Wednesday trading at $31.63, a 37 percent premium to its first-day close.

Although in many ways an investment in a biotechnology offering is a much riskier proposition than an investment in other technology sectors, investors seem willing to pay the premiums for the seemingly greater upside potential. In many cases, companies such as Bruker Daltonics are developing solutions for the worldwide market. According to Joe Hammer, head of capital markets at Adams Harkness & Hill, it's hard to say if biotech stocks are overvalued since there is no fundamental value underlying them.

At the same time Bruker Daltonics is benefiting from higher research and development, drug development companies are making noise of their own by working through the critical FDA approval process. Unlike Bruker Daltonics, many development companies offer as little earnings visibility as last year's Internet stocks.

So while the IPO market will continue to produce strong performers in the near term, opening-day gains may become increasingly difficult to sustain if the broader market does not find some stability soon. If history is any guide, the fourth-quarter rally is going to begin by the end of the month, and investors on the sidelines might be kicking themselves if they miss out on the ride into March.

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