Johnny had a dime store piggybank that contained four quarters. Johnny wanted more. Johnny wanted to make a name for himself. Johnny had a way with words. Johnny sounded oh so convincing. It wasn’t long before Johnny had people lining up to pay $1000 for his dime store piggybank.

Timmy had a dime store piggybank that contained four quarters. Timmy wanted more. Timmy wanted to make a name for himself. Timmy had a way with words. Timmy sounded oh so convincing. Timmy said, "If people are willing to pay $1000 for Johnny’s dime store piggybank, then my piggybank must be worth $1000". It wasn’t long before Timmy too had people lining up to pay $1000 for his dime store piggybank.

…and thus began the careers of two publicity hungry Internet analysts.

Just when we were getting used to the valuation methods of the New Era of Reason, the rules of the game abruptly changed, yet again. We knew that traditional valuation models were long dead, replaced by dreams of what might be in 10 years, but now it seems the new methods are also yesterday’s news. Next decade’s earnings and tomorrow’s revenue growth no longer matter; instead, it is the market capitalization of a rival that shall be used as the yardstick from this day forth.

The details of this new price determiner are still being ironed out, and so at this point it is still undetermined whether the market cap valuation model also works in reverse: i.e., Peapod is a money losing e-commerce company, Amazon.com is a money losing e-commerce company, therefore Amazon.com’s market cap should equal that of its rival—on this question, the jury is still out.

The sudden emergence of this new means of enlightened thought, if widely adopted, is likely to make a moot point of the question that has resounded throughout the street this week: Capitulation or Prelude to a Decapitation.

While Tuesday’s mid-day recovery from near death caused more than a few to utter the multi-syllable phrase "capitulation bottom", and the market’s hard fought upward shift on Wednesday and Thursday caused several more to proclaim a bottom was firmly in place, the two-part question remains: "a. Who capitulated?, and b. If the right people did not capitulate, can a bottom truly be in place?".

From a purely technical standpoint, a strong case can be made that Tuesday marked a capitulation bottom, and that NASDAQ’s follow-through rallies on Wednesday and Thursday signaled brighter days ahead. Stepping outside the technical vacuum and looking at the broader landscape, the case is not as strong, and the evidence points in the other direction.

Sure we saw a bit of panic early in the week, but the only ones we saw throwing in the towel, i.e. capitulating, were those "investors" who were forced to make a hasty exit: those on the receiving end of a margin call, or those who knew they soon would be. In order for us to say "capitulation bottom" with a smile of relief on our faces, we would need to see the average retail investor, the "in it for the long term", "buy and hold" investor, fleeing for the nearest exit—we did not see this. In fact, what we saw was quite the opposite.

The retail investor did not hit the panic button, instead, just as they have throughout other precipitous declines of the past few years, they observed the scene with concern, but not fear, all the time waiting for the right time to get back in and do some "bargain shopping". In the midst of the tech sector’s early week mauling, investors were assembling a "buy on the dip" shopping list, a list top heavy with newly created "values" named Cisco, Sun, Applied Materials, and HP—perceived bargains in an age when the term "value stock" has come to mean a stock that is trading at a lower price than it did two weeks ago.

The continued faith of the buy-on-the-dippers helped steady the market this week, and a favorable employment report later today could give the market a boost, with the Dow and NASDAQ moving quickly towards resistance at 11400 and 4600, respectively, but these resistance points are likely to mark the end of the bounce, with a retest of this week’s lows the next stop. Short term bottom, yes—start of a sustainable new leg up to record highs, no.

Finally, many of you already read the following item in our Stocks to Watch section this morning, but for those who did not, we’ll repeat it:

Now call us cynical, or call us ignorant of the ways of the Internet Age, but somehow we fail to see the attraction of investing in an IPO of a company that will need a cash transfusion in 15 months. True, a 15-month supply of cash is far more than many publicly traded Internet companies have on hand, but even this knowledge is not enough to lure us. Perhaps our wire house Internet analyst friends Johnny and Timmy can change our minds….after all, they’ve managed to put a favorable spin on many companies that are in far worse shape than this one—was it really only nine months ago they had their customers fighting hand-to-hand combat to get a piece of Dr. Koop?….