Stocks Finish With Much Gusto

After drifting lower for much of the day and hitting intraday lows at around 2:30 p.m. EDT, major averages exploded higher in the session's final 90 minutes, finishing with solid gains.

The Dow Jones Industrial Average closed up 2.2% to 8456.15 after having traded as low as 8214.62. The S&P 500 ended up 2% to 876.77 vs. an intraday low of 854.19 while the Nasdaq Composite gained 1.7% to 1280.90 after having traded as low as 1243.49

Experience has taught me it's unwise to make too much about any one session and I'm not trying to make too much about this one. But it's interesting to try to put the pieces together -- and it happens to be my job. Among the reasons cited for today's wicked reversal included:

White House chief economist Glen Hubbard describing the risks of a double-dip recession as "remote."

It might have been coincidental but Hubbard's comments hit the Reuters newswire right around the time the market hit its intraday bottom.

Reports -- initially retracted and then confirmed -- that former ImClone Systems' (IMCL Quote) CEO Sam Waksal has been indicted on charges of insider trading, obstruction of justice, bank fraud and perjury.

A report Wednesday afternoon by the Federal Reserve that consumer credit expanded by a higher-than-expected $8.4 billion in June.

Given the now-widespread concerns about the economy's fate, more evidence consumers are still willing to borrow and spend with abandon could be viewed as a positive short-term development for the market. Bears, of course, worry about the long-term implications of consumers' rising debt burden.

"Short-covering" as well as reports of buying by pension funds and other institutions whose asset allocations have become overly tilted toward bonds in recent months.

"I have been speaking to many different mutual fund houses and they are saying that they are seeing and winning business from institutions who are shifting money out of bonds and value," said Frank Iryami of Salomon Smith Barney. "Pensions keep pretty disciplined asset allocation models and they are now out of whack."

Still Iryami noted NYSE volume of 1.48 billion was down slightly from yesterday's levels, suggesting today's rally was "meaningless."

Stocks rallied just because they did.

Dow Runs Up the Stairs

"There is no sense" to this market, quipped Timothy Heekin, director of equity trading at Thomas Weisel Partners in San Francisco. "The market's tone all day was down and people were surprised they shook off [positive news from] Cisco (CSCO Quote) so quickly. We felt we broke bullish support [at 854 on the S&P futures] and then buy programs came in the afternoon and caught everyone by surprise. This had the classic footprints of a buy program."

Another trader, who requested anonymity, said $100 million in S&P 500 futures were bought midday to complete a put-selling trade by one large account. "Small short covering is accompanying it," he said.

The Invisible Hand Strikes Again

The confluence of the market's "mystery" rally following Hubbard's comments and an earlier speech by Vice President Dick Cheney, who said "the economy is poised for sustained growth," generated renewed claims by some that the market was being manipulated by the government.

I've delved into these issues previously and know nothing is going to disabuse some readers of the notion the "Plunge Protection Team" was at work today. Maybe it was, but how do the conspiracy theorists then explain yesterday's late-day swoon?

Gold in Them Thar Hills

The "black helicopter" crowd also has to explain how gold rallied sharply in concert with stock proxies. The price of gold rose $8.80, or 2.9% to $316.10 per ounce in New York today and the Philadelphia Stock Exchange Gold & Silver Index climbed 1.9%.

Gold rallying strongly in concert with equities is rare of late, but gold and the dollar moving in opposite direction is not unusual. The dollar retreated after yesterday's big gains with the Dollar Index sliding 0.85 to 108.14.

Amaury Debarros Conti, gold equity trader for US Global Investor in San Antonio, Texas, suggested today's gold rally was due to a combination of the dollar's setback and comments from Newmont Mining (NEM Quote), which said it will continue to reduce its hedging positions amid evidence of declining worldwide gold production. (Newmont posted second-quarter earnings of 16 cents per share, reversing a loss of 17 cents per share a year ago; its shares rose 2.6%.)

US Global, which is long Newmont, remains optimistic about gold because of the outlook for declining mine production and reduced hedging by producers, Debarros Conti said. Newmont's comments reflect that theme and prompted "hedge funds and other producers to hedge stop losses and get things moving."

Additionally, speculation the Fed may ease again is also helping gold as inflation "may get its head above water in 2003," if the central bank gets even more accommodative, the trader said.

The Search for Meaning

As mentioned above, it's wrong to overanalyze any one (or two) sessions but the market's recent dramatic swings -- day to day and intraday -- are certainly the subject of much discussion. The bears, of course, contend this kind of volatility is not the sign of a "healthy" market and that it portends more steep losses. Bulls counter that this is all part of the bottoming process.

"All rallies must start somewhere, and although the NYSE bullish percentage remains on defense, the pieces continue to fall into place for something much better than a vicious one-day bear market rally," emailed Keven Depew, a technical analyst at Dorsey Wright & Associates. (The bullish percentage indicator was created by A.W. Cohen in 1955 and is calculated by dividing the number of stocks trading with new point-and-figure "buy" signals by the total listed on a given exchange. Point-and-figure charts are pure price charts that plot supply and demand for a given stock or index, without factoring in time or volume.)

Depew noted the NYSE bullish percentage actually fell yesterday and rose only marginally today. Why? Because "a lot of broken stocks [are] rallying to resistance, but [are] not giving new buy signals," he said.

"True risk/reward has improved dramatically from the end of April, but we're still on defense officially," Depew explained. "That's the value of this [bullish percentage] indicator: It doesn't speak often. But when it does it's important."

Still, many investors are willing -- even eager -- to take the risk and get in early, despite the market's conflicting signals, which today's session did little to clarify.