Stocks Dig Deep in Rebound

Updated from 4:57 p.m. EST

Stocks looked into the abyss Wednesday before finding their courage.

After trading as low as 11,939.61 at around 1 p.m. EDT, the Dow Jones Industrial Average rebounded smartly to close up 57.44, or 0.5%, to 12,133.40. The S&P 500 rose 9.22, or 0.7%, to 1387.17 after trading as low as 1364.14 intraday, and the Nasdaq Composite gained 21.17, or 0.9% to 2371.74 after trading as low as 2331.57.

Unlike Tuesday's intraday swoon, seemingly triggered by the Mortgage Bankers Association's report on fourth-quarter delinquencies, there was no obvious fundamental catalyst for Wednesday's midday bounce.

Some traders said the rebound stemmed from the anticipation of Friday's so-called quadruple witching, the simultaneous expiration of stock-index futures, stock-index options, stock options and single stock futures. Others credited reports of insider buying at Thornburg Mortgage (TMA Quote) and/or Lehman Brothers' (LEH Quote) effort to assuage concerns about its subprime exposure as keys to restoring investor confidence, or at least dampening the negativity.

"You get these wild roller coaster rides up and down and the conjecture begins," says Michael Driscoll, senior manager director of listed trading at Bear Stearns. "Was there something fundamental when [the Dow] was down 150?"

Reiterating a view expressed here in January, Driscoll says the best explanation for Wednesday's intraday move is that volatility -- meaning big swings in both directions, not just market weakness -- is the watchword of 2007.

Suggesting "investors are getting accustomed to increased levels of volatility," the trader says it was "business as usual" even amid the market's intraday nadir. "I didn't feel [an] increase in panic selling, bid-wanted, 'get me out' situations."