Here's Hoping the Y's Have It

SAN FRANCISCO -- Say someone had been writhing in agony for weeks, then suddenly experienced a day with little or no pain. Would the medical community declare that person healthy? Or would family members take solace in knowing that their loved one was enjoying a little peace before the final curtain?

Such is the dilemma facing Wall Street's (spin) doctors after Wednesday's session, in which the Nadsaq Composite recovered from an early decline to as low as 3382.53, traded as high as 3532.43 and closed up nearly 2% at 3523.10.

"We're close to a bottom" is the diagnosis of Greg Nie, chief technical analyst at First Union Securities in Chicago. The recent rise in bearish sentiment, the Nasdaq having traded more than 15% below its 200-day moving average of 4026, and the degree of emotion in the recent selling suggest "the kind of action you associate with the tail end of a decline," he said.

The bearish argument is further subverted by the fact the S&P 500 and Dow Jones Industrial Average -- each up 0.6% Wednesday -- are in "much better shape" than their tech-infested counterpart, Nie argued. Finally, he notes that the meat of the Comp's decline has come because of heavy losses in the handful of mega-cap stocks that have a disproportionate impact on the index, rather than weakness in the majority of names. (Sort of the inverse of what occurred in 1999.)

The Nasdaq 100 rose 3% Wednesday as bellwethers such as Intel (INTC Quote), Sun Microsystems (SUNW Quote) and Oracle (ORCL Quote) closed well off session lows -- the last is still in arrears but close enough to break-even for those with a bullish bent to declare victory.

Nie's comments came before Dell (DELL Quote) issued its profit warning.

Given that Dell's stock is already tainted goods to some degree, the warning shouldn't cause much collateral damage Thursday. If it does, you'll need no other evidence that Wednesday's rally was yet another session whose main purpose was to raise the hopes of a downtrodden investment community.

A sucker's rally, in other words.

Looking beyond the market's day-to-day machinations, Christine Callies, U.S. stock strategist at Merrill Lynch, suggests that "the worst of the news is out of the way, but it hasn't been replaced by good news" that will inspire buyers.

In addition to positive news on earnings, investors need evidence that "the feared slowdown in capital spending [on technology] is either postponed or smaller than people thought," Callies said, suggesting investors should keep their limbo shoes handy for another few weeks.

Merrill's view is that the tech sector's struggles this year are due more to a "valuation adjustment than a problem with unit sales," she said. (I guess Dell, Apple(AAPL Quote), Intel, et al. didn't get that memo.)

Barring a "truly stressful" economic environment or a major policy mistake, Callies believes the correction in tech stocks is "unlikely to be pushed dramatically lower by fundamentals" in the short to intermediate term.

She is further comforted by the nation's hefty war chest of money market assets -- $1.75 trillion as of Sept. 20, according to the Investment Company Institute.

It is "premature" to declare that the Comp has bottomed, Callies said, but added that investors willing "to start nibbling before the correction is over" should start scaling in, now that the Nasdaq has breached 3600.

Sounds like a classic nonbottom, bottom call to me.

Side Saddle

In reaction to last night's column, a reader emailed the following:

"While I understand and subscribe to the thesis that the bottom cannot occur until "everyone" is saying to sell ... do you realize that virtually every columnist on TheStreet.com (including yourself) is saying that we have further down to go? Are you factoring that into the equation? I am."

This development has not escaped my attention: Jim Cramer has lately been about as negative as I can ever recall; Todd Harrison is starting to remind me of David Caruso's "good cop" character in the original NYPD Blue series to Herb Greenberg's Dennis Franz (no offense intended to either the actors or the columnists). Bill Meehan continues to pound his "Street of [Dashed] Dreams" theme and Brett Fromson and I seem to have underdone a Vulcan mind-meld without either of us remembering its occurrence. The only guy on the site who's been positive is Chris Edmonds, but he writes about REITs, utilities and energy, and few investors care about such boring stuff (even if they've been among the best-performing sectors of late).

While I'm honored to be in such good company, the cynic in me wonders whether with "everybody" thinking X, then Y is probably likely to occur. And the "X" factor we -- and so many investors -- all seem to be looking for is that panicky, high-volume selloff.

Maybe that capitulation session never occurs. Moreover, Nie, Callies and a host of others seem to think it isn't necessary and are recommending (albeit not urging) investors get long now. While not exactly radical, that mindset is a departure from the majority view.

However, it strikes me that almost nobody is talking about a far different scenario, let's call it "Z": that the market remains a place of frustration, misery and disappointment for the majority of investors for an extended period (like months or even years).

Here's hoping that's not the case and the "Y's" have it.