Powerful Rally Soothes Pain but Leaves Bottom Question Unanswered

Monday, Monday -- so good to tech. The stock market's major indices rebounded from weeklong losses as buyers made strategic purchases, lifting the Nasdaq Composite Index to its biggest one-day point gain in history and a 6.6% rise, the second-greatest ever. But breadth was poor, owing to investors' desire to stick to blue-chips and big-cap tech stocks, which were responsible for most of the day's move.

And that bifurcation -- broad weakness topped off with a healthy dollop of gains in the market's largest names -- makes it tough to say the much-hoped-for bottom is at hand. Technical analysts, and market pros in general, like to see a strong advance/decline ratio and strong volume in a rebound from deep selling, but only volume came through today.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 276.74 2.69% 10,582.51 -8.0% S&P 500 41.07 3.03% 1398.38 -4.8% Nasdaq 217.41 6.55% 3538.70 -13.0% Russell 2000 5.46 1.20% 459.18 -9.0% TSC Internet 13.29 1.86% 727.16 -37.0% TSC New Tech 30 53.77 12.52% 483.23 -21.8% BOND CHANGE PRICE YIELD 30-Year Treasury 1 12/32 103 11/32 6.042%

After a decline at the open and some early afternoon volatility, the Comp surged upward deliberately until the last hour of trading, when momentum buyers regained some steel after spending the day gauging market direction. Once a strong advance was a sure thing, buyers swarmed.

The Comp ended up 217.41 to 3538.70 today, mitigating Friday's selloff somewhat. The activity in the Dow Jones Industrial Average was similar, as the Dow surged in the last hour, ending up 276.74, or 2.7%, to 10,582.51. The S&P 500 gained 41.07, or 3.3%, to 1398.38.

A number of strategists, including folks at Lehman Brothers and Merrill Lynch, buoyed the market with supportive comments, reiterating their confidence in the economy and expectations for strong earnings. That projection was borne out today after a number of financial stocks and industrials components reported strong first-quarter figures.

"It's been methodically average," said Roseanne Lang, vice president of program trading at Cantor Fitzgerald. "It hasn't been panicky-type buying as it was panicky selling. People are stepping in -- 'I have to own this stock' -- and what I see being bought are good quality, earnings driven stocks that are doing OK."

So what'd these people buy? Tech stocks, of course. The Dow's best performers were IBM (IBM Quote), Hewlett-Packard (HWP Quote), and Intel (INTC Quote), which accounted for 156 points of positive influence on the Dow.

Active stocks that advanced strongly were Oracle (ORCL Quote), Qualcomm (QCOM Quote), and Sun Microsystems (SUNW Quote), all finishing up 11% or more. The Morgan Stanley High-Tech 35 Index gained 9.7%.

To some extent, one would expect poor breadth. Last week's reckoning would naturally leave people wary of plunking it all down on the likes of CDNow (CNDW Quote). On the New York Stock Exchange, losers were ahead of winners by a count of 17 to 12, and just 13 stocks reached new highs on the NYSE, while 143 hit new lows. Nasdaq breadth was worse -- decliners had a 26-to-17 edge in Nasdaq Stock Market trading today.

The massive 323.75-point gain in the large-cap Nasdaq 100 (which closed at 3529.45, less than 10 points below its supposed parent index) shows just where the buying was concentrated. When the Nasdaq was setting daily records, the advance-decline line was nothing to jump for joy about (except in the Internet stocks, which don't figure to regain stature any time soon).

Stanley Nabi, chief investment officer at DLJ Investment Management, expects that to continue for as long as the market is attempting to sort out which direction it heads next. Up days during this choppy, volatile trading period will likely see concentrated buying in stocks many feel are going to continue to achieve strong growth, such as Cisco (CSCO Quote), which tacked on 17% on 116 million shares, and was the Nasdaq's most active on the third-heaviest day of trading in the exchange's history.

"You'd expect people to buy in the high-profile names," said Nabi. "There are the ones doing well. You feel more secure with them than Internet stocks. I don't see, really, people rushing in right now to buy [other] technology immediately. They will need to regroup and have a resurgence of confidence."

Selling at Open Doesn't Last

The market opened with a burst of selling on both the Dow and the Nasdaq, as most big-caps were sold early on. Buyers seized that opening bout of selling and started to put their money in various names, including some prime earnings movers, such as Ford (F Quote), which blew out earnings expectations and rose 9% on the day.

Stocks ran into a bit of midday selling pressure in the early afternoon before powering back. As has been the case lately, the last hour of trading furthered the day's trend -- stocks that rallied sharply padded their gains in the last hour, as sellers got out of the way of the surge.

The upswing lifted stocks that otherwise spent most of the day in negative territory, such as Dell (DELL Quote) and United Technologies (UTX Quote).

It also helped the major tech indices, which performed well most of the day. The Philadelphia Stock Exchange Semiconductor Index gained 13%, led by the likes of Micron Technologies (MU Quote), which rose 18% after Goldman Sachs upped 2000 and 2001 earnings estimates. The Philadelphia Stock Exchange Computer Box Maker Index was also stronger, gaining 9.6%.

The small-cap Russell 2000 finished up 5.46, or 1.2%, to 459.13.

Dow components Citigroup (C Quote) and Eastman Kodak (EK Quote) both beat expectations (Citi blew out forecasts by 26 cents). Citi ended up 1 1/4 to 59 1/4 while Kodak gained 5/16 to 61 13/16.

Similarly, several financial stocks added to the tally of brokerages and banks that have reported strong first-quarter figures. Besides Citigroup, Merrill Lynch (MER Quote) reported earnings of $2.38 cents a share, but the stock finished up 1/4. Bank of America (BAC Quote) and discount broker Charles Schwab (SCH Quote) also exceeded expectations.

The Philadelphia Stock Exchange/KBW Bank Index was stronger overall, gaining 1.8%, while the American Stock Exchange Broker/Dealer Index rose 0.6%.

TheStreet.com Internet Sector index struggled early, but recovered later, finishing the day up 13.29, up 1.86%, to 727.16. Merrill Lynch's Internet analyst Henry Blodget said in a midday comment that "the best stocks are still expensive, so if the technology downdraft continues, there will likely be additional weakness."

Among the Internet bellwethers, Amazon.com (AMZN Quote) gained 1 1/4 to 47 1/16 and Yahoo! (YHOO Quote) fell 13/16 to 114 3/8.

The Dow Jones Transportation Average finished down 48.46 to 2678.58, while the Dow Jones Utilities Average rose 2.21 points to 306.07.

Market Internals

Breadth was lousy on strong volume.

New York Stock Exchange: 1,280 advancers, 1,729 decliners, 1.2 billion shares. 13 new highs, 145 new lows.

Nasdaq Stock Market: 1,752 advancers, 2,614 decliners, 2.44 billion shares. 7 new highs, 612 new lows.

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