Stocks Bounce Higher as Volume Finally Picks Back Up

After another down morning, the market turned things around during the afternoon and ended on a strong note.
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After a lethargic half-day of swinging in and out of positive territory, stocks mustered up a little conviction this afternoon and pieced together a decent rally at the end of the session.

The

Dow Jones Industrial Average

ended the day up 113.08, or 1.1%, to 10,535.35, after hitting an intraday low around 10,368 around 1:00 pm EDT. The

Nasdaq Composite Index

pocketed a much appreciated 106.05 points, or 3.4%, to 3270.60, nothing stellar considering yesterday's 200-point slide to a six month low, but pretty good considering it was down more than 120 points at its intraday low. The small-cap

Russell 2000

rose 2.72, or 0.6%, to 461.73, while the broader

S&P 500

sailed up 25.19, or 1.8%, to 1399.05.

"The market has been under a lot of pressure, especially technology stocks," said Tony Cecin, manager of Nasdaq trading at

U.S. Bancorp Piper Jaffray

. "When the Comp got down about 100 points, obviously some bargain hunters came in. There was not any news that accounted for the run back up."

News of United Airlines parent

UAL's

(UAL) - Get Report

$4.3 billion agreement to acquire struggling carrier

US Airways

(U) - Get Report

dominated the day and boosted the airline and transportation sector.

The

Dow Jones Transportation Average

jumped 74.8, or 2.7%, to 2829.07, while the

American Stock Exchange Airline Index

popped 12.8%.

Shares of UAL were under pressure, though, falling 11.9% after investors caught wind of the heady $60 a share it is shelling out for US Airways, a 137% premium over its closing price yesterday. Meanwhile US Airways shares soared 85.3%, to close at 48 3/4.

The merger caused a flurry of speculation in the industry over whether a consolidation trend will ensue, and which companies would benefit or miss out on potential deals.

Merrill Lynch

analyst Candace Browning weighed in with an in-depth industry report stressing her view that airline stock prices remain undervalued. Browning also downgraded American Airlines parent

AMR

(AMR)

saying that the company would likely respond to the deal in some way but that "responding could be very expensive". AMR slid 7.9%. On the other wing,

Northwest Airlines

(NWAC)

flew 19.6% after Browning pegged it as "an attractive acquisition candidate" and lifted her rating on the stock.

Speaking before the markets started to gain ground, Adam Wagner, president of

Wagner Hermann & Herbst

in Houston was simply shaking his head at the broader market action. "There is no way to peg a direction. My biggest question is what it's going to take to get the buyers to come back in." Wagner noted the action in his semiconductor holdings as just one sector that has been hit by irrational price swings and to

Anadigics

(ANAD)

in particular.

Integrated circuits maker Anadigics lost more than 50% in the last week alone from a close of 58 1/4 on May 16 to today's close at 26 7/8. Wagner pointed out the stock's May 1 close of 76 1/4 and said in the time period since then, the only news on the company was a standard filing with the

Securities and Exchange Commission

and positive comments from

Wit Soundview

on May 2. "There is no logic that you can apply to

its moves," said Wagner.

The

Philadelphia Stock Exchange Semiconductor Index

rebounded slightly today, gaining 5.2% after sinking to a year-to-date low yesterday. "The irony is that if you look on any news station, everyone is saying the demand for semis is good and earnings growth is going to be there, but nobody is stepping up to the plate to buy," he said, adding that with 100% to 200% earnings growth ranges and price-to-earnings ratios around 42, many of these stocks are "a steal".

Capital goods stocks showed a little strength with Dow component

Boeing

(BA) - Get Report

up 4.7%.

Illinois Tool Works

(ITW) - Get Report

rose 4.2% after

Credit Suisse First Boston

initiated coverage with a buy rating and a price target of 85.

Tyco International

(TYC)

tacked on 5.7% and

3M

(MMM) - Get Report

moved up 4.8%.

The retailing sector got slammed after warehouse giant

Costco

(COST) - Get Report

fell short of third-quarter earnings estimates by a fraction and warned of a possible shortfall in the fourth quarter.

Lazard Freres

and

Morgan Stanley Dean Witter

cut their ratings and the stock tumbled 21.5%.

The bad news left other retailers looking pretty rumpled, including electronics retailers

Circuit City

(CC) - Get Report

, which fell 5.4%, and

Best Buy

(BBY) - Get Report

, which shed 8.2%. The

S&P Retail Index

lost 2.9%.

Regional banks were taking in some cash.

Mellon Bank

(MEL)

gained 2.9%,

Comerica

(CMA) - Get Report

climbed 5.7% and

Suntrust Banks

(STI) - Get Report

ran up 3.6%.

Larger financial stocks were not faring quite as well, with

American Express

(AXP) - Get Report

down 1.5% and

J.P. Morgan

(JPM) - Get Report

slipped 0.3%.

Chase Manhattan

(CMB)

fell 2.1% after saying it would buy small New York investment bank

Beacon Group

for a price tag said to be between $450 million and $500 million according to published reports. The

American Stock Exchange Broker/Dealer Index

lost 2.6% while the

Philadelphia Stock Exchange/KBW Bank Index

fell 1.4%.

TheStreet.com Internet Sector

index rose 12.44, or 1.6%, to 771.25.

Bad Day for the E-Brokers

Online brokers followed the Nasdaq down early today, but failed to follow it back up.

E*Trade

(EGRP)

led the way into subterranean territory. It plunged 11.5%, or 1 13/16, to 13 15/16.

Ameritrade

(AMTD) - Get Report

dropped 4.9%, or 37/64, to 11 3/16 and

Charles Schwab

(SCH)

fell 6.7%, or 2 3/4, to 38 1/4.

Today's impetus came from a report from Scott Appleby, an analyst at

Robertson Stephens

. Appleby said he expected that June-quarter trades will fall as much as 25% at online brokers, thanks to the Nasdaq's own declining trading volume. (

TSC

wrote about this issue earlier this week.) So he cut his earnings and revenue estimates for E*Trade, Amertrade and

Knight/Trimark

(NITE)

, a market maker whose big customers are online brokers.

Market Internals

Breadth was about even on the Big Board but negative on the Nasdaq on much better volume.

New York Stock Exchange:

1,405 advancers, 1,483 decliners, 1.138 billion shares. 37 new 52-week highs, 117 new lows.

Nasdaq Stock Market:

1,612 advancers, 2,488 decliners, 2.057 billion shares. 14 new highs, 372 new lows.