Skip to main content

SAN FRANCISCO --

Last night I detailed how the consensus view on Wall Street was moving from

Oh no, we're going into recession

Friday to

Hey, the economy isn't falling off a cliff and tech stocks are cheap

Monday.

Today, that thought progression unleashed an orgy of buying. The

Nasdaq Composite

jumped 5.6% behind strength in tech stalwarts such as

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

and

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

.

Shares of recently bedeviled optical-networking and related companies such as

TheStreet Recommends

JDS Uniphase

(JDSU)

,

Juniper

(JNPR) - Get Juniper Networks, Inc. Report

and

PMC Sierra

(PMCS)

all enjoyed stellar comebacks. The tech-heavy

Nasdaq 100

leapt 6.5%.

Simultaneously, continued strength in financials such as

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. Report

and tech biggies such as

IBM

(IBM) - Get International Business Machines Corporation Report

helped the

Dow Jones Industrial Average

climb 1.3% and the

S&P 500

gain 2.2%.

Predictably, the action brought cheering from those long enamored of tech stocks.

"At the end of the day, it goes back to

this: Investors will come back to the techs because that's where they will hit the home runs," commented Charles Payne, president of

Wall Street Strategies

. "Sure,

Reggie Jackson

struck out a bunch, but name the singles hitter that batted ahead of him?"

Willie Randolph

,

Mickey Rivers

and

Bert Campaneris

notwithstanding, the question begs: Why is this session different than other sessions in recent memory in which the averages rallied in unfettered fashion, particularly

Oct. 19 and

Oct. 13 ?

There isn't any difference, according to the pessimists, who contend bear markets are characterized by steep, sharp rallies designed to lure as many players as possible for the next downturn.

However, bulls note some very significant changes have occurred since those previous rallies.

First, the fundamentals have improved. Oil prices continue to dip -- another 0.4% today in

New York Mercantile Exchange

trading -- and appear to be settling into a range in the low $30s per barrel. Also, the euro rose for a fourth consecutive session today, to 84.93 cents, amid more signs of a slowdown in U.S. economic growth.

Today, the

Conference Board

reported

consumer confidence

fell to its lowest level in a year while the

Chicago Purchasing Management Index

came in below 50, indicating contraction in the region's manufacturing activity.

Such data, along with weaker-than-expected

gross domestic product

and

employment cost index

reports last week, encourage the optimists. Many believe the

Federal Reserve

soon will ease monetary policy to ensure those signs of economic declination don't augur recession.

Second, today marks the fiscal year-end for many mutual funds, and thus an end to their tax-related selling. Such maneuvers had contributed mightily to recent volatility (i.e., weakness) in many stocks, especially heretofore highfliers.

However, (you knew there'd be a "however," didn't you?) the fundamental picture is far from exemplary. Oil is not at $40-plus, as some observers feared was in the offing, but it's also a long way from its lows of recent years. Also, crude's recent downward momentum may be halted by news late Tuesday from the

American Petroleum Institute

that gas inventories fell 749,000 barrels last week vs. expectations for a rise of 3 million barrels.

Meanwhile, the euro is bouncing from a string of recent new lows. The beleagured currency remains much closer to these lows than parity with the dollar, much less its all-time highs.

Also, while data show the U.S. economy has clearly slowed, other reports demonstrate it remains robust, denting the argument for a Fed ease. Today, the government reported new-home sales rose to 946,000 in September, much higher than expected.

As to the issue of funds' fiscal year-end, there's no denying that's a short-term positive for stocks. But "what we just went over in the last three weeks is not repaired in one day and wasn't the result of just tax-loss selling," argues Rob Cohen, co-head of listed trading at

Credit Suisse First Boston

. "The rally from the lows may continue, but there's still

been a lot of damage done."

Cohen also observes a "lack of conviction that we have the unlimited growth we saw six months ago," which means the valuation question remains highly pertinent -- as anyone who owns

Rambus

(RMBS) - Get Rambus Inc. Report

can attest. The memory-chip maker's stock fell 13.3% today on reports

Intel

(INTC) - Get Intel Corporation Report

will scale back on the use of its technologies.

Then there's the whole sentiment issue, which -- according to put buying or mutual fund inflows -- shows people never approached the levels of fear historically associated with long-term bottoms. In that same light, few complaints were heard today that Cisco rising nearly 11% was an overreaction to

Alcatel's

(ALA)

positive earnings, as was the case yesterday when the stock fell sharply following negative comments from

Lehman Brothers

.

Healthy markets have traditionally not been characterized by such wild swings for individual stocks, especially among bellwether names.

Oh Task, you're such a permabear

, some of you are probably thinking. Wrong. The point is, for all the reasons to be bullish (which are legion), there are corresponding reasons to remain concerned. Meanwhile, the Comp remains within its recent trading range of 3000 to 3500 while the Dow has yet to breach the upper end of its range, near 11,100. Unless you're paid to be a trader, it pays to be prudent until either index definitively breaks higher, suggesting a new bull leg is at hand.

I'll conclude with a quote from that notable market expert,

Joe Jackson

: We think it's getting better, but nobody's really sure.

Passing Thoughts

In reaction to last night's mention of the proverbial "Yankee Effect," one reader jokingly wondered what a similar study for years when the

Chicago Cubs

don't

win the World Series" would look like. (FYI, the long-suffering Cubbies haven't won the Series since 1908.)

To which I (

do I dare? Yes, dare

) say: Hoo. Hah.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.