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Wednesday's session sent a bullish signal to anyone looking for resolution of the market's recent indecisiveness.


Dow Jones Industrial Average

rose 1.8% to 8623.01 and the

S&P 500

gained 1.9% to 914.15. For both indices, Wednesday's close was their best showing since each reached a peak on Nov. 6. The

Nasdaq Composite

climbed 3.3% to 1419.35, fractionally better than its Nov. 6 close and its highest level since Aug. 22.

Amid strength in stocks, the price of the benchmark 10-year Treasury note fell 22/32 to 99 16/32, its yield rising to 4.06%. The U.S. Dollar Index rose 0.27 to 105.94.

Technically speaking, traders were encouraged that the Dow exceeded 8600, while the Comp moved above resistance at 1411. For the Comp, the next upside target is its recent intraday high of 1425, hit Monday.


New York Stock Exchange

trading, 1.5 billion shares traded, and advancing stocks led decliners 11 to 5. Gainers led by a similar spread in Nasdaq trading, where 1.6 billion shares traded.

Trading volume wasn't terribly robust, which undermined somewhat the technical significance of Wednesday's breakout. Furthermore, there wasn't a tremendous amount of positive economic or corporate news to support the advance; in fact, quite the contrary.

On the macro front, the government reported a larger-than-expected 11.4% decline in housing starts for October, the largest drop since January 1994. However, permits rose more than expected, September's results were revised upward and homebuilding shares were barely dented by the data.

Elsewhere, Chicago Fed president Michael Moskow was upbeat, declaring: "We see the economic expansion regaining momentum next year, with growth reaching its potential during 2003. Moreover, the long-term prospects are bright."

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Notably, Moskow is just the latest in a series of Fed governors to try to jawbone the market. Previous efforts have largely fallen short and it seems unlikely that Moskow's comments really moved shares Wednesday. However, optimism about the economy in 2003 was a key theme in the session, despite the lack of supportive evidence.

A market that rallies sharply amid the absence of fundamentally positive news is either a sign of runaway speculation or evidence of bullish resilience, depending on one's perspective.

Those in the bearish camp observed that the CBOE Market Volatility Index fell 8.6% to 28.66 Wednesday, its lowest level since June 18. At that time, the S&P 500 was trading around 1037. A major qualm of skeptics is that you have a much lower high for the average and a lower low for its corresponding volatility index. In other words, fear (as measured by the VIX) is down much more significantly than the S&P 500 is up.

After noting as much in's

Columnist Conversation this afternoon, I received a number of emails from readers detailing why the VIX isn't such a great measure of sentiment, after all. These included:

Because the VIX measures implied volatility, i.e., the premium that buyers are willing to pay for an options contract, and its fall is a function of the lack of overall demand for such products. Overall options volume is down significantly from the peak in 1999 and 2000 and less demand equals a lower price, as reflected by the VIX.

With many stocks trading at such low price levels, many are not marginable, diminishing demand for defensive puts and, by extension, the VIX itself.

The VIX is only a "loose surrogate for fear sentiment" anyway.

I've heard such arguments previously, and they certainly have merit, as does the overall notion that the VIX is far from infallible and that investors shouldn't focus on any one indicator. However, it seems to me that when the VIX rises sharply, many says it's a sign of rampant fear and that stocks are a buy. It's only when the VIX falls that arguments are heard that the VIX isn't a good indicator.

To that point, my colleague Paul Kedrosky cited a paper in the

Journal of Portfolio Management

from spring 2000 that showed if the VIX fell by 100 basis points, the S&P 500 rose by 0.47%. But if the VIX rose by 100 basis points, the S&P fell by 0.71%.

"In other words, critics are right in saying the VIX is a better gauge of investor fear than of investor greed," he wrote.

To which I reply: It's unfair to drag facts into such an emotionally charged debate.

Rally 'Round the Campfire

Whatever you think about the VIX, or stocks in general, the market's ability to interpret negative news as upbeat was on display Wednesday.

This theme was perhaps best embodied by

Analog Devices

(ADI) - Get Analog Devices, Inc. Report

, which rose 6.5% despite reporting fiscal fourth-quarter earnings in line with expectations and forecasting fiscal first-quarter results below expectations. Further aided by SoundView's positive comments on chip-equipment names and strength in industry bellwether


(INTC) - Get Intel Corporation Report

, the Philadelphia Stock Exchange Semiconductor Index rose 8.3% to 338.13, its highest close since Aug. 23.

Big-cap tech names were higher nearly across the board Wednesday, with


(IBM) - Get International Business Machines Corporation Report



(MSFT) - Get Microsoft Corporation Report

among the leading influences on the Dow and S&P. The Merrill Lynch High-Tech 100 rose 5.3%.

If those gains were in anticipation of strong results from


(HPQ) - Get HP Inc. Report

, the firm's fourth-quarter earnings justified the optimism, at least on first look. After the bell, Hewlett-Packard reported earnings of 24 cents a share and revenue of $18 billion vs. expectations for profits of 22 cents and revenue of $17.3 billion. H-P shares were recently trading around $18.40 in after-hours activity vs. their regular session close of $16.85.

The upbeat mood was certainly not limited to tech names.

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. Report

rallied 8.1%. Traders cited positive comments by, which is authored by Second Curve Capital's Tom Brown, who is long J.P. Morgan. Another embattled financial giant,


(C) - Get Citigroup Inc. Report

, rose 3.7% following some positive comments by UBS Warburg. The Philadelphia Stock Exchange/KBW Bank Index rose 3.1%.




rallied 10.5% after merely reiterating guidance;



jumped 10% thanks to a Lehman Brothers upgrade; and

Qwest Communications


jumped 11% despite a downgrade by Standard & Poor's. Qwest offered to exchange $12.9 billion of outstanding debt for new debt with bonds of a higher yield but shorter maturity.

Notably, laggards included gold miners -- the Philadelphia Stock Exchange Gold & Silver Index fell 0.8% -- and home-improvement retailers

Home Depot

(HD) - Get Home Depot, Inc. Report



(LOW) - Get Lowe's Companies, Inc. Report


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

Aaron L. Task.