A second-straight session of robust gains, today's accompanied by solid volume and a fundamental macro catalyst, has some market participants rethinking their skepticism. Meanwhile, those who wanted to believe in the significance of last Wednesday's rally were scrambling to get more exposure to big-cap stocks, particularly of the tech variety.

Buoyed by stronger-than-expected retail sales data for April, the

Dow Jones Industrial Average

rose 1.9% to 10,298.14, the

S&P 500

gained 2.1% to 1097.28 and the

Nasdaq Composite

jumped 4% to 1719.05.

Particularly encouraging was that major averages closed above the highs reached May 8, of 10,148.94 for the Dow, 1088.85 for the S&P 500 and 1696.35 for the Comp. Additionally, the Dow eclipsed both its 20- and 50-day moving averages of 10,049 and 10,260.56, and the S&P bested its 20-day moving average of 1086.20, which is a short-term bullish sign.

Furthermore, market internals reflected a broad advance. In

NYSE

trading, 1.4 billion shares traded, while advancing stocks bested decliners 22 to 9. In over-the-counter action, 2.2 billion shares were exchanged, while gainers led 24 to 11. Volume exceeded the year-to-date daily average on both exchanges, but naysayers said neither volume nor breadth was overwhelmingly positive. Additionally, more than 630,000 million shares of

WorldCom

(WCOM)

traded after the beleaguered telecom giant was removed from the S&P 500, forcing index funds to sell it. Still, up volume totaled 78.5% of Big Board trading and 68.6% of over-the-counter activity, where up volume was totally dominant excluding WorldCom (about 15 to 1).

"It's certainly impressive to put two days

of gains back to back, and I don't think anyone expected today to have

this type lift, especially off retail sales," said Rick Bensignor, chief technical strategist at Morgan Stanley.

While retail sales gave the futures a big lift in preopening trading, other catalysts for the rally included strong earnings from retailers

Wal-Mart

(WMT) - Get Report

,

J.C. Penney

(JCP) - Get Report

and

OfficeMax

(OMX)

, as well as optimistic comments about

Intel

(INTC) - Get Report

by Robertson Stephens.

"It's almost like there's panic buying -- people are afraid they're going to miss something," Bensignor continued. "Whether or not we can find enough strength to follow through is what the market will need to judge" whether a sustainable rally for big-cap proxies has begun.

Results after the bell from

Applied Materials

(AMAT) - Get Report

seem likely to inspire more panic buying, or at least follow-through. Many investors were

pinning their hopes on the chip-equipment maker, which posted fiscal second-quarter earnings of 3 cents a share, a penny ahead of expectations but down from 21 cents a year ago. The company's revenue exceeded expectations and, perhaps most tellingly, it cited "strong demand" for its products and reported new orders rose to $1.7 billion, ahead of estimates and vs. $1.1 billion in the first quarter.

Prior to Applied Materials report, the technician said the S&P 500 is likely to hit resistance between 1100-1125 and observed that there are "many different resistance points between here and 1175." The index peaked near that level in early December, early January and twice in March, resulting in a "quadruple top," he said. "This is going to be the toughest rally of the year to play, but maybe that means the market needs to rally."

Laggards and Leaders Play Flip Flop

Earlier today I noted the trend of outperformance by recent laggards -- notably big-cap tech and biotech -- and underperformance of recent standouts, including small- and mid-caps, gold, health care and consumer staples.

Models measuring big-caps vs. small suggest "exhaustion" of the prior trend of outperformance by small-caps, Morgan's Bensignor said. But that is only indicative of a "potential turning point," with more time necessary to confirm a new trend is in place. Still, he suggested "now is not the time to put on a small play vs. a big play," recalling a

discussion here last week.

The Russell 2000 and S&P MidCap 400 each rose 2.4% today while the S&P Healthcare Index rose 1.4% and the Morgan Stanley Consumer Index gained 0.7%. But they trailed gains sported by the Nasdaq 100, up 5.2%, and the Amex Biotech Index, which rose 6.2%. The Philadelphia Stock Exchange Gold & Silver Index fell 5.5%.

Recent activity begs the question of whether this is merely a countertrend rally, and due to falter shortly, or a more fundamental and sustainable rotation out of what has been working and into what hasn't.

"That is the important question," said Bert Dohmen, president of Dohmen Capital in Los Angeles and editor of the

Wellington Letter

, who forecast the switch last week. "I don't think that

trend is going to last very long -- I wouldn't expect more than four weeks."

Four weeks is a long time for traders, but "serious investment money is not going into these out-of-favor areas like tech and telecom," Dohmen said. "Therefore, any rally is going to be short term in duration and fueled by short-covering."

The newsletter writer suggested "those that got in early will be exiting once the public starts going into these stocks again," which will be evidenced by a big increase in volume. "We did get a perfect pattern for a short- or intermediate-term bottom, so there is enough to sustain the rally for several weeks, but I wouldn't overstay especially in those overpriced areas."

Clearly, tech's allure remains strong for many investors, as the past week has indicated. But Dohmen recalled that groups that experience "blowoff tops" like tech/telecom did in the late 1990s/early 2000 often take 10 to 20 years before coming back to prior peaks, even though underlying business doesn't keep deteriorating. For example, most biotech stocks remain below their 1991 tops even though that industry has recovered, he noted.

"People have to stop beating that dead horse -- forget tech, forget chasing a rally like this in tech," he said. "This is not for serious money; you just want to trade it and get out and concentrate" on sectors with stronger fundamentals such as homebuilders, specialty restaurants, gold miners and casinos. (The S&P Homebuilding Index rebounded from early losses to close up 5.9%, a particularly impressive move given the benchmark 10-year Treasury note fell 17/32 to 96 27/32, its yield rising to 5.29%.)

Dohmen declined to give specific names, but said "the next big buying opportunity" in those groups is coming, as they'll correct while high tech returns to favor, at least for the short term.

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.