After four days of robust gains, some bloom came off the market's rose on Wednesday. To some, the setback was preordained by the weak results posted late Tuesday by


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, as well as the extent of the preceding rally.


Dow Jones Industrial Average

fell 2.7% to 8036.03, the

S&P 500

lost 2.4% to 860.02 and the

Nasdaq Composite

shed 3.9% to 1232.42.

In addition to the aforementioned tech trio, major proxies were weighed down by weakness in


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Capital One Financial

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, which each warned of coming weakness. Other factors were Standard & Poor's downgrade of

General Motors

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and warning it may do the same to


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; as well as disappointing results from

J.P. Morgan Chase

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Fleet Boston Financial


Still, the losses weren't terribly dramatic, especially given major averages each had risen more than 13% in the four days prior. For example, the Philadelphia Stock Exchange/KBW Bank Index fell 0.8% after rising nearly 20% in the four prior trading days.

Notably, volume was down from yesterday's levels in

Big Board

trading, on which 1.6 billion shares changed hands, and in Nasdaq activity, where 1.4 billion shares were exchanged.

Giving back about half of yesterday's nearly 40-point rally in the S&P 500 "is OK," said Rick Bensignor, chief technical strategist at Morgan Stanley. He made a well-timed "bottom" call

last Thursday and says the rally will last three to six months.

Over lunch today, Bensignor said he was "pleasantly surprised" at the ferocity of the advance in the four days before today, but conceded it was "a little too much too fast

and opened the door for some short-term pullback."

The technician said it is critical that the S&P 500 remain above the 785 to 810 range on any pullback, but expressed "high confidence" that the lows for the year are in for the major averages, barring another terrorist attack on U.S. soil or other exogenous shock.

One reason for Bensignor's confidence about the rally is what he perceives as a lack of confidence with most other market participants. Among the traders at Morgan Stanley's midtown headquarters he said there's near unanimous disbelief that additional meaningful gains -- either in duration or price, much less both -- are in the offing. Similarly, it strikes me that there's a much greater level of skepticism about the recent advance in various media outlets -- especially compared with the July 24 lows and, especially, September 2001. I'm also seeing skepticism in my reader emails.

On a less anecdotal basis, bullish sentiment fell to 28% for the week ended Oct. 11 from 31% the week prior,

Investors Intelligence

reported Wednesday. Additionally, Schaeffer's Investment Research, which hasn't exactly been a hotbed of bullishness in recent years, noted Tuesday that, at 0.79, the 21-day moving average of the CBOE equity put/call ratio rose to its highest level since 1990.

"Maybe this will prove to be what is required to break the back of the bear," said Al Schwartz, equity options trader at Schaeffer's. On Wednesday, the CBOE put/call ratio was well above 1.0, indicating more buying of defensive puts vs. optimistic calls. A final tally was not available at press time, but "you can forget about

the 21-day moving average rolling over," Schwart said after Wednesday's spike in put buying.

Of course, others note the CBOE Market Volatility Index, which rose 5.6% to 41.97 Wednesday, came down pretty quickly from its intraday peak of 50.48 on Oct. 10. Furthermore, the VIX never reached the heights seen in July, even as major averages were making new lows.

To this point, Bensignor observed that the decline in September and early October was "more methodical" and a slow grind vs. July's wicked selloff. Thus, he argued, it's not so strange for the VIX to have made a lower high this time around.

Still, the technician acknowledged the

Investors Intelligence

information is a "lagging indicator" and that more immediate indicators, such as the Daily Sentiment Index, show bullishness has re-emerged in some circles. The Daily Sentiment Index, which measures sentiment among futures traders and is produced by Jake Bernstein of MBH Commodity Advisors, rose to 77% bullishness heading into Wednesday from the low teens late last week, Bensignor noted.

Having said all that, the technician stood by his observation that sentiment is generally skeptical, if not outright bearish, which he believes will help facilitate more gains for the major averages. Still, Bensignor reiterated once again that he does not believe the bear market is over or that


bottom was made last week. He merely sees a significant, "exploitable" opportunity for those long stocks.

True Confessions

For the record, my longstanding belief that we are in a long-term, secular bear market during which major averages make little progress (if they're lucky) remains intact. It strikes me that the comparisons to trading activity during the 1930s are starting to accumulate. The most recent yellow flag is the Dow's percentage move for the four trading days ended Tuesday -- its largest since 1933. And the volatility in the S&P 500 for the 15 days ended Monday was the highest since 1931, as reported in

The New York Times


Still, there were several major rallies from 1966 to 1982, a period when the Dow was essentially flat overall, and Wednesday's decline shouldn't be taken as a sign that the most recent advance has already expired. Paradoxically, the decline might actually serve to reinforce the likelihood of more near-to-intermediate-term gains, if it contributes to investors' state of disbelief.

Notably, news after the bell Wednesday from tech names such as


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was, at first glance, more upbeat than that of the prior evening, and S&P futures were up in Globex trading as of 5 p.m. EDT.