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Suspicions that Friday's blackout-tainted session represented a pause in the market's latest power surge were confirmed Monday, as major averages rose steadily.

Much of the discussion among traders was about the

Dow Jones Industrial Average

, which surpassed some closely watched technical levels, albeit amid still-lackluster volume. The Dow rose 1% to 9412.45, eclipsing its June 17 closing high of 9323 and July 31 intraday high of 9362. It's also the Dow's highest close since June 20, 2002.

While lacking the same technical significance as the Dow's rise, other major averages also posted solid gains. The

S&P 500

rose 0.9% to 999.74, while the

Nasdaq Composite

climbed 2.2% to 1739.50.

The next key resistance level for the Dow is 9450, which represents the downtrend line from its 2001 highs. In addition, 9474 would be a 50% retracement of the Dow's fall from its all-time high of 11,750 in January 2000 to its October 2002 low of 7197.49, as Charles Norton noted in's

Columnist Conversation.

Many Rivers to Cross

Given those technical hurdles still to be tested, many observers cautioned against reading too much into the Dow's technical "breakout" Monday.

"I think you'll get all these technicians bullish now, but I think they'll take this thing up higher, and everyone will get excited just in time for me to short it," said Jeffrey Saut, chief equity strategist at Raymond James.

Saut is currently long the

Dow Diamonds

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. But while he believes Monday's advance will likely lead to continued upside "for a few more days, maybe weeks," he's "looking for a place to exit and get short."

In explaining his cautious stance, Saut cited "formidable" technical resistance at Dow 9500, skepticism about the sustainability of the economy's recent upswing, and lack of faith in the apparently strong second-quarter corporate earnings. "A lot of companies are still using abracadabra accounting," he said.



Helene Meisler wrote Monday morning that excitement about the Dow exceeding its July highs "would come just as we were reaching an important resistance level around 9450, and just as we were reaching an overbought reading."

Meisler also noted how high volume is necessary to validate a technical breakout, and it certainly wasn't evident on Monday. In

Big Board

trading, an underwhelming 1.2 billion shares changed hands, and advancers bested declining stocks 11 to 5. About 1.5 billion shares changed hands over the counter, where gainers led by more than 2 to 1.

Meanwhile, it strikes me that from the October 2002 lows through to the June-July tops, the Nasdaq had consistently been the first major index to surpass important resistance levels. That the Dow is now leading the pack is a "red flag" suggesting "the stocks that have been leading have quit leading," Saut said. "That tends to happen at inflection points."

Where retail investors weren't interested in equities last March, they're now "throwing money at portfolio managers," the strategist observed. Money managers "know it's late in the move and won't pay up for high-beta stocks and

instead buy Dow-type names. That's typically why you get the 'solitary dance of the Dow' at the tail end of a move vs. the beginning."

Other averages followed the Dow's lead Monday, but while the blue-chip proxy posted a new 52-week best, the S&P remains 1.5% below its June 17 intraday high around 1015 and the Comp 2.1% below its July 14 apex of 1776. (Meanwhile, the Philadelphia Stock Exchange Semiconductor Index rose 5.2% to a 52-week high of 414.85 Monday.)

Everybody Into the Pool

Catalysts cited for the advance included upbeat guidance about August sales from


(WMT) - Get Walmart Inc. Report

, strong earnings from


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

, and positive comments in



Advanced Micro Devices

(AMD) - Get Advanced Micro Devices Inc. Report


In addition, shares were aided by a rally in Treasuries amid the absence of major economic news. The price of the benchmark 10-year note rose 16/32 to 98 9/32, its yield falling to 4.46%. (The Economic Cycle Research Institute reported Monday that its weekly leading index slipped to 127.5 from a revised 128.5 for the week ended Aug. 8 while its four-week moving average dipped to 13.2% from a 20-year high of 13.5% previously. The report was originally slated for release Friday.)

The stock market's advance and the upbeat reaction to the day's relatively light slate of news reflects investors' growing optimism, as noted

here. On Monday, the CBOE Market Volatility Index fell 4.6% to $19.28, its lowest close since March 27, 2002, while its Nasdaq counterpart fell 8.9% to $26.62, its lowest level since July 1998.

"Sentiment has moved back into overly optimistic territory," observed Jeff deGraaf, senior technical analyst at Lehman Brothers. DeGraaf also noted that commercial hedgers have been increasing their net short exposure to S&P 500 futures. As of Aug. 12, commercial hedgers were net short S&P futures by 57,353 contracts, according to the Commitment of Traders' Reports; that's their most aggressive short bet since late 2002.

Commercial hedgers are viewed as very savvy market timers. Conversely, small traders, who are viewed as contrarian indicators, were net long S&P futures by a record 87,781 contracts as of Aug. 12.

Citing "firm resistance" at 1015 for the S&P 500, deGraaf believes the "major sell signal" issued in June remains valid, "just likely to be frustrated in the next few weeks."

The frustration for those betting against stocks is likely to be intensified by the Dow's technical breakout, which will embolden the bulls. Moreover, "long-only guys want to be involved" in stocks, as Brian Belski, fundamental market strategist at U.S. Bancorp Piper Jaffray in Minneapolis, recently observed. Mutual fund managers are "more worried about missing the next 5% rally than they are about any downside risk."

On Monday, few market participants were worried about much of anything.