SAN FRANCISCO -- A solid rally from the Sept. 21 lows, which brought the
above its 200-day moving average
yesterday, proved to be the ignition.
Today was the liftoff.
The Comp's technical breakout yesterday, plus a much-better-than-expected reading on the National Association of Purchasing Management's nonmanufacturing index today, provided a turbo boost to the good ship Wall Street as it unleashed a torrent of pent-up demand for stocks. As a result, the Comp closed above 2000 for the first time since Aug. 7 while the
Dow Jones Industrial Average
climbed above 10,000 for the first time since Sept. 5.
The Dow Industrials rose 2.2% to 10,114.29, about 30 points below their 200-day moving average. The
jumped 2.2% to 1170.35, less than 10 points away from its 200-day moving average of 1177. The Nasdaq Composite rose 4.3% to 2046.84.
Although breadth wasn't wildly bullish, market internals supported the averages' advance.
New York Stock Exchange
activity, advancers bested decliners by a 2-to-1 margin while up volume outpaced down by 7 to 1. Almost 1.7 billion shares were exchanged, up 67% from two weeks ago, according to
, while new 52-week highs bested new lows by 160 to 32.
In Nasdaq activity, advancers led 2 to 1 and up volume beat down 23 to 3 on 2.4 billion shares. New 52-week highs outran new lows 164 to 35.
As has been the case since the Sept. 21 lows, tech stocks led today's rally, including bellwethers
. The Nasdaq 100 rose 5.3%, the Philadelphia Stock Exchange Semiconductor Index climbed 7.7% and the Merrill Lynch High-Tech 100 jumped 6%.
The combination of better-than-expected economic data and surging stocks proved devastating to the bond market, where prices plummeted and yields rose. The price of the benchmark 10-year Treasury fell 1 26/32 to 100 26/32, its yield rising 23 basis points to 4.89%.
Today's session was no doubt difficult for those who've been skeptical of the market's advance, this columnist included. But it is doubtful hard-core pessimists will be swayed by the action, given the following:
The combination of rising stock prices and rising bond yields makes equity valuations even more egregious and unsustainable: The S&P 500 is now trading with a price-to-earnings ratio of 21.2 times 2000 earnings and 23.6 times 2002 estimates;
The multiple Fed easings and a presumptive congressional stimulus package already are "priced into" the market;
Among other sentiment gauges, the Chicago Board Options Exchange Volatility Index fell 2.1% to 24.79 today, indicating a rising level of complacency among investors;
There remains scant hard evidence of an economic recovery, while the three-month average of the Chicago Fed's national activity index fell to its lowest level in October since March 1991;
Challenger Gray & Christmas reported announced job cuts in November of more than 181,000 -- down 25% from October but still up significantly from last year, indicating continued fallout from the Sept. 11 attacks. Three times more layoff announcements already have been reported this year vs. all of 2000 and 39% more than the combined totals of 1999 and 2000, Challenger Gray said.
UCLA's Anderson School of Business forecast today that the recession will be short but the recovery will not be terribly strong -- certainly not as strong as the stock market is currently anticipating.
One of the biggest bubbles in financial markets history isn't going to end with a "mere" 18-month bear market, regardless of how painful.
But all of those factors, and myriad others, are based on opinions and "not worth much," according to William O'Neil, chairman of
Investors Business Daily
and president of investment advisory and research firm William O'Neil & Co. in Los Angeles. "The market is so darned difficult you have to understand what is really happening vs. what
to happen. It's unsound to say P/Es are too high. Don't argue with the market."
Certainly, the market is arguing that O'Neil was right when he said here that
Sept. 28 was a "confirmation day" portending a streak of higher prices. (That was soon followed by O'Neil's firm taking out the "Enough is Enough" ads in
The New York Times
Today, O'Neil reiterated a belief that the market experienced a "climax bottom" in September and that the analogy to 1962 remains. The market's pattern of rallying followed by sideways action since late September is "very positive," he said, declaring (again) that he's not expressing an opinion but a reading of the market based on historical patterns.
"The market will not come back down to accommodate what a lot of people would like to see," O'Neil added, which reminded me that short interest on the Nasdaq recently hit a record. "There are still a lot of people fearful or who don't believe. The market has to climb a wall of worry -- that's when you start doing better and better."
Re-emphasizing that he is not a forecaster but rather a reader of what the market is currently saying, the technician expects "at least a couple of years of bull market in front of you," based on evidence the economy is slowly starting to recover and people are regaining confidence.
Regarding confidence, O'Neil alluded to an interesting subplot of today's session: the effect the Dow being back above 10,000 and the Comp above 2000 will have on retail investors, who have largely
remained on the sidelines. We were discussing this earlier today on
Columnist Conversation and I plan to revisit the issue in a coming column.