Hanging On to 10,000 by the Fingernails

The stock market passed an important test today. But it's unlikely this session will prove to have been the final exam.

As

reported earlier, a confluence of factors weighed heavily on market sentiment early on. Concerns about Saudi-U.S. relations roiled commodity and currency markets, while stock proxies were hurt by news from companies such as

Tyco

(TYC)

,

Dynegy

(DYN)

,

Network Associates

(NET) - Get Report

and

Dow Chemical

(DOW) - Get Report

.

Additionally, news of expanded regulatory investigations cast concern over major Wall Street firms.

Merrill Lynch

(MER)

,

Morgan Stanley

(MWD)

and

Lehman Brothers

(LEH)

suffered big declines as the Amex Broker Dealer index lost 2.3%.

But those woes proved unable to keep major averages down for long.

After trading as low as 9926.57, the

Dow Jones Industrial Average

closed up 0.1% to 10,035.06. The

S&P 500

closed down 0.2% to 1091.48 but well above its intraday low of 1084.81. The

Nasdaq Composite

closed up fractionally to 1713.70 after trading as low as 1697.52.

An announcement by

Intel

(INTC) - Get Report

that it will restart construction on a fabrication plant in Ireland was cited as key to the market's reversal. Intel closed up 0.6% to $29.09 after trading as low as $28.17. The SOX finished up 0.8% to 538.60 vs. its nadir of 524.85.

Better-than-expected earnings by

Disney

(DIS) - Get Report

shortly before the close of trading also helped give the Dow a late-session boost. The toning down of rhetoric from Saudi officials about their plans to use oil as a weapon also aided equity trading, although crude futures still rose 1.3% to $26.73 per barrel.

But technicians suggested that the averages holding significant support levels was more crucial than the fundamental news.

As reported

last night, a breach of Dow 10,000 was expected, and many participants were encouraged that selling didn't accelerate thereafter. Most market participants say round numbers (even the index itself) are insignificant, but the Dow's close above 10,000 is psychologically significant to many retail investors ... and headline writers.

Elsewhere, the Comp's intraday low was less than a point above its Feb. 22 intraday low of 1696.66, a level many traders have been eyeing closely.

Finally, the S&P 500 had a "marginal break" of 1086-87, which represents the "support point of two down-channels" that followed recent rally peaks on March 19 and April 17, according to Michael Paulenoff, founder of 2Mstrategies.com. "If that level breaks, the S&P will fully test its February lows at 1074."

Today's comeback could presage a trading rally, he said, a

familiar refrain from the technician. But "if no rebound occurs, then the capitulation phase of the decline will be in full force towards a test of the February lows at the very least," Paulenoff conceded. Furthermore, the past eight trading days have been characterized by "a series of declining rally peaks, none of which has been hurdled on any intraday rally," he noted.

Cutting through the technical gobbledygook, that pattern does not bode well for the bulls, today's comeback notwithstanding.

House Music (All Night Long)

Today's debate on the housing industry began with news that existing home sales fell 8.3% in March to a seasonally adjusted annual rate of 5.4 million. As with

yesterday's new-home sales data, that was a slightly larger drop than expected, but February's sales figures were revised higher.

Existing home sales hit a record in January, so a decline from those breakneck levels isn't surprising. The current health of the homebuilding industry was displayed again by better-than-expected earnings from

Beazer Homes

(BZH) - Get Report

, the latest in a string of firms to exceed expectations.

Beazer reported fiscal second-quarter profits of $2.56 a share, 30 cents beyond the consensus estimate and up from $1.92 a year ago. The firm raised its guidance for fiscal 2002 earnings to $10 a share and said its acquisition of Crossman Communities will add $1 a share to its fiscal 2003 results.

Still, Beazer shares -- up more than 24% year to date heading into today's session -- fell 2.3%. The S&P Homebuilding index dipped 0.2% to 395.47.

Separately,

Ryland

(RYL)

declared a 2-for-1 stock split, the day after it posted stellar first-quarter results. Ryland shares fell 0.6%.

In an appearance on

CNBC

to discuss the split, those results and the outlook for housing, Ryland chairman and CEO Chad Dreier exhibited the kind of optimism that inspires shareholders and drives short-sellers batty.

Dreier expressed confidence that the homebuilding industry can do well even if mortgage rates (30-year fixed) rise as high as 8.5%, a level often cited as a

key inflection point. (

Freddie Mac

reported today that the average 30-year fixed-rate loans fell to 6.88% this week from 6.94% last week.)

"So what do you worry about?" asked "Squawk Box" guest host Jim Awad of Dreier.

About the only thing the CEO could come up with was: "A combination of higher unemployment and higher interest rates." But Dreier was incredulous that could happen.

Still, some have been forecasting such a scenario, better known as

stagflation.

There was some optimistic news on the employment front today, as the employment cost index and weekly jobless claims data were weaker than expected (although the four-week average of the latter rose to 452,500). But oil prices rose, the dollar weakened again and major companies such as Tyco continued to announce huge layoffs. Meanwhile, the federal budget is back in deficit, which is likely to expand.

I'm not saying stagflation is here, is imminent or is inevitable, but homebuilding executives and shareholders shouldn't be so sanguine about its possible onset.

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.