Late Bounce Bugs Bears

Wednesday's recovery in the Dow is bothersome to those in search of capitulation.
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So much for a

Fed

-induced rally.

Wednesday brought more disappointment for bulls, even as an intraday drop in crude oil prices spurred a rebound in equities that continued as oil rose again late in the session.

Perhaps a delayed reaction to the hawkish nature of Tuesday's Fed statement accounted for the early morning swoon, but more likely it was disappointing guidance from

Cisco

(CSCO) - Get Report

and a warning from chip-assembly company

Kulicke & Soffa

(KLC)

. Their news put tech stocks in the meat grinder once again, with the Philadelphia Stock Exchange Semiconductor Index tumbling 5.2% while the Merrill Lynch High Tech 100 lost 3.2%.

After trading as low as 1,760.50 intraday -- its lowest level since Aug. 23, 2003 -- the

Nasdaq Composite

bounced to close down 1.5% to 1782.42. That the Comp ended above Monday's close of 1774.64 was something of a technical victory, but market internals reflected the prevailing negativity, albeit improved from session lows: declining stocks on the

Nasdaq

led advancers 19 to 11 while down volume was 78% of the 1.8 billion-share total.

"The news from Cisco and Kulicke & Soffa will certainly serve to remove some of the pixie dust from the eyes of investors after yesterday's dose of economic fantasy from the Fed," Bernie Schaeffer, chairman and CEO of Schaeffer's Investment in Cincinnati, commented midday.

Schaeffer, among

the gurus whose springtime caution was well-timed, was not available for additional comment. But his recent commentary has been sprinkled with references to the potential for a "crash," so it's fair to say his bearish stance remains intact.

In a similar but less dramatic vein, Thomas McManus, equity portfolio strategist at Banc of America Securities, has not been compelled by recent market weakness to adjust his cautious stance.

"From these prices I'm still not really concerned I'm going to lose a lot of upside opportunity," McManus said. "So far we have resisted the temptation to jump aboard. Unfortunately, that would bring us back to a neutral equity position, and I don't think that is justified at these levels."

In June, McManus lowered his recommended equity allocation by 5% to 60%, his third 5% cut since Dec. 31.

In addition to a decline in oil prices -- which settled up 0.4% at $44.71 per barrel Wednesday after hitting an intraday low of $43.30 on news of a Saudi pledge to increase production -- McManus said a change in investor sentiment would be necessary to make him feel comfortable restoring a neutral or above-average equity allocation.

"I want to see more of the whites of their eyes," McManus said of his fellow market players. "It's starting to play out, but I want to see a few more people recognize this is a significant deterioration in the profit outlook."

Inasmuch as Wednesday's intraday bounce prevents such recognition and sustains bullish sentiment, the session was even more bearish -- from a contrarian perspective, of course.

"Everyone is trying to find a bottom, which means it's less likely to happen," said Rick Bensignor, chief technical analyst at Morgan Stanley, recalling how "everyone" was looking for a bottom in semiconductors three months ago and they've kept going down since.

Regarding Wednesday's intraday move, Bensignor -- who warned of a

significant selloff in early July -- said the

S&P 500's

apparent successful test of Friday's close and its late-day strength is "somewhat bullish." After trading as low as 1066.03 vs. Friday's close of 1063.97, the index rebounded to close off 0.3% at 1075.79. The

Dow Jones Industrial Average

closed down 0.1% to 9938.32 after trading as low as 9841.36.

Stocks' ability to overcome crude oil closing higher also was impressive, the technician said. "But I still don't have evidence to suggest

the

bottom is in."

Bensignor is still eyeing 1056 as a downside target for the selloff with 1025 possible if that support doesn't hold. "But that doesn't mean I get bullish there," he said, just in case those targets were making you feel better about shares.

Aaron L. Task is the managing editor of RealMoney.com. 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

atask@thestreet.com.