A surge in the final hour of trading left stock proxies higher for the session, confounding traders who'd been lulled into a false sense of negativity after early gains faltered.

The

Dow Jones Industrial Average

closed up 0.6% to 10,216.08 after trading as low as 10,086.96 around 12:15 p.m. EDT. Similarly, the

S&P 500

ended up 1% to 1097.08 after trading as low as 1080.55, and the

Nasdaq Composite

ended higher by 1.4% to 1697.63 vs. its nadir of 1651.89.

Some attributed the late day rally to

Food and Drug Administration approval of

Biogen's

(BGEN)

psoriasis drug. Biogen shares were halted for much of the day while the Amex Biotech Index began rallying at about 2 p.m. EDT when rumors of the FDA decision starting making the rounds and closed up 7.4%.

Whatever the reason for the advance, the action was noteworthy for those who believe the "smart money" is most active in the final hour of trading, today being the second day in a row of late-day buying.

Trading volume remained muted ahead of the coming Memorial Day Weekend, although up slightly from yesterday's totals. In

NYSE

trading, 1.2 billion shares traded, while gainers led losers 19 to 1l. In over-the-counter activity, 1.5 billion shares were exchanged while advancers led 10 to 7.

Early on, stocks proved unable to sustain gains spurred by a stronger-than-expected report on durable goods orders for April. The Commerce Department reported durable goods orders rose 1.1% last month vs. expectations for a 0.5% rise, while March's data was revised upward to a 0.2% gain from a 0.5% decline. Perhaps most importantly, orders excluding defense and transportation (i.e., non-defense capital goods) rose 1.9%, only the second gain in five months and indicative of a recovery in business investment.

The market's inability to sustain its early momentum, or to benefit from the latest signs of economic improvement, proved disappointing to many traders. There was talk again about

threats of terrorism weighing on traders' psyche, as well as the latest bout of violence in the Israeli-Palestinian conflict and instability on the subcontinent.

All those things contributed to a general malaise on Wall Street and a rise in pessimism, as measured by the 1-day Arms Index, which spiked as high as 1.14 early today but finished at 0.61.

On the other hand, there's Trader X, who remained a stark-raving bull throughout the market's dip earlier this week and this morning.

Before the market opened Thursday, Trader X emailed the following: "We had a real sharp rally with the NDX going up almost 20% in a week's period of time." (Specifically, 18.2% from the intraday low on May 7 to the intraday high on May 15.) "Now we correct back

8.6% from the high on May 15 to the low yesterday and everyone is talking the bearish mumbo jumbo," he continued. "It is amazing how the market corrects and the pessimism comes out as if we are in the middle of a market crash. This is how real bottoms are made."

Although there was a lot of negative talk, it wasn't reflected in market action; the CBOE equity put/call ratio remained in a tight range in the low 0.60s today while the VIX barely budged early on and finished down 5.7% to 20.35.

In addition to the perceived skepticism of other market participants, Trader X was emboldened by the early action in

General Electric

(GE) - Get Report

and

Micron Technology

(MU) - Get Report

, which were rallying prior to the S&P 500's turnaround; presaging it, that is. Both GE and Micron ended up 3.2%.

"This is a bear trap; this market is moving higher -- everyone will feel very foolish they did not buy here," Trader X commented at about 12:30 p.m. EDT.

He also forecast the Treasury bond market would surrender its once heady gains, which also proved prescient.

The benchmark 10-year Treasury note finished down 9/32 to 97 29/32, its yield rising to 5.15%.

Diary of Trader X

For those just tuning in, Trader X is an individual who trades for his own account and prefers anonymity. Trader X is not a work of fiction (although he

is

a character.) Nor is he my alter ego, Doug Kass, Jim Cramer or anyone else employed by

TheStreet.com

in any way. He is not a public persona, and his name probably wouldn't mean much to most readers.

To recap: After the market -- led by the Comp -- had a huge rally on May 8, it proceeded to sell off fairly sharply on the two subsequent trading days. Throughout May 9-10, when most were dismissing the May 8 rally as a one-day wonder, Trader X was emailing me and vociferously declaring that a "bottom" was at hand and the setbacks a false move. He predicted big things for the week of May 13, for the market in general and for

Applied Materials

(AMAT) - Get Report

,

Jabil Circuit

(JBL) - Get Report

and

LookSmart

(LOOK)

in particular.

As his predictions appeared to be unfolding, I reported them here on

May 15. I thought readers would appreciate the prescience of his calls and possibly act upon them (as with every source I use, Trader X's calls are meant as a starting point for your own analysis, not something to be followed blindly). For the entire week of May 13, the Dow rose 4.2%, the S&P 4.9%, the Comp 8.8%, while Applied Materials gained 15.2%, Jabil rose 25.3% and LookSmart more than 29%.

After returning from travels on May 17-18, I reported on the

tremendous feedback to the first Trader X story, much of it critical.

Several readers expressed concern about Trader X's anonymity, and we at

TheStreet.com

and I take those concerns very seriously. In this case, I was struck by the accuracy of his calls and wanted to share them while honoring his request for privacy. I suspect that if I called him "an anonymous source" vs. the more dramatic and mysterious "Trader X," there wouldn't be nearly as much concern about his identity.

Beyond the anonymity issue, many more readers took exception to Trader X's unrepentant bullishness, particularly about tech stocks, and his incredible hubris, which is striking. "Trader X has to be headed for a fall soon as the gods of trading do not allow for such arrogance," one reader commented, typifying the responses.

There's an old saying: "That's What Makes Markets" and you are, of course, free to bet against Trader X, although he again today proved to be a formidable opponent. Heading into the final hour of trading today, he suggested a tick above 1286 on the NDX would "skewer the bears" and confirm his bullishness was correct. The NDX closed up 1.8% to 1286.77.

For the record, I disagree with Trader X's contention that "THE Bottom" has occurred and that "all pullbacks must be bought" especially in tech stocks. As discussed in prior columns, I just think its highly unlikely the biggest bubble in history will produce a bear market that ends without greater capitulation by investors, as registered by steady

outlows

from equity mutual funds, rather than just a decease in inflows.

However, sharp rallies can and do occur within the context of larger bear markets and Trader X may indeed have pegged the start of one. The overwhelmingly negative response to that possibility from readers suggests there's more than enough skepticism to support it.

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.