Market's Swing May Be Saying Some Good Things - TheStreet

Well, at least today's nontech rally can't be attributed to the economic news, which was clearly negative. Unlike yesterday's positive response to lackluster economic data, major averages retreated following the 10 a.m. EDT release of weaker-than-expected reports on construction spending and the Institute for Supply Management's index of business activity.

But the midmorning weakness proved temporary, and the ensuing lift lent technical credence to the notion a sustainable rally has begun.

After having traded as low as 9830.67, the

Dow Jones Industrial Average

recovered to trade as high as 10,086.61 before closing up 1.1% to 10,059.63. Similarly, the

S&P 500

rose 0.9% to 1086.17 after having traded as low as 1065.01. The

Nasdaq Composite

finished off 0.6% to 1677.53 but closed well off its intraday low of 1643.24.

The market's reversal was attributed to a calming of tensions in the Middle East -- Israel withdrew from Hebron and Ramallah after Yasser Arafat handed over six men wanted by Israel to the U.S. and U.K. -- and robust April sales data from

General Motors

(GM) - Get Report

, which rose 2.1%.

Other names aiding the Dow (and S&P 500) included consumer product giants

Coca-Cola

(KO) - Get Report

and

Procter & Gamble

(PG) - Get Report

, as well as

SBC Communications

(SBC)

.

The Comp, meanwhile, was restrained by weakness in

Sun Microsystems

(SUNW) - Get Report

, down 14.8% on news of the retirement of COO Ed Zander, and

Oracle

(ORCL) - Get Report

, which fell 5.9% after Lehman Brothers cut estimates.

Strength in stodgy consumer names accompanied by ongoing weakness in big-cap tech confirmed the

slow-growth message of today's economic data. Reflecting that message, the price of the benchmark 10-year Treasury note rose 5/32 to 98 18/32, its yield falling to 5.06%.

Springtime for Wall Street?

Regardless of the catalysts and the Comp's struggle, this was about the best day the bulls could hope for, technically speaking. Given the skepticism that greeted yesterday's advance, the market's early struggles hinted the rally was a fluke, leaving many traders scrambling to catch up when the market rallied.

Technically speaking, today could qualify as a "reversal day," generally defined as a session with greater than average range and/or greater than average price change, accompanied by greater than average volume.

The Dow's near-256 point intraday swing certainly counts on the range front, as does its percentage rise (although just barely). Nearly 1.5 billion shares traded on the

NYSE

while 2.2 billion shares were exchanged in over-the-counter activity, both solidly above recent averages.

Today's action also could fit the criteria for a so-called Wyckoff spring, which occurs when a market average (or stock) falls below its trading range, makes a new "panic low" and then "springs" back into its range.

Yesterday, the S&P hit a new low for the cycle of 1063.46 but bounced back inside its prior trading range of 1074 to 1098 today.

The S&P completed the Wyckoff spring today, "but it has to hold, otherwise it ends up being a test of the breakdown and rolls over two days later," said Fred Wynia, market strategist at the Seidler Cos., a Los Angeles-based investment banking and brokerage firm. "You have to wait two to three days and make sure it holds inside the range, but I think it's going to."

The veteran technician was encouraged that the S&P closed near its high of the day at 1087.89. "This was good action," Wynia said, suggesting today was, indeed, a "reversal day."

John Bollinger, president of EquityTrader.com in Manhattan Beach, Calif., deferred to Wynia on the Wyckoff-spring question, but agreed with the reversal analysis and that follow-through from here is key.

"The bottom line is this is a good setup," Bollinger said. "The real news would be if

the rally fails. Then we'd have to consider the pain of a retest of the September lows."

Having said that, the technician stressed that his attention continues to be focused away from the big-cap indices, as it has been for some time now.

The S&P SmallCap 600 never broke down even as the so-called major averages struggled from mid-March until just yesterday. It closed about three points off its 52-week high of 258.23 today, Bollinger noted. "When the market pulls back and some sectors don't, it is time to pay attention to those sectors."

More investors are looking at small-caps, but all that matters (still) to many is that the Dow is back above 10,000 and/or that the Comp continues to underperform.

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.