In the absence of major corporate or economic news, stock proxies overcame early weakness to post modest gains Wednesday. The session was relatively quiet, but the upward bent for shares speaks volumes about the current state of market psychology.


Dow Jones Industrial Average

rose 0.7% to 8427.41, the

S&P 500

lifted 1% to 890.69, and the

Nasdaq Composite

gained 2% to 1325.61.

Another comment on the state of psychology came from the

Investors Intelligence

survey, which showed bullish sentiment rising to 43.4% from 38.9% the prior week while bearish sentiment slid to 28.3% from 35.6%.

Almost everyone on Wall Street, it seems, is growing more optimistic. Even longtime skeptics such as Bernie Schaeffer of Schaeffer's Investment Research in Cincinnati are warming up to equities.

While stressing disbelief that the Oct. 10 bottom will prove to be


bottom, Schaeffer argued in a report Tuesday that "the rally off the Oct. 10 bottom may carry quite a bit further than the one off the July bottom."

Schaeffer offered the 1100 area for the S&P 500, representing the index's 20- and 80-month moving averages, as the "logical termination point" for the current advance. A rally to 1100 would be a 43% rally from the intraday lows on Oct. 10 and another 23.5% from Wednesday's close.

A "less likely possibility" is for the index to rise to as high as 1160, he said, which would be a 50% gain from the Oct. 10 lows and another 30.2% from current levels. It also would be an approximate 50% retracement of the move from the S&P's March 2000 high to the October lows.

In making the (for him) bullish case, Schaeffer cited a rise in negative sentiment. Specifically, he observed that short interest on three exchange-traded funds -- the Nasdaq 100 Trust, S&P Depositary Receipts and Dow Diamonds -- did not markedly decline after the market's swoon in September and early October. Additionally, he noted that bearish sentiment was up and bullish sentiment down in the "big money poll" in the most recent edition of



The veteran market-watcher cited other signs of persistent skepticism -- including steady put-buying as the rally has unfurled -- in explaining his newfound optimism.

"The bottom line is that a number of sentiment indicators are pointing to the potential for substantial short-term gains before this rally is finally played out," Schaeffer continued, before reiterating that he remains a long-term bear. "But this is no time to become exuberant as an investor, as risk remains high, and my ultimate scenario still calls for a bear market bottom in the Dow 6000 zone."

Viewing sentiment as a contrarian indicator, Schaeffer warned that "the aforementioned bearish sentiment could unwind much faster than expected," as evidenced by the huge increase in bullishness in the

Investors Intelligence

survey in the past two weeks.

Furthermore, "this entire stock rally has been based on the tenuous premise of an economic recovery, and yet another ineffectual


rate cut will only undercut this premise and perhaps cause a major dollar plunge," he warned.

On Wednesday, the Dollar Index rose fractionally to 107.04, but bears worry that an even lower fed funds rate will make dollar-denominated assets less attractive to foreigners.

Still, prospects for a rate cut by the Federal Reserve on Nov. 6 were cited as a catalyst for Wednesday's advance, as was the case with the prior day's afternoon rebound.

Given that 11 rate cuts in 2001 and a 40-year low in the fed funds rate for nearly a year now have failed to inspire equities, I share Schaeffer's bemusement that many on Wall Street still cling to the rate-cut cure-all mindset.

Still, it apparently was a factor in Wednesday's session, as was the fiscal year-end for mutual funds, about which I erred in the discussion

here on Tuesday.

Rather than being beholden to so-called T+3 settlement, "funds are required to book securities on the day they

make trades, even if settlement hasn't occurred," according to John Collins, a spokesman for the Investment Company Institute. (Thanks to's

Dagen McDowell for pointing out my mistake.)

Thus, there really is no disincentive for fund managers to engage in "window dressing" during the final days of a month, quarter or, in this case, fiscal year.

Notes and Notables

Names on the upswing Wednesday included


(IBM) - Get Report

, which rose 2.4% after CEO Sam Palmisano said there are signs the global economy is bottoming. Although Palmisano acknowledged the postbubble IT industry faces challenges beyond pure economics, his comments helped buoy shares of other tech giants, including


(MSFT) - Get Report



(INTC) - Get Report

. The Merrill Lynch High-Tech 100 gained 4.2%.

French telecom giant



rose 31.4% after saying it expects to return to profitability in 2003. Those comments helped shares of other telecom-equipment makers, including








(CSCO) - Get Report


JDS Uniphase



Also helping tech proxies was specialty chipmaker


(MXIM) - Get Report

, which rose 10.7% after posting a 19% rise in first-quarter earnings and declaring a dividend for the first time in its history. The Philadelphia Stock Exchange Semiconductor Index gained 6.7%.

Elsewhere, consumer products giants


(CLX) - Get Report



(UL) - Get Report

, which each reported strong third-quarter results, and


(G) - Get Report

, which was upgraded by Morgan Stanley.

Notable decliners included


(WMT) - Get Report

, which lost 4.7% after a Goldman Sachs downgrade and was the biggest drag on the Dow. Elsewhere,

Hartford Financial Group

(HIG) - Get Report

slid 9.5% following a string of analysts' downgrades.


Darden Restaurants

(DRI) - Get Report

slumped 12.7% after warning its fiscal second-quarter results will fall shy of expectations;

Papa John's International

(PZZA) - Get Report

slid 4% after it issued cautious comments about revenue growth in 2003; and

American Italian Pasta


shed 10.2% after issuing a warning of its own.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.