Having lollygagged about for much of the summer, the
got down to the serious business of a technical breakout on Tuesday. The day after the unofficial end of vacation season, the index finally joined other major averages in setting a new 52-week high and besting its mid-July high of 1015.
The S&P rose 1.4% to 1021.99, its highest close since June 18, 2002. That's significant because the average that most professionals follow most closely had heretofore lagged its index counterparts in establishing a new high for the current cycle. Meanwhile, the
Dow Jones Industrial Average
jumped 1.1% to 9523.27, surpassing 9500 for the first time since June 19, 2002, and the
rallied 1.7% to 1841.48, its best finish since April 1, 2002.
The technical seeds for Tuesday's breakout were planted Friday, according to Rick Bensignor, chief technical analyst at Morgan Stanley. The S&P's weekly close above 1008 was "sufficiently strong enough for us to have gotten the necessary buy signals needed to believe that we can start another leg higher," he wrote Tuesday morning.
After Tuesday's "good, strong breakout," Bensignor said he's "looking for a move" into the S&P 1065-1085 area, while spying resistance in the 1025-1030 range.
At 1.4 billion shares on the
and nearly 1.8 billion in over-the-counter trading, volume was decent but not as impressive as the price action. However, advancers bested declining stocks by better than 2 to 1 in both venues, while new 52-week highs swamped new lows 425 to 5 in New York Stock Exchange trading and 413 to 7 in Nasdaq trading.
Catalysts cited for the advance included a stronger-than-expected Institute for Supply Management manufacturing index, which rose to its highest level since December 2002. The ISM report reaffirmed optimism about the economy's strength, although that (along with stocks' surge) prompted another sharp selloff in Treasuries. The price of the benchmark 10-year note fell 1 12/32 to 96 30/32, its yield jumping to 4.64%, its highest level since July 17, 2002. (Meanwhile, the dollar rallied sharply vs. the euro but was down a bit vs. the yen, and gold dipped 0.4% to $372.70 per ounce.)
In addition to the economic news, stock proxies were aided by various sell-side analysts issuing positive comments on big-cap names, including
. They all rallied by between 1.4% and 6.7%.
But perhaps the biggest factor of all in the rally was the continuing skepticism to which many market participants and pundits clung to heading into Tuesday's session.
"The markets continue to show strength in spite of all the experts who keep saying that they are overextended and are going to suffer a major correction," observed James Rohrbach, editor of
, who turned bullish (again) in early August, as reported
Indeed, Tuesday morning's news reports and other comments were filled with information about how September is historically the worst month for shares. Many of those reports cited
The Stock Traders Almanac
, although few, if any, noted that the day after Labor Day has been strong for seven of the past eight years (now eight of nine), according to the publication.
But as Tuesday's upside action suggests, not everyone is afraid of the calendar.
Noting the "other seasonal pattern of 'sell in May and go away' didn't work this year," Jack Schannep, editor of
Schannep's Timing Indicator
and TheDowTheory.com, commented that "this
concern about September will be one of those times when that 'old saw' about the stock market gets broken."
Schannep, who's been bullish for much of the past year and more, believes this year could be the first of a "multiyear advance," citing the history of such gains after multiyear declines, including those following declines in 1940-41, 1946-47 and 1973-74. (On an inflation-adjusted basis, the S&P 500 also had a multiple-year advance following the declines from 1929-1931, he wrote; 1932 was a down year but it outperformed the rate of deflation.)
"After each of the multiple-year declines, the market has always had multiple-year advances," he wrote. "That means that not only will 2003 be an 'up' year, but so also will
be 2004 and, yes, possibly even 2005 and 2006."
Still, the newsletter writer and Dow Theorist conceded, "that is the long term and we'll worry about that later."
Indeed, there are still market participants who believe 2003 will prove to be a down year for major averages and September "tends to close weak due to end-of-quarter mutual fund portfolio restructuring," according to
The Stock Traders Almanac
. (For those keeping score at home, on
Aug. 21 I wrote that the most surprising thing would be for the market to stay strong in September and then falter in the fourth quarter. That scenario appears more compelling by the day.)
Then there's also the issue of this week, which is shaping up to be a critical one. Even as many traders get religion (of the long side), some will decry Tuesday's action as a "blow-off top." Furthermore, Morgan Stanley's Bensignor noted that professionals who follow Tom DeMark's Sequential Sell-Signals, a market-timing indicator, won't feel compelled to cover short positions unless the S&P breaks through that aforementioned resistance at 1025-1030. (The Philadelphia Stock Exchange Semiconductor Index faces similar resistance at 460, he said; notably, the SOX was a laggard Tuesday, rising just 0.1% to 456.60.)
Tuesday was about "washing out weaker shorts but doesn't necessarily mean 'breakout'" to many traders, he said. "The press will say 'breakout' but these guys are not going to say it until" that resistance level is breached.
It is on the backs of such disbelievers that the stock market continued its nearly yearlong advance with a flourish on Tuesday.
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.