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Still Accentuating the Positive

Two days of rallies have the bulls riding high and the bears waiting for the inevitable fall.
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The stock market contained something for everyone today.

For those who believe the market's advance Friday represented the beginning of a new trend, the proof was conspicuous, as major averages rallied sharply today, with the

Dow Jones Industrial Average


S&P 500

higher by 1.8% each while the

Nasdaq Composite

gained 2.6%.

"This was a considerably more constructive day than was last Wednesday," commented Michael Paulenoff, founder of, who, you'll recall, believed that session's reversal was

technically significant. "Today's action in all of the indices hurdled key near-term resistance trend lines from the prior failed rally peak on Feb. 14, which brought in follow-through buying interest into the late part of the session."

Specifically, the Comp's ability to build support from around 1730 -- the point at which the index failed to follow through during last Friday afternoon's rally effort -- augurs positively for the near term, he said. Similarly, 1094 was the "key upside breakout level" for the S&P 500, the technician said, because it put the index above the Feb. 14 trend line, from which it was able to build upon and sustain gains.

The optimists were further buoyed by an incredibly robust (record-setting actually) report on existing-home sales and better-than-expected results, or forecasts thereof, from firms such as

General Motors

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. Elsewhere,


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announcement that it will meet previous guidance on earnings and that chip shipments were at the high end of its target range was greeted as a huge victory, reflecting the state of things in wireless telecommunications.

On the other hand, the fact Qualcomm could rise 10% on that news -- or that


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could rise 5.6% after announcing a long-awaited upgrade to its Xeon chips, and that

Sun Microsystems

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could rise 9.7% after a sell-side analyst's upgrade -- gave heart to the skeptics, who contend that nothing has changed.

"Never let the facts get in the way of stock speculation," Bill Fleckenstein, president of Fleckenstein Capital, commented in "While we have wiped out a good deal of speculation in certain areas, speculation that's practiced under the guise of investing still goes on daily."

Fleckenstein made those comments Friday in light of the market's reaction to


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upside revenue preannouncement, although I suspected he'd agree the point applied equally to today's session even before we spoke.

"Yes, it's still ridiculous," the noted short-seller said in an interview after the market's close. He noted that those who are extrapolating forward the economy's fourth-quarter rebound fail to note the impact of the extraordinarily warm winter in much of the country and the zero-percent financing offered by automakers. (There was also the huge liquidity infusion by the

Federal Reserve

in the wake of Sept. 11.)

Fleckenstein then offered his "grand thesis" about what's generating the gyrations in the market. "The public is becoming dis-enamored with the stock market but they haven't taken the money away from the pros yet," he said. "You still have too many people running other people's money

with the mindset that 'it's OK to lose all the money, but the market can't go up faster than I do.' As long as that mentality exists, you'll keep having this wild action."

At $38.7 billion, equity mutual funds had the smallest inflows on record in 2001, according to AMG Data. In January, equity funds took in $20.3 billion in new inflows vs. $25.1 billion in January 2001 and $42.7 billion in January 2000, according to the fund tracker. But the point is that equity funds still had net inflows in those periods, despite the market's losses.

Hardcore skeptics believe the bear market won't have finally run its course until those inflows, however modest, turn into substantial outflows.

The history of past market bubbles suggests there's something to that viewpoint, and it's one reason I'm skeptical the market can mount any sustainable long-term advance. But I do believe the bulls will seize the upper hand near term, as discussed in today's

Midday Musings.

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.