The Battle of Interpretation Rages

Opposing arguments are armed with the statistics surrounding Tuesday's market swell.
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NEW YORK -- It's a truism that statistics can be massaged to support a given point of view, which is both their beauty and sadness. ("Bands from New Jersey" for $200, Alec.)

Still, you'd think we were in Sweden, given the amount of massaging that continues on Wall Street over

Tuesday's numbers. The process continued Wednesday with particular kneading of the volume figures, or lack thereof. (Wednesday itself was something of a wash as major averages finished with minor losses after flip-flopping around break-even for much of the session.)

The pessimistic case, as you've no doubt heard, is that the lack of blockbuster volume taints the outsized gains registered by major averages, notably the

Nasdaq Composite

.

Tuesday's over-the-counter trading of 1.38 billion shares paled vs. the peak volume of 2.8 billion shares on April 4, as well as the average daily volume this year of 1.63 billion.

A bullish slant is that the extraordinary activity in late 1999 and early 2000 lasted so long as to become mundane. Tuesday's volume was impressive by historical standards; notably, it was significantly above 1999's average daily trading volume of 1.05 billion.

Furthermore, Tuesday's action exceeded the current 21-day moving average of 1.35 billion shares, which is a significant gauge to technicians because it represents roughly one month of trading.

But while besting the 21-day average is encouraging,

John Roque

, senior analyst at

Arnhold and S. Bleichroeder

and occasional contributor to this site, said volume of at least 2 billion shares is necessary to suggest investor confidence and conviction have returned in a serious way.

"In short, soaring prices should be accompanied by increasing volume," the technician continued. "Think about it,

Tuesday's 8% advance occurred on lower volume than on

May 24 when the Nasdaq rose just over 3%. That's why I think it is a good idea to be skeptical" about Tuesday's gain.

Roque is far from bearish, but concerned that violent upswings such as Tuesday's will cause investors to become overly complacent -- again -- ultimately spoiling the opportunity for a "healthier" advance.

But a healthier advance is just what Tuesday's advance represents the beginning of, according to Tony Dwyer, chief market strategist at

Kirlin Holdings

. Dwyer focused on the session's "other" volume data. Specifically, advancing vs. declining volume, which favored gainers by a nearly 9-to-1 ratio on Tuesday.

Since the end of 1997, there have only been seven instances in Nasdaq trading when advancing volume bested declining volume by a 5-to-1 or better margin, Dwyer said. The Comp's average return for the one-, three- and six-month periods following those seven occurrences are 7.2%, 25.1%, and 47.1%, respectively.

Admittedly, those performances came amid one of the (if not

the

) greatest bull markets in history. But Dwyer does not believe that should dilute the significance of Tuesday's advance.

The dominance of advancing volume "indicates there was real buying coming in and they weren't selling on strength to lighten up," he said, believing overall volume would have been more robust if not for the absence of sellers (as well as the courage of the fearless crew).

Furthermore, the strategist noted that in addition to Tuesday's 9-to-1 performance, advancing over-the-counter volume bested declining by 5 to 1 or better on April 18 and 25. The last time three similar outperformances occurred in such a short time period was in the fall of 1998.

That year, the Comp fell 29.5% from its peak on July 20 to its low on Oct. 8. This year, the index fell over 37% from its closing peak of 5048.62 on March 10 to its low of 3164.43 on May 23.

The speed and extent of the declines in both years, accompanied by the trio of big advancing volume days, suggests the market today is "amazingly similar" to 1998 from a technical perspective, Dwyer said. "Are we off to the races? I doubt it. But

Tuesday's gain is a sign the worst is behind us."

Interestingly, Dwyer seemed a bit bemused by his own bullishness, which is a change of pace from his recent outlook.

As reported

last night, I know the feeling.

Flame-Mail Retardant

Yes, I know the

fundamental

perspective is much different now than it was in the fall of 1998, when the

Federal Reserve

was in an extremely accommodative mode vs. its current tightening cycle.

Still, along comes a decline in

new-home sales on Wednesday, plus weakness in both the

Chicago Purchasing Managers'

index and the index of leading economic indicators.

The national purchasing management survey and employment reports still lurk ahead, but "the data

Wednesday and over the past few weeks probably afford the Fed some breathing room," according to Peter D'Antonio, economist at

Salomon Smith Barney

.

The good news (for those long) is that Salomon believes the Fed is now likely to stand pat at its June meeting, reflecting the simmering hope among many market players.

The bad news is the firm still expects another 100 basis points of tightening by year-end.

It must be said that Salomon has been among the most hawkish firms on the Street regarding the Fed. They've also been among the most right.

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 welcomes your feedback at

taskmaster@thestreet.com .