Heading into today's session, the big question is whether Wednesday's flood of buying will turn into a tidal wave or part like the Red Sea. In a rally of near biblical proportions, what had been last for so long was first Wednesday. Still, it is only the true believers who are convinced that it was anything more than a token offering to the long-dead bull market.

Echoing the glory days of the late 1990s, tech stocks led a robust rally yesterday, ostensibly sparked by better-than-expected earnings from

Cisco

(CSCO) - Get Report

.In a rally of near biblical proportions, what had been last for so long was first. Still, it is only the true believers who are convinced that it was anything more than a token offering to the long-dead bull market.

I say "ostensibly" because a great many market participants believe a rally was primed to occur at the slightest provocation.

Heading into Wednesday's session, the

Nasdaq Composite

had closed down in 14 of the past 16 sessions and the

S&P 500

in 10 of 12, noted Jeffrey Saut, chief equity strategist at Raymond James. Meanwhile most major averages were well below various moving averages and thus oversold.

"Consequently, the market was set up

as complacent shorts had crowded into the theater and Cisco shouted 'fire,'" Saut quipped. "Meanwhile, the sidelined cash took Cisco in the bit and ran with it."

To Todd Ault, managing director at Ault & Glazer, a Los Angeles-based hedge fund, hope for a settlement between

Merrill Lynch

(MER)

and the New York attorney general was more important that Cisco's quarter (which many observers noted wasn't terribly strong, nor was the firm's guidance).

"If Merrill and

Morgan Stanley

(MWD)

can get out from under this cloud Spitzer's put 'em under, I think the rally has legs," Ault said.

Both Saut and Ault (

sounds like a comedy team

) agreed the market's ability to maintain its early strength was key to Wednesday's session, as it compelled skeptics to get on board and short-sellers to cover, further fueling the rally. It ended with the

Dow Jones Industrial Average

up 305.28, or 3.1%, to 10,141.83, while the S&P 500 gained 39.36, or 3.8%, to 1088.85 and the Nasdaq Composite leapt 122.47, or 7.8%, to 1696.29. Wednesday was the Comp's eighth-largest percentage gain. It's worth noting that nine of the Comp's 10 highest percentage-gain days have occurred since its peak in March 2000, suggesting that such big upward moves are not necessarily a bull-market phenomenon.

Still, the market's strength into the close "probably means

the advance will be more than a one- or two-day wonder," Saut said. "My guess is they're going to keep this thing up and panic the shorts."

Saut suggested the S&P's 50- and 200-day moving averages, both around 1122, and the Dow's 50-day around 10,270 are "probably within sight" after Wednesday's robust session.

Looking Elsewhere

Still, the strategist isn't bullish on "what people want to talk about," i.e., the big-cap tech and telecom names that were Wednesday's standout performers; The Philadelphia Stock Exchange Semiconductor index rose 11.1%, the Nasdaq 100 leapt by 10.6%, and the Nasdaq Telecommunications index jumped 7.3%.

"I like tech but not Cisco,

Sun Microsystems

(SUNW) - Get Report

,

Oracle

(ORCL) - Get Report

and those names," he said. "The sure sign you know Cisco is not the place to be is my phone lit up

Wednesday with retail brokers wanting to know if they should double down on Cisco."

Instead, Saut recommends names like

Gillette

(G) - Get Report

,

Newell Rubbermaid

(NWL) - Get Report

, and playing any tech rebound through the convertible preferreds of companies such as

EDS

(EDS)

and

Motorola

(MOT)

.

"In markets like this, err on being conservative," he said. "Fundamentals haven't changed one iota. I still think it's a muted

economic recovery, and stocks are not priced for muted."

Of course, those who believe the worm has (finally) turned for tech were cheered by such skepticism, which was widely expressed Wednesday even as the CBOE Market Volatility index fell 5.2%, the Nasdaq Volatility index dropped 8.6%, and the equity put/call ratio tumbled to 0.55 from 0.74 yesterday.

Whether tech has turned is, of course, the $64,000 (or is it $64 billion?) question. Those who believe it has suggested Wednesday's weakness (or underperformance) in previously strong groups such as homebuilders, restaurants, gold miners and small- and mid-caps is evidence of rotation back into big-cap tech. Similarly, Treasuries suffered at the stock market's gains; the price of the benchmark 10-year note fell 1 6/32 to 97 14/32, its yield rising to 5.21%.

Tech Bulls Unshackled

Concerns about valuation, Cisco's limp revenue and other bearish arguments are "quite well thought-out and reasonably compelling," said Frank Husic, managing partner of Husic Capital Management, a $2 billion San Francisco-based hedge fund. "But I think pessimism is the prevailing mood, and it's always paid to be the other way."

Husic said psychology has come full circle, from wildly bearish after the Sept. 11 attacks to extremely bullish after the market's fourth-quarter ascent, to gloomy again after its recent weakness.

"I can understand the perspective it's just a short-covering rally and that it's going to go away, but my guess is there's going to be more to it than that," he said.

Given that view, the hedge fund manager said he's "staying with and

Wednesday buying more of names I've got conviction in," including

KLA-Tencor

(KLAC) - Get Report

,

National Semiconductor

(NSM)

and

Cypress Semiconductor

(CY) - Get Report

.

Like many others, Husic believes the SOX's technical breakdown last week was really a false signal. "Last week everyone was screaming 'it's breaking, it's breaking' and

Wednesday it's up 11%," he noted. "When the SOX was at 625

in March, few would have predicted

it would have gone down."

Husic declined to specify but said his firm's main hedge fund was up year to date heading into Tuesday, mainly by being short big-cap names and long smaller plays such as

Activision

(ATVI) - Get Report

,

Movie Gallery

(MOVI)

and

United Auto Group

(UAG) - Get Report

.

Recently, Husic Capital was down to 40%-50% net long with a negative beta (meaning it rose when the major averages fell and vice versa), but the fund manager started "cutting back the shorts" last week, after the rare back-to-back 2.0 readings in the one-day Arms Index.

The Great Debate, Reprise

Several sources cited the

double-deuce reading in the Arms Index as key to their belief a rally was coming, and that it will be sustainable.

Wednesday's advance seems to justify those who put their faith in the Arms Index.

On the other hand (

always, right?

), the one-day Arms Index fell 69% to 0.38 Wednesday. Readings below 0.40 have signaled near-term tops in recent market history, confirmed Peter Eliades, editor of

Stockmarket Cycles

.

Low one-day Arms readings have also occurred "at the beginning of important moves to the upside," such as on Oct. 28, 1997, he noted. "Unfortunately, there's no magic formula to

determine if it's occurring" at a near-term top or bottom.

However, "the fact it's occurring with lousy

breadth is, if anything, more short-term bearish than bullish," Eliades continued. Breadth wasn't "lousy" per se but wasn't wildly bullish either; the same could be said for volume: In

NYSE

trading, 1.5 billion shares traded, while gainers led advancers 19 to 11. More than 2.1 billion shares were exchanged in over-the-counter trading, where advancers led 12 to 5.

Then again, the 10-day Arms Index has been over 1.50 for some time, signaling "we should be in some kind of low for the market," he noted. "Be careful of making longer-term interpretations, especially on a day like Wednesday."

As Husic said, "there's never a clear consensus at a bottom," and Wednesday did nothing to resolve the debate over the market's fate. But it did pull the bulls back from the abyss.

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.