Publish date:

What a Week: Resistance Is Futile

Despite reversals Monday and Friday, each major average pushed past significant resistance. levels.

Another series of closely watched resistance levels fell by the wayside this week, as forward momentum and a smattering of positive fundamental developments pushed stock proxies higher still.

For the week, the

Dow Jones Industrial Average

rose 2.4%, eclipsing 9000 for the first time since August 2002 on

Wednesday. The

S&P 500

surpassed its August high of 965 on

Monday, before closing the week up 2.5%. The

Nasdaq Composite

rallied 2% for the week after besting 1600 on

Tuesday for the first time since May 31, 2002.

Each of those levels -- Dow 9000, S&P 965, Nasdaq 1600 -- had been considered by technicians to be likely points for the rally to pause, at least temporarily. But as with many resistance points since the mid-March lows, those levels proved only to be way stations on the path to higher prices.

The week's most dramatic action occurred on Monday and Friday. During both sessions, major averages soared early then saw gains pared dramatically on sharply higher volume. On Friday, the Dow rose 0.2% to 9062.69 but closed well off its early peak of 9215.88. The S&P 500 shed 0.2% to 987.76 vs. its apex of 1007.69 while the Comp slid 1.1% to 1627.42 after trading as high as 1684.10. In

Big Board

trading, more than 1.8 billion shares changed hands and nearly 3 billion traded in over-the-counter activity.

There was profit-taking in previously red-hot sectors such as biotech, semiconductors, Internet, and homebuilders on Friday. Proxies for each of those groups ended lower Friday -- by between 1.6% and 3.4% -- but for the week, the Amex Biotech Index ended up 7.4%, while the Philadelphia Stock Exchange Semiconductor Index, the Philadelphia Stock Exchange/ Internet Index and the S&P Homebuilding Index each rallied between 1.5% to 1.8%.

Friday's intraday reversal may augur a short-term peak, but many observers said the same after Monday's early rally and afternoon pullback. None of the big reversal days in recent months produced major follow-through selling, as

contributor James De Porre recalled. "We'd have very quick recoveries as dip-buyers wasted no time in buying weakness."

Whether dip buyers prove wiling to step into this latest breach remains to be seen. Still, the prevailing wisdom is that the market is "overextended in the short-term," as Stanley Nabi, managing director at Credit Suisse Asset Management, which oversees $52 billion, described. "I think some of this froth will subside, reverse itself and then the market will resume its advance."

By froth, Nabi referred to "stocks that are not earning any money

so you can't place a value on them going up and up," with small-cap Internet, telecom and biotech names being the most obvious examples.

Still, Nabi remains bullish on the intermediate term and still sees value in sectors such as pharmaceuticals, durable goods and financials. In those areas, his firm has large positions in

Johnson & Johnson

(JNJ) - Get Report


United Technologies



(C) - Get Report


Taxing the Rally

Among the catalysts cited for the week's advance were better-than-expected surveys for both manufacturing and services from the Institute for Supply Management, some not-as-bad-as-feared retail sales, record-setting mortgage and refinancing activity, an upward revision to first-quarter productivity growth, and Friday's smaller-than-expected payroll decline.

Also Friday, the Economic Cycle Research Institute said its weekly leading index rose to an 11-month high of 123.0 from 121.5 in the prior week. The index's four-week moving average rose to 4.4% from 4%.

Buyers also were inspired by merger announcements involving



and Palm


, as well as




J.D. Edwards


. On Friday, PeopleSoft rallied 17.9% after


(ORCL) - Get Report

threw a $5.1 billion hostile monkey wrench into the PeopleSoft-J.D. Edwards mix.

TST Recommends

Other bullish corporate developments included raised guidance by


(ALTR) - Get Report


Best Buy

(BBY) - Get Report

, as well as


(INTC) - Get Report

midquarter update late Thursday. Intel narrowed the range of its revenue forecast but remains on track to meet analysts' consensus expectations.

A classic characteristic of a bull market is its ability to overcome negative news, and there was plenty of that this week, including another drop in bearish sentiment in the

Investors' Intelligence

survey, weaker-than-expected construction spending and factory orders data, as well as the unemployment rate rising to a nine-year high of 6.1% on Friday.

On a company-specific level, traders mainly brushed off news of a

Securities and Exchange Commission

probe into


(IBM) - Get Report

accounting as well as the indictment of Martha Stewart. But shares of Big Blue fell 9% for the week and

Martha Stewart Living Omnimedia


shed 6.1%. (Ironically,

ImClone Systems


-- whose December 2001 share sale by Stewart ignited her legal troubles -- was one of the week's big gainers, along with fellow cancer-drug play




Other negative developments included cautious comments by

General Motors

(GM) - Get Report






(ROAD) - Get Report

, and

TriQuint Semiconductor


, which tumbled 21.3% Friday.

To some, "this rally is based on nothing more than wild speculation and short covering," as one notoriously bearish hedge fund manager declared. But others see more fundamental support, even if crude prices, which rose 5.8% to $31.28 per barrel this week, refuse to cooperate.

Other factors include a more favorable geopolitical mix, an

aggressive Federal Reserve, the positive effects of a weaker dollar -- which resumed vs. the euro Thursday after the European Central Bank opted for a 50-basis-point rate cut -- and improving corporate profits, even if skeptics decry the quality of those earnings.

Additionally, an increasing number of market participants cite last month's passage of a $350 billion tax package, including lower rates on dividend and capital gains taxes, as a foundation for the advance.

Nabi attributed "a good deal" of the recent advance to the tax package, while Bert Dohmen of Dohmen Capital Research in Los Angeles admitted to having been skeptical about the rally until the tax cuts were announced. "Whatever they say about the intellectual capacity of our president, he has demonstrated that he understands the importance of tax cuts," Dohmen wrote Friday.

The veteran market-watcher also observed that "the markets are psychological," and the mood on Wall Street is currently consistent with higher stock prices, as reflected this week.

Tune-In TaskMaster

I'll be back on WABC radio's Batchelor & Alexander show Friday evening, sometime around 9:00 p.m. PST/12:00 a.m. EDT. (OK, that's really Saturday morning for East Coasters). The show is nationally syndicated, so check for local listings or Webcast options.

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.