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Who Let the Nazzdogs Out? Woof, Woof Woof Woof!

Investors apparently felt many stocks had fallen to absurd depths. And let's not rule out the speculative juice.
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SAN FRANCISCO -- Investors emerged from their hideouts and saw that they were not only alive but well. Not only had the world not ended, but the sun was shining. In response, they said "let's buy something."

In so many words, that's how Anthony Cecin, manager of Nasdaq trading at

U.S. Bancorp Piper Jaffray

in Minneapolis, summed up Thursday's session, which saw the

Nasdaq Composite

rise 247.04, or 7.8%, its third-biggest point and percentage gains ever.


Dow Jones Industrial Average

climbed 1.7% while the

S&P 500

jumped 3.5%. In

New York Stock Exchange

trading, 1.3 billion shares traded, the eighth-busiest session in

Big Board

history. In over-the-counter trading, 2.15 billion shares were exchanged, the ninth most all time.

"The first hour yesterday we had the dry heaves -- that was the peak in bearishness, the kind of capitulation I

and everybody else was looking for," Cecin said. "The kind of movement we're seeing today is meaningful. We're going to look back in a month and say that was a sign."

The trader cautioned the market may not rise unimpeded from here, leaving him open to criticism for being insufficiently ebullient after Thursday's session. (Just kidding!)

Even the Comp's 7.8% leap doesn't accurately describe the action.



rose 19.3% on 128.5 million shares, one of the busiest sessions ever for a single stock. The

Philadelphia Stock Exchange Semiconductor Index

leapt 17.2%, the

Nasdaq 100

rose 8.4%; the

Morgan Stanley High Tech 35

climbed 7.3%, while the

Amex Broker/Dealer Index

climbed 4.6% and the

Philadelphia/KBW Bank Index

rose 3.4% (

pant, pant


In short, it was a tough day for the cynics. Heaven help me, I'm still one.

I won't/can't disparage Thursday's session. In fact, it reminded me of some of the strongest days of recent years. Like Sept. 8, 1998, when

Alan Greenspan

hinted at a rate cut that the

Federal Reserve

issued on Sept. 29, 1998. The Fed followed with another easing -- intermeeting -- on Oct. 15, 1998, which led to huge gains that day and the next.

Greenspan gave a market-

friendly speech Thursday, but nothing as dramatic as in 1998, when the Fed was cleaning up the mess made by

Long Term Capital Management

. There's nothing going on comparable to Long Term Capital that got resolved today, is there?

Point is, what changed to suddenly make, for example,

Applied Micro Circuits


worth 15.4% more Thursday than it was Wednesday?

Conceding that many big-cap tech stocks were down significantly, did the bullish reports from Microsoft,

Sun Microsystems





(among others) cast asunder the less-than-stellar news from









, et al?

Have expectations been ratcheted down sufficiently so that cautious guidance about fourth-quarter sales by




Texas Instruments


is now


news because it wasn't



Finally, while there was progress on the fundamental issues outlined

Wednesday night, along with a decline in the trade deficit, was there enough to justify the outsized gains Thursday? (I'll answer that one:



What's missing from that equation is, of course, market psychology. Investors clearly felt many stocks, notably big-cap tech and financials, had declined to the point of ridiculousness. On some level, nothing else matters.

But doesn't the action -- both overall and in individual issues such as


, up 22% after posting stellar earnings, and



, higher by 30% after a

George Gilder recommendation -- signify that speculative spirits may have been squelched but not eliminated?

To most investors, the market still remains a place where you can make big money, not where you can suffer debilitating losses. Until that latter concept sinks into the nation's

collective unconscious, you'll be hard-pressed to convince me we've seen anything resembling capitulation.

"You bet there's speculative juice," agreed Scott Bleier, chief investment strategist at

Prime Charter

, who's been bullish in recent weeks and recommending IBM,






, and

Applied Materials


(among others) in recent days.

But even Bleier wonders if this isn't a little bit of too much, too soon, noting the "crisis" with the euro remains unresolved and the one in the Middle East restrained only by the Band-Aid of a ceasefire agreement.

"The fact is this kind of volatility is not good for the market," he said. "It's exactly the volatility I remember in September and October 1987 when we had big down days and big up days. It was raucous."

I won't even broach the subject of 1987 -- folks might get the idea I'm bearish.

Alas, Poor Yorick

Monday night I wrote about how this week's expiration might help support the market.

As of Thursday morning, open interest on

in-the-money S&P 500 puts totaled $17.2 billion vs. $1.1 billion in-the-money calls, according to Diane Garnick, equity derivatives strategist at

Merrill Lynch

. That compares with $14.2 billion puts and $1.4 billion calls on Oct. 11. For the Nasdaq 100, in-the-money puts outweighed calls $3.1 billion to $190 million vs. $3.9 billion and $93 million on Oct. 12. Again, those dollar figures are delta-adjusted, meaning the relationship between the price of the puts or calls and the price of their underlying futures has been taken into account.

Hence, it seems there was plenty of short-covering firepower left Thursday to contribute to the session's mighty advance, as


Brian Louis


Garnick observed there was a "significant concentration" of puts with a 1375 strike price, so when the S&P 500 hit 1375 intraday, players short those puts were forced to cover. The rally failed to reach the next big "covering point" at 1400, she observed.

David Lerman, senior director of equity index products at the

Chicago Mercantile Exchange

, cautions against reading too much into the put-call imbalances, noting factors such as swap contracts can inflate the put figures.

Regardless, whatever influence engendered by expiration ended Thursday, because index options (at least) expire at the open Friday morning.

"All this short covering disappears," Garnick lamented. "Tomorrow, you get a clear sense of what the market is thinking. You're not getting that


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.

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