In an otherwise unremarkable session, major averages once again retreated upon hitting resistance at their Sept. 19 intraday highs. To most observers, Wednesday's action was merely an uninspired day of respite after recent gains, but the session provided some fodder to those who believe the rally has peaked.

After trading as high as 9672.02 midmorning, or about 16 points below its Sept. 19 intraday best, the

Dow Jones Industrial Average

faltered and fell to as low as 9595.28 shortly after 2 p.m. EDT. The index recovered in the final 90 minutes to close down 0.2% to 9630.90.

Following similar patterns, the

S&P 500

closed off 0.5% to 1033.78 after trading as high as 1040.08 -- a fraction below its Sept. 19 high of 1040.29 -- and as low as 1030.96. The

Nasdaq Composite

slid 0.7% to 1893.80 after trading as high as 1914.30 -- a fraction above its Sept. 19 high of 1913.75 -- and as low as 1888.50.

"I think people ought to be paying attention," John Bollinger, president of Bollinger Capital said of the market's inability to surpass its Sept. 19 highs. "At this time of year, I have learned to pay attention to seasonal factors, which say it's a time of year for playing defense. My view is that October usually presents an opportunity to buy stocks"

after a significant correction "and I see no reason whatsoever to believe this year will dodge the magic October bullet."

Bollinger stressed that he "doesn't believe Armageddon is afoot" but that "the name of the game is defense, not offense."

On a related note, Jeffrey Hirsch, president of The Hirsch Organization, recently issued buy signals for the major averages, based on moving-average convergence-divergence signals and in anticipation of the market's historic strength in the six months beginning November. But the buy signals were issued "with some trepidation," Hirsch wrote, citing "concern that the market may be in store for a typical October correction."

Seasonality, of course, can be a tricky thing, and faithful readers may recall that Hirsch issued a sell signal on

April 11, citing the market's historic struggles in the May-to-October time frame. Since April 11, the S&P was up over 19% heading into Wednesday session, which isn't a knock on Hirsch but demonstrates that seasonal factors aren't infallible market tools.

Meanwhile, it's striking that after raising the specter of October's "ghosts" in late September, much of the financial press was quick to suggest that maybe this October would be different since it started with five days of gains. Bottom line: October is merely a week old and it's too early to declare with any certainty that the month's historic volatility won't appear.

That said, I'm sticking with the

theory that major averages will avoid "major upheaval" in the September/October time frame and will falter later in the year, when very few are expecting it. (Notably, such a development would be consistent with the pattern established by Japan's Nikkei after its bubble burst in 1989.)

A similar forecast (sans the

Japan analogy) could be drawn from comments late Wednesday by Rick Bensignor, chief technical analyst at Morgan Stanley.

"I think it's ultimately more fuel for the fire," Bensignor said about the averages' failure to surmount the Sept. 19 highs. "A lot of people are getting bearish, and to me

this failure is likely going to build in new shorts," who will be forced to cover if the market goes higher.

The technician has been forecasting for some time that a "volatility squeeze to the upside" will occur near term and will take the S&P into the 1075-1095 range. But that move will probably signal the rally's expiration, he said.

Baby Bull Turns One

Speak of October drama and major turning points, Thursday marks the one-year anniversary of the October 2002 market bottom. Heading into Wednesday's session, the Dow was up 32.5% from its Oct. 9 closing low while the S&P was up 33.8%. The Comp was up a whopping 71.2% and the Russell 2000 59.2%.

The Oct. 9, 2002, bottom was preceded by four "false bottoms" in the 2000-02 bear market, Donald Straszheim, president of Straszheim Advisors recalled in a recent note that defined a "false bottom" as an interim trough, followed by a minimum 10% rise, only to have major averages sag to lower lows thereafter.

"False bottoms occur, in our view, when equities outrun the economic and market fundamentals ... and investors get excited -- only to later conclude that serious market and economic problems remain, or new ones emerge," Straszheim wrote.

While concerned about the labor market, he believes "enough economic indicators have now turned

positive to support small equity market gains." Crucially, the economist expects continued strength in consumer spending "as we continue to get a boost from

refinance activity and two rounds of tax cuts -- now and next spring when tax returns will come in larger than expected from too little withholding."

Speaking of refinancing, the Mortgage Bankers Association reported mortgage applications jumped 15.6% for the week ended Oct. 3. New purchase applications climbed 10.8% while refinancing activity leaped 19.9% in conjunction with a Treasury rally that has since reversed.

On Wednesday, the price of the benchmark 10-year Treasury rose 4/32 to 100 2/32, its yield dipping to 4.24%. Treasuries were aided by weakness in shares, a stronger-than-expected five-year note auction, and renewed concerns about mortgage lenders after

two more federal home loan banks warned of third-quarter losses. Despite such concerns, both

Fannie Mae



Freddie Mac


rose on the session.

Your Two Cents

contributor Paul Kedrosky posted a

fascinating analysis of the performance of individual stocks since Oct. 9, 2002. The piece included an observation that "while retail investors generally believe in the bull, fewer pros seemingly do," which seemed at odds with the sentiment I've garnered from reader emails and conversations with friends/family.

In an effort to get a better gauge of your current outlook, please participate in the following poll (which expires at the market's open Thursday.)

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.