The press focused on the certification issue today, but institutional investors eyed another steep decline in bond yields, and decided they'd gone so low as to compel a switch into equities. That decision sparked yet another dramatic reversal in the financial markets.

After trading as low as 8353.07 early on, the Dow Jones Industrial Average closed up 3.1% to 8743.31. Similarly, the S&P 500 gained 4% to 919.62 vs. its earlier low of 876.20 while the Nasdaq Composite, which demonstrated relative strength throughout the session, closed higher by 5.1% to 1334.30 after having traded briefly in negative territory early in the session. The gains were the biggest for each since July 29 .

Components pacing the Dow included Wal-Mart ( WMT), IBM ( IBM) and Procter & Gamble ( PG).

The Comp's relative (and absolute) strength was due to gains in mega-caps such as Microsoft ( MSFT) and Intel ( INTC), as well as smaller names that posted better-than-expected results last night, including Network Appliance ( NTAP) and CheckFree ( CKFR).

Even Applied Materials ( AMAT), which posted better-than-expected fiscal third-quarter results but guided down its estimates for orders and revenue for its fourth quarter, closed up 7.1% to $14.41 after having traded as low as $12.90.

The dollar, which earlier fell to three-week lows vs. the yen and a two-week low vs. the euro, rallied in tandem with equities, although without the same gusto. The Dollar Index, which measures the greenback's performance vs. a basket of other currencies, settled down 0.2 to 107.03 but well off its earlier low of 106.35.

Early in the day, the yield on the benchmark 10-year Treasury note fell below 4%, the lowest level since September 1963. Ongoing concerns about prospects for the U.S. economy, the Fed's decision to leave rates unchanged yesterday, geopolitical events in Columbia and Brazil and worries about potential war with Iraq fueled a continued "flight-to-quality" trade into Treasuries.

But after about 1:30 p.m. EDT, the only flights approved for departure were those departing bonds and arriving in equity land. For the past month or so, traders have been musing about the potential bullish implications of pension funds who've become overweight in bonds putting their focus (and money) back into equities and there was a lot of chatter about that today. (On, Scott Reamer of Union Tree Capital suggested one player swapping $1 billion out of bonds and into stocks was responsible for kick-starting the advance.)

"It's all about bonds and reallocation," said Robert Israel, equity trader at Victory Capital Management in Cleveland, which has more than $70 billion under management. "The fact is many institutions are loaded with heavy bond positions vs. stocks, and it's obvious that the risk reward is out of whack with bond yields so low , so they have to adjust. As you can see it can be very powerful."

Israel observed "two big buys" of the Nasdaq 100 Unit Trust ( QQQ) totaling more than 2 million shares at about 1:40 p.m. EDT. The QQQs closed up 6.4%.

Others observed large-sized purchases of S&P 500 futures at around the same time.

The impact of those purchases was self-fulfilling as they helped push stock proxies higher, which compelled short-sellers to cover positions, which pushed stock proxies higher still.

"I think more than anything else, we have a large number of very nervous shorts out there at present," said John Bollinger, president of Bollinger Capital in Manhattan Beach, Calif. Short-sellers are "maybe not responsible for all the order flow and capital, but I think they're primarily responsible for the motivation" of the market's move.

Certainly the move into equities had bonds backpedaling. The price of the 10-year note ended down 8/32 to 102 3/32, vs. its early best above 103, its yield rising to 4.12%.

Beyond asset-allocation movements, some suggested today's rally was due to invsetors' relief that the restatements accompanying today's certification deadline weren't more widespread or from any bellwether companies.

As reported earlier , companies including Household International ( HI), Capital One Financial ( COF), Interpublic Group ( IPG) and DPL ( DPL) were compelled to restate results while Nicor ( GAS) executives said they could not certify the firm's financial statements.

Notably, all those names ended not just above intraday lows, but higher for the session.

Fundamentals Schmundamentals

Also, some technicians suggested the lack of breakdown in the Dow after it breached resistance at 8400 was a key to the market's reversal. Additionally, today marked a so-called outside day, in which major averages sustained lower intraday lows than the prior session but also produced higher intraday highs and closed at or near those peaks.

Outside days generally have bullish implications although Bollinger noted trading volume today was just average -- actually 2.7% above the Big Board's three-month daily average, according to Bloomberg -- and not as high as during the market's recent swoon.

"I would have to say that what we really need for signs of strength is to see volume, specifically, that flavor known as up volume," he said. "Today feels more like short-covering," although volume was high given that it's August and many traders are vacationing.

In NYSE trading, 83.4% of the 1.49 billion shares exchanged were of the up variety while advancing stocks bested declining issues nearly 3 to 1. In over-the-counter activity, up volume represented 83% of the 1.43 billion total while advancers led 2 to 1.

Meanwhile, each of the major averages remains below its 200- and 50-day moving averages, suggesting today's advance should be viewed as just another of the bear market variety, until proven otherwise.
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.