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Buoyant Gains Just a 'Knee-Jerk' Move, Technician Says

Someone had to say the CPI reaction was overdone, and <I>TSC</I> found a technical analyst who does just that.

SAN FRANCISCO -- How can you not like Wednesday's rally? The Nasdaq Composite Index posted its largest point gain ever after the dreaded Consumer Price Index suggested April's big increase may have been an aberration, possibly limiting Fed rate hikes. Why, even the Internet sector was back in investors' good graces.

How can you not paint a positive picture? By being a technical analyst -- that's how.

Technical analysis suggests that what was seen today is nothing more than a "knee-jerk reaction to what happened with the CPI," according to Dick Dickson, technical analyst with

Scott & Stringfellow

. "We were extremely oversold on a short-term basis.

This tape was due for a rally -- it was a no-brainer."

Delving into fundamentals, Dickson said there are still too many unanswered questions revolving around interest rates that could eventually weigh on stocks. And if it's not interest rates, "we'll find something else to worry about," he said.

Drifting back to technicals, he says that while the market was oversold on a short-term basis, it remains overbought on an intermediate-term basis and that condition may not work itself off for at least another month. Dickson said there are still a lot of IPOs in the pipeline and today's price action will encourage those firms to go public when they may have been having second thoughts. If they take place, those deals will inevitably add to supply.

Dickson said he expects lows reached on Monday in the various indices will be retested in the next few days.

Technical analysis aside, there were other concerns out there Wednesday.

While the stock market appeared overjoyed with the CPI data, the Treasury market had more of a ho-hum reaction. The 30-year rallied sharply on the headline figures, but came well off its highest level of the day, a move stocks largely ignored. In addition, Federal Reserve Chairman Alan Greenspan will speak Thursday, and he always has the potential to deflate the market. And even though the market has likely priced in a 25-basis-point rate increase later this month, there still will be plenty of additional data for the Fed to mull over before it meets again, in late August.

Nevertheless, the Nasdaq closed up 103 points, or 4.3%, at 2,517.8, its largest point gain ever. And Internet stocks led the charge, rising on a combination of fresh buying and short-covering.

TheStreet.com Internet Sector

index closed up 44.42, or 9%, at 548.50. But note that the index fell 48 points on Monday and still rests below the 550.24 level it closed at last Friday.

Investors rushed into the big Net names, heeding many analysts who have said the safest way to play the Net game is to invest in industry leaders. Accordingly,

Yahoo!

(YHOO)

closed up 16 3/8, or 13%, at 141 5/8;

Amazon.com

(AMZN) - Get Amazon.com, Inc. Report

rose 15 3/16, or 16%, to 106 7/16; and

TheStreet Recommends

America Online

(AOL)

jumped 11 11/16, or 12%, to 106 7/16.

Inktomi

(INKT)

added to gains it made on Tuesday after it

unveiled its latest search engine technology. It closed up 18 5/16, or 20%, at 108 13/16.

Other gains of note included a couple of stocks that have been beaten up of late.

eBay

(EBAY) - Get eBay Inc. Report

, which fell close to 50 points in the past three sessions after its site crashed, closed up 13 1/4, or 10%, at 148 3/4. And

Excite@Home

(ATHM) - Get Autohome, Inc. Sponsored ADR Class A Report

, which has been punished since

AT&T

(T) - Get AT&T Inc. Report

lost a court case in Oregon over access to high-speed cable networks earlier this

month, closed up 14 11/16, or 18%, at 94 3/4.

Excite@Home likely benefited from comments made by an

FCC

official on Tuesday that indicated support for a national policy regarding cable Internet services, rather than having local authorities regulate the industry.