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Powerful Rally Foils Attempts at Sell-Offs, But Can It Continue?

April 06, 2001|From Times Staff, Bloomberg News

It wasn't a record day for trading volume or for percentage gains in key stock indexes, but Thursday's rally was powerful enough to get the bears out of the way--at least for an afternoon.

The market's liftoff began at the opening bell, led by tech stocks after Dell Computer's surprise announcement late Wednesday that it wasn't revising first-quarter earnings estimates lower.

The Nasdaq composite, which closed at a 29-month low of 1,638.80 Wednesday, opened trading Thursday at 1,709.91, up 4.3% immediately. In market parlance, that is a trading "gap"--and a strong sign of heavy demand for shares.

The rally then gained steadily through the day, with each sell-off attempt quickly met by another wave of buyers.

At the close the Nasdaq index was up 146.20 points, or 8.9%, to 1,785.00, its third-biggest one-day percentage gain.

The broad market surged as well. The Dow Jones industrials shot up 402.63 points, or 4.2%, to 9,918.05, while the Standard & Poor's 500--which hit a two-year low Wednesday--rose 48.19 points, or 4.4%, to 1,151.44.

Investors also poured back into small- and mid-size stocks, which had sold off sharply early this week. The S&P small-cap index jumped 4.6% and the S&P mid-cap index leaped 5.2%.

Winners swamped losers by 29 to 9 on Nasdaq and by 23 to 8 on the New York Stock Exchange.

But trading volume, at 2.3 billion shares on Nasdaq and 1.37 billion on the NYSE floor, was well below record levels.

Analysts often like to see record volume when the market is trying to rally from a deep hole. That would suggest that bullish investors are finally outnumbering bearish ones.

Some of the buying Thursday came from "short" sellers--traders who have borrowed stock and sold it in recent months, betting prices would continue to fall.

When the market rallies, some of those short sellers rush to buy back shares to close out their bets. That buying can help power the market higher.

"I think it's a sucker's rally," said Walt Casey, a technology stock analyst at Banc One Investment Advisors in Columbus, Ohio. "It's too violent a reaction. Nothing is that much better," he said. "We're going to get into next week and we're going to get more poor earnings announcements."

Others said today's trading will be key to determining whether the market has indeed reached at least a short-term bottom: If stocks rally fiercely today, more investors may begin to feel as if the worst is over, traders said.

"We're not going to see a meaningful turn in the market until the economy turns," argued Ian Rogers, who manages the Strong Large Cap Growth Fund. "That's not going to happen until we get more interest rate cuts from [the Federal Reserve] and the ones [the Fed] has given us take hold, and that takes awhile."

Investors will get a fresh view of the economy's performance when the government releases its report on March employment today.

Thursday's rally was good enough to boost the U.S. market's total value by more than $500 billion, as measured by the Wilshire 5,000 index.

As stocks rose bond yields fell, suggesting that investors were cashing in bonds to buy stocks.

The yield on the two-year Treasury note surged to 4.2% from 4.12% on Wednesday. The 10-year T-note rose to 4.97% from 4.92%.

Among the day's highlights:

* In the tech sector, Intel rose $3 to $25.63, Vitesse Semiconductor surged $3.06 to $19, Micron Technology advanced $3.80 to $38.40 and Compaq rose $1.36 to $17.16.

Also, Microsoft gained $4.81 to $56.75, Veritas Software jumped $7.71 to $47.16 and Cisco Systems added $1.25 to $14.94.

* EBay rose $4.44 to $34.81 after Deutsche Bank Alex. Brown analyst Jeetil Patel said the largest Web auctioneer's first-quarter sales will rise more than forecast.

* Other sectors gaining Thursday included banks, insurance, HMOs, drugs and energy.

Brokerage stocks also surged, led by Merrill Lynch, up $4.34 to $56.06, and Lehman Bros., up $7.07 to $62.42.

On the downside, investors took profits in shares of some home builders, utilities and food stocks.

Market Roundup: C6-7

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