Stocks Battle Back

Stocks came back from another sell-off on Wednesday, as investors overcame fears about possible Fourth of July terrorist attacks to send stocks higher.

The ISDEX rose 4 to 100, and the Nasdaq gained 22 to 1380 after breaking its October 1998 low of 1357 during the day. The S&P 500 added 5 to 953 after breaking its September low of 944 and coming within 12 points of its October 1998 low of 923. The Dow climbed 47 to 9054. Volume declined to 1.54 billion shares on the NYSE, and 2.66 billion on the Nasdaq. Decliners led 19 to 12 on the NYSE, and 19 to 15 on the Nasdaq.

10% gainers included Oracle , Sun and AOL , and Intel gained 7%.

AMD fell 4% on a warning.

WorldCom gained 120% to 22 cents a share on hopeful talk from CEO John Sidgmore that the company can avoid bankruptcy, a process in which shareholders usually receive nothing.

Research in Motion surged after topping estimates, but Openwave , Kana and Aspen plunged on warnings.

i2 , Micromuse , and E.piphany finished unchanged or better despite warning.

Check Point continued to gain after hitting a new 52-week low yesterday.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the story link at the top of the newsletter.

Note: There will be no Market Close or market commentary on Friday. It will return on Monday. Have a safe and enjoyable holiday weekend.

At this point, the news over the next couple of days may be more important than the technicals. A lack of terrorist attacks tomorrow and a good unemployment report Friday morning could ignite a nice rally. If all goes well, the market could get a summer rally that lasts for two or three weeks. The indexes would have to gain 1%-3% on Friday just to hit the first real resistance levels of 1400 and 1440 on the Nasdaq, 980 and 1000 on the S&P, and 9200-9250 on the Dow (see first three charts below). It’s also hard to imagine that the market will give up these extremely important support levels on the Nasdaq (1315-1326 and 1357) and S&P 500 (923 and 945) without a fight (see fourth and fifth charts below). That said, we expect selling to resume eventually. This bear market – which may now be the longest since 1937-1942 – has yet to put together something resembling a major bottom. Here’s an important study by Paul Desmond at Lowry’s that measures selling – and buying – intensity seen at other important lows: Note that we’ve seen none of that intensity in this leg down or at the September bottom. So while a summer rally could be in the cards, it appears that sellers will reemerge at some point. Finally, note the bearish divergence here in the slightly lower high in the VIX (sixth chart) despite lower lows in all the averages.



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