Rumbling market may be prelude to spurt
Associated Press
NEW YORK — Momentum from the October rally lifted stocks yesterday and gave major market indexes their second straight winning week — the first such streak in two months. Despite an early decline, many investors resisted the urge to take profits.
"We have gone from being extremely oversold to very overbought. It is due for a rest," said Brian Bush, director of equity research at Stephens Inc.
Still, analysts say the volatility might be what's needed for a slow, truly meaningful switch from bearish to bullish sentiment.
The Dow industrials surged 1,000 points this week after hitting five-year lows. Much of the gain came on a four-day, 969-point climb — the biggest four-day rally since 1933 — before the market lurched up and the down the rest of the week.
Analysts say the fluctuations may be a good sign, indicating a battle between skittish bears willing to sell at the slightest indication of bad news versus a growing number of more confident bulls ready to jump in at beaten-down prices.
"Around market turning points, a lot of times sentiment is extreme. So you get big selloffs and subsequent big rallies afterward," said Sam Burns, research analyst at Ned Davis Research. "... High volatility now would be consistent with a market bottom."
The Dow closed up 47.36, or 0.6 percent, at 8,322.40 after having fallen as much as 127 points in the early going. In the past seven sessions, the Dow has climbed 1,036.
The Nasdaq composite index rose 15.57, or 1.2 percent, to 1,287.86. The Standard & Poor's 500 index advanced 5.19, or 0.6 percent, to 884.39.
The market has been making surprisingly strong upward progress since Oct. 9 when the Dow fell to a five-year low, joining the S&P. The Nasdaq was at a six-year low.
"Investors have only been responding to the negative numbers. Now, eyes are being open to the positive numbers," said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons. "What happens at major turns in markets is that investors' responses to some of the negative numbers become less dramatic."
Of course, analysts note the lingering uncertainties of a war with Iraq and the strength of the economic recovery.
And the market experienced even greater volatility in late July, when the indexes hit their previous multiyear lows. Investors now know that the market afterward posted a five-week winning streak before giving up their gains later on a six-week slide.
"We definitely had a bottom last week," Burns said. "But how long it lasts is another question. It could be a two-month rally like it was before. Or it could be a rally, like in the fourth quarter last year, of three to four months.
"I wish we knew."
Advancing issues yesterday were even with decliners on the New York Stock Exchange. Volume was light at 1.41 billion shares, down from 1.77 billion on Thursday.
The Wilshire 5000 Total Market Index ended the week at $8.32 trillion, up $450.75 billion from the previous week. A year ago, the index was $9.89 trillion.
