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. Last Updated: 07/27/2016

Nasdaq Rally Leaves Many Unconvinced

NEW YORK -- A snap-back rally in technology stocks lifted the battered NASDAQ composite index 7.9 percent Tuesday, the biggest one-day percentage rise for the 29-year-old index.

But many traders and analysts, while surprised by the move, said it's too soon to tell whether the market is emerging from its 2 1/2-monthlong slump.

The Nasdaq index opened well above Friday's close and finished with a gain of 254.37 points, its second-biggest advance ever in point terms, to 3,459.48. The point gain fell just shy of April 18's record of 254.41.

Other major indexes also posted strong gains, though they didn't match Nasdaq's surge. The blue-chip Standard & Poor's 500 index advanced 44.43 points, or 3.2 percent, to 1,422.45, while the Dow Jones industrial average climbed 227.89 points, or 2.2 percent, to 10,527.13.

Breadth was strong, as more than two stocks rose for every one that fell on the New York Stock Exchange and on the Nasdaq.

But investors hoping that the post-Memorial Day jump signaled the start of Wall Street's traditional "summer rally'' - an event more myth than fact, anyway - should be wary, analysts noted.

The beaten-down tech sector has staged several major rally attempts since early April, and all have failed.

On Tuesday, modest trading volume suggested the rally lacked conviction, despite the powerful gains in many individual tech stocks. On Nasdaq, 1.45 billion shares changed hands, well off the levels of more than 2 billion shares often seen during the first-quarter tech-stock advance.

"The problem I have is: Is this a one-day phenomenon or the building of something?'' said Peter Coolidge, managing director of equity trading at investment firm Brean Murray. "We've seen this before - some sharp swings up, only to be met with apathy. It's definitely a market in a state of flux.''

Chart watchers say a pick-up in volume accompanying further price gains would be the key signal of a sustainable rally.

"We need to see more trading to get a clear trend,'' Coolidge said. "This is a good start, but that's all.''

Greg Nie, senior vice president for technical research at First Union Securities, agreed. "We're lodged in a laborious transition phase'' from the spring sell-off to the next bona fide rally, he said. "It's a test of patience and it may continue a little longer.''

"Volume is the key - it needs to improve to lead us out of the wilderness,'' Nie said.

The Nasdaq composite remains about one-third below its March 10 record high and under the 50- and 200-day moving averages that technical analysts follow.

Though there was no major news event to trigger Tuesday's jump, many investors clearly were enticed by tech-stock prices far below their peaks. But traders noted that other such buy-on-the-dip-type rallies of recent weeks have quickly fizzled as sellers have emerged to dump shares on the market.

"Things got oversold, so it was time for a pop. But we may be stuck in a trading range for a while,'' at best, if the rally brings out more sellers in coming days, said Ken Sheinberg, chief of listed-stock trading at S.G. Cowen.

He said the market may be stuck in neutral until mid-to-late-summer, when clearer signs are likely to emerge about the direction of the U.S. economy, interest rates and November's presidential race. He expects the Nasdaq to bounce roughly between 3,200 and 3,800 and the Dow to swing roughly between 10,300 and 10,900.

While many observers expect the U.S. Federal Reserve to raise interest rates by one-quarter of a percentage point at its next meeting June 28, some strategists said Tuesday that they wouldn't be surprised to see the Fed leave rates alone, as signs are emerging that previous increases are taking hold and slowing the economy.

As stocks jumped, bond yields rose, as some investors may have sold bonds to buy stocks.