The close: Retests are wonderful

RTGAM






If you heard a collective "Ah-ha!" from investors on Thursday afternoon, you probably weren't mistaken. A number of observers had been arguing for some time that the stock market must retest its previous lows - and Thursday's activity appeared to do just that, with surprising results.


Both the Dow Jones industrial average and the S&P 500 surged toward the end of trading, but moves only came after the indexes plunged soon after the start of trading.


The Dow fell as low as 7965 points, taking the express elevator below its recent five-and-a-half year low on Oct. 27. Perhaps more important, it also came within 82 points of matching its recent intraday low, on Oct. 10.


The drama at the S&P 500 was even more intense, falling as low as 819 on Thursday, or well below its Oct. 10 intraday low of 840.


Big deal? At the low, Barry Ritholtz, who writes The Big Picture blog and is a true believer in retesting as a precondition to building an eventual stock market rebound, wrote: "Hey, we hit 7965. If you believe in the retest thesis, you are a buyer."


Soon after those words hit the blogosphere, North American stock market indexes staged a remarkable comeback, suggesting that the retest theory may have a surprising number of believers.


The Dow closed at 8835.25, up 552.59 points, or 6.7 per cent, in a widespread rally that sent 28 of the 30 stocks into positive territory. As impressive as that is as a one-day return, it's even more impressive if you look at how high the Dow bounced from its low: 870 points, or 10.9 per cent.


The broader S&P 500 closed at 911.29, up 58.99 points, or 6.9 per cent - after bouncing 11.2 per cent from its low. The bulk of the gains came in the final hour of trading.


Chevron Corp. rose 12.5 per cent, Caterpillar Inc. rose 12.3 per cent, Home Depot Inc. rose 12.3 per cent and General Electric Co. - which hit multi-year lows earlier in the day - reversed course and rose 3.5 per cent. Even Intel Corp., which slashed its sales forecast by 10 per cent and was punished at the start of trading, rose 6.7 per cent.


In Canada, the S&P/TSX composite index made similar moves throughout the day, though it's intraday lows may not have been watched by investors quite as closely. The index fell to a low of 8572 on Thursday, just 35 points from its intraday low. It shot higher, closing at 9352.78, up 430.21 points, or 4.8 per cent - a rebound of 781 points, or 9.1 per cent.


Royal Bank of Canada rose 5.3 per cent, EnCana Corp. rose 8.7 per cent and Barrick Gold Corp. rose 11.5 per cent. Even the two stocks that are currently on the most-troubled list of Canadian companies posted impressive gains on a percentage basis: Teck Cominco Ltd. rose 4.8 per cent and Nortel Networks Corp. rose 30.4 - although, in either case, the absolute gains were slight. Teck rose 32 cents and Nortel rose 21 cents.

Copyright 2001 The Globe and Mail