- The Washington Times - Thursday, July 25, 2002

NEW YORK — The Dow Jones Industrial Average stormed up almost 490 points, its second-biggest one-day gain, and climbed back above 8,000 yesterday as Wall Street cheered legal and legislative action on the corporate-ethics scandals that had fueled nine weeks of sharp losses.

Although stocks began the day by extending a four-day losing streak, the arrests of top Adelphia Communications Corp. executives for purportedly looting the cable-TV company triggered a broad rally that intensified as the session wore on. An agreement between House and Senate negotiators on legislation to crack down on corporate fraud added momentum to the advance.

Still, many market observers were dubious about the sustainability of the rebound, noting that stocks have rallied before and then pulled back.

"I'm a little skeptical," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "Every time we've had one of these violent rallies, it's been a classic bear-market bounce with no follow-through."

Indeed, after the market closed, AOL Time Warner said regulators were looking into its accounting practices a reminder that concerns about the truthfulness of corporate ledgers have not been put to rest.

The Dow closed up 488.95, or 6.4 percent, at 8,191.29, an advance second only to the 499.19-point gain it had March 16, 2000.

The surge was also the Dow's first triple-digit gain since July 5, when the average rose 324 points. However, it still demonstrated the volatility that has swept over Wall Street lately. The Dow dropped more than 170 points early in the day before shooting higher.

Broader stock indicators also closed sharply higher. The technology-focused Nasdaq Composite Index advanced 61.18, or nearly 5 percent, to 1,290.23. The Standard & Poor's 500 Index rose 45.73, or 5.7 percent, to 843.43.

The advance was a dramatic break from the sharp selling that has plagued the market since mid-May as pessimism arising from the accounting scandals overshadowed an improving economy and healthier earnings reports. Triple-digit drops in the Dow have become a norm the blue chips lost 840 points during the previous four sessions alone.

But most analysts said the buying was an expected rebound after significant declines, rather than an end to the bear market.

Bill Barker, an investment strategy consultant at RBC Dain Rauscher in Dallas, said technical factors played a major role, as many traders were forced to buy back stock they had sold short. In short trades, investors sell borrowed stock, expecting the market to fall; when the market rises, they are forced to buy stock to pay back the debt. This process, called short covering, creates upward momentum because the higher stocks go, the more traders with shorts have to buy stock.

"I think the market is increasingly being dominated by short-term traders," Mr. Barker said.

However, Mr. Barker noted that the market began to rally shortly after reports of the arrests of the founder of Adelphia and his two sons. The accounting scandal at the company has been one of several weighing on market sentiment.

"The market has been waiting for this," Alan Ackerman, vice president at Fahnestock & Co., said of the Adelphia arrests. "We have a big turnaround in process, but whether it will last or not is a big question."

AOL Time Warner, which also released earnings that beat expectations by 2 cents a share, was off 75 cents in after-hours trading after the news about its accounting.


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