BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 5/16/2008

Stocks bounced back from early losses Friday, showing resilience at the end of another strong week for the market.

The Nasdaq had sunk 1.2% less than two hours into the session and looked on its way to a distribution day. But the index righted itself, rebounding to finish down just 0.2%, near its intraday high.

The Dow shaved its loss to less than 0.1%. The S&P 500 and NYSE composite swung all the way back into the black, rising 0.1% and 0.5% respectively.


Volume picked up across the board on a day of options expiration for the market. Trading rose 3% on the Nasdaq and 15% on the NYSE compared with Thursday's levels.

For the week, the Nasdaq surged 3.4%. The NYSE composite jumped 2.9%, the S&P 500 2.7%, the Dow 1.9%. Meanwhile, the small-cap S&P 600 vaulted 3.4% and the S&P MidCap 400 leapt 3.5%.

The week's gains extended one of the strongest market uptrends we've seen in recent years.

On March 17, the Nasdaq tumbled to its lowest point in 18 months. But the tech-rich index has since zoomed more than 17%.

That surge was more than just bottom-fishing for laggards. Rather, the rally has featured a wide array of breakouts and moves to new highs from leading, fundamentally sound stocks. Investors who have focused on quality and sound buying rules have reaped the benefits.

These results might seem curious at first, when you peruse some of the headlines that have come down the pike lately.

Standard & Poor's on Friday released a report showing that first-quarter earnings fell 25.9%. That makes three straight quarters of declining earnings, the first time that has happened since 2001.

Financial companies deserve most of the blame. Shackled with huge mortgage-related writedowns, many major financial firms have reported stunning losses.

The broader credit crisis has spurred the Federal Reserve and other global banks to open the floodgates, making copious capital available to those companies in need.

Meanwhile, oil and gas prices have people from manufacturers to consumers sweating.

The average U.S. retail price of gasoline has spiked to $3.77 a gallon. Oil topped $127 a barrel Friday before settling at $126.02, up $1.90.

The start of the summer driving season and supply disruptions in China loomed larger than the extra 300,000 barrels a day that Saudi Arabia started producing last week.

Every new, negative headline, combined with every big week on Wall Street, reminds us that the market always looks ahead.

The credit crunch won't last forever. Oil will stabilize — at some point. Corporate earnings eventually will resume their climb. The market knows all this.

Always let the market be your guide. Track daily and weekly price and volume action of the major indexes, as well as the market's top-rated stocks.

The IBD 100 bounced 1.5% Friday. For the week, IBD's gauge of top-rated stocks leapt 4.2%.

Both results were stronger than the gains banked by the broader market indexes. That's another positive sign for growth investors.

Energy stocks continued to thrive, fueled by rising oil and gas prices.

Ultra Petroleum (UPL) jumped 5.11, or 6%, to 88.77 in nearly double its average volume. The oil and gas producer is rebounding from a pullback to its 10-week moving average. Its Accumulation/Distribution Rating has improved to B from D.

Diamond Offshore (DO) gapped up and gained 5.12 to 140.12 in heavy trading. During the session, the driller passed a 140.88 buy point from a cup-with-handle base before pulling back just below it.

A number of stocks from other industries also fared well.

CyberSource (CYBS) jumped 1.41 to 19.21 in four times its typical turnover. The provider of online payment services cleared an 18.93 buy point in a handle at the top of a double-bottom pattern.

The stock already had staged a breakaway gap on April 30 before pulling back and offering another entry point.