Bargain hunting keeps Dow above 10,000

A spate of bargain-hunting boosted a sluggish US market in late trading today, pulling the Dow Jones industrial average back from below the 10,000 mark.

But the buying seemed to lack conviction as investors remained worried about the economy’s health.

Many companies have reported strong earnings for the second quarter, indicating business conditions are good, but investors have focused instead on lower forecasts and worries about whether future earnings can support current share prices. Some analysts have attributed the current pattern of sideways trading to summer doldrums, while others expressed concern that selling pressure could increase if the downward trend continued.

“The fear of earnings not holding up in the second half of the year has put the bears in full control, and the market is basically testing the trading ranges,” said Peter Cardillo, chief strategist with SW Bach & Co. “Any close under the 10,000 level (on the Dow) will obviously indicate a psychological breakdown, and could induce more selling.”

The Dow Jones industrial average ended the day up 4.20, or 0.04%, at 10,050.33 after falling as low as 9,946.88. The Dow last closed below 10,000 on May 24.

The broader gauges also finished higher after spending much of the session in negative range.

The Nasdaq composite index gained 14.69, or 0.8%, to 1,889.06, ahead of much-anticipated results from Microsoft. The Standard & Poor’s 500 index added 2.96, or 0.3%, to 1,096.84.

From a technical standpoint, the S&P 500 hit a milestone on Wednesday, when it fell below its 200-day moving average for the first time since March 2003. For professional investors, that was a caution flag, suggesting the upward trend that began more than a year ago might not be sustainable.

Helping the bears’ case, a closely watched gauge of future economic activity declined last month for the first time since March 2003, falling short of analysts’ expectations. The Conference Board said its Composite Index of Leading Economic Indicators dropped 0.2% in June, to 116.2, following three months of gains. Analysts had expected the index to remain flat.

The combination of technical signals and disappointing economic news, along with less-than-stellar corporate outlooks, created a feeling of negativity in the market, until buyers emerged in the last hour of trading. With no real catalyst in sight to push the markets higher, however, many analysts believe there are more down days ahead for the equity markets.

“I wouldn’t expect we’re going to see huge moves to the upside until we get the election behind us,” said Thomas Lydon, president of Global Trends Investments in Newport Beach, California. “We’re below the 200-day average on the S&P 500, we’re seeing some big companies have disappointing earnings, we’re going into these summer doldrums … It really doesn’t make the average investor feel like they want to push more money into the market. They’re just making the choice that ’I’m going to sit this one out for a while’.”

Sears, Roebuck was down 1.00 at 33.93 after reporting results that fell far short of Wall Street’s expectations. The ailing retailer also lowered its second-half estimates based on the poor first-half showing.

Eli Lilly reported earnings in line with expectations, excluding charges, but shed 54 cents to 64.74 because of a drop in net income and a lower forecast for the quarter and the year.

McDonald’s was down 9 cents at 27.57, despite beating estimates on strong results from salads, late-night hours and other recent initiatives that helped it record a fourth-straight quarter of double-digit sales growth.

Adolph Coors was down 2.33 at 72.40 following the official announcement of its planned merger with Canadian brewer Molson, which values both companies at 3 billion and would create the world’s fifth-largest beer company. A former Molson executive could cause a hitch, however. The Wall Street Journal reported that Ian Molson is expected to make a counter offer to acquire the company for as much as 4 billion.

Decliners outnumbered advancing issues by more than 3 to 2 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, was down 2.05, or 0.4%, at 546.52.