After early losses the market turned swiftly higher Wednesday. It was led by a jolt in energy stocks, following signs that demand for oil could soon rise. News that the nation's oil inventory fell sharply (see below) last week pushed the price of crude higher with stocks following as investors assumed that the drop in energy stockpiles is a harbinger of an improving economy.

MARKET INDEX WRAPUP, Wednesday, Aug. 19:

The S&P500, along with the Dow and the Nasdaq, gapped down at the open but quickly rallied. It lost steam in the afternoon but still closed up 6.79 points or 0.69% at 969, a nice change from the gloom of Monday and Tuesday. Volume was nothing spectacular but that is often the way in August, with a great many investors on vacation until after Labor Day. Some analysts said the rise was amplified by short-covering, especially as the S&P topped 900 and stayed there. About eight stocks rose for every seven that fell on the New York Stock Exchange.

The S&P and the Dow are still above their 20-day simple moving averages . . . .

S&P500:

DOW JONES INDUSTRIAL AVERAGE:

. . . . but not the Nasdaq. Low summer volume? The start of an expected correction? Investor indecision? All three?

NASDAQ:

Big New York Stock Exchange gainers were Reddy Ice (FRZ), up 94 cents or 33.9%; Dana Holding (DAN), up 51 cents or 11% and American Axle (AXL), up 56 cents or 9.8% and LaZ Boy (LZB), up an energetic 59 cents or 7.9%. Reddy Ice announced a decent-enough quarter, but that was three weeks ago. The stock soared today on stunning volume and no compelling news; one wonders whether an acquisition by sole rival Manitowoc (MTW) is in the offing:

REDDY ICE:

Nasdaq movers featured Perry Ellis (PERY), up %1.53 or 17%; Builders FirstSource (BLDR), up 88 cents or 13.8%, and FuelCell (FCEL), up 45 cents or 12.4%.

Not a lot of market-moving economic news was out today, but at least some of it was cheering, kind of. The Mortgage Bankers' Association's purchase index, which measures applications at mortgage lenders every week and is a fair leading indicator of home sales, rose 3.9% in week ending last Friday, the third straight weekly gain. The refinance index rose 6.9% and has been vacillating along with changes in mortgage rates, as the purchase index has been moving gradually upward. Mortgage rates swung lower in the week, with 30-year loans down nearly 25 basis points to an average 5.15%.

Still, as we've been hearing, even three weeks of rising mortgage applications doth not a recovery make and besides, I've shown you housing graphs. Let's look at something different. The Architecture Billings Index, a leading indicator of U.S. nonresidential construction spending nine to 12 months out, rebounded more than five points in July to 43.1, reversing a decline in June. The index is still below 50, though, and has been since January 2008, indicating contraction in demand for design services. As a confirming indicator it's worth watching. Nonresidential construction includes commercial and industrial facilities like hotels, office buildings, schools, hospitals and other institutions. Notice that the ABI has never surpassed its high of the third quarter of 1998.

ARCHITECTURE BILLINGS INDEX, JAN. 1996 to PRESENT:

Companies in this arena include diversified manufacturers like Honeywell (HON) and Illinois Tool Works (ITW); lighting maker Acuity Brands (AYI); electrical components maker Thomas & Betts (TNB); heating and cooling systems makers Ingersoll-Rand (IR); power solutions providers Johnson Controls (JCI), Parker-Hannifin (PH) and Eaton (ETN) and heavy equipment makers Caterpillar (CAT), Deere (DE) and Terex (TEX). All are well off their March lows.

Deere, who makes farm equipment as well as construction equipment, posted earnings: a 27% decline in third-quarter profit, with sales of its tractors and bulldozers down, but those numbers handily topped estimates. Sales of the company's equipment fell 25% worldwide, hurt by lower crop prices -- a big driver of demand for agricultural equipment -- and slumping construction. Still, it expects farm sales to pick up in North America and stands by its annual profit forecast of $1.1 billion. More than half its agricultural sales came from outside North America for the first time last year. The stock lost $1.31 or 2.9% on very heavy volume, closing below its 20-day moving average for the first time in a month; the stock is having trouble breaking through a roughly-47-dollar ceiling.

DEERE & CO.:

In this group, incidentally, Ingersoll-Rand and Johnson Controls are staging terrific comebacks; they pay dividends, too:

JOHNSON CONTROLS:

INGERSOLL RAND:

Very briefly, the Business Employment Dynamics report, out today, tells us all we need to know about job gains and losses from expanding and contracting establishments in the long, long-ago fourth quarter of last year: 6.7 million and 8.5 million respectively. Old news, but I thought you'd like to know.

One report with some actual power to affect the markets is the Energy Information Administration's petroleum status report. And it turns out that supplies were down in the week ending last Friday. Stocks of crude fell 8.4 million barrels to 343.6 million, the largest drop since May; stocks of gasoline were down 2.1 million gallons and distillates were down 0.7 million.

Oil prices zoomed in anticipation of and after the news. Even so, demand is still weak for what has traditionally been a heavy driving season. The EIA estimates that demand is down 0.1% from this time last year, when pump prices were at $3.75, rather higher than the current average of $2.60.

Exxon Mobil (XOM) and Chevron (CVX), both Dow components, led the blue-chip Dow industrials' advance; Exxon Mobil was up 2.3% at $68.00 while Chevron gained 1.8% to $68.16. Murphy Oil (MUR) was also up 3.1% at $58.05 and the S&P Energy Index gained 1.9%.

U.S. front-month crude futures rose $3.23 or 4.7% to settle at $72.42 a barrel; do you think pump prices will follow? Tracking that, the Amex oil and gas index jumped $14.78 or 1.58%.

AMEX OIL INDEX:

The surprising decline in crude inventories was reassuring, but investors still aren't exactly jumping up and down; Treasurys, for example, a safety cushion in bad times, kept most of their gains as investors decided that there's nothing wrong with owning a little safe government debt. The yield on the benchmark 10-year Treasury note, which moves opposite the price, fell to 3.46% from Tuesday's 3.52% (still not bad).

10-YEAR TREASURY NOTE:

Where stocks were concerned, Par Pharmaceutical (PRX), already near 52-week highs, continued climbing Wednesday after the FDA approved the company's generic version of the Catapres TTS high blood pressure patch. In more good news, earlier this week Par said it had successfully challenged the patent on the pain drug Ultram ER, which could allow it to begin selling a generic version of that product. The stock has traded on extreme volume since Friday; big profit taking pared Wednesday's gain to just 2 cents for a close of $19.81. The stock is up 14.5% for the week so far.

PAR PHARMACEUTICAL (PRX):

After hours Tuesaday, Dow component Hewlett-Packard (HPQ) reported earnings. Including items, third quarter net income was $1.6 billion or 67 cents a share, down from $2 billion or 80 cents a year ago. Global revenue slipped 2%. Without one-time items, earnings almost hit estimates with service revenue almost doubling on the EDS acquisition. The company expects Q4 revenue to rise about 8%. Excluding items, the company said it would have earned $2.2 billion, or 91 cents a share. The stock lost three cents.

HEWLETT-PACKARD:

So. Let's talk about the recovery. Do we really have enough to base a prediction on? The market is almost certainly on the rebound -- that's what I say, and you know my name and where I live -- but how high will we go? The markets are likely to be indecisive in weeks to come while investors agonize between real signs of and hopes for a lasting recovery, and the fear that this rebound is not going to hit the sky any time soon.

I know one thing: You don't want to hear the phrase "V-shaped recovery" again, for as we know, V-turns or even U-turns off the bottom of a bear market are so rare as to be nonexistent. In a bear market of any length, stocks will go through a fairly long basing period before a true bull market can resume.

Since 1929, the average basing period -- some are shorter, some longer -- has lasted about seven months although it can easily last a year or more (often the longer the base, the stronger the rebound). The amount of time it takes to break past resistance after the bottom of the bear is made also varies, but that average is about four months. From the start of the bear to a return to the previous peak can commonly take two years. As always with a true trend, corroborating volume is critical.

That sharp "V" that the three major indexes made from roughly mid-February to mid-April of this year? That was just a downward spike. If we step back and look at the whole forest, we can see that it's a mere blip in a long base.

S&P FINDING A BOTTOM AND RETURNING TO THE NECKLINE:

The U.S. market stopped making highs and started its fall in mid-October 2007. It didn't begin to make anything like a floor until a year later, as this chart shows -- about normal. Assuming that we're now coming out of the woods, that would give us a base of about nine months, also within normal limits. Notice that every new low from October '07 to October '08 was confirmed by a sharp increase in volume.

S&P, INVERSE HEAD SND SHOULDERS:

A base usually has a characteristic shape, and so far this one seems to be a loose "head and shoulders bottom," or inverse head and shoulders. This formation is a harbinger of a reversal to the upside, a mirror of the way a top head and shoulders foreshadows a reversal to the downside. With a "neckline" around 945, the left shoulder here occurred in December 2008, the head in March of this year, and the complete right shoulder break through the neckline in July, making the period from bottom to breakthrough about four months. There was a tentative shoulder formation, without the decisive break, in May. Ideally, the two shoulders will be the same height and width, but sometimes the right shoulder defies our wish for symmetry.

However, above-average volume is necessary to corroborate a strong bull market outlook -- and with a bottom formation it's crucial. (To be precise, the left shoulder should have an increase in volume, the head lighter volume, and the rally off the low of the head should show greater volume than the rally from the left shoulder. The right shoulder's decline should register the lightest volume of all, since profit taking is normal after an advance. When the market rallies through the neckline, there should be a big increase in volume.

It's best to look at more than one volume indicator because absolute volume may not always tell the whole story. Volume analysis that combines price and volume helps distinguish between normal profit-taking and heavy selling pressure. For example, the Chaikin Money Flow index rising above zero can tell us that a security, or in this case securities, is being accumulated. On Balance Volume, assumed to precede price changes, indicates that smart money is flowing into a security; as ordinary investor money follows, the price will rise.

In a genuine reversal, even with light absolute volume the CMF and OBV should remain strong, especially on the advance off the low and through the breakout. So far, this formation has largely conformed to the rules for a bottom head and shoulders. Still, that right shoulder isn't clean, and volume could be better. What I'd like to see is a smooth ride up to about 1200 on the S&P and then a cup-and-handle formation. Then we'll know that happy, or at least happier, days are here again and if you missed the upturn off the bottom, that will be another buy signal. For now, the trend seems to be up.

And here's a new possibly-sporadic feature that I'm going to call: Silly Graphs. Today's SG is designed in part to reveal to you one of the crucial, decisive, vital-to-the-nation's-defense items that the government is keeping track of with your tax bucks and, even more important, to provide you with ammo when you sit your dog down and tell him to get a job:

PETFOOD PRICES:

Some price increase, huh? Does Sparky think those cans of Alpo grow on trees? And since this graph is for all pet food, you might as well tell Miss Kitty that it's time she started pulling her weight in the boat, too.

Earnings will continue tomorrow and include, from U.S. exchanges, Aeropostale (ARO), Barnes & Noble (BKS), China Finance Online (JCJC), Dick's Sporting Goods (DKS), Brocade Communications (BRCD),Foot Locker (FL), Gamestop (GME), Gap (GPS), H.J. Heinz (HNZ), Hormel (HRL), Intuit (INTU), Mentor Graphics (MENT), Pacific Sunwear (PSUN), Open Text (OTEX), Patterson Dental (PDLI), Rio Tinto (RTP), Ross Stores (ROST), Sears (SHLD), SkillSoft (SKIL), the Buckle (BKE) and Zumiez (ZUMZ).

Tomorrow also brings us, among other things, reports on jobless claims, natural gas, leading indicators, and announcements of the size of a half-dozen Treasury Bill and Note announcements. Most eyes will be on the first two.