Banks, Techs Lead Rally; Oil Falls by $5 a Barrel

It was another wild trading day of ups and downs but stocks ran to the finish line and pulled off a decent gain as oil dropped more than $5 a barrel.

The Dow Jones Industrial Average finished up 1.4 percent at 11384.21, about 50 points above the bear mark. The S&P 500 gained 1.7 percent and the Nasdaq advanced 2.3 percent, with both finishing above bear territory.

Banks and technology stocks led the afternoon rally. The Nasdaq's gain snapped a three-day losing streak and was the biggest in more than two months for the tech-heavy index.

These wild see-saw sessions are likely to be the norm this summer, many strategists say, as the market searches for a bottom. And in this type of terrain, you have to be careful.

"If you get too involved in the short term, this market will break your neck," said Jordan Kimmel, portfolio manager at Magnet Investing Group.

With all three major indexes dancing in and out of bear territory in the past week, a bounce is on the horizon but bad news like the Fannie-Freddie worries of yesterday's session, is keeping it at bay.

And, while stocks search for the capitulation point, it seems the mood on Wall Street has already found a bottom.

"I've been doing this for over 25 years and I can't remember the gloom and doom this thick, really, ever before," said Jordan Kimmel, portfolio manager at Magnet Investing Group. "The whole mood of the market and cash on the sidelines resembles what has always been a turning point in the market," he said. "When you get to these levels of extremes, things change."

The problem, though, is finding the catalyst -- and Kimmel doesn't think oil's going to go much lower.

Some strategists say the market could continue to slide this summer -- throwing out numbers as low as 9,200 for the Dow -- and that the entry point may not come until the fall.

"You are in a period now where the market is overshooting on the downside," market strategist Byron Wien said on CNBC's "Squawk Box" this morning. The market is in the process of bottoming and will gather strength by the end of the year, he said.

Investors have to be patient in the meantime, though. "There's way too much volatility to call a trend over or a trend started," Kimmel said.

The day's economic news was a mixed bag: Existing-home sales dropped 4.7 percent in May, following an upwardly revised 7.1-percent surge in April. Wholesale inventories rose 0.8 percent in May, though a gauge of how long it would take to work through the current inventory fell to a record low amid strong sales of apparel and petroleum. Consumer credit rose by a larger-than-expected $7.78 billion in May.

Offering the market some support were comments by Fed Chairman Ben Bernanke that the central bank may extend its emergency-lending program for big Wall Street banks.

Financials were the biggest gainer among 10 key S&P sector indexes, jumping 5.7 percent, Tuesday.

Fannie Mae and Freddie Mac finished up 12 and 13 percent, respectively, a sharp rebound after hitting their lowest level in more than 14 years on Monday, triggered by a note from Lehman Brothers that suggested the mortgage lenders may have to raise billions in fresh capital.

The stocks got a boost Tuedsay after James Lockhart, director of the Office of Federal Housing Enterprise, which regulates the two enterprises, said in an interview with CNBC that Fannie and Freddie are adequately capitalized and continue to be active in the mortgage market. A proposed accounting change that may affect trillions of dollars of mortgage bonds issued by Fannie and Freddie should not dictate their capital requirements, he said.

IndyMac wasn't so fortunate. Its shares tumbled 38 percent as the mortgage lender said it will eliminate 3,800 jobs and stop making most home loans after regulators concluded it was no longer "well capitalized."

Bond insurers Ambac and MBIA rallied for a second day as Ambac provided more details of its municipal bond insurance unit, Connie Lee, and swatted down rumors by saying it has "ample liquidity" to operate.

Ambac shares jumped 52 percent and MBI gained 22 percent.

Merrill Lynch rebounded 8 percent after an earlier slide triggered by comments from a Wachovia analyst that the investment bank would likely record $5 billion in writedowns for the second quarter and post a loss for the quarter and full year.

Oil again retreated, falling more than $5 a barrel to settle at $136.04 a barrel as fears decreased that a hurricane in the Atlantic Ocean would cause significant damage in the Gulf of Mexico production areas, and as the price fell for refined products. Oil dropped nearly $4 Monday.

The energy sector declined 1.4 percent; Dow components ExxonMobil and Chevron shed more than 1 percent.

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Pepsi Bottling Group beat expectations as price increases in the U.S. and Canada more than offset a decline in volume.

Pepsi Bottling, the largest bottler of PepsiCo drinks, said net income rose 7.4 percent to $174 million, or 78 cents per share, in its fiscal second quarter ended June 14, from $162 million, or 70 cents per share, a year earlier.

Analysts' average forecast was 75 cents per share for the bottler.

The earnings season officially starts with Dow component Alcoa