One of the world's biggest banks announces a surprise $19 billion writedown, and the Dow skyrockets almost 400 points in response. Is this some kind of April Fool's joke?

Hardly! Most days, the stock market reveals very little of its ultimate intentions. But today's session brought a blinding, Saul-on-the-road-to-Damascus epiphany.

If you had told me that UBS (parent of Union Bank of Switzerland and the UBS brokerage in the United States) would spring a $19 billon writedown on investors Monday, dwarfing the $13.7 billion the bank wrote off for bad subprime paper in the fourth quarter of 2007, I would have predicted a sizable loss for stocks today.

However, just the opposite happened. Not only did the market give us another wonderful "power day" (trading volume in advancing NYSE stocks outnumbered that in decliners by a 10:1 margin). Even UBS shares, which should have taken the booby prize in today's session, zoomed 14.6%!

"Unreal rally," moans a headline from Portfolio.com. That was exactly the reaction in August 1982, when the great Reagan bull market lifted off amid a deep recession and a skein of bank failures.

(I know, because I was sitting in the lower Manhattan office of a prominent bear when that ancient explosion occurred. During our whole conversation, he couldn't keep his eye off the screen on his desk. The bull was trampling his shorts into the ground, and he couldn't believe it.)

But this is no unreal rally. Rather, the market is now telling us, in the loudest possible tones: "I've sized up the losses from the mortgage meltdown. It doesn't get any worse from here."

If it doesn't get any worse, eventually it has to get better. Align your thinking, and your portfolio, on that basis.

It's subtle. But it's happening. Even as gurus complain that the credit crunch continues unabated, the stock market is slowly regaining its composure. While I'm still expecting a wild session here or there as Q1 earnings season unfolds, the market's own internal evidence suggests that a major low -- probably the low for the year -- is now behind us.

The latest indicator to "sing" is the Chicago Board Options Exchange Volatility Index, or VIX. VIX measures the prices (premiums) speculators are willing to pay for options traded on the Standard & Poor's 500 stock index.

When traders foresee a lot of volatility ahead (typically near a market low), options premiums skyrocket. By contrast, volatility -- and options premiums -- tend to decline as the stock market recovers.

For each of the past five days, VIX has closed below its 200-day moving average, a feat it has been unable to accomplish in more than a year. Again, it wouldn't surprise me if we got a brief bounce back above the average (which now stands at 23.05) sometime in the next week as earnings reports from the banking sector start to filter in.

However, a sustained drop below the 200-day marker, such as we've just seen, is unlikely to be a fluke. It represents the considered judgment of many thousands of players that market risk has peaked.

If so, stock prices should gradually improve as the year wears on. Eventually, the economy will perk up as well, though probably not in any meaningful way until the third or fourth quarter. Apocalypse has been averted -- again.

It's earnings season, and a hail of hostile fire seems to be raining on the stock market. We had the General Electric disaster on Friday. Then Wachovia followed on Monday with big write-offs and a dividend cut. But a new strategic factor has also entered the picture.

Despite those two major shocks, the Standard & Poor's 500 index refused to collapse yesterday and actually squeezed out a decent gain today. I won't say the market has become impervious to bad news, but investors are shaking off the disappointments more quickly now than they did two or three months ago.

We're dodging bullets, instead of taking them in the back. That's a very encouraging development -- quite in character for the early stages of a recovery after a bear market.

Typically, for a number of weeks after a long market slide ends, negative news continues to bombard Wall Street. But investors begin to see bits and pieces of countervailing evidence that points to better times ahead.

What positives are the buyers spotting these days? Besides dramatically lower money market rates (which ease debt burdens and make it more and more unappealing for investors to hold cash), a few bellwether companies are signaling that they're doing OK even in this tough environment, thank you.

Tonight after the close, for example, semiconductor giant Intel (NASDAQ: INTC) met its Q1 earnings forecast and spoke of "a strengthening core business and a solid global environment." The company also raised its guidance for the second quarter.

It will take many more such announcements, of course, to push stock prices appreciably higher. But a journey of a thousand miles doesn't begin until you open the garage door.

We're in the thick of earnings season. That's as good an explanation as any for today's wobbly session on Wall Street -- although record-high oil prices undoubtedly had some influence, too, on the Dow's 122-point sell-off.

Last Wednesday and Friday, the stock market responded enthusiastically to strong quarterly earnings reports from the likes of IBM and Google. But last week's big rally (which shot the Standard & Poor's 500 index to an 11-week high) also left the market vulnerable to profit taking.

All it took, this morning, was a cautious outlook from Texas Instruments (NYSE: TXN) to bring the sellers out in force. TXN actually had a fine quarter, with operating profits up more than 18% from a year ago. However, the company acknowledged a slowdown in the segment of its business that provides semiconductor chips for cell phones. So nervous traders turned tail and ran.

How seriously should we take this kind of one-day tempest? Not very. From a technical standpoint, the evidence is shaping up for a broad, sustained rally in the second half of 2008, probably reaching into 2009. If I'm correct about that hunch, TXN and scores of other large-cap stocks that have gotten roughed up during the current earnings frenzy will bounce back a long way.

At just over 14X this year's projected profits, TXN is remarkably cheap for a technology leader with a pristine balance sheet (no long-term or short-term debt -- zero).

I'll keep you posted as earnings season wobbles on...

I've cautioned my Profitable Investing subscribers in my last couple of messages to them that the stock market was facing significant overhead resistance. Yesterday's and today's setbacks may seem minor, but they reinforce my case. We're approaching a short-term top.

Stocks had ample reason to rally today. Oil and gold both fell sharply, with the Midas metal touching a three-month low. The dollar also pushed to its highest close in New York against the euro since mid-March.

However, none of these developments stirred much enthusiasm for equities. Apparently, investors are now reading the softness in commodities (and the mirror-image dollar rebound) as a sign that the U.S. economic slowdown is spreading beyond our shores. Weakening global business activity could feed back to America, hurting the one sector of our economy -- manufacturing exports -- that still looks reasonably healthy.

Technically, too, a number of breadth, volume and momentum gauges are signaling that the stock market needs to rest and regroup. We've come a long way since the March lows. Don't be surprised if the major indexes give back some of their gains in May.

To be sure, a monster surge in the next few days (past the 1425 barrier on the S&P 500 that I talked about in our May issue) could lay these concerns to rest. More likely, though, the market will pull back first. A breakthrough to much higher ground will have to wait a couple more weeks, at least.