The Dow Jones industrial average's new record today confirms one thing: Even the smartest experts have trouble forecasting what investors will do next.

A broad sell-off was widely expected today, after Lucent Technologies, a bellwether technology stock, late Thursday reported a decline in earnings and slumped in after-hours trading. Besides, who in their right mind would stockpile financial stocks when an interest-rate hike seems all but assured?

So it defied common logic when the markets began soaring from the opening bell. The Dow average rose 269.30 points, or 2.4 percent, closing at a record 11,522.56. And the Nasdaq composite index surged 155.49 points, or 4.2 percent, closing at 3882.62, its 10th biggest percentage gain in its history.

"This has not been the easiest first week of a new year," groaned Mike Clark, chief equities trader at C.S. First Boston. "The reversals are so rapid and dramatic that it's hard to navigate cleanly."

Investors began the week shedding highflying stocks most vulnerable to widely expected interest rate hikes, just in time to miss the tax year. The Nasdaq index suffered its worst three-day plunge since August 1998 and the Dow Jones industrial average fell below the symbolically significant 11,000 mark.

The trend seemed all but assured to continue after Lucent Technologies said after the market closed Thursday that fiscal first-quarter profit fell and sales had not risen. Lucent dropped 15, to 54, on the New York Stock Exchange, little changed from after-hours trading Thursday. Almost 179 million Lucent shares exchanged hands. That was the highest number of shares traded in a single day in the United States, surpassing a record set by Oracle in 1997.

But the carnage stopped there--much to the surprise of analysts. Usually, as Lucent goes, so goes the rest of the technology sector.

"The bellwether stock is down $15 and you have the market shrug it off? It just doesn't happen," Clark said.

He and others took this as evidence that the underpinnings of the boom in technology stocks is strong. "There is some degree of confidence that Lucent isn't representative of the entire technology sector," said Fred Taylor, chief investment officer at U.S. Trust.

Many investors, he noted, were stocking up on shares of companies that had been battered the worst--taking advantage of a window to buy the highfliers. But, still, bargain hunting is relative.

"It's hard to argue with buying on dips," Clark said. "But when you have stocks rise 85 percent in a year, and a 10 percent drawback, are those bargains?"

Stocks rose even after a government report showed that employment was strong, heightening expectations that the Federal Reserve will raise interest rates next month. "The market had started to worry that the Fed's going to take action slowly and intuitively," Taylor noted.

But strategists have widely reduced their expectations from a hike of half a percentage point to a quarter percentage point, making investors more comfortable with stocks of financial companies and others most vulnerable to rate increases.

Wal-Mart leaped 4-13/16, to 68 1/2, after the giant retailer said it is forming an Internet company. Procter & Gamble surged 8 5/8, or 8 percent, to 116 1/2. General Electric, which owns G.E. Capital, rose 5-21/32, to 151-5/16.

"There will be a healthy digesting and chopping for five or six weeks," Clark predicted. "But volatility will remain."

Then again, who knows?

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