After Thursday’s 172-point rally, investors were expecting some follow-through on Friday. Instead, what they got was a market that traded in a range of just 67 points throughout the day and meandered about aimlessly for the entire session.
Technology stocks were almost the only sector showing gains, as they attracted small surges of buying. (Get 6 Tech Stocks to Own Now.)
Palm (PALM) gained more than 15% after saying that it would be cash-flow positive by year-end. Apple (AAPL) and Research In Motion (RIMM) rose more than 1%.
And there was positive economic data showing improved consumer sentiment and higher personal incomes and spending.
But even that wasn’t enough to shake investors from their lethargy. The Wall Street Journal quoted several sources as saying that the recession is likely to continue and weigh on stocks through year-end.
At the close, the Dow Jones Industrial Average (DJI) was down 34 points to 8,438, the S&P 500 (SPX) fell a point to 919, and Nasdaq (NASD) rose 9 points to 1,838.
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The NYSE traded 1.2 billion shares, with advancers ahead of decliners by 9-to-5. On Nasdaq, volume totaled 740 million shares, and advancers were ahead by almost 2-to-1.
For the week, the Dow fell 1.2%, the S&P 500 was down 0.3%, and Nasdaq rose 0.6%.
On Friday, August crude oil fell $1.07 to $69.16 a barrel over concerns that the recession might continue longer than expected. The Energy Select Sector SPDR (XLE) fell 32 cents to $47.89.
August gold rose $1.50 to end at $941 an ounce, as the Chinese continue to hint that a new world currency should replace the U.S. dollar as the world’s reserve currency. The PHLX Gold/Silver Index (XAU) fell $2.32 to $143.80.
What the Markets Are Saying
While the markets are still trading within a 7% range between S&P 500 880 and 950, volume continues to shrink. The daily trading range is so small that the highs and lows of the day are now often made in the last 10 minutes of trading.
This sort of disinterest is usually the sign of a market that is rolling over and about to slide lower.
This is supported by the recent non-confirmations within the Dow averages, as well as the broad-based indices versus the narrow-based ones. And the false breakouts on the broad-based indices are fodder for the bears, as well.
But Nasdaq is another story.
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Nasdaq has completed a bullish reversal pattern following last week’s bounce from its 50-day moving average and the breakout from the double-top at 1,780, the left side of which goes all the way back to early November.
And there are some emerging markets that have the same pattern: Australia, Brazil, Canada, China and Singapore, to name a few.
With the domestic markets (except Nasdaq and the techs), the best trading strategy is to short or sell stocks on rallies. But long-term quality investors may want to focus their efforts in the emerging markets, where longer-term trends are in force and the predictability of further gains is high.
Today’s Trading Landscape
Earnings to be reported include: Apollo Group (APOL) and H&R Block (HRB).
Economic reports due: Dallas Fed Production Index for June.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
