Even though Friday closed with a triple-digit gain for the Dow, it was the results of the European banks’ stress tests and a subsequent rise in the euro that accounted for the optimism which drove U.S. markets. A handful of Dow components also attracted buyers, and that was enough to give the Dow Jones Industrial Average a gain of 3.2% for the week.

Verizon (NYSE: VZ) and American Express (NYSE: AXP) led the Dow in percent change on Friday following their better-than-expected earnings. McDonald’s (NYSE: MCD) and Microsoft (NASDAQ: MSFT) also beat forecasts but closed lower. Another Dow component, General Electric (NYSE: GE), also closed higher after announcing that it would raise its quarterly dividend by 20%.

Amazon (NASDAQ: AMZN) reported lower-than-expected earnings, and the stock opened at a nine-month low. But even though it began the day almost 20 points in the hole, it managed to recover most of its losses and closed the day at $118.87, off just $1.20. 

The results of the European banks’ “stress tests” caused markets in Europe and the U.S. to rally. But during the weekend there was much discussion on whether the level of the tests was tough enough. And so the finding that just seven failed of the ninety-one tested is being scrutinized. And the concerns of Fed Chairman Bernanke, expressed earlier in the week, remained unaddressed.

At the close the Dow Jones Industrial Average had gained 102 points at 10,425, the S&P 500 rose 9 points to 1,103, and Nasdaq was up 24 points to 2,269. The NYSE traded 1.1 billion shares with advancers ahead of decliners by 4-to-1. Nasdaq crossed 700 million shares with advancers ahead by 3.5-to-1.

For the week the DJIA gained 3.2%, the S&P 500 was up 3.5%, and Nasdaq gained 4.1%.

Crude oil for September delivery fell 32 cents to $78.98 a barrel as concerns lessened about a tropical storm approaching the Gulf. The Amex Energy SPDR (XLE) rose 24 cents to $53.78. August gold fell $7.80 to $1,187.80 an ounce, and the PHLX Gold/Silver Index (XAU) rose $1.08 to $173.42.

What the Markets Are Saying

The fluctuations that have kept all of us busy trying to figure out the next near-term move of the market over the last three months have essentially taken prices nowhere. We ended Friday with the S&P 500 crossing the 1,100 barrier by just under 3 points, but still in the middle of its 50- and 200-day trading range, and well below the peak of June 21 at 1,131.

The bulls will no doubt try to make the case that the bear market is over and that we should count on higher prices. Last week’s trading favored the bulls, especially on Thursday and Friday when both the Dow and the “500” drove through their 50-day moving averages. And the Dow’s close over its 200-day moving average and its bearish resistance line was impressive. Nasdaq closed just above its 200-day moving average but failed to break its bearish resistance line.

But despite last week’s enthusiasm and cheerleading from scores of permanently bullish CNBC guests, the long-term trend is still down, the intermediate term is down but questionable and the short-term trend is up.

Volume is still pitifully low indicating a lack of conviction on the part of both big money and investors. And our internal indicators are grossly overbought, so with that background it seems unreasonable to expect a major move higher from Friday’s closing prices.

But several sectors have been acting better and appear undervalued. They are energy, gold and some small-cap value stocks including specialty finance companies. Some of the stocks in these groups still carry hefty dividends, and so I’d take a close look at them for longer-term investment possibilities since their dividends could provide some protection in the event of a “double dip.” We talked about Gabelli Gold (NYSE: GGN) many times and the stock at the current price is yielding over 10.5%. I’ll add a few more this week in the Trade of the Day section of the website.

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