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What a Week: Sideshow Attractions

Save for Tuesday's slide, the drama was beneath the surface in the stock market this week and centered in other assets, particularly the dollar, gold and oil.

For the week, the Dow Jones Industrial Average fell 0.5%, the S&P 500 shed 0.3%, and the Nasdaq Composite lost 0.9%. Most of the damage occurred Tuesday, when the Dow and S&P each fell over 1% and the Comp shed 1.7%.

Given the largely positive fundamental backdrop on Tuesday -- featuring a sharp drop in oil prices and reports of Johnson & Johnson's (JNJ) bid for Guidant (GDT) -- the decline begged a technical analysis.

For chart readers, the day was troubling for the Nasdaq, as it marked the fourth consecutive session in which the index surpassed its January 2004 high of 2053.86 intraday, only to reverse and close below that level. Tuesday's session was more significant than the prior three "tests" of that "resistance," because the index closed significantly below the January high (2114.65), a decline accompanied by a sharp increase in volume.

The resulting "outside day" -- a higher intraday high than the prior day but lower intraday low and close -- was important, "but there's nothing in and of that day to suggest a change in trend," said John Bollinger, president of Bollinger Capital Management in Manhattan Beach, Calif.

There was little follow-through selling for the remainder of the week, he noted -- weakness in former highfliers such as Sirius Satellite Radio (SIRI) aside. Notably, Thursday saw the major indices recover from early losses as National Semiconductor's (NSM) midquarter update, reports of a potential Nextel (NXTL)- Sprint (FON) merger and Toll Brothers' (TOL) stellar earnings helped overcome the shadow cast Wednesday evening by disappointing updates from Altera (ALTR), Xilinx (XLNX) and Cymer (CYMI). On Friday, major averages ended virtually unchanged.

Tuesday's decline "got people's attention," but there have been several similar sessions during the Comp's roughly 400-point rally from its August lows, Bollinger observed. "We can back and fill and then make another upside attempt. If that fails and we start to show some divergences and deterioration in the short- and intermediate-term indicators, then I'll get worried. It's too early yet."

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