David Gaffen
This Memorial Day weekend calls for lots of rain on the East Coast. Would the roof only fail at the New York Stock Exchange, and open up the skies, so that a real rain can come and wash all the negativity off the Street.
Because it's with dead seriousness that various sources, speaking from a fundamental point of view, actually sounded positive nearing the end of the week, despite the shiver that ran up their collective back each time the major averages failed to support a previous day's rally. The last few weeks have begun upbeat, with a sense that the doldrums, marked by fear of the Federal Reserve
, were on the wane. The weeks have ended with a market feeling more disillusioned than before, and that was no different this week, with the Dow slouching toward 10,000 and the Nasdaq drooping toward 3000. For the week, the Dow Jones Industrial Average shed 327.61, or 3%. The Nasdaq Composite Index fell 185.25, or 5.5%, to 3205.15 and the S&P 500 ended the week 2% lower. The Nasdaq is now off 36.5% from its high, and the Dow is down 9.6%. A bear market. So, what's giving strategists even a whiff of optimism? After losing nearly 2000 points on the Nasdaq, some are looking at the last eight months or so and simply shouting "do-over!" Inflation, as measured by the core Consumer Price Index , is rising at a reasonably slow rate, and so the intellect in people feel that the Fed this year has at most one more rate hike in them. That's what's inside people's minds. But it took one bad research report about broker Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) to sink what had been an orderly day of rotation Thursday. Two days earlier, it took barely a sneeze to destroy any positive sentiment created by Monday's late-day recovery. "It's an emotional market," said Tony Dwyer, chief market strategist at Kirlin Holdings. "Fundamental and technical analysis doesn't work in an emotional market. Until that emotion wanes, you can't say, 'this is going to be a bad week' and 'this is going to be a good week.'" Well, it's official now. This was a bad week. It began harshly enough Monday, a grind of a session that at one point showed both the Nasdaq and Dow down 200 points. General Motors (GM Quote - Cramer on GM - Stock Picks) took the Dow down, losing 10% in the process of a share exchange offer with its Hughes Electronics (GMH Quote - Cramer on GMH - Stock Picks) unit. Tuesday, the market had all the lift of Seeger in An Officer and a Gentleman -- try though it might, it couldn't walk the wall. The day started with a slight follow-through of the previous day's rebound, but traders quickly found out that while buyers were willing to support the Nasdaq at its lows, it didn't have much interest in taking it further. The following two days were repeats of the previous two. One decent day, followed by one lousy day. Wednesday marked the triumphant return of volume, but for every sector that performed well, another was smacked around. Airlines were strong on news of a proposed combination of United Airlines (UAL Quote - Cramer on UAL - Stock Picks) and US Airways (U Quote - Cramer on U - Stock Picks), but the on-line brokers had a hard time after a scathing report from Robertson Stephens. Thursday's Must-Flee S&P
Thursday, things looked to be on solid earth, rather than shifting clay. A steady rotation into technology stocks away from cyclicals, commodities and brokerages was underway, and while the Dow was giving in to weakness, breadth and volume on the Nasdaq was admirable for the first two-day period in, well, a long darn time. That's when the Goldman Sachs news hit. The company has apparently been guiding analyst estimates for its second-quarter earnings downward, and the stock plunged. A few light bulbs went on -- if Goldman is going to see diminished revenue due to a decline in IPO underwritings, rising bond yields and declining trading volume -- well, more than a few brokers are going to be hit with similar problems. And it was lights out for the market, especially the Dow, which gave up 211 points. "You need that follow-up day," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "Without it, it negates the positive action of the prior up day. We had a turnaround day Monday, and a failure on Tuesday; a turnaround Wednesday, and failure to continue on Thursday. That tells me that there remains the possibility that we may be searching out a [buying time], but there's no commitment yet." Traders were certainly not making any commitments Friday. The morning's April durable goods report, which showed a 6.4% decline in durable goods orders, didn't support the market, probably due to the monthly volatility of this economic release. As expected, volume was heavily diminished. Just 725 million shares traded on the New York Stock Exchange, and 1.05 billion shares were exchanged on the Nasdaq Stock Market, one of the lightest days of the year. It was an undistinguished day, punctuated by traders explaining the action as "squaring of positions" for the three-day weekend. Maybe nine years of a bull market is the reason, but people are undeterred. "What's important is, in the next 12 months, will equities be the best performing assets?" says Dwyer. "To be negative now, with the Nasdaq down 2000 points, doesn't make sense. That's what's making me turn bullish." It may well rain all weekend. But it can't rain all the time.
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