What a Week: A Heartbreaker for Those Seeking a Sign - TheStreet

Tom Petty was right: The waiting really is the hardest part.

The rocker was probably waiting for some woman -- it's hard to say as his lyrics are sometimes indecipherable. But I am sure that many traders have been waiting, for some time now, for a decipherable break in market action -- either up or down.

Stock proxies continue lower but major averages haven't experienced the kind of selling velocity some have hoped to see, believing it would suggest the bear market has climaxed.

For the holiday-shortened week, the

Dow Jones Industrial Average

fell 1.8%, the

S&P 500

lost 1.5% and the

Nasdaq Composite

shed 2.7%. For the month, the Dow fell 0.2%, the S&P 0.9%, and the Comp 4.3%.

Market participants were braced for some capitulation on Thursday, as the Dow approached its lows of early May around 9800. But instead of breaking through that level and sparking additional selling, the Dow

rallied, with broader market averages following suit.

However, those emboldened by Thursday's reversal were left wanting by Friday's action, which saw major averages fail to sustain

early gains sparked by strong economic data. After trading as high as 10,042.26, the Dow closed up 0.1% to 9925.25, while the S&P rose 0.2% to 1067.13 after trading as high as 1079.91. The Comp closed down 1% to 1615.65 vs. its intraday best of 1651.47.

Overall, the week was characterized by a steady erosion of prices, rather than a dramatic fall. That has been the pattern for some time now, generating comparisons to 1975-82, as discussed

here. Back then, 1,000 was the watermark for the Dow, which has now spent more than three years flip-flopping around the 10,000 mark, which it crisscrossed again this week.

Looking Back, But Not That Far

Brian Belski, fundamental market strategist at U.S. Bancorp Piper Jaffray, suggested 1990-94 is a more appropriate comparison than the 1975-82 period.

Admitting myriad differences exist between today and that era, Belski suggested that "there's a lot of parallels" within the stock market itself.

In the early 1990s, consumer stocks were king, led by big-caps such as

Coca-Cola

(KO) - Get Report

; tech was reeling from

IBM's

(IBM) - Get Report

woes; health care stocks were dealing with the cloud of the Clinton administration; biotech stocks still were recovering from their bubble in the late 1980s; and financials were struggling following a recession and the S&L scandal, he recalled.

Currently, consumer discretionary is the best performing S&P sector of the past 12 months, Belski noted, led by homebuilders such as

Toll Brothers

(TOL) - Get Report

, which posted stellar earnings on

Tuesday, and restaurant stocks such as

Dave & Busters

(DAB)

, which enjoyed a huge rally at week's end after management decided to take the company private.

Elsewhere, tech is still reeling -- coincidentally, led down on Friday by Big Blue; health care stocks are "looking to re-create themselves" after a difficult period, as indicated by Friday's news about a possible merger between

Bristol-Myers Squibb

(BMY) - Get Report

and

GlaxoSmithKline

(GSK) - Get Report

; biotech stocks are recovering from a bubble; and financials are struggling following a recession and the analyst scandal, the strategist observed.

Looking forward, Belski recommends an underweight position in consumer stocks as he "questions the rate of earnings momentum going forward. It's been very strong, but can it continue?" Also, he believes valuations in the group have become stretched.

The strategist does recommend overweight positions in health care and financials. The former has "quantifiable, discernible" earnings growth -- even if generated through acquisitions, Belski said, forecasting the latter will ultimately benefit from the extremely low fed funds rate, which he doesn't see rising anytime soon.

"The Fed will stay pat in June and have a hard time raising rates in August," he said, unless the stock market, employment and consumer confidence have improved dramatically by then.

Within health care, he prefers equipment makers such as

Medtronic

(MDT) - Get Report

,

Boston Scientific

(BSC)

,

Johnson & Johnson

(JNJ) - Get Report

and

Baxter International

(BAX) - Get Report

vs. the "quintessential pharmaceutical" names.

Among financials, he recommends

Wells Fargo

(WFC) - Get Report

,

Bank of America

(BAC) - Get Report

, and

TCF Financial

(TCB)

, a Minnesota-based bank holding company.

U.S. Bancorp has done underwriting for Boston Scientific.

As for tech, Belski recommends a market weighting. "The good news is bad news is behind us," he said. "The bad news, where does end demand come from?"

Where, indeed?

Brave New World

One significant difference the strategist sees between today and the early 1990s is that while the public's interest in the stock market has waned, it remains higher than it was 10 or 12 years ago -- as

mutual fund inflows suggest. Therefore, "when the market gets going again, I think confidence will

return faster than people think," he said, while forecasting the market won't be able to make much headway until the fourth quarter.

We didn't discuss it but, obviously, a big difference between today and the early 1990s is the geopolitical situation. Fears of more terrorist attacks remain a big concern for market participants, as do rising tensions on the subcontinent. The latter, particularly, was a restraining factor Friday after the State Department urged U.S. citizens in India to leave the country, citing the risk of war with Pakistan.

Against that backdrop gold added to its recent gains, rising another 0.2% Friday, ending the week at a two-year high of $327.50 per ounce.

Conversely,

the dollar has received little benefit from any "flight to safety" trade, in fact, quite the opposite. But the greenback rallied Friday after the Bank of Japan intervened again, selling yen and buying dollars in the open market. After hitting a 15-month low of 122.82 yen intraday Thursday, the dollar rallied to 124.33 yen on Friday. The dollar also gained vs. the euro, which closed the week at 0.9319 cents after hitting a 15-month high of 0.9416 on Thursday.

The point of all this is that it's unlikely gold and the dollar can continue to rally in tandem. If the greenback can regain its footing, U.S. stocks should follow suit, which may prove to be the case short term. But those looking for any longer-term "all-clear" signal on equities likely will be stymied again, as was the case this week.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.