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What a Week: Star-Crossed Love

Wall Street's love affair with Google gets a test, while old flame Intel disappoints. Also, guru Woody Dorsey weighs in.
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Wall Street's love affair with


(GOOG) - Get Alphabet Inc. Class C Report

showed its stormy side this week. Many a tear had to fall before the two sides finally made up.

CFO George Reyes' candid statement Tuesday that "our growth rates are slowing" sparked a selloff in Google's stock and the broader market. It took a corrective statement from Google and an analyst conference to reassure Wall Street that the Internet giant's prospects are still bright.

In the end, both Wall Street's unrealistic expectations and Google's unconventional habits were both downgraded, perhaps boosting the chances the parties will forge a more lasting union. By the end of the week, the stock was slightly above where it closed last Friday.

Meanwhile, former flame


(INTC) - Get Intel Corporation Report

also made the headlines at the start and end of the week. On Monday, JMP Securities upgraded the stock, citing the potential benefits of


(AAPL) - Get Apple Inc. Report

new notebooks. More momentum in chip stocks took it higher through Wednesday.

The good times ended Friday, when Intel warned that its first-quarter results would fall short of its previous forecasts, making this the second consecutive quarter the chip giant has lowered guidance. It dropped 0.8% on Friday.

Interestingly, the rest of the tech sector -- and the broad market -- held up well for most of Friday. News that the services sector of the economy hummed along with the manufacturing sector helped relieve anxiety over Intel.

Still, sellers materialized by the close. The

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Nasdaq Composite

fell 0.4% to 2302. The

Dow Jones Industrial Average

dropped 3.9 points, or 0.04%, to 11,021, and the

S&P 500

eased 0.15% to 1287.

For the week, the Dow finished down 40 points, or 0.4%, at 11,021. The S&P lost 2 points, or 0.2%. The Nasdaq reversed the trend, rising 0.7%.

Besides tech on the Nasdaq, the Russell 2000 index of small-cap stocks also finished in the black this week, rising 0.3%.

With small-caps and techs in the lead, it seemed Wall Street was set to reverse February's trend, which saw large-caps and industrials stocks gaining.

A spate of strong economic news over the past month has convinced many that the economy is rebounding from weakness in the fourth quarter. Even if that means further rate hikes from the

Federal Reserve

, investors seem to embrace the notion that growth can continue and that the relative safety offered by large-caps is therefore not needed -- at least for now.

"This is all about expectations that we're seeing an economic rebound from weak growth in the fourth quarter," says Ken Tower, chief market strategist at CyberTrader.

This, he says, is also helping investors digest higher bond yields for the moment. The benchmark 10-year Treasury bond has sold off this week, with its yield rising from 4.5% last week to 4.68% by Friday's close. Bonds were hit by signs the Bank of Japan is poised to start unraveling its five-year-old policy of keeping interest rates at zero. Meanwhile, the European Central Bank raised its key rate to 2.5% on Thursday and signaled more hikes were on the way.

With central banks the world over removing liquidity from the global financial system, some turmoil could be felt in all asset classes that have benefited from generous monetary policies over the past few years,

as mentioned here.

That includes pretty much everything from commodities and housing to stocks and bonds.

But according to market guru Woody Dorsey, the founder of Market Semiotics, stocks are going to suffer more than commodities, which remain in a long-term bull market as part of a "global asset grab." Oil could very well stay above $60 per barrel and gold could top $600 this year, on the way to higher levels in coming years.

U.S. stocks, however, saw their bull market end in 2000, when the S&P 500 closed at an all-time high of 1527, the guru says. The post tech-bubble recovery of the past few years has brought back the S&P to a "recovery" high of 1294 on Jan. 11 and this past Monday, but that level is unlikely to be tested again this year, Dorsey says.

Spring Break

For many college students across the country, spring break is the time to binge. Maybe Wall Street investors will want to join them this year.

That's because the market's run from seasonal lows hit in October 2005 is about to end, according to Dorsey. A pullback that could shave anywhere between 6% to 12% off the S&P 500 index (which would qualify as a correction by some yardsticks) is in its early stages, and should really become more obvious within four to five trading sessions, he says.

Dorsey, who'll be making the media rounds next week to share his forecast, says he's already bracing for questions about why the downturn will happen.

"The truth is that there's no reason; market's aren't rational," he says. "The interesting thing is, people focus on bullish and bearish calls, but you always have these seasonal corrections happening and this will be one of them."

Dorsey is already calling the upcoming correction the spring break. Last year, there was what Dorsey called the April "avalanche," and in October, the fall "fall," both of which he predicted in advance. Both also made lows that provided trading opportunities.

This time, however, the move isn't necessarily going to be a good buying opportunity -- unless the correction is more of the 12% kind -- because Dorsey predicts at least several of these corrections throughout the year.

Part of the rationalization process for the downward tilt this year will be that markets worldwide might be faced both with inflation and monetary policy-tightening, which are "corrective influences," Dorsey says.

And no, he doesn't believe Google will come back this year to its all-time high of $471, reached on Jan.11. But then again, given the general downward tilt, Wall Street probably won't hold it against its favorite Internet stock.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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