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September lived up to its well-earned reputation this week as the cruelest month for shares, as a combination of fundamental and technical developments sent major averages sharply lower. The extent of declines convinced some observers that the stock market's rally from its March lows has ended, although that remains debatable.

For the week, the

Dow Jones Industrial Average

fell 3.4% and the

S&P 500

lost 3.8%, their biggest weekly drops in six months, while the

Nasdaq Composite

shed 6%, its worst week in 17 months.

On Friday, the Dow dipped 0.3% to 9313.08 while the S&P fell 0.6% to 996.96, closing below its simple 50-day moving average of 1001.58, following the Dow's example from

Thursday. The S&P also closed below the psychologically important 1000 level, while the Comp fell 1.4% to 1792.10, closing below 1800 for the first time since Aug. 27.

Coming at the end of such a negative week, the session provided more fodder for the skeptics.

"Stock market sentiment and technical dynamics could become almost as distressed asthey were last year in late September/early October,

and the decline could prevail well into November," said Bob Hoye, editor of Institutional Advisors, a Vancouver, Canada-based independent forecasting firm. "Another phase of heavy liquidation is possible."

In contrast to previous declines, this week's losses occurred on heavy volume -- notably Wednesday -- and amid flagging breadth. On Friday, declining stocks led advancers 19 to 12 in Big Board trading, where nearly 1.3 billion shares traded. Over 1.7 billion shares traded over the counter, where losers led 23 to 8.

Hoye offered "initial targets" for the correction of 1600 for the Comp and 1197 for the Nasdaq 100, which ended the week down 6% at 1309.30. Other technicians suggest the S&P has downside risk to 962, its intraday low on July 1 and a level retested in early August.

Skeptics were certainly enthused not just by the market's direction this week, but by developments such as Argentina's missed debt payment and the Federal Home Loan Bank of New York's suspending its dividend payment.

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This is "the stuff of mounting stress in the credit markets," Hoye wrote, alluding to ongoing concerns about fallout from this summer's bond market tumult. In separate but related news,

Freddie Mac


again delayed the release of its restated financial results.

Although bullishness in's

Investors Intelligence

poll rose to 57.4% this week, it's notable bears were rejoicing after just a few days of declines following six months of largely uninterrupted gains. Several traders noted that with "everyone" convinced a significant correction is under way, contrarians would bet the decline won't be as bad as this week suggested.

On the other hand, very few market participants seem fearful that anything worse than a "normal correction" will ensue. That said, I

still contend that the most surprising scenario would be if the market avoids "major upheaval" in the historically troubling late September/early October period, then rallied again (perhaps to new highs), only to suffer a sharper decline later in the year.

Down by Law and Deed

Stocks got off to a bad start this week amid concerns about a weakening dollar. A U.S.-sponsored directive by the G7 declaring the desirability of "more flexibility in exchange rates" sent the greenback reeling Monday, especially vs. the yen, which reached its highest levels since Dec. 2000 on Tuesday. For the week, the dollar fell 2.2% vs. the yen and 1.9% vs. the euro, while the Dollar Index shed 1.2%.

The averages recovered from the

dollar-inspired decline on Tuesday, but any confidence among traders was quickly undermined. A surprise production cut by OPEC sent oil prices surging and shares reeling again on Wednesday. The broader selling continued Thursday following an unexpected decline in August durable goods orders and amid the S&P's inability to hold key support at 1005.

For the week, oil prices rose 4.2% to $28.16 per barrel but never exceeded $30, a level above which they traded throughout the summer. But

OPEC's surprise raised concerns about a negative effect on consumer spending and confidence, and also demonstrated the stock market's vulnerability after recent gains.

"At $32

per barrel no one worried, but at $28 -- and with OPEC cutting production -- folks are worried" about oil,

contributor Helene Meisler observed midweek. "Remember: It's not the news but the market's reaction to the news that matters."

The stock market's negative reaction reflected not only legitimate surprise at OPEC's announcement, but also seasonal factors, to which some attributed the bulk of this week's declines. With the month- and quarter-end approaching, as well as the fiscal year-end for many mutual funds on Oct. 31, many portfolio managers were looking for excuses to sell and lock in gains (and/or for tax-related reasons) this week.

Notably, some of the worst declines hit momentum favorites. For the week, the Amex Biotech Index fell 9.3% while the Philadelphia Stock Exchange Semiconductor Index shed 7.8%. Among individual names, Chinese Internet play

(SOHU) - Get Ltd. Report

fell 21% for the week.

Gold stocks, another favorite of some momentum traders, also reversed. The Philadelphia Stock Exchange Gold and Silver Index shed 6% this week despite hitting a 52-week high intraday Thursday. Similarly, gold traded above $394 per ounce intraday Thursday, its highest level in seven years, before faltering to end the week down 0.3% at $381.80 per ounce.

Benefiting from the flight from equities, Treasuries overcame Monday's setback and posted a strong performance. For the week, the yield on the 10-year note fell 17 basis points to 4%, its lowest level since mid-July.

The benchmark note rose 21/32 Friday despite a stronger-than-expected final revision to second-quarter GDP. A downward revision to the University of Michigan's September consumer confidence index underscored concerns about future economic activity.

On Friday, the Economic Cycle Research Institute said its weekly leading index fell to 128.8 for the week ended Sept. 19 vs. a downwardly revised 129.3 the prior week. However, the index's four-week growth rate rose to 12.5% from 12.4%, indicating "the recovery, however abnormal in terms of job growth, has built up a head of steam," according to ECRI managing director Lakshman Achuthan.

The recovery may have a head of steam, but this week left many wondering if the starch has gone out of the stock market's comeback.

Tune-In TaskMaster

I'll be back on WABC radio's "Batchelor & Alexander" show Friday night/Saturday morning, around 9:15 p.m. PDT/12:15 a.m. EDT. The show is nationally syndicated, so check for local listings or Webcast options.

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

Aaron L. Task.