The toreadors ran Wall Street this week, getting the bulls to dance under the hot sun of summer earnings before leading them toward slaughter with oil's sharp sword.
And yet, bulls were still showing signs of life before the weekend -- signs that the fight may continue next week. While the
finished lower for the week, the
Dow Jones Industrial Average
still held on to some gains.
Everything was seemingly going well earlier in the week after the
delivered its widely expected 10th straight rate hike, and didn't ring the alarm bells on inflation even after a strong July employment report.
This, and other inflation-free economic indications, helped bonds stage somewhat of comeback rally this week, while their yields pulled back sharply. The yield of the benchmark 10-year bond finished at 4.24% compared with 4.39% last Friday.
Higher bond yields helped stocks withstand surging oil prices, notably on Thursday. But by Friday, the theory that what's good for bonds is also good for stocks didn't hold.
Economic -- and profit -- growth appeared at risk as crude oil prices briefly topped $67 before closing at a new record high of $66.86 per barrel on Nymex Friday.
It didn't help that economic reports that day showed surging crude oil prices had helped widen the U.S. trade deficit in June, lifted import prices in July and dampened consumer confidence in August.
And so by Friday, the Dow fell 85.58, or 0.8%, to 10,600.31 (it went as low as 10,568.30 at one point). The S&P 500 dropped 7.42 points, or 0.6%, to 1230.39, while the Nasdaq, hit by a disappointing outlook from
, fell 17.65 points, or 0.81%, to 2156.90.
The Friday drop still wiped out the gains of the previous session, when bulls had held strong against oil at new highs. That left the major indices mixed and little changed for the week. Both the Dow and the S&P held on to a 0.3% gain, while the Nasdaq dipped 0.9%.
That the Dow gained on the week is a technical signs that helps convince Marc Pado, market strategist at Cantor Fitzgerald, that stocks will continue declining next week.
On the upswings, and there were several this week, the Dow did lead the gains, while the S&P 500 and especially the Nasdaq, were left trailing behind. Since hitting a four-year high of 2218 on Aug. 2, representing a nice 16.5% gain since its April lows, the Nasdaq has been underperforming the major indices.
Another market leader, the Russel 2000 Index of small-cap stocks, also fell this week, also continuing its downtrend since touching a high in early August.
Looking at the sectors that rose this week, they were mostly of the defensive type -- such as health care and nursing homes -- while the "growth" sectors that rose were energy and basic materials. The mostly rose as crude oil was surging.
Bulls still looking to ride a price uptrend also piled money into inflation beneficiaries such as gold, which rose to an eight-month high.
"As a chartist, I don't like seeing to see the sectors that have led the market higher since the April lows not be part of the move higher," says Pado.
The Nasdaq, now 61 points, or 2.8%, below its Aug. 2 high, "is also one of those cracks" that tell the strategist that stock averages are going to head lower soon.
As seen on Friday, it seemed that bulls still want to test some higher levels on the Dow and the S&P 500, though.
According to famous market technician and
contributor Dick Arms, there is little doubt that the market is into overbought territory. But it would have taken a bullish number on Friday to fully take us into overbought territory, before heading out lower.
"It is a nervous market that seems unable to hold on to gains," he wrote on
sister site. "In addition, we have been seeing heavy volume on down days and lighter volume on up days."
For Cantor's Pado, bulls will likely make a last-ditch attempt on the upside next week before fading through the rest of August. With more traders likely to be on vacation next week, low volumes will make it easier for a downside, he says.
As for the catalysts, Pado's favorite candidate is no surprise. "How about oil at $66?," he suggests, adding that the Energy Department report on crude oil and gasoline inventories on Wednesday would be ideal for a selloff.
To view Gregg Greenberg's video take on today's market, click here
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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