Friday's relatively subdued session was a merciful ending to a week that saw a lot of sound and fury signifying ... something, but nobody is quite sure what.

For nimble traders able to profit in volatile times, this week provided multiple opportunities as emotions -- and major averages -- swung dramatically from misery to joy seemingly on a day-to-day basis, and even on an intraday basis. The drama made the week less pleasant for investors looking for clarity on the market's near-term direction.

"This is a pure trading market," said Sam Ginzburg, senior managing director of equity trading at Gruntal. "There's a lot of fast money chasing a lot of the same ideas and when you get that you typically have more violent moves."

The resulting whipsaw effect resulted in a mixed performance for major averages this week: the Dow Jones Industrial Average rose 1% while the S&P 500 slid 1% and the Nasdaq Composite shed 2.1%.

Much of the week's volatility was spurred by ongoing concerns about accounting issues and other rumors, which on Tuesday , particularly, weighed on a number of firms, including Tyco ( TYC), Cendant ( CD), WorldCom ( WCOM) and PNC Financial ( PNC).

But the week's economic data also contributed to investors' indecision, and Friday's economic data certainly fit the trend.

  • The unemployment rate unexpectedly fell to 5.6% in January from 5.8%, belying expectations for a rise to 5.9%. Still, 89,000 nonfarm payrolls were lost, the fewest in five months but more than the 50,000 expected by economists.
  • The Institute for Supply Management manufacturing index rose to 49.9 from 48.1 in December, but failed to rise to 50 as expected, the level indicating break-even between expansion and contraction in the sector.
  • The University of Michigan's consumer sentiment index for January was revised to 93 from an advanced reading of 94.2, but still posted a solid gain from December's 88.8.
  • "The data is fodder for bulls and bears," said Tony Crescenzi, chief bond market strategist at Miller Tabak.

    On the employment front, bulls obviously will be encouraged by the drop in the headline jobless rate and the rise in the diffusion index, which measures the percentage of companies hiring workers, he wrote. But bears can point to the continued loss in payrolls, and the drop in the workweek and aggregate hours, as well as flat wages.

    The latter suggests that personal income growth was slow last month, Crescenzi mused. In December, personal incomes rose a stronger-than-expected 0.4%, the government reported on Thursday.

    The ISM's report was "more universally positive" even if it was a tick below expectations, Crescenzi surmised, noting that the new orders index was the lone declining index within the overall report. New orders still remain at the highest level of the nine subindices of the ISM's survey.

    Noting the stronger-than-expected advance report on fourth-quarter GDP, reported Tuesday, Crescenzi concluded "the bull case is stronger" regarding the meaning of the week's data and expectations for an economic rebound. In a similar light, the Economic Cycle Research Institute declared this week that the recovery is at hand .

    Those calls jibe with the Federal Reserve's decision Wednesday to leave interest rates unchanged. "The outlook for economic recovery has become more promising," the central bank said in its statement .

    Despite declaring the risks remain weighted toward further weakness, the Fed's decision to end its year-long easing cycle had market players already looking ahead to when it will begin tightening again.

    Fed funds futures are pricing in 50% odds the Fed will tighten at its May 7 meeting.

    "We believe that the easing cycle is over and expect the Fed's next move to be a tightening by midyear, with the funds rate reaching at least 3.5% by year-end," Mickey Levy, chief economist at Banc of America Securities commented on Friday.

    Such expectations provide another reason why better-than-expected economic data failed to inspire equities this week.

    You Say You Want a Resolution

    As the week progressed, arguments were made that the recent action was a harbinger of both huge losses and big gains.

    The bears say Tuesday's wicked selloff brought major averages below key technical support levels and showed how panicked investors and traders are about the possibility other Enrons ( ENRNQ) are out there.

    Conversely, optimists believe Wednesday's intraday reversal was technically significant and note the best time to buy historically has been when fear is on the rise. (Yes, that's even though the Chicago Board Options Exchange Volatility Index quickly reversed after spiking midweek; after trading as high as 29.92 on Wednesday morning, the VIX ended the week at 22.87.)

    "You can make a strong case for both sides," said Gruntal's Ginzburg. "It's a lot easier for me to see the market getting smacked, as I don't see the catalyst to drive it" higher. Also, there remain many potential "land mines," such as another terrorist attack or setback on the war front, which could spook investors once more.

    Most people on Wall Street are in the downside camp, the trader said; meanwhile, bearish sentiment rose to 26.8% from 23.7% while bullishness fell to 51.6% from 52.6% in the latest Investor's Intelligence survey.

    "More people want that (the downside) for whatever reason," be it because they're short or looking for more attractive valuations, he said. "Having said that, the last four or five times more people have wanted it to go down it finds a reason to go up strongly."

    Ginzburg's comment recalled the old saw about how the market usually does what's least convenient for the majority.

    Actually, given the overriding sense that a big move is coming -- in either direction -- a resumption of somewhat subdued, sideways action would be the least convenient for the majority right now.
    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.

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