The stock market turned Every Which Way But Loose this week, leaving many portfolios smelling like Clyde the orangutan in the 1978 movie of the same name.

The week was notable mainly for some dramatic intraday swings, particularly on Wednesday and Thursday. But the overriding trend was lower as reflected in the performance of broader market averages. The Dow Jones Industrial Average managed to gain 0.7% for the week, but the S&P 500 shed 1.3% and the Nasdaq Composite lost 4.4%.

The holiday-shortened week began with the all-too familiar pattern of stocks falling amid concerns about accounting at companies such as IBM ( IBM), PNC Bank ( PNC) and Circuit City ( CC).

Notably, gold and related stocks -- which previously had provided some shelter for investors -- tumbled as well after the president of Germany's Bundesbank commented on the central bank's plans to sell the yellow metal.

Tuesday's session was noteworthy in that stocks drifted in the same direction (lower) throughout the session, a trend that markedly changed in the days that followed.

Amid revelations of a government investigation into the accounting at Computer Associates ( CA) and a Lehman Brothers downgrade of America Online ( AOL), broad market averages struggled for much of Wednesday's session, before mounting a remarkable late-day rally.

Multiple theories were given to explain Wednesday's reversal , although no clear catalyst emerged. But any hopes for a sustainable rally were dashed Thursday, which proved to be a mirror image of Wednesday's session as major averages failed to sustain early gains and careened lower into the close.

Perhaps the only solace in Thursday's session was that the S&P 500 did not breach support at 1080, which represents both its lows of March 2001 and in September prior to the terrorist attacks. Technicians say that was a key to the market's bounce on Friday, while others noted the raised revenue guidance by Xilinx ( XLNX) provided fundamental support for the beleaguered tech sector.

Whipsawed and Weary

Friday's session probably added to, rather than assuaged, investors' struggles to grasp what, exactly, is going on in the markets, which continue to befuddle most participants.

"There's still a lot of confusion out there," said Ned Collins, executive vice president of U.S. stocks at Daiwa Securities America. "There's a lack of conviction and you see the volatility that results . Bids aren't deep and offers aren't heavy. The longs are afraid to be long and the shorts afraid to be short."

Due to ongoing questions about the pace of economic recovery and the implications for corporate earnings, accounting problems, rising concerns about Wall Street's role in Enron's fiasco -- focused particularly on J.P. Morgan ( JPM) -- Collins surmised "there's a lot more work before we're free and clear."

Against that backdrop, "for an institutional salesman to pound the table and tell a client 'you gotta own this stock today and in size' is a difficult phone call to make," he said. Presumably, it's an even trickier proposition for retail salesmen.

In stark contrast to the stock market, the news on the economic front is "unambiguously better," according to Donald Straszheim, president of Straszheim Global Advisors in Westwood, Calif.

This week's data included hopeful reports on housing starts, the consumer price index, the trade balance, the Philadelphia Fed's index, and the index of leading economic indicators.

The numbers aren't great but "we know recessions come and go and so I wouldn't be surprised to see earnings advance for a few years," Straszheim said. "We're coming off the bottom."

Similarly, the "broad damage" caused by accounting concerns is "similarly behind us," he suggested. "Where accounting trickery is found, stocks will still get punished severely but I don't think we're going to all of a sudden find that five Dow components are" guilty of irregularities.

The problem with that kind of analysis is that many people interpret it to mean a "V-shaped" market recovery is likely to follow, which is not at all what the economist and market watcher is forecasting.

"With price-to-earning ratios like they are now, I don't think that's realistic," he said of the V-shaped scenario. "What it looks like's happening is people find something they like, it goes up for a while, and then they're going to be more likely to rotate and sell their winners because everybody is aware P/Es overall are quite high."

Much to the chagrin of those invested in index funds, he argued it's a "stock-picker's market," and one in which "people are going to be quicker to take the money and run for the next several years."

Collins made a similar point, noting that, for example, while Cisco ( CSCO) has fallen more than 80% from its peak, the stock still trades at more than 40 times projected earnings for the next year.

Like Straszheim, he forecast the market could struggle for an extended period, recalling the "Chinese water torture" of the period from 1974 to 1982.

"People have hoped for, wished for, this V-type bottom because that's what we had in the 1990s," he said. "Then, if you didn't buy the dips you were penalized. Now you buy the dips and you're carrying the load," which seems to be getting heavier by the week.
JRaess: 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. JRaess: 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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