A dramatic week marked by a continued search for the elusive "bottom" ended with stock proxies lower and traders' nerves frayed.

The Dow Jones Industrial Average lost 72 points, or 0.7% to 10,215.22. The S&P 500 dropped 7 points, or 0.5%, and the Nasdaq Composite lost 22 points, or 1%, despite riding Google's ( GOOG) coattails higher on Friday.

At the beginning of the week, investors were full of hope that earnings -- especially from the big guns of technology -- would help confirm a bounce from the five-month lows hit last week. But while some earnings were pleasing, others were very disappointing. Meanwhile, a slide in energy shares overshadowed any upside from crude oil's decline as Refco's ( RFX) unraveling continued into options expiration.

There wasn't much fun for tech shares early in the week, especially after Intel's ( INTC) guidance disappointed Tuesday after the close.

Yet the subsequent downdraft in tech shares -- and the broader market -- led to a Wednesday afternoon reversal that lifted the broader averages sharply higher. Even Intel finished near flat levels that day, leading trend watchers to believe that concerns over future earnings were finally priced into shares. Hopes ran high that the bounce from five-week lows that began last Friday finally had enough momentum to carry the market higher.

But these hopes were thwarted Thursday after disappointing results from eBay ( EBAY) and a further slide in energy shares.

Facing the Contradictions

On balance, the week revealed an absence of sector leadership, with the energy sector remaining down for the count.

On Friday, for instance, Google came to the rescue of tech shares, after posting stronger-than-expected earnings Thursday after the close. That helped the Nasdaq gain 14.1 points, or 0.68%, at 2082.21 on Friday.

But the Dow sank 65.88 points, or 0.64%, to 10,215.22, weighed down by a 9% drop from Caterpillar ( CAT), whose earnings were hit by rising costs.

Meanwhile, the S&P 500 finished up 1.79 points, or 0.15%, at 1179.59. The broad index was helped as energy shares rebounded after sliding all week.

According to market guru Woody Dorsey, founder of Market Semiotics, the market is finally facing its contradictions over energy, which has been both this year's uncontested market leader but also the reason why inflation fears have taken the market to the lows of last week.

Even as crude oil prices fell this week -- to an inch above $60 per barrel Friday -- this has not helped the stock market, especially with energy shares correcting. "Essentially, the behavior of this market is one of capital withdrawal, a sign that we're in a bearish environment," Dorsey says.

The Amex Oil Index slid 7% from Monday's through Thursday's close, with selling accelerating ahead of options expirations on Friday. Some of the oil sector's biggest names, such as Exxon Mobil ( XOM), Chevron ( CVX), Occidental Petroleum ( OXY) all fell more than 6% during those three days alone. They were back up on Friday, however, as the Amex Oil Index bounced back 1.2%.

Rumors swirled around all week that the downdraft in energy was linked to liquidations from scandal-tainted futures brokerage Refco, which filed for bankruptcy early in the week.

Regardless, Dorsey says crude oil prices should continue correcting next week if Hurricane Wilma spares sensitive energy operations in the Gulf Coast this weekend, as is expected. This, in turn, should help major indices higher.

Dorsey sticks to a forecast -- reported here -- that the stock market will continue moving higher for the next two to three weeks. "But this is more likely to be a 2%-4% move in the S&P over 10-15 days, as opposed to the 10%-12% gain that some expect over the next couple of months."

The main reason for the shaky knees of investors recently, and why the bounce won't be very long-lived, is that "inflation as a financial reality has finally been recognized," Dorsey says. "This is now more important for the stock market per se than the fact that oil and gasoline prices are correcting."

Inflation fears were revived Tuesday upon news that the producer price index had soared in September, and again on Thursday, after news that the prices paid components of the Philadelphia Fed's index of business activity also surged in October.

Meanwhile, Federal Reserve speakers kept up their hawkish rhetoric throughout a week characterized by dramatic moments and, ultimately, more disappointment for the bulls.

As originally published, this story contained an error. Please see Corrections and Clarifications.

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; click here to send him an email.

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