The Dow Jones closed down for the sixth consecutive week, ending with another solid decline on Friday. The S&P 500 had the worst week among the major averages, due to its heavy weighting with financial stocks, which lead the market lower. Otherwise, the Nasdaq and ND100 had minor losses for the week, while the Russell 2000 and even the Dow Transports closed up for the week. There clearly appears to be cash flowing into some techs and small cap stocks.
Stocks were spooked primarily on Friday by rumors that Fannie Mae and Freddie Mac would be allowed by the Federal Reserve and Treasury to fail, which would worsen the residential real estate crisis. This sent the market into a tailspin. Later in the day, it was rumored that the Federal Reserve would open the discount window to both companies, but then that was denied after the markets closed. Stocks closed well off of the lows Friday. Sunday, it was officially announced that the discount window would indeed be open to both companies, and Treasury Secretary Paulson indicated that the government would extend its line of credit to both companies as well.
Further pressure was put on the stock market this week by a big two-day rally in Crude Oil, which pushed to new all time highs, before pulling back a bit on Friday. Dollar weakness all week also did not help the market. The Dollar pushed to new two-month lows on Friday, and is just over 1% above its 40 year lows seen in April. With all this turmoil in the markets on Friday, even Treasuries took a big hit, wiping out its rally of the previous four days. The 10 Year Note experienced its biggest one day decline in months.
Based on today’s news regarding Fannie Mae and Freddie Mac, it would be no surprise to some sort of rally early on Monday. Whether this leads to something more significant, only time will tell.
Good Trading!
Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com
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