Weekly Stock Market Re-cap

The U.S. Stock Market ended a tumultuous week on an up note, in spite of the fact that Congress did not pass the Bush Administration’s financial bailout plan. The Dow finished with a triple digit gain, although the Nasdaq indexes finished modestly lower.

In consideration of the bad news that came out on Friday, the market’s performance was nothing short of miraculous. Overnight Thursday, the government forced a buyout of Washington Mutual, the largest bank failure in U.S. history. J.P. Morgan ended up buying the bank for a mere $1.9 billion. It was also reported the 2nd Quarter GDP was actually a bit weaker than the 3.3% growth originally reported. Also, housing data came in very weak for the month of August. And finally, Research in Motion (RIMM), came out with an earnings forecast well below market expectations, which sent the share tumbling nearly 30%, weighing down the tech sector.

Incredibly, the Dow Jones Industrial Average and S&P 500 managed to post decent gains on Friday, while the Nasdaq tried hard to claw its way back to breakeven, falling a little short. Does this mean we no longer need the Bush bailout plan? The public remains skeptical, and we continue to hear both sides of the argument. Credit markets have clearly frozen up, so some sort of plan is required. The question is, does it need to be this big government bailout, or is it something the private sector can fix with some creative solutions? And, does it really need to happen this quickly in order to avoid Armageddon in the financial markets on Monday?

The end result of the week is that the major averages closed lower than the previous week, but still well above last week’s lows. The trend is down, but we could possibly be set up for a test of last week’s lows and a rally from there. A number of indicators suggest there is some divergence at last week’s low. A re-test and bounce off of that low will confirm that.

In other markets, Treasury futures prices managed to rally a bit on Friday due to the weak economic data. The Dollar managed to hold relatively steady on Friday, as it was generally mixed against the major currencies. In the energy markets, the focus seems to be returning to global economic weakness as the driving force behind price direction. Crude oil closed down a bit over a dollar, while Natural Gas appears to be resuming its downtrend.

Gold and Silver prices were up modestly on Friday, but were up significantly for the week. These markets are in neutral after significant rallies off of their lows in the last couple of weeks due to this current financial crisis. A big bail out plan that suggests inflation is in our future down the road will move these markets higher.

In the grain markets, it appears that Corn, Soybeans and Wheat are all ready to resume their downtrends as it appears that the current crop situations, and supply and demand factors indicate that lower prices are in order. Most other commodity prices appear to be heading lower as well, with the exception of Cocoa and Sugar.

Stay flexible!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com