Stocks End Week on Down Note, Gold Surges

U.S. stocks closed lower on Friday in a relatively volatile session as traders expressed little confidence in the Obama administrations current plans to turn around the economy, financial system and real estate market. In the afternoon, the Dow was down over 200 points shortly after Senator Dodd suggested that some banks may face nationalization. A while later, the administration indicated that this is not on the table presently, and this sparked a rally that allowed the Dow to crawl all the way back to breakeven. However, the weight of the market fell on itself in the last hour, and the Dow closed lower by 100 points.

The Dow and the Russell 2000 were the weakest of the major averages I follow. The Nasdaq 100, lead by big cap tech stocks, actually finished higher. In the face of recent leg down, I've been impressed by the ability of Google and a few other tech stocks to hold up during the current downtrend.

So far, it is clear that traders and investors are not convinced that the Obama stimulus plan, the Obama housing plan, and the Geithner TARP plan will lead to a rebound in the economy anytime soon. Most traders, particularly those in the bond pits, revile the current plans as hints of socialism. No one is confident in the governments ability to run a bank, since our government (and most for that matter) is incapable of balancing its own check book. Traders also do not like the idea of limited pay for executives in banks that receive TARP money. The premise there being that such a bank will be unable to attract top talent, talent needed to turn around a bank in financial difficulty.

So, we head into another week with Main Street sentiment quite low, and Wall Street sentiment still anticipating that a sharp rally is imminent. As such, it is my view that until we start seeing some positive news, or less negative news, the market will continue to leak oil, SLOWLY. The trend is down, so if you are short the market, stay that way until the market tells you that the path of least resistance is no longer to the downside.

In other markets, Gold and Silver once again surged to new highs, as these are basically the two new world currencies. These markets are both extended, and a few people are calling for much higher prices down the road, but these views are balanced out by those that feel the stock market is due for a rally. Most other commodities were flat to lower on Friday. Treasuries managed to rally in the face of a weak stock market. There was some volatility in the Forex markets in the afternoon, reflecting the Dodd comments and the White House comments. Overall, the Dollar was lower on the day.

Look for more announcements out of Washington over the weekend or early next week as the government attempts to calm fears. At the moment though, unless something big comes out of DC, the market will continue to head lower.

Scott Cole