Choppy Waters

Any canoeist or kayaker worth his or her oars knows the difficulty in navigating choppy water. One must constantly be making adjustments, small moves here, quick moves there, in a never-ending battle to keep the craft on track and moving in the proper direction.

Such was the situation of the stock market on Friday as investors moved variously in and out of stocks, monitored positions and eventually found a path home to a higher close. But, it wasn't without mishap as on the Dow, for instance, nearly half of the day's gain was garnered in the final fifteen minutes. That's what kind of a day it was, and, to a large degree, how the week was shaped as well.

Dow 14,093.08 +77.96; NASDAQ 2,805.68 +33.48; S&P 500 1,561.80 +7.39; NYSE Composite 10,301.49 +56.24

For the week, the Dow gained a full 26 points, less than the entire move in Friday's last 15 minutes. (Hear the sound of one hand clapping.) Hurrah! Cheers!

If this is what today masquerades as some kind of exuberance, either rational or otherwise, many are not impressed. On the cusp of the biggest week of earnings reports for the quarter, the market displayed a tangible sense of caution.

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Clearly, investors are not confident about corporate America's ability to deliver quality profits.

The one notable company reporting on Friday was General Electric, which, despite reporting stronger than expected profits was pounded down 0.57, to 41.03, after releasing a strong quarterly, with profits rising 14% over the same period a year ago. Apparently, this is the quarter of higher than high hopes and one in which traders will lock in profits immediately after reports, good, bad or otherwise.

Concerning yesterday's shakeout, my skeptical mind was on the right track. The melt-away apparently involved financial giant Citigroup, which announced a major shake-up Thursday evening. The bank said it would combine two units into one division to be led by former Morgan Stanley executive and Vikram Pandit. The likely cause of yesterday's massive, volume-driven selloff, was a rumor that CEO Charles Prince was about to step down. The rumor proved false, re-igniting the rally on Friday morning, albeit without as much gusto. Volume Friday more resembled a sleepy summer day than a brisk earnings season session.

On the day, advancing issues outstripped decliners by an 8-5 margin. The surprise set-up for Monday, when earnings begin to flow with increasing rapidity, was in the new highs-new lows reading. New highs checked in at a paltry 197, to 133 new lows, the closest this gap has been in many weeks. This solitary indicator shows how nervous the market is, how quickly investors will close out positions and that there is little follow-through or confidence in any rally.

Next week clearly - especially with all of the largest financial companies, such as Citigroup, JP Morgan and Bank of America reporting - is indicating a rough road and quite possibly the beginning of a serious correction in US equities.

Elsewhere, commodities moved in opposite directions, though, as usual, we reiterate that oil prices are not reflective of any kind of reality, being largely manipulated by major players in the futures market. Crude rose 61 cents to $83.69, and whether or not that's a record, it's sure close and far too high to be sustainable for long.

Gold and silver continued to back off, though slightly, reaffirming the idea that credit conditions are still troublingly tight and various financial concerns are selling precious metals to raise cash. It wouldn't be the worst one-line analysis of the metals and may be much closer to the truth than even I would like to admit.

Next week, roughly a third of the S&P 500 will be reporting earnings and it's likely to be raucous. Any misses will result in severe punishment. Options players should be especially attuned to the opportunities present as Friday is expiration day for October options.