The week ahead: The stock market needs a rescue, too

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From Times staff writer Walter Hamilton:

If the U.S. stock market gets a bounce today from the Fannie Mae/Freddie Mac rescue, it will come just in the nick of time: After last week’s drubbing, major market indexes are in danger of falling through the lows they reached in mid-July.

The Dow Jones industrial average edged up 32.73 points, or 0.3%, to 11,220.96 on Friday, but was down 2.8% for the week. That left it 2.4% above its summer closing low of 10,962.54 on July 15. The Standard & Poor’s 500 index, at 1,242.31 on Friday, was less than 2.3% above its summer low reached the same day.

Many Wall Street chart-watchers say the market’s internal dynamics have been grim recently. The rally off the July 15 bottom was uninspiring, investor buying demand has steadily dried up and trading volume has swelled on down days.

‘It’s a slow deterioration now,’ said Brian Rauscher, director of portfolio strategy at Brown Bros. Harriman.

The recent rally also has turned the leaders of the second quarter on their heads -- no comfort to investors who have been looking for market trends they can stick with. Of the 10 major industry groups in the S&P 500, energy, utilities and raw materials are the worst performers this quarter -- a complete reversal from the second quarter.

‘It’s been such a turbulent market it’s been hard to glean any sense of direction,’ said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Some analysts say the market needs more pain before it can hope for lasting gains.

On Thursday, when the Dow dived 344 points, trading volume was 90% to the downside -- a fairly rare occurrence that last happened twice during the market’s plunge in June, said Paul Desmond, president of stock research firm Lowry Research Corp. in North Palm Beach, Fla.

Desmond thinks stocks need a few more batterings like that to clean out the ranks of sellers who emerge each time the market tries to move up.

‘If we don’t get this done the bear market is just going to linger on,’ he said.