Friday Market Freak Out

Following an unexpectedly strong GDP report and a consequent 200 point rally in the Dow, the blue chip index took a nosedive on Friday, taking out Thursday's gain plus another 50 points for good measure; which begs the question, are investor's taking profits, or simply unconvinced about the data?

To answer the question, consider the following scenario.

Pretend for a minute that it's Wednesday, the day before GDP is due to be released. You know that the Dow has moved lower by 209 points from Monday's open to Wednesday's close, with the market anticipating the GDP report, and with Goldman Sachs reducing their forecast to 2.7%. Surely a good number on Thursday would wipe out all of the previous days' losses, and convince skeptics that the market's huge rally lies on a solid foundation.

Now consider the following facts:

1)The market did make a huge move post GDP results, but fell 9 points short of making up for the losses clocked over the past 3 days, failing to even penetrate the 10,000 mark.

2)Volume on Thursday's rally was lighter than on Friday's decline. In other words, more bears than bulls.

3)It's been 13 days since the Dow broke, and closed above 10,000. However, the index has only been able to close above that (much hyped) level on 5 of those days; which makes the inability of Thursday's GDP report to provide sufficient catalyst to drive the market back above the mark even more telling.

4)As we mentioned in our presentation ,GDP growth without Cash for Clunkers was only 1.84%.

Putting everything together, it seems that investors have started to really doubt the market's ability to continue its phenomenal run, with the bears back out in force.

-Group 2