The Dow closed down 36 points to 8,146, the Nasdaq closed up 3 points to 1,756, and the S&P 500 closed down 4 points to end the week at 879.

The Russell 2000, a widely-followed bellwether index for small-cap stocks, closed up almost 2 points to end the week at 481.

Advancers in the small-cap space were lead today by MTR Gaming (Nasdaq:MNTG) up 51% on heavier than average volume. Through its subsidiary organizations, MTR Gaming engages in the racing, gaming, and entertainment businesses. With nearly 3,000 employees, MTR Gaming's properties include Presque Isle Downs & Casino and Mountaineer Casino in West Virginia.

Other small-cap winners include yesterday's leading decliner, American International Group (NYSE:AIG) up 24%; Dana Holding Corp. (NYSE:DAN) up 38% on news of an analyst upgrade based on the firm's improved liquidity situation; and A-Power Energy Generation Systems (Nasdaq:APWR) up 17% on announcing a signed agreement to build an offshore liquefied natural gas facility near Macau, China.

Decliners include Community West Bancshares (Nasdaq:CWBC) down 21%; Cordus Valley Bancorp (Nasdaq:CVLY) down 13%; and Tower Financial Corporation (Nasdaq:TOFC) down 12%.

*****Oil dropped below $60 a barrel as consumer confidence came in below expectations. The belief is that when the American consumer is not confident, he or she does not spend money.  

That's true to an extent. A brief look at airfare and hotel deals will tell you that Americans are not traveling as much as we have in the past. Indeed, just visit Yahoo! News and put in the term "hotel bankruptcy" and you get over 1,100 results with articles highlighting the latest hotel bankruptcies: tough time to be in the hospitality business.  

And retail sales showed clearly that we aren't headed to the mall as much, either. But iPhones seem to be selling pretty well. And foreclosure sales have been going pretty well, too.  

As for oil, the schizophrenic International Energy Agency (IEA) just raised its demand forecast for 2010 by 1.4 million barrels a day. Seems like the IEA was just lowering estimates a couple weeks ago.  

In any event, after taking profits on oil positions in my Top Stock Insights and SmallCapInvestor PRO advisory services, I'll be looking to buy oil stocks again sometime in the next couple of months. That's because demand is only half the story on oil. (Click here to find out more about Top Stock Insights and click here for SmallCapInvestor PRO.) 

Oil companies are not investing as much to bring new supply on line. So when demand does return, companies won't be able to ramp supply quickly enough. This will lead to demand outstripping supply. And prices will rise. In fact, some believe supply and demand will reach parity in 5 years or less. That's a dangerous situation. And as an investor, you are almost obligated to own oil stocks.  

*****"We are at the cusp of stabilization…" So says Stephen Stanley, chief economist at RBS Securities. Economists are raising their growth forecasts for the second half of 2009 from 1.2% to 1.5%.  

Granted, that's not a big move, but we'll take what we can get. And maybe a little bullish talk will help consumer confidence.

Of course, consumers will probably notice when unemployment averages 9.8% in 2010. The U.S. economy has changed in some fundamental ways. The auto and finance industry job cuts may well be permanent. And it could take a few years for new jobs to be created.  

*****Cold War politics are alive and well. At the G-8 meeting in Italy, Russian president Medvedev pulled a coin from his pocket that he said represents the new world currency. Medvedev even has the motto for this global currency worked out - "unity in diversity" is printed on the coin that was minted in Belgium. Quaint, isn't it?  
What does Russia hope to gain with this tactic? Nobody wants to buy their bonds. And a global currency won't give Russia any new influence. Oil is priced in dollars, but even then, a new currency won't affect oil's value, only its relative price. 

So it would seem that Russia is simply messing with the U.S. And that's a strategy that could backfire, mainly because Russia has no leverage. I'd expect to see other countries come out in support of the U.S. dollar just because Russia doesn't like it.  
*****Now, here's TradeMaster Daily Stock Alerts' Jason Cimpl with his weekly video chart analysis. Enjoy! Click here to view the video.

P.S. Next Wednesday I'm releasing an update to my Predictions issue for Top Stock Insights. We did the first issue of it back in January to lay out how investors should invest in 2009. We were spot on and make huge profits for subscribers. This new update comes at a time when the market rally appears to be petering out and investors really need solid data and investment ideas. Click here to sign up for your copy and a 30-day trial to the service.

Here’s a chart I haven’t posted in a while - the EUR/USD. Mainly it’s been trading sideways for the last month so there was no need to talk about it. But now, it’s getting closer to the APEX of the HUGE TRIANGLE PATTERN. Remember I’ve said before that when this breakouts, it will send ripples through other major sectors (gold, oil, etc.). This should be on your radar each day from now on!

But before we dig into the Solar, let’s look at the S&P real quick. Today we rallied right below my target of 890 - once again it’s amazing that I call these levels everyday lately. Once we hit the resistance, we fell back down to support at 880. From here, I think there is a little more upside left coming if we get OKAY earnings news - but really nothing higher than 905 AT ALL.

Onto SOLAR. The first of 3 is JASO, which I mentioned this morning as a good looking LONG. Should have listened as it was up near 8% today alone. I still think it could reach the BLUE region quickly after finding support.

LDK is a little different and a good play on the channel pattern it’s been in for more than 4 months. Volume needs to start picking up in this one before I can be completely comfortable with the support level it’s at now.

And now the best for last - SOL. Notice the very clean breakout from early June accompanied by high volume. This is exactly the type of breakouts you like to see as a technical analyst. Now that the retracement has completed back to the support line (BLUE) we need to see one more BIG white candle day before confirming support. The slight up-tick in volume also helps build confidence in this long.

I still believe Geithner blew his opportunity to use the stress-tests to force banks to sell their toxic assets and improve their balance sheets. But as we know, Geithner simply does not play hardball. And that's too bad, because our economy could use some leadership from the Treasury.  

P.S. I just finished reading through a new book by senior trader Larry Connors. It's called "High Probability ETF Trading". It's on profitable trading strategies using ETFs and he's hitting a 93% win rate. I don't know about you, but I'll take 93% any day. He gave me a link to more information about the book to share with Daily Profit readers (I asked him for it as readers send me a ton of questions on ETFs). Click here to find out more about his book and discover how to get up a 93% win rate on your ETF trades.

A small rally is to be expected today following some horrible days early this week in the markets (well, not horrible for SHORTS though). Members and I have moved down stops most of our short positions to lock in some MAJOR profits and protect the upside. As far as the S&P is concerned, as you will see on the chart below, 890 will be the big wall to get through. Keep an eye on these levels as they will undoubtedly help your trading each day.

On the Solar front (and thanks to Peter S. for pointing them out) there are a couple that are really good looking long prospects. JASO in particular has a good channel pattern ready for a breakout…

Oil continued its six day slide dropping to barely over $60 a barrel from an eight month high of $73 just last week. The IMF announced that it expects the world economy to shrink by 1.4% in 2009, as opposed to its earlier estimate of 1.3%. Still, it did counter that by stating that growth in 2010 should be 2.5%, versus its April estimate of 1.9%.

The Dow closed up 15 points in a late move to finish at 8,178. The Nasdaq inched up just 1 point to close at 1,747 and the S&P 500 was down just slightly at 880.

The Russell 2000, an index of 2,000 small-cap companies, closed down 0.94% at 480.

Leading small-cap decliners was ARYx Therapeutics (Nasdaq:ARYX) down 43% after news was released of the failure of it's anticoagulant agent. The company announced that data from its studies of Tecarfarin did not indicate any statistically significant superiority over Warfarin, a commonly used blood-thinning drug.

Other decliners include Southern Community Financial (Nasdaq:SCMFO) down 23%; American Axle & Manufacturing Holding (NYSE:AXL) down 23%; Atlantic Southern Financial Group (Nasdaq:ASFN) down 17%; and YRC Worldwide (Nasdaq:YRCW) down 24%.

YRC was down yesterday on news that management and Teamsters union officials had still not found an agreeable resolution to YRC's continuing financial worries. Today the stock tumbled further as talks appeared to go nowhere on Wednesday. In addition to a slowing economy calling for less trucking, YRC has been hampered with integration costs from its Yellow and Roadway operations as well as picking up the tab on multi-employer pension plans. YRC participates in the Central States multi-employer pension fund and as other trucking companies have disappeared over the years YRC's responsibilities within the fund have grown. As with many other large industries, YRC is facing mounting pension liabilities that are hampering its ability to weather the recession.

Small-cap gainers were lead by Novogen Limited (Nasdaq:NVGN) up 31%. This is on top of Tuesday's 37% gain on news that the Novogen-licensed oncology drug Phenoxodiol showed great promise in treating acute lymphoid leukemia and may have applications treating autoimmune disease as well.

Other small-cap gainers include fellow pharmaceutical Targacept (Nasdaq:TRGT) up 28% on news that development of its ADHD drug will move forward in studies. The company will receive a $10 million payment from development partner AstraZeneca (NYSE:AZN) and remains eligible to receive an additional $100 million. Leaders also include Internet Initiative Japan (Nasdaq:IIJI) up 23% and biotech firm Amgen (Nasdaq:AMGN) up 14%.

*****Yesterday, Reuters reported that the delinquency rate on credit card debt hit 6.6% in the first quarter of 2009. On mortgage loans, delinquencies hit 3.5%.  
I can virtually guarantee both numbers were higher in the second quarter. And I expect them to move still higher in the future.  

Unemployment will continue to rise. And even when it stops rising, it's not going to magically reverse course, not when the U.S. economy is only growing 1% or 2% a year.  
The recession we're possibly on the verge of exiting has been unique. It wasn't a consumer-led recession. Rather, it was a fundamental recession brought on by weakness in the very foundations of the U.S. economy.  

You don't wake up from this with just a hangover. You wake up without your car because you just wrecked it and your driver's license has been suspended and you now have to take a bus wherever you want to go.  

*****That's why the IMF and the G-8 is now calling for more stimulus packages and funds. The G-8 is meeting in Italy. The U.S. appears to be in "wait and see" mode, despite some calls for more stimulus programs. And rightfully so. The U.S. done a lot, maybe more than it should, to throw money into the system. It's time for some others to step up and do what they can do. 

At the same time the G-8 is talking stimulus, it's also talking about how to reign in stimulative monetary policy. This undoubtedly a good thing. We're all well aware that if rates don't rise, and liquidity gets sopped up, then inflation could run rampant.  
Of course, inflation is not much of a threat now. But once the global economy starts growing again, central banks will have to respond with higher rates, even though growth won't be robust. (If you're interested in loading up on the stocks that will outperform once inflation hits click here for my Inflation Busters report.) 

*****This is a very interesting time for investors. It's going to be critical to be in the right stocks, and in the right sectors. Equally important will be avoiding sectors that are facing significant headwinds. Financials still seem to be among the most vulnerable sectors, while technology and healthcare are demonstrating a lot of promise.  
Investing in this new economic paradigm (which I haven't come up with a name for yet) is going to be a common theme for us here in SCI Daily.

Investors already on edge about upcoming earnings failing to meet even low expectations were spooked by an Obama administration panel suggesting that the economy is far from well and that another round of government stimulus plans may be necessary.

In addition to the Dow closing down, the Nasdaq was down 2.31% to close at 1,746 and the S&P 500 dropped 1.97% to close at 881.

The Russell 2000, a composition of major small-cap stocks, closed down 1.91% to 485.

Bucking the downward trend were small-cap stocks like Novogen Limited (Nasdaq:NVGN) up 37% on news that a Novogen-licensed oncology drug used by Marshall Edwards, Inc. showed promise for treating acute lymphoid leukemia. Researchers have also indicated that the drug in question, phenoxodiol, may be effective in treating autoimmune disease as well. Besides licensing agreements with Marshall Edwards, Novogen is its majority owner. 

Other small-caps leading the market today include EuroBancshares (Nasdaq:EUBK) up 26%; Community Financial Corp. (Nasdaq:CFFC) up 24%; Mexican Restaurants (Nasdaq:CASA) up 20%; and Beasley Broadcast Group (Nasdaq:BBGI) up 19%.

Small-cap decliners were lead by Hansen Medical (Nasdaq:HNSN) down 33% on news of weaker than expected Q2 revenues and lower sales.

Other leading small-cap decliners included First National Bancshares (Nasdaq:FNSC) down 29%; Bridgeline Software (Nasdaq:BLSW) down 23%; and trucking heavyweight YRC Worldwide (Nasdaq:YRCW) down 23% on news that the management and the Teamsters would continue their discussions on seeking ways to help YRC continue operating. The company reported loses of over $250 milling in the first quarter.

*****Stocks rallied out of the hole yesterday. And the financial media, which started the day reporting that pessimism about the economic recovery was driving stocks lower, finished by saying that improvements in credit markets were driving stock prices higher.  

Neither explanation gets to the heart of the matter.  

"Buy the rumor, sell the news" remains one of the most important rules for investing. When it became clear that stocks were grossly oversold and the global financial system wasn't going to self-destruct, investors bought stocks. In essence, they were buying the rumor that the economy would recover. 

There have never been any rosy recovery projections that investors could be disappointed in. Rather, now that we are at the start of the third quarter, the one most economists say will be the first to show growth in a year, it's time for some actual numbers to back up valuations.  

According to Barron's online, the current P/E for the Dow Industrials is 12.29. That's not cheap, but it's not expensive, either. Let's call it just right. With little reason to expect any upside, investors will be inclined to take their profits. In other words, they are selling the news. 

*****It will be particularly interesting to see how this dynamic plays out during earnings season. My early read on earnings is that estimates are low enough right now that companies should be able to beat expectations. But what will they say about the future? And how will investors react?  

I don't expect a lot of upside this earnings season. We'll find out soon enough,Alcoa (NYSE:AA) reports today… 

*****It's been a while since I answered any reader mail here in Daily Profit. Time to change that… 

Dan W. writes: I have been reading your newsletters for many months now and thanks for your talent. There is something I wanted to pass on. I grew up in the Far East and experienced communism with its May Day parades as an American dependant. I learned a most important fact even as a youngster that everything is or can be "owned by the state". What would prevent the Chinese government (communism) from taking over my stock if I invested in some of "their" companies in the near future? 
Normally when we talk about financial markets, there's an underlying assumption that we're also talking about free markets. The ideal of a free market is that investors and consumers are the ultimate regulators. If your business stinks, no one will buy your stock, debt or product. 

Of course, as has been proven time and time again, the ideal is not functional. From Carnegie and Vanderbilt to Enron to AIG (NYSE:AIG), it seems pretty obvious to me that financial markets cannot go completely unregulated because greed will motivate some people to behave in unethical ways.  NYSE:AIG, NYSE,PTR

Investors must believe their money is fundamentally safe from deliberate fraud (but not necessarily protected from incompetence, poor market conditions, and unwise decisions). That's what regulations achieve - you might lose money, but it won't (or shouldn't) be because the game is rigged.  

In my opinion, monopoly and anti-trust laws were America's first attempt to move from laissez-faire capitalism to a sort of hybrid, regulated capitalism. Also in my opinion, China's is approaching a similar hybrid capitalism, albeit from the opposite side of the spectrum.   

No need to debate the relative merits of China's economic development. The point is that China well understands that the road to its prosperity means fostering domestic business and accessing the capital markets.  

So I don't believe China's communist government is any threat to domestic business. In fact, given China's willingness to spend its currency reserves to support its economy, I'd say China's government is a friend to its domestic business.  
And besides, investing in China can mean buying companies already owned by the government, like Petrochina (NYSE:PTR) or Sinopec (NYSE:SNP). I probably don't need to remind you that American investors - including Warren Buffett - have done pretty well with state-run Chinese companies. 

Now, I don't mean this to sound like an endorsement of communism. It isn't. But I'm here to make money. And my sense is that China's government is smart enough to know that it is China's growing prosperity that keeps it in power. I can think of nothing that would threaten that prosperity more than a government takeover of a private business.  

On Thursday, July 2, I reported that there may be as many as 100 Chinese companies getting ready for an IPO (initial public offering). All it would take to completely shut China out of the global capital markets is for the government to take over a company.  
Just yesterday, Fiat announced that it was putting up $559 million for a joint venture with Guangzhou Automobile Group. Fiat's obviously not worried about the Chinese government taking the operation over. You shouldn't be either. 

*****As you probably know, I am very bullish on companies in certain segments of the Chinese economy. Energy and commodities, especially, will do well as China spends heavily on infrastructure to support its economy. I've been covering a few of them in my SmallCapInvestor PRO service to the delight, and profit, of my subscribers. Click HERE to find out more.

If your bullish on the economy and housing in general, HD might be a good pick up here.