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Wall Street hangs on after roller-coaster week

Wall Street faces a holiday shortened week, opening Tuesday after the Presidents’ Day holiday, with a smattering of economic data, notably on inflation and industrial production.

The gains over the past week snapped a four-week losing streak and according to some analysts suggests market sentiment and key technical support levels are holding up.

Bob Dickey at RBC Wealth Management said the market underwent ‘multiple bottom-testing days’ that could set the stage for a new leg up.

Gregory Drahushak at Janney Montgomery Scott agreed that the market trend remains higher.

‘Despite the turmoil this week not a lot has changed in terms of the technical picture for the S&P 500,’ he said.

‘We stand on our belief that the ultimate resolution will be for the S&P to see a new recovery high later this year. Downside potential before we turn the corner does not appear to be severe.’

In the week to Friday, the blue-chip Dow Jones Industrial Average rose 0.87 percent to end at 10,099.14, after several dips below the key psychological level of 10,000.

The technology-dominated Nasdaq composite added 1.98 percent for the week to 2,183.53 and the broad Standard & Poor’s 500 index increased 0.87 percent to 1,075.51.

Many analysts say the market is seeing a so-called correction, which is usually a pullback of 10 percent from cycle highs, a phenomenon that takes some of the speculative froth from the market but is healthy in the long run.

The main indexes have fallen around eight percent from peaks in January, and debate swirls on whether the correction has run its course or if a new round of investor retrenchment is ahead.

Douglas Porter at BMO Capital Markets said that despite the tensions on the eurozone and fears of moves in China to cool growth, the backdrop for the US market is improving.

‘Markets seem to be all but ignoring more prosaic and pedestrian concerns like the fate of the underlying economy and earnings,’ Porter said.

‘Quietly, but steadily, the US economic news is indeed improving.’

He said this is seen in labor market data, trade flows and a surprisingly strong reading on US retail sales.

‘Notably, the consensus view on the US economy for 2010 has been grinding higher almost without pause over the past year,’ he said.

‘On the earnings front, 76 percent of S&P 500 reporting companies have topped fourth quarter expectations, and profits are on pace to rise 16 percent year-over-year, excluding financials, which would skew the result much higher.’

Bonds fell over the week. The yield on the 10-year Treasury bond rose to 3.693 percent from 3.546 percent a week earlier and that on the 30-year bond increased to 4.657 percent from 4.493 percent. Bond yields and prices move in opposite directions.

In the coming week, investors will mull data on consumer and wholesale inflation as well as industrial production. Earnings are due from retail leader Wal-Mart, pharmaceutical giant Merck and foodmaker Kraft.