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Stocks Could Stay In a Range

Joanna Ossinger

If you're ready for stocks to pull out of their trading range and move higher, you might be waiting a while longer.

After so much volatility in recent weeks, many investors are hoping the markets will calm down and recover going forward, but a number of experts believe there's a lot more churning to be done.

"I just think it's going to take a lot of time to work through all the problems out there," says Stephen Carl, head trader at Williams Capital. "We're mired in a range."

He notes that the Federal Reserve's 50 basis-point cut in its target funds rate last week, to 3%, "was what everybody was expecting," so it didn't give the market much of a bid upward.

"The news isn't going to get much better over the coming weeks, and the market will retest the low it recently had," says Tony Dwyer, equity market strategist at FTN Midwest Research.

"The Fed easing, businesses spending and credit-market stabilization help to put in a low, but it's going to take a while for the bottoming," he says. "I'm still looking at corporate spreads, and I want to see improvement.

"Volatility is going to continue, definitely -- high volatility without a lot of progress," Dwyer continues. "The unwinding of global growth is going to be a problem" as the U.S. economy weakens.

This past week, the Dow Jones Industrial Average climbed 4.4%, and the S&P 500 added 4.9%. The Nasdaq advanced 3.7% over the five sessions.

Dwyer says his firm is overweight informantion technology and health care, and leaning positive on financials and consumer discretionary names.

He isn't the only one who expects stocks to retest their lows. Greg Collins, CEO of Fountain Hill Investments, also thinks it's likely.

"We have risen 10% off the intraday low on the S&P in a relatively short time frame, primarily because the markets were extremely oversold at the low and further fueled by a great deal of short-covering," Collins says. "If the markets break the low of 1310, it likely means the credit markets have deteriorated further and that, coupled with a break of the bullish trend from 2003, could spell further trouble for the equity markets."

He also says "developments regarding the problems with the bond insurers ... are truly important at this time." Talk about a bailout of troubled bond insurer Ambac(ABK Quote) by a group of major banks is one of those, and any rollout of a deal is likely to get a lot of attention from market watchers.

Still, some people think that things might be getting better from here.

"I think the market's going to calm down a bit, and we won't see [the recent] level of volatility, which has been extreme, over the next couple of months," says Joe Keating, chief investment officer of First American Asset Management. "When you do get a bit of a selloff, it's probably a good time to put in some money. You've got to be looking hard at some of the most beaten-up sectors," which he says include high-quality financial companies and telecom stocks.

Market watchers will also be following developments related to Microsoft's(MSFT Quote) $44.6 billion bid for Yahoo(YHOO Quote), which was made public Friday. The deal could change the landscape of the entire tech sector, and in particular, the interplay of those companies with rival Google(GOOG Quote) will be of interest.

On the earnings front, Dow component Walt Disney(DIS Quote) reports on Tuesday, with PepsiCo(PEP Quote) Thursday and telecom giant Alcatel-Lucent(ALU Quote) announcing on Friday.

Exchange companies CME Group(CME Quote) and NYSE Euronext(NYX Quote) both report on Tuesday.

Mortgage behemoth Fannie Mae(FNM Quote) reports on Friday, and might offer some more insight into the effects of the credit crunch on ordinary Americans. Credit-reporting agency Equifax(EFX Quote) goes on Monday and Bankrate(RATE Quote) reports on Tuesday. Those businesses might be able to offer a look into how the consumer is faring amid the economic and housing slowdown.

Casino companies report in force, with Las Vegas Sands(LVS Quote) taking its turn Monday, and Penn National Gaming(PENN Quote), Trump Entertainment(TRMP Quote) and Ameristar Casinos(ASCA Quote) on Thursday.

After a busy few days this past week for economic indicators, things settle down next week. The initial jobless claims data could take on more importance than usual, given the weak nonfarm payrolls number released Friday, as well as the dearth of other news.

"Weekly indicators don't usually make the top tier" of reports people are watching, says Timothy Rogers, chief economist at Briefing.com. "But there's some concern that there are layoffs going on now," which would be a further sign of economic weakness and trouble for consumers, on top of recent weak data such as the last jobs number.

Still, "the payroll data are notorious for being revised," Keating cautions, saying investors shouldn't read too much into those preliminary numbers.

Investors will also be paying attention to the ISM services index, which measures economic health of nonmanufacturing firms, on Tuesday. The key is whether it stays above 50, which would indicate growth. Factory orders on Monday and wholesale-inventory data Friday could offer insight into how the economy is faring.