The Coming Week: Bulls Hope to Hang On to Momentum

The optimists are out in force.

After two up weeks in a row, market analysts are betting the recent strong economic data and the lack of an overwhelming number of corporate profit warnings mean stocks are poised for more gains in the coming days.

"As long as the economic numbers continue to come in better than expected, stocks are going to be bought on dips," said Peter Boockvar, a stock market strategist at Miller Tabak.

The market has already started to become cozier with the notion that the economy is turning around, thanks to a few better-than-expected economic reports, an unexpected drop in the unemployment rate among them.

For the week, the Dow Jones Industrial Average ended up 2%, while the Nasdaq finished ahead 7%. The broader market S&P 500 closed higher by 3%.

On Friday, the Labor Department said the unemployment rate in February fell to 5.5% from 5.6% in January. Earlier in the week, Fed Chairman Alan Greenspan said an "economic expansion is under way." Equities and Treasuries sold off following the Fed chief's comments on Thursday, as investors started to worry that a rate increase might not be too far off.

Analysts don't seem to be expecting fund managers to pull in gains next week. "The fact that the market has been up for two weeks doesn't signal profit-taking," said Art Hogan, chief market analyst at Jefferies. "I expect that more participants will be buying than selling."

The averages haven't proved yet that the rally is for real, and another weak of gains might leave investors thinking that stocks are too expensive. "The market may begin to bump up against the valuation wall," said Hugh Johnson, chief investment officer at First Albany. "After being undervalued, stocks are starting to flirt with modestly overvalued levels."

Naturally, worries about valuations are never completely dismissed from the minds of the pros, and following days of wild swings on the market indices, there could be further volatility in the coming week. "The chat these days is about triple-digit ups and downs," Johnson said. "There's a lot of interest in the market, and as a result, players are following each other on big moves up and on big moves down."

The good news is, at least for the time being, that the phenomenon being called Enronitis appears to have subsided. That could mean money managers who are under-invested will want to put more money in the market.

"Accounting issues may still come up, and there will still be a higher level of scrutiny," Miller Tabak's Boockvar said. "But liquidity concerns should ease, as a better economy brings with it better earnings."

On Wednesday, the Commerce Department will release retail sales figures for February. The report, which offers a sneak preview of the consumption portion of gross domestic product , has the power to move markets.

"Strong vehicle sales should influence the report," said Michael Moran, an economist at Daiwa Securities. "But general merchandise, apparel and building supplies stores will also to do well." Moran expects a 1% gain in the overall number, and a 0.5% uptick, excluding food and energy components.

Also, the University of Michigan's consumer sentiment index will be released Friday. Economists believe the measure, which gauges present and future expectations, will rise to 94 from 90.7.

On Thursday, Oracle (ORCL Quote) is scheduled to report third-quarter results. According to First Call, analysts expect the enterprise software maker to earn 9 cents a share on revenue of $2.42 billion. The company already provided investors with a view of what to expect, saying on March 1 that earnings for the quarter would come in a penny shy of what was then the consensus estimate.

"I think they'll be cautious for the next quarter," said Melissa Eisenstadt, an analyst at CIBC World Markets. "The key question will be how much will they bring down guidance for rest of the year."

Wall Street wouldn't be too happy with any type of warning from such a key player in the technology arena, but optimists hope that the marketwide rally is broad-based enough to survive bad news from a single company. Earnings warnings could start rolling in this week (the fiscal quarter for many companies wraps up at the end of the month), but if enough firms say the end of the downturn is close, the markets could look past any signs of near-term weakness.

Last week, Intel (INTC Quote) and Sun Microsystems (SUNW Quote) basically stuck with their prior guidance. Neither company was overly optimistic when discussing future prospects, but both stocks climbed the day after their midquarter discussions.

For now at least, the optimists want to believe, and there's a good chance they'll carry that over into this week.