Coming Week: Can the Levee Hold?

The short-selling ban implemented by the Securities and Exchange Commission may carry upward momentum into the coming week, but analysts say there are still too many variables in the market that could derail a complete recovery.

Last week, the collapse of Lehman Brothers (LEH Quote), the surprise acquisition of Merrill Lynch (MER Quote) by Bank of America (BAC Quote) and the $85 billion bailout of AIG (AIG Quote) weighed on the stock market, forcing the worst selloff Wall Street has experienced since the first trading day after the Sept. 11 terrorist attack in 2001.

Despite a strong rally over the previous two trading sessions, spurred by the SEC's decision to put into place temporary measures to prohibit short-selling in financial companies as well as the government's plan to buy mortgage-backed securities and support the mortgage market with more liquidity, the major indices finished little changed for the week. The Dow Jones Industrial Average dipped 20 points, while the S&P 500 tacked on 3 points and the Nasdaq Composite added 12 points.

"If you were Rip Van Winkle for a week, you'd think that not much happened," says Paul Nolte, director of investments with Hinsdale Associates. "However, the Federal Reserve and the Treasury's balance sheet have been altered dramatically over the last five business days."

Steven Sheldon, CFA and principal with SMS Capital Management, says that the SEC ban and the government's plan have removed the panic from the market for the short term, which is a positive, but that risks still remain.

"A few days ago we were headed toward something cataclysmic," says Sheldon. "At least, for the moment, that's off the table. But once the dust settles Monday, we'll be back looking at fundamentals. The pendulum will swing back towards the negative before this is all over."