Wall Street may continue to focus on silver linings rather than storm clouds in the coming week, but ultimately, it will take more than hope to keep the recent rally going.

Last week, the

Dow Jones Industrial Average gained a bit over 3% to settle just under 9120, while the

Nasdaq rose 7.1% to 1605, and the

S&P 500 added 2.9% to 1071. By comparison, on Sept. 10, the day before the terrorist attacks in New York and Washington, the Nasdaq closed at 1695, the S&P 500 finished at 1093, and the Dow ended the session at 9606.

Placing their faith in rate cuts and the coming fiscal stimulus package, investors are betting on economic recovery and stocks have racked up two weeks of steady gains. Not even a weak jobs report or dreary earnings outlooks from

Sun Microsystems

(SUNW) - Get Report

and

Advanced Micro Devices

(AMD) - Get Report

could keep stocks down Friday, and early stumbles gave way to gains by the close of the session.

"This rally is based on hope, but we have yet to see evidence," said Ike Iossif, president of Aegean Capital Group. "I tend to be skeptical of rallies that work on hope." Technical analysis indicates stocks are at a turning point, and may need firm reasons to move higher, he said. According to Iossif, the major indices are just above their 20-day exponential moving averages, where all five rally attempts since April have stalled. "In order to overcome this hurdle, which seems to stop any bear market rally in its tracks, we need a positive catalyst," he said.

Any military success in the war against terror would suffice, he indicated. "After the first 24 hours of bombing in the Gulf War, it became very clear that we were going to win," Iossif said. "The markets rallied and never looked back." Some expect the U.S. to launch an attack as soon as next week. The U.S. government has already sent up to 1,000 soldiers to Uzbekistan near the Afghan border.

Thomas McManus, equity portfolio strategist for Banc of America Securities and one of several Wall Street strategists who has increased his equity weighting in the past two weeks, also warned against excessive optimism.

"For the next week, the market is going to continue to work its way higher," he said. "I wouldn't be chasing it though, because earnings aren't going to be great. It's just oversold on a short-term basis. I don't believe we have seen the lows for many stocks."

Apart from any developments in the Middle East, earnings commentary from corporate America will dominate next week. Third-quarter earnings season kicked off Thursday with a report from Dow component

Alcoa

(AA) - Get Report

.

On Tuesday,

Motorola

(MOT)

and

PepsiCo

(PEP) - Get Report

report earnings, while

Redback Networks

(RBAK)

and

Yahoo!

(YHOO)

are on the schedule for Wednesday.

Last week's good earnings news consisted of confirmed guidance from tech bellwethers

Cisco

(CSCO) - Get Report

and

Dell

(DELL) - Get Report

. "Any company that had a chance of having a positive surprise probably won't at this point," said Tony Dwyer, strategist at Kirlin Securities. "They'll probably throw everything into this quarter. Nobody is going to say business is booming."

On the economic front, chain-store sales, jobless claims, retail sales and the University of Michigan consumer sentiment index will be out, all of which should help clarify Sept. 11's impact on the consumer. Friday's jobs' report confirmed that the economy continued to weaken even before the terrorist attacks, but the full impact that the Sept. 11 attacks and further wartime developments will have on the economy may not be determined for months.

Eventually, the indices may have to test the old lows, most technicians agree. But it would take a string of negative earnings surprises from bellwethers, or another terrorist attack on the U.S., to provoke widespread selling in the coming week, said McManus.

"The question is when you have breaks of this nature, and new lows, there tends to be a retest," said Steven Goldman, market strategist at Weeden. "History says there will be."