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The Coming Week: Waiting for the Bounce

After a perfectly dreadful week, the passing of triple-witching may give the market a boost.

When Black Friday comes, I'll stand down by the door, and catch the gray men when they dive from the 14th floor... -- Steely Dan

All right, maybe the bodies weren't flying by the windows last Friday, but things sure didn't look that great.

And no matter how hard you try, you just can't wish away all those red numbers.

As hard as you may try, come Monday, the

S&P 500 will still be down on the year and the

Nasdaq Composite Index and

Dow Jones Industrial Average will have erased all but the entirety of their spirited August rallies.

By the end of trading Friday, the major indices looked (as Becker and Fagen would say) like Alabama -- the Crimson Tide.

But, whether investors will continue to run the major indices amuck this week is another question. Certainly, the factors that motivated last week's hearty selloff haven't gone away. Earnings preannouncement season, that jittery time when companies let investors know that their earnings just weren't up to snuff last quarter, is now in full swing and won't let up until at least the end of September. And neither the euro nor oil look like they want to cooperate.

Last week, weakness in the euro triggered a selloff in consumer products companies with operations overseas, like

McDonald's

(MCD) - Get Report

and

Colgate-Palmolive

(CL) - Get Report

. Despite

a quasi-intervention by the

European Central Bank

, which promised to buy 2.5 billion euros with the interest it earns on foreign-currency reserves Thursday, the euro didn't see any kind of rebound. It ended the week at $0.8541.

A Slippery Situation

And, while continued strength in oil prices is great for oil and natural gas stocks, it's eating into profits at chemicals and transport companies, and doesn't bode well for inflation. Squeezed by accelerating electricity demand, and bumped up by growing tensions in the Middle East and a storm threatening the Gulf of Mexico, crude oil remained above $34 a barrel by the end of last week.

"Some people that read those commodity charts say oil will go to $40 a barrel," said John Babyak, portfolio manager at

WHB/Wolverine Asset Management

.

"But there's a lot of oil in transport that hasn't shown up at U.S. refineries. I don't think we're going into the next oil crisis," he said.

In any case, investors should continue to keep an eye out for any negative surprises from companies that could be hurt by strong oil prices or a weak euro -- both preannouncement and earnings wise. Global shipping company

Federal Express

(FDX) - Get Report

reports earnings this week, and could get hit by higher fuel prices and the depressed euro.

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Higher fuel prices are a big component of Federal Express' expenditures, but the company doesn't do a huge portion of its business in Europe.

But the rest of the week's reporting companies shouldn't be a big deal.

Circuit City

(CC) - Get Report

, which is slated to report on Monday, has already made some cautionary statements and its share price is all beaten up.

Brokerages

Lehman Brothers

(LEH)

and

Morgan Stanley Dean Witter

(MWD)

also report. But any negative surprises are unlikely to take these stocks much lower. Following Wednesday's announcement of a deal between

J.P. Morgan

(JPM) - Get Report

and

Chase Manhattan Bank

(CMB)

, traders were concerned that a recent wave of consolidation may be nearing an end. If that's the case, then brokerage stocks might just be overvalued. Lehman and Morgan Stanley tumbled on the news.

Don't Know Why, There's No Sun Up in the Sky...

Meanwhile, September is typically a very stormy month for the stock market anyway.

"I think that September is once again living up to its reputation as a fairly treacherous month. When stocks come for sale as they have in the past couple of days, it just begets more selling. People who saw gains in August don't want to give up those gains," said Babyak.

Perhaps the market won't get back on its feet until preannouncement season is over and oil prices have stabilized.

"It looks like we're going to test this 3750 Nasdaq and 10,775 on the Dow," said Babyak. "But we could come into a good tradable rally here by the end of the month, as soon as petroleum prices level off."

Indeed, most of last year's gains were won in the fourth quarter of the year.

"With every major index down for the year, this year's return is going to have to happen in the fourth quarter. Last year, 95% of the S&P 500's return came between October 18 and December 31st of the year," Babyak added.

Meanwhile, at least one trader thought that this quarter's triple-witching -- the quarterly expiration of equity options, index options and future contracts -- was to blame for the past two weeks' volatility. With expirations out of the way, the market should iron itself out this week, said Kenneth Sheinberg, head of listed trading at

SG Cowen

.

At the very least, stocks could get a post-witching bounce on Monday morning. Typically, the Monday following expirations shows a reversal of the previous day's trend. And investors were certainly selling into the bell.

But, that's the tricky thing about early bounces. They don't always stick.