Hansel said to Gretel: "We shall soon find the way," but they did not find it. They walked the whole night and all the next day too from morning till evening, but they did not get out of the forest, and were very hungry, for they had nothing to eat but two or three berries, which grew on the ground. And as they were so weary that their legs would carry them no longer, they lay down beneath a tree and fell asleep.

SAN FRANCISCO --

Brothers Grimm

fans know the story of

Hansel and Gretel does have a happy ending. After wandering in the deep, dark forest, the hungry children came upon a house "built of bread and covered with cakes, but that the windows were of clear sugar," on which they indulged. But the house belonged to a wicked witch who wanted to eat the children. After some harrowing moments, they managed to escape, and -- with the help of a friendly duck (possibly from those

Aflac

(AFL) - Get Report

commercials and possibly named

Alan Greenspan) -- eventually found their way home.

For equity investors, the analogous question is whether the market is currently feasting on the gingerbread house and is about to face more peril, or has it already dispatched with the wicked witch? In other words: Are we out of the woods, yet?

Obviously, that type of question is unanswerable in a single story, more especially without the benefit of hindsight. At the margin, it appears the economy has emerged from the deepest part of the forest -- today's stronger-than-expected report on March factory orders being the latest sign of recovery. But the

Federal Reserve's

Beige Book was downbeat, and those still fearful of recession say Friday's employment report is crucial.

"The negative impact of the reverse wealth effect and deteriorating employment situation is being offset by lower interest rates leading to mortgage refinancing," said Kathleen Camilli, director of economic research at

Tucker Anthony

. "But typically, a deteriorating employment situation outweighs everything. If I lose my job, it doesn't matter how low mortgage rates go. That's why I'm hanging so much on the

employment situation."

As reported

last night, Camilli expects first-quarter

GDP to be substantially revised downward and projects the second quarter will be weaker still, which will frustrate those hoping the economy has sidestepped recession.

But as a more upbeat view of the economy has gained credence recently, equities, too, appear to have reached the forest's edge. Today, the

Dow Industrials

dipped 0.2%, while the

S&P 500

added 0.1% and the

Nasdaq Composite

rose 2.4%. The advance/decline line was essentially even in

NYSE

trading, while gainers led 12 to 7 in Nasdaq action.

The Comp was led by networking firms such as

Cisco Systems

(CSCO) - Get Report

and

Sycamore Networks

(SCMR)

, while data-storage maker

Brocade Communications

(BRCD)

soared

amid optimism about its earnings. The

Nasdaq 100

rose 2.3%.

As reported last night, a host of observers fear that the market is poised to repeat is post-January experience -- when a euphoric rally inspired by Fed rate cuts evaporated in devastating fashion.

Even those not expecting such a draconian scenario agree that the market is due for a short-term retreat. Don Hays of

Hays Advisory Group

in Nashville, Tenn., commented this morning that "the easy lifting has been done." Hays

still expects the new bull move to continue for another five to seven months, but says "short-term indicators are saying it's time for a pause to refresh."

The

McClellan Oscillator suggests that the market is overbought, short-term, Hays noted. Many others have cited the

Arms Index as flashing similar signals. The index's inventor, Richard Arms, said as much yesterday at

ArmsInsider.com

: "The Arms Index numbers have moved back into a bit of overbought territory," he wrote. "That suggests that the strength of the last few days may be overdone, again, and that we need to look for another hesitation in the market."

But hesitation does not necessitate contemplation of another harsh downturn, according to both Hays and Arms. Even true believers of the new bull market thesis don't expect stocks to continue unabatedly higher. If and when stocks retreat, it will likely reinvigorate the skeptics. That will be a healthy development, according to those who believe bull markets are built upon the proverbial "wall of worry."

Timing Is Everything

In addition to the aforementioned overbought indicators, another reason a short-term pullback is expected is that the Nasdaq has now retraced roughly 50% of the approximately 1273 points it lost from its intraday peak in late January to its intraday low in early April. The Nasdaq 100 has recouped almost 50% of its losses, which is significant to followers of technical analysis.

"Short term we a very overbought and are expecting a decline," said Steve Hochberg, co-editor of

The Elliott Wave Financial Forecast

in Atlanta. "But the intermediate trend since April 4 still has further to travel on the upside. We're short-term bearish and intermediate-term bullish."

The intraday lows of near 2000 for the Comp and 1743 for the Nasdaq 100 hit April 25 are "easily achievable" in the forthcoming pullback, Hochberg said. The Comp and Nasdaq 100 also could revisit respective April 17 lows of 1869 and 1604, he said. But unless the Nasdaq indices fall below their April 4 lows, a near-term retreat "sets up the next leg to the upside that will carry us higher" than recent highs, he said, forecasting similar patterns for the Dow and S&P.

While intermediate-term bullish, Hochberg remains long-term bearish, believing it will be "generations" before the Nasdaq revisits the highs set in March 2000. He compared the situation to Japan's

Nikkei 225

, which remains well below its peak of late 1989.

The Nasdaq "can have humongous rallies and minibull markets and never approach that old high," he continued. But "if you can catch these swings these are very tradable rallies."

Hochberg's message being that market timing is going to supplant the "buy-and-hold" mantra that so dominated investor psychology in the 1990s.

So whether the market is "out of the woods" depends a lot on your time horizon. Or on whether you've accepted the reality that investing in stocks is not a fairy tale.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.