What a Week: A Big Blue-Tinted Market

The market went through throes of desperation and great celebration at various points this week. Major averages' relatively modest weekly performance belied the on-again, off-again, on-again pattern, which made for some wild day-to-day and intraday swings.

For the week, the

Dow Jones Industrial Average

fell 0.8%, the

S&P 500

shed 1% and the

Nasdaq Composite

lost 0.8%.

Much of the market's misdirection was dictated by

IBM

(IBM) - Get Report

, which fell 12% for the week. Because Big Blue is a major component of the Dow (by price) and S&P (by market capitalization) and two of its three news events were negative, it's not surprising the market's overall tone was off as well.

Monday proved to be an apt beginning for what turned out to be a pretty wild week. Stocks tumbled early in the wake of IBM's profit warning and Iraq's oil embargo, only to post an impressive turnaround by day's end. But anticipated follow-through failed on Tuesday amid fears

Cisco

(CSCO) - Get Report

would follow IBM's lead and warn.

Meanwhile,

Phillips Petroleum

(P)

did raise the red flag amid an overall pullback for energy and related shares, which continued as oil prices retreated throughout the week. On Friday, crude futures fell more than 6% to $23.47 per barrel following the resignation of Venezuelan President Hugo Chavez, who was one of OPEC's most hawkish leaders. For the week, the Amex Oil & Gas index fell 3.2% while the Philadelphia Stock Exchange Oil Service index shed 4%.

Tuesday's losses were feared to herald more, but stocks rallied Wednesday after several brokerage firms defended Cisco, bullied defense contractors such as

Honeywell

(HON) - Get Report

, and companies such as

Sears

(S) - Get Report

issued positive earnings or guidance thereof.

The rally notwithstanding, Wednesday was notable for some

refreshingly candid comments from

Siebel Systems'

(SEBL)

CEO Tom Siebel. At a conference in Barcelona, Siebel said the first quarter may have been the worst in the history of the software industry, and that he saw no signs the contraction is ending. The firm's shares fell nearly 10% Wednesday, dragging a host of software names down in sympathy.

The software sector's performance Wednesday was a harbinger of the broader market's experience Thursday. Rocked by revelations of a

Securities and Exchange Commission

investigation of IBM, the New York attorney general's order that Merrill Lynch increase its disclosure (with other firms possibly next), a dour conference call from

General Electric

(GE) - Get Report

-- whose revenue fell shy of expectations -- and rumors of forced sales by mutual funds, stock proxies suffered steep losses.

Fittingly, the markets reversed again Friday, as major averages rallied after the SEC said late Thursday it had dropped its investigation of IBM. The Dow rose 0.1%, the S&P 500 gained 0.7% and the Comp rallied 1.8% on Friday.

Meanwhile, bonds rallied following the release of some

weaker-than-expected economic data. The price of the benchmark 10-year Treasury note rallied 12/32 to 97 28/32 on Friday, its yield falling to 5.15%. For the week, the 10-year's yield fell 5 basis points while the two-year note's yield fell to 3.35%, its lowest level since early March.

Bonds rallied this week amid signs the economy's recovery is slowing and after oil prices fell, calming inflation fears. In conjunction, the fed funds futures market is now pricing in only a 15% chance for a rate hike at the

Federal Reserve's

May 7 meeting vs. 80% three weeks ago.

Bulls 'n' Bears

Predictably, the market's unevenness produced fodder for both skeptics and optimists.

For the bears, the argument is pretty simple: The market fell for a fourth consecutive week; IBM warned; and investors were quick to sell names such as GE and

Yahoo!

(YHOO)

, even after their quarterly results bested consensus estimates. Only tax-related contributions to mutual funds kept the market afloat this week, say those who believe reports of panic selling by mutual funds and the resultant market action Thursday is but a prelude of what's to come.

"Very simply, the market fundamentals are terrible," emailed John Mesrobian, the ever-bearish analyst at Constantinople Advisors. "We are headed through

Dow 10,000 and through

Nasdaq 1650 and headed for the

September lows, and will hit these lows and push through these lows and it will be soon."

A nice weekend to you, too.

On the other hand, bulls noted the major averages didn't fall so dramatically this week despite the negative news. Furthermore, they held above key technical support levels even during the worst of Thursday's losses. Specifically, the Nasdaq didn't violate its Feb. 22 intraday low of 1696.55, while the Dow and S&P remained well above recent lows.

Michael Paulenoff, founder of 2Mstrategies.com, conceded Thursday's "terrible close" suggests a retest of the Feb. 22 lows is more likely and moved him closer to the capitulation alluded to

here. Still, the technician remains convinced recent weakness will give way to "another powerful advance similar to the September-January move that will complete the

Comp's rally phase within a longer-term bear market."

With first-quarter earnings reports slated to start arriving in earnest next week and some players awaiting their message, resolution of the debate about where the market is headed is likely to arrive as well.

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.