The anxious search for a tradeable bottom proved fruitless this week, which ended with the major averages mixed. But subtle signs of upside potential emerged as the weekend beckoned, including a tempering of crude prices Friday and, paradoxically, equity traders' growing frustration.

Following an effort to recoup significant losses Monday, spurred by sharp declines in India and other emerging markets, the

Dow Jones Industrial Average

ended the week down 0.5% while the

S&P 500

shed 0.2% while the

Nasdaq Composite

rose 0.4%.

Literally and figuratively, Wednesday proved to be the fulcrum for the week. Major averages began the session with a sharp rally, boosted by pro-growth comments from China's central bank, better-than-expected earnings from

Hewlett-Packard

(HPQ) - Get Report

and

Applied Materials

(AMAT) - Get Report

, raised sales forecast by

STMicroelectronics

(STM) - Get Report

, as well as merger activity between

Marsh & McClellan

(MMC) - Get Report

and

Kroll

(KROL)

, and

Cardinal Health

(CAH) - Get Report

and

Alaris Medical

(AMI)

.

But traders' early embrace of the positive corporate news was sabotaged late in the day by reports of U.S. troops firing on a wedding party in Iraq, which coincided with a sharp jump in crude prices. Given the eagerness of buyers at the open, Wednesday's initial rally might also have been doomed by traders' overzealousness and lack of fear. (As I

wrote Wednesday morning in

RealMoney.com's

Columnist Conversation: "If the market tends to make life hard on the majority of players, this 'bounce' could be short-lived.")

Wednesday's session was discouraging to those market participants not already in a dour frame of mind, a group whose ranks were already swelling, as evidenced by various measures:

Chartcraft.com's Investors Intelligence survey showed bearish sentiment rose to 26.7% from 25.7% the week prior, while bullish sentiment fell to 43.6% from 44.6%.

Although bullish sentiment in the American Association of Individual Investors' poll rose this week to 36.7% from 32.9%, it still trails bearish sentiment at 40%.

Index put/call ratios were consistently above 1.50 this week, while equity-only put/call ratios eclipsed 1.0 on Thursday. The one-day Arms Index came down from Monday's peak at 2.67 but still hit a pretty hefty 1.77 on Thursday.

By Friday, there was clearly not a lot of cheer on most equity trading desks.

"There's a lot of anxiety of over higher oil prices, unrest in the Middle East, rising rates, the presidential election and a slowing consumer -- not necessarily in that order," said Bob Basel, director of listed trading at Citigroup Smith Barney.

While agreeing those concerns are well known and thus arguably priced in, Basel observed it's nearly impossible to assess the risk of terrorism, that the election remains a tossup and that it's difficult to predict when the

Federal Reserve

will raise rates or when consumer spending slows as a result.

"There's a ton of uncertainty," he said, predicting the market will likely remain in a "tight trading range" with relatively low volume and "a lot of investor nervousness" for the next three to six months. In other words, more of the same type of action evident this week.

Basel noted fund managers have greater incentives to raise cash these days vs. being aggressive buyers of stocks. The trader said he too would "lean toward cash or a similar-type instrument."

Notably, equity mutual funds suffered outflows of almost $2.5 billion in the first two weeks of May vs. inflows of $24.5 billion in April and $88.7 billion in the first quarter, according to AMG Data.

Nervous Confidence of Upside

Of course, the best time to buy is often when others are fearful, and discontent -- albeit not absolute fear -- is certainly on the rise.

One reason for near-term optimism is the late-week decline in crude futures, which fell 2.1% to $39.93 per barrel Friday after Saudi Arabia pledged to increase its oil production by 8% and proposed OPEC increase overall production by about 2 billion barrels a day. For the week, crude prices fell $1.44, or 3.6%, helping boost transportation stocks. For the week the Dow Jones Transportation Average rose 0.5%.

The failure of the transports to confirm the Dow's recent weakness is "another bit of very exciting news for us bulls to savor," opined Don Hays of Hays Advisory Group, who also noted relative strength in the Philadelphia Stock Exchange Semiconductor Index; this week, the SOX rose 1.6%.

"These two items -- semiconductors and Dow Transports, are not absolute answers, but often provide fantastic anecdotal evidence to confirm significant buying junctures," wrote Hays, who adopted a near fully invested posture this week after having raised cash in January, near the Comp's peak.

"If you look at your portfolio, if it is anything like ours, you will find that at least half your stocks bottomed out right before those upward surges" in crude and 10-year Treasury yields -- which ended this week down 1 basis point at 4.76%, he wrote. Most equity portfolios "have

probably moved up since the other big bomb -- the prison abuse scandal, was headlined two weeks ago," Hays continued. "So here I (we) sit, feeling that same nervous confidence we've felt over many years of 'trusting the indicators'."

One more indicator of note: In conjunction with the dollar's modest weakness, gold prices rebounded this week to rise 2.2% to $384.90 per ounce.

There's still a sense among many market participants that what's good for gold is bad for overall equities and vice versa. But in this "reflation" environment, that's no longer the case, and the revival of gold and related stocks (the Amex Gold Bugs Index rose 7.7% this week) is something else for bulls to cheer about at the end of an otherwise difficult week.

Finally, I'll be back on John Batchelor's ABC Radio Network show to discuss these and related issues Friday night/Saturday morning, around 9:30 p.m. PST/12:30 a.m. EST. Check the

ABC Radio Web site for local listings or Webcast options.