There seems to be enough oil available for the summer driving season, and that also provided enough fuel for a much anticipated oversold rally on Wall Street this week, despite Friday's setback.

Besides oil's retreat, technicians said that a "wall of worry" over inflation had been built in recent weeks, providing strong support for the advance. Several market gurus predicted that an April rally would take major indices to new highs by the end of the month. Others were more cautious about both the time frame and the extent of such a rally.

Ultimately, the strength of the advance will be tested as the first-quarter earnings season starts in earnest next week. In a harbinger of potential problems, the rally hit a wall Friday as a steep profit-warning from trucking company

USF

(USFC)

helped sink the economically sensitive Dow transportation index. Warnings by USF and others, along with downgrades of high-profile companies such as

General Motors

(GM) - Get Report

and

U.S. Steel

(X) - Get Report

, helped end a four-day winning streak for the major indices.

On Friday, the

Dow Jones Industrial Average

fell 0.8% to 10.461.20, the

S&P 500

lost 0.8% to 1181.19 and the

Nasdaq Composite

shed 1% to 1999.35. After the bell Friday,

Ford

(F) - Get Report

issued a profit-warning; in addition to GM's recent woes, that does not bode well for the economically sensitive auto sector.

But for the week, the DJIA still advanced 0.6%, while the S&P 500 and Nasdaq each gained about 0.8%.

Stocks gained as oil backed off continuously throughout the week to finish at $53.32 per barrel in Nymex trading. The May contract is now down nearly $4, or 6.8%, from last Friday's closing level of $57.25. With a close below $53.75, the contract also fell below its 40-day moving average, which could spur more downside to the key $53 level.

Alan Greenspan lent a hand to oil's retreat on Tuesday, when he predicted that a build upin inventories would eventually cool off "the current price frenzy." That helped counter the effect of another catchy phrase the previous week -- Goldman Sachs' forecasting that a "super spike" may take oil prices above $100 per barrel.

The market was also relieved that Greenspan didn't bring up the much dreaded I-word (inflation) during any of his three appearances during the week.

The combination of falling oil and generally friendly Fed-speak left plenty of room for investors to take a shot at a much awaited oversold rally.

As mentioned

here previously, several market gurus including Don Hays, Paul Desmond of Lowry's Reports, and Merrill Lynch's Richard McCabe are expecting an April rally to take place. The already built wall of worry will support gains at least until the end of next week, according to Hays, irrespective of earnings, oil movements, or the

Fed's

jawboning about inflation.

Supporting the bulls' theory is that money managers still have not put much of their $4.1 billion war chest to work, according to Bank of America research. At the same time, a stronger dollar has spurred outflows from emerging-market equity funds; whether that money comes back to U.S. equities remains to be seen.

Other veteran market-watchers, including Oppenheimer & Co.'s oft-bearish Michael Metz, say that Thursday marked the end of the April rally. (To Metz's credit, he did say before Friday's decline).

And Barry Hyman, chief equity market strategist at Ehrenkrantz King Nussbaum, summarized pertinently the

underlying questions in many market players' minds: Can corporations prosper in an environment in which oil prices stay at or above $50 per barrel? How big of a bite has oil already taken out of profits so far, and how much more is to come?

Alcoa

(AA) - Get Report

posted solid first-quarter earnings Wednesday and said it had managed to pass along some of its energy-related cost increases. But how many other companies will be able to do the same?

The answers come as first-quarter earnings start pouring in next week. According to Thomson First Call, earnings are expected to have grown 8%-8.5% in the first quarter, which is less than half the 19.7% pace seen in the fourth quarter.

As Wall Street tries to sift through earnings reports, there will be more questions about the extent of an expected slowdown in the second half of the year.

More evidence of dampened consumer sentiment was evident Thursday in March chain-store sales numbers, which rose 4.1%, down from a 4.7% rate in February and 3.6% in January. The March results also were inflated by this year's early Easter, a season typically associated with a surge in consumer spending.

From 'Measured' to 'Vigorous?'

Yet amid signs of a slowdown, Fed officials were at it again about inflation. And while inflation fears were put on the back burner for stocks this week, bond prices headed south, reversing last week's trend. The yield of the benchmark 10-year Treasury note rose to 4.47% from 4.45% at last Friday's close.

Last Friday, much weaker-than-expected March jobs growth was cheered in bond pits as signaling less of a chance of aggressive rate hikes in the coming months. But as oil pulled back this week, so did its potential to slow down growth, and that leaves room for the Fed to raise rates more aggressively -- or so went the logic in bond pits.

To emphasize the point about ongoing growth, Philadelphia Fed president Anthony Santomero said Thursday that analysts should not overemphasize temporary swings in the job market. Santomero votes on rates at the Federal Open Market Committee.

And St Louis Fed President William Poole, who doesn't vote on rates this year, said that a pickup in labor costs "would catch the Fed's attention,"

Bloomberg

reported. Poole even offered his own suggestion for new language to replace the Fed's "measured pace" used to tighten interest rates. Should labor costs pick up, the Fed will need a "more vigorous" pace, he offered.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.