Investors made the arduous journey from the fun house to the outhouse and back again this week. This marks the third consecutive week with such dramatic movements, and the extreme gyrations had investors feeling panicked, relieved and -- ultimately -- exhausted.

Investors came in Monday with high hopes after the market's big turnaround that ended the

prior week. But such sentiment was dashed when optical-networking stocks cratered midweek after disappointing results from

Nortel

(NT)

. That led to some harrowing losses Wednesday and early Thursday, which ended with another remarkable recovery. When the week was done, the

Dow Jones Industrial Average

had risen 3.6%, while the

S&P 500

was down 1.2% and the

Nasdaq Composite

had shed 5.9%.

Deja vu All Over Again

The week began with the Comp retreating a bit, but few traders voiced much concern. The Dow, meanwhile, posted a modest rise behind strength in

Honeywell

(HON) - Get Report

, which received a buyout offer from

General Electric

(GE) - Get Report

.

The pattern of strong blue-chips and weak techs reemerged Tuesday. Disappointing news from

National Semiconductor

(NSM)

weighed on chip stocks while strong earnings from

Colgate-Palmolive

(CL) - Get Report

inspired consumer stocks.

The big news Tuesday came after the close of trading, when Nortel reported results that bested consensus expectations but raised questions about the growth of optical networking, something investors presumed would continue unabated. The concerns manifested themselves in a huge selloff Wednesday that rattled not just Nortel and rivals such as

JDS Uniphase

(JDSU)

, but communication-chip makers such as

PMC Sierra

(PMCS)

and contract manufacturers such as

Sanmina

(SANM) - Get Report

.

The Dow fared better than its tech-heavy counterparts, but still fell 0.6% amid weakness in

Hewlett-Packard

(HWP)

and

AT&T

(T) - Get Report

, which confirmed reports it would break itself into four components.

For bulls, the lone solace in the Nasdaq's 5.6% decline Wednesday was the feeling that optical-networking stocks represented the "final bubble" that needed to burst. The event confirmed to some that the end of the seven-month selloff in tech was finally at hand.

That viewpoint was tested in dramatic fashion early Thursday, as the Nasdaq fell as much as 4.5% amid continued concerns about growth after

WorldCom

(WCOM)

said it, too, would curtail capital spending. But as so often witnessed in recent years (and weeks), market averages came roaring back just as investors began fearing the worst.

Once as low as 10,265.06, the Dow recovered to close up 0.5% to 10,380.12, while the S&P 500 finished off fractionally at 1364.44 after trading as low as 1337.94. The Comp closed up 1.3% at 3272.18 vs. its intraday low of 3081.36. None of the averages revisited intraday lows hit on Oct. 18, although the

Nasdaq 100

did briefly, before recovering sharply to close up 1.9% to 3167.14.

Ironically (fittingly?) the comeback was fueled in part by expectations JDS Uniphase would refute concerns about a slowdown in optical networking. Such hopes were rewarded when JDSU reported not only stellar earnings and revenue, but issued ebullient forward guidance.

Thursday's performance ignited expectations for a big rally on Friday, but it was not to be -- at least not for the Nasdaq, which recovered from a midmorning decline to close up 0.2% to 3278.36. Optical-networking stocks did rebound, but the index was beguiled by weakness in mega-cap tech names such as

Applied Materials

(AMAT) - Get Report

and

Cisco

(CSCO) - Get Report

, as well as pronounced declines in biotech after

Amgen

(AMGN) - Get Report

issued some cautious comments late Thursday.

The developments in high tech somewhat obscured a rough week for many biotechs. Hurt by Amgen and disappointing news from

Chiron

(CHIR) - Get Report

, the

Amex Biotech Index

fell 2.3%.

While the Comp struggled a bit, the Dow soared 2% Friday while the S&P rose 1.1%. Blue-chips were inspired by consumer stocks, up again in the wake of

Kellogg's

(K) - Get Report

acquisition of

Keebler

(KBL)

, as well as financials such as

J.P. Morgan

(JPM) - Get Report

. For the week, the

Morgan Stanley Consumer Index

rose 3.5% while the

Philadelphia Stock Exchange/KBW Bank Index

climbed 2.9%. Elsewhere, the

Amex Pharmaceutical Index

rose 2.4%.

Still Bullish

The action this week signaled, to some, a growing defensiveness among investors in the face of slowing economic activity. Indeed, weaker-than-expected

GDP

and

employment cost index

reports, combined with softness in oil prices --- which rattled energy stocks such as

Smith International

(SII)

and

Halliburton

(HAL) - Get Report

(which had additional company-specific problems) -- raised expectations the

Federal Reserve

may soon ease monetary policy. A

controversial stance, for sure.

To others, the rotational activity was natural and healthy.

"People are trying to set themselves up to look OK for the end of the month -- getting rid of the dogs and into new stuff they think is overvalued," said Ned Collins, executive vice president of U.S. stocks at

Daiwa Securities America

. "We may not be totally free and clear of all the pain, but I do think we're very close to a bottom."

Getting October finished is important for both psychological and practical reasons, Collins noted. Oct. 31 marks the fiscal year-end for many mutual funds, whose tax-related selling contributed mightily to the wild swings this week, for both major averages and richly valued tech stocks such as

Juniper Networks

(JNPR) - Get Report

and

SDL

(SDLI)

, traders said.

Collins' optimism is shared by many on Wall Street.

"We continue to view downside risk as unusually low and the potential upside seems large," Robert Robbins, chief investment strategist at

Robinson-Humphrey

, wrote Friday. The previous day, he predicted the S&P 500 would continue to generate 16% compound annual returns for another five years.

But Robbins' short-term bottoming call was predicated on the S&P 500 closing above 1381, its intraday high Oct. 17; the index finished the week at 1379.58.

The S&P 500's failure to establish a clear upward bias reflects a broader conundrum: Recent action indicates the intraday lows hit Oct. 18 should hold, but what kind of recovery unfolds remains unclear.

Those expecting the V-shaped bottoms evident in recent years have been repeatedly stymied, yet those expecting steeper losses also remain frustrated.

So it was again in the week just past.

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.