Can The Market Rally For A Week? It Needs To (PEP)(JNJ)(INTC)(WFC)(JPM)(MS)

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A big up day in the market, say 4% or 5%, is not a rally, at least not any more. The DJIA has proved that it can move 1,000 points from bottom to top or top to bottom in one trading session.

If stocks are going to dodge a move toward 7,000 or below, they have to show that they can rally most days this week and end with the Dow, S&P, and Nasdaq higher by 10% before the close on Friday.

There are plenty of  potential obstacles in the way. The first among these went away as the Mitsubishi UFJ investment in Morgan Stanley (MS) close. If the deal had fallen apart or the terms had sucked the blood out of common shareholders, Wall St could react poorly assuming that any similar rescue could cut the value of equity to the quick. But, Morgan shares rallied 40% on the news.

Then there is the matter of earnings, which most people have forgotten in all of the excitement. Intel (INTC), Johnson & Johnson (JNJ), PepsiCo (PEP), Wells Fargo (WFC), and JP MorganChase (JPM) all release figures before mid-week. If any of them or several of them stumble badly, can the market stay on an uphill trek? The recession is still sitting out there somewhere and it will not spare earnings or allow firms to keep all of their employees. Analyst downgrades of stocks could come almost immediately, as the largest firms in the economy start to shave forecasts.

To some extent, the bank rescue packages that are cropping up like weeds across the developed nations will have had their affect on markets by Tuesday or Wednesday. That leaves the back half of the week to carry what may be a diminishing flow of good news.

If the markets can demonstrate that investors have become believers again, they may have clawed their way off of a bottom.

Douglas A. McIntyre