For stocks, sideways is no fun, but it beats the alternative

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As bad as the stock market has felt for most of the new year, optimists on Wall Street say the evidence still points to a bottoming process in share prices overall -- not a setup for another steep drop.

After tumbling in early trading Thursday, the market shot higher late in the session on hopes for a federal mortgage-subsidy program to stem home foreclosures.

The Dow Jones industrial average, which was down as much as 245 points at its low, rebounded to finish off just 6.77 points at 7,932.76.

The broader Standard & Poor’s 500 index recouped all of its intraday loss, ending with a 1.45-point gain to 835.19. Most other major indexes also were marginally higher.

Many Wall Street pros note that the S&P and other broad indexes have largely moved sideways since hitting their 2008 lows in late November. The market hasn’t fallen to new lows despite a continuing barrage of ugly economic data and horrid corporate earnings reports.

That has raised hopes that, barring a dramatic worsening of the economy, investors won’t feel compelled to push share prices down sharply again.

It could be a long process of scraping along at or near current levels. But going sideways could be the first step toward eventually going up.

‘The longer [the S&P] stays in a trading range like this the more bullish it becomes,’ said Gail Dudack, head of Dudack Research Group in New York. ‘Sideways works in the long run. It’s a base-building period for something better down the road.’

Dudack and others are particularly encouraged that the S&P has held above the 800 mark this year, despite falling close to that level several times in intraday trading -- including on Thursday, when the index dipped to 808.06.

Under the surface, there are other positive signs for the market, said Anthony Dwyer, market strategist at FTN Midwest Securities Corp. . . .

‘Most stocks have not broken their lows, the new-low list is not expanding like it had been, the advance-decline line is holding up well and volatility is well below where it was,’ Dwyer said.

Even so, it’s too early to say the market has bottomed for good and won’t fall apart again given the still-deteriorating economy and profit picture, many analysts say.

Bruce Bittles, chief investment strategist for Robert W. Baird & Co. in Milwaukee, Wis., had been upbeat before earnings season turned up so many dismal reports.

‘We’re pretty much at a critical spot here,’ Bittles said. ‘I have been feeling we’re in a bottoming process and that still may be true. What’s disturbing is the fact that corporate earnings are falling faster than the stocks.’

Also, although the market has withstood bad news this year remarkably well, that doesn’t mean it couldn’t be shocked into another dive by more major disappointments -- especially negative surprises that aren’t now on investors’ radar screens.

‘After going down 40%, sideways doesn’t feel so bad,’ said Steve Wood, senior portfolio strategist at Russell Investments in New York. But with so many unknowns, ‘Right now it’s premature to say the market has hit bottom.’

-- Walter Hamilton