Don't look now. But stocks are on fire again

Can stocks rebound from dismal quarter?
Can stocks rebound from dismal quarter?

The stock market is kind of like a batter in the midst of an epic hot streak -- swatting every pitch out of the park.

The S&P 500 was up 1.8% Monday. It's the fifth straight up day for the broader market -- the longest winning streak of the year.

And it's been a solid rally. The S&P 500 is up 5.5% in the past week.

But it wasn't that long ago that the market was more like a hitter in a big slump -- swinging and missing even 65 mile per hour meatballs right down the middle of the plate.

However, the current five-day winning streak follows a five-day losing one for the S&P 500. It lost more than 4% then.

It goes without saying that this type of volatility is unsettling for investors. But if there's any good news to be found in the midst of all these ups and downs, it's that the worst may finally be over for stocks.

Related: This could still be the crummiest year for stocks since 2008

Investment strategists take heart in two things that happened last week.

First, the S&P 500 came this-close to falling below the low point it hit back on August 24 -- the day the market freaked out and the Dow plunged nearly 1,000 points.

The S&P 500 hit 1,871.91 on September 29 before bouncing back. The low on August 24 was 1,867.01. Bulls think it's a hopeful sign that the market "tested" the August 24 low but did not go below it.

Katie Stockton, chief technical strategist with BTIG, said last week's moves were a "shakeout of the weak holders in the market."

Stockton thinks the chances of another big sell-off to the August 24 lows are "less likely" now and that stocks could even rally to new highs before the end of the year.

The second cause for optimism? Friday's rally after the jobs report.

Stocks fell at first Friday morning. The jobs report was disappointing and it would have been easy to start worrying about whether the economy was now headed for serious trouble.

But cooler heads prevailed. Stocks finished the day with decent gains. Sure, some of the enthusiasm may be due to hopes that the Federal Reserve now won't raise rates until 2016.

Related: Stocks rally despite weak jobs report

That's not necessarily the best reason for stocks to go up. The rate hike is long overdue and should be viewed as a sign of strength for the economy once it finally happens,

Still, it's also somewhat encouraging that stocks didn't implode on Friday because it's silly to put so much weight on only one jobs report. Economic data is often lumpy.

People shouldn't be shouting recession in a crowded movie theater just yet. That's a bit alarmist.

Krishna Memani, chief investment officer of OppenheimerFunds, wrote in a report last week that the Fed is still on track to eventually raise rates. We may just have to wait a little longer.

"The uncertainty around future Fed action will last until the end of this year and into the beginning of next year and volatility may persist. Ultimately, modest growth and benign inflation will take the Fed out of the equation," Memani wrote.

So where will stocks go from here? A lot will probably depend on earnings. Remember them? Investors have been paying a lot more attention to China and the Fed lately.

Related: CNNMoney's Fear & Greed Index still shows Fear ... but it least it's not Extreme Fear

But Corporate America is about to start giving Wall Street third quarter report cards ... and more importantly, provide outlooks for how they think they will do in the all-important holiday fourth quarter.

Only a handful of prominent companies are releasing earnings this week. including Pepsi (PEP), KFC owner Yum! Brands (YUM), Corona parent Constellation Brands (STZ), Monsanto (MON) and Alcoa (AA). The real deluge of earnings begins next week.

Earnings are not likely to be great. According to FactSet, analysts are predicting a 5.1% drop in year-over-year profits for the companies in the S&P 500.

But it's all about expectations. FactSet also pointed out that fewer companies than usual have issued earnings warnings so far.

In other words, estimates may be reasonable, which limits the possibility of big negative surprises.

So if you're a long-term investor, now is probably not the time to bail on the market just yet. But don't expect huge gains for stocks either.

"We believe the great bull market that began on March 9, 2009 will endure, albeit with more modest results for investors," Memani wrote.

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