Week ahead could decide whether that was the bottom

After a rip-roaring week, Wall Street should be in better spirits when it gets back to work Tuesday, as traders watch to see if markets can hold recent lows.

China's mainland markets reopen after a week hiatus Monday, and that could stir things up if selling there intensifies. Hong Kong's market sold off in the past week when it reopened after a three-day new year holiday.

In the U.S., selling reached a crescendo Thursday with both stocks and oil hitting January lows, before erasing losses. Both markets rallied hard on Friday with the S&P 500 bouncing nearly 2 percent, and West Texas Intermediate crude up more than 12 percent on the day.

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

"Do we have a global meltdown? I don't think so. You need an exogenous shock to create it," said Tobias Levkovich, chief U.S. equities strategist at Citigroup. Levkovich said he believes the market is in the process of bottoming, based on his indicators, one of which shows sentiment worse than it was in the sell-off of 2011.

"We have priced in the fear of a recession. If we have a recession, earnings estimates will go down and stocks will go down further. We just don't have the pieces of the puzzle that get you to recession. We would need credit to get much worse and more broadly. We would need hiring intentions to fall," he said.

In the coming week, there are housing starts and the minutes of the Fed's last meeting on Wednesday, and CPI inflation data on Friday.

There are also some major earnings, including Wal-Mart Thursday. Fed speakers are about, including three on Tuesday with a first speech from new Minneapolis Fed President Neel Kashkari.

In Europe, European Central Bank President Mario Draghi speaks to the European parliament when U.S. markets are closed Monday. Chinese inflation data is expected Thursday.

But first markets will have to deal with the return of China's mainland stock markets, and expectations are that they will be lower.

"I think they're opening ugly when they come in," said Amherst Pierpont global strategist Robert Sinche. But Sinche said there should be some trade and financing data from China early in the week. There also has been just a little movement in the offshore yuan, and it rose about a percent in the past week when China was closed. "If financing activity picks up, export momentum looks like it's accelerating and the currency strengthens, those are not bad things, and whether there's enough to offset a horrible stock price reaction, I don't know," he said.

In the past week, the S&P 500 fell 0.8 percent for the week to 1,864. WTI settled at $29.44 per barrel Friday, a 4.7 percent loss for the week. For much of the week, traders focused on fears about credit issues surrounding the European banking sector, and the fact that so many of the world's central banks have gone to negative yields, seemingly a policy of last resort.

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Fed Chair Janet Yellen discussed the fact the Fed had considered negative rates as part of her semiannual testimony before Congress Wednesday and Thursday. That served to make markets nervous, but New York Fed President William Dudley helped relieve some of the tension when he said on Friday that negative interest rates was not part of the conversation in the U.S. now.

"I think a lot of the hysteria has been washing out this week. You can only go through this a couple times a year. It was a pretty volatile week. Stocks never got down much more than 10 percent, but it just felt like it took the life out of people," said Chris Rupkey, chief financial economist at MUFG Union Bank. "I think the reasons that brought us down this week, people are going to take another look at next week. … Negative rates are not coming here. Recession is not coming here. I think people will settle down."

Oil, rates and stocks all set important lows on Thursday, and on Friday, Treasurys sold off as risk rallied. According to Reuters Tradeweb, the 10-year yield reached a 2012 low of 1.53 percent Thursday, but was at 1.74 percent late Friday. WTI oil touched $26.05, just a few cents below its January low Thursday before turning around on a headline suggesting an OPEC deal on production is possible. That also bounced stocks after the S&P 500 had dipped to its Jan. 20 low of 1,812 Thursday afternoon, and it moved higher with oil.

"We held a good rally near the close (Thursday) so I'm not surprised by this bounce," said Maxim Group technical analyst Paul LaRosa on Friday. "I don't think we're out of the woods yet, with potential for more downside. However, I think we can rally from here. We are today and I could see it continuing."

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Scott Redler of T3ive.com said the fact the S&P 500 tested its January low Thursday, then gapped up and held it, was a positive, as was the powerful move higher in oil. "We tested (S&P) 1,812 yesterday and got a successful bounce off of it, and nobody believes it," said Redler, who follows the market's short-term technicals. He said the bounce in bank stocks was also a positive. "For the first time in a while, it's just as hard to be short as it is to be long, while for most of 2016, the bears and sellers have been in control."

Levkovich said he believes the selling overdone and that his panic/euphoria model shows a 97 percent chance the market will be higher a year from now.

Investors have also become highly dependent on technicals.

"We're trading with this incredible focus on the technical because people don't have faith in the fundamentals," he said. "They have no conviction in the fundamentals."

Read MoreNegative rate talk 'premature,' economy fine: Dudley

Oil markets in the week ahead will be watching for comments out of Riyadh, Saudi Arabia Tuesday, where the IEA-IEF-OPEC symposium on energy outlooks takes place. The meeting will be presided over by Prince Abdulaziz bin Salman Al Saud, vice minister for petroleum and mineral resources.

While OPEC members would not talk about a production deal, the symposium could be a forum where opinions will be heard and those headlines could easily move the market. In recent weeks, some OPEC officials and Russian officials have said they would be willing to talk about a deal to cut production, but the comments that will carry the most weight are any that would come from Saudi Arabia.

Saudi Arabia led OPEC's policy change in 2014 to let the market set prices. That has resulted in a steep drop in prices, even as producers added more supply to the market. Its position has been that it would agree to cut output if all producers agree.

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Interestingly, the Saudi vice minister, in a speech last fall, said that the extreme price movements in oil are harming producers, consumers and the oil industry. He also discussed how it hurt future investment and spills over into other parts of the energy complex. "This is because price instability undermines the viability of energy policies — of both producers and consumers — that are aimed at increasing the share of renewables in the energy mix, and enhancing energy efficiency," he said.

Even with the oil rally Thursday and Friday, many analysts doubt it will be easy for OPEC to come to a deal, given the tense relations between Iran and Saudi Arabia.

"Nothing's changed and there's no concrete signs of a production cut anywhere," said John Kilduff of Again Capital.

But the price action was strong, and WTI did hold the lows from January. "It could actually be a double bottom versus last month's low," he said. "It's a bullish signal for technicals but there's still competing elements on both charts that point to more losses."

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Monday

Presidents Day holiday

Markets closed

Tuesday

Earnings: Agilent, Cerner, Devon Energy, Ex[press Scripts, Fossil, Kaiser Aluminum, Potbelly, Generac, Surgical Care Affiliates, Vornado Realty

8:30 a.m. Empire State survey

9 a.m. Philadelphia President Patrick Harker

10 a.m. NAHB survey

10:30 a.m. Minneapolis Fed President Neel Kashkari

4 p.m. TIC data

7:30 p.m. Boston Fed President Eric Rosengren

Wednesday

Earnings: Priceline, Noble Energy, T-Mobile, Lumber Liquidators, Eaton Vance, Marathon Oil, Newmont Mining, Brocade, Angie's List, Analog Devices, Dr. Pepper Snapple, Garmin, Iamgold, La-Z-Boy

8:15 a.m. Industrial production

8:30 a.m. PPI; housing starts

2 p.m. Fed minutes

7:30 p.m. St. Louis Fed President James Bullard

Thursday

Earnings: Wal-Mart, Nordstrom, Applied Materials, Duke Energy, Discovery Communications, Hyatt, MGM Resorts, Dish Networks, Kate Spade, Crocs, Scana, SodaStream, Toro, Dana Holdings, Fluor, Imax, Six Flags, BJ's Restaurant, Boston Beer, WageWorks

8:30 a.m. Initial claims; Philadelphia Fed survey

3:30 p.m. San Francisco Fed President John Williams

Friday

Earnings: Deere, Public Service, VF Corp, Cabot Oil and Gas, Allianz ,Pinnacle West, Echostar

8:30 a.m. CPI

8:40 a.m. Cleveland Fed President Loretta Mester