Stocks have defied the conventional view and have paused, but not pulled back, as many traders were expecting. Now that the quarter end approaches, some traders say stocks could be supported by fund managers who still need to show good returns for the quarter but also face pressure as others sell to lock in gains. The result could be continued sideways trading.
"You could have buyers go on strike because they know everyone's waiting for a pull back, and you have sellers not pulling the trigger," said Art Hogan of Jefferies.
"I think the market is going to have a very good quarter, barring anything crazy. I think there's a lot of pressure to be invested and that means a lot of buying on the dips," said Richard Cripps, managing director of portfolio strategy at Stifel Nicolaus.
Cripps said, however, watch out for earnings season. He said the next big driver for stocks, capable of triggering a pull back could come at the beginning of July, when companies start to show their hand on the second quarter's performance.
"I think one has to say the probabilities are good that you have some kind of pull back here," he said. "The pullback would be normal, and it's not the end of the world after a very sharp rally...We're on track to have an improvement in forward 12 months earnings expectations. The changing expectations and the change in stock prices are ultimately what synchronizes. If we continue to see improvement in earnings, we have to think any type of pullback is technical in nature."
He doesn't expect to see the market retest its March lows, but the downturn could still sting. "I do not think we retest the low, but I do think we could do 50 percent of the gain...if you want 100 years worth of history to speak to you, I would say that we are looking at a very mature, oversold market rally, coming off extreme levels," he said.
"If that's something you don't want to be in a position to experience, you should be selling here," Cripps said.
The lack of volatility in stocks in the past week was made up by heightened action in foreign exchange and the Treasury market, where the bench mark 10-year saw its yield rise to 4 percent. The 10-year ended Friday, yielding 3.78 percent, as buyers moved in after the Treasury's successful 30-year auction Thursday.
"I think we will calm down, and we will see slight declines in yield. It would be nice to see the 10-year yielding 3.5 percent. That would calm down a lot of the concern about the mortgage market," said Zane Brown, fixed income strategist with Lord Abbett. The move up in the 10-year's yield in the last several weeks is a particular concern since it corresponds to mortgage rates, which have been moving higher.
More From CNBC.com
Brown said the 10-year and 30-year will probably come under pressure again the next time Treasury auctions long-dated issues, in three week's time. In the meantime, the market should be relatively steady early this week and then faces possible volatility if economic data disappoints at the end of the week. He said he is paying special attention to Thursday's weekly jobless claims and leading indicators Thursday.
He also said Tuesday's meeting of BRIC countries—Brazil, Russia, India and China—could have more impact than what is likely to come out of the G-8. From G-8, "people will be looking for expressions of concern about the level of stimulus and just some evidence that the leaders are thinking about how they unwind all the stimulus they've flooded the market with," said Brown.
"People will read with interest about the other meeting. The BRIC countries, that's really giving people a great deal of concern when some of the key buyers say they are more interested in non-U.S. paper," he said. A lack of interest from key buyers in U.S. Treasurys would pressure yields, and therefore mortgage rates, hurting a housing recovery. Brazil, China and Russia have all questioned the dollar's reserve status.
The dollar was higher Friday after a volatile week. The dollar lost 0.25 percent to the euro for the week, finishing at a level of $1.3999 per euro. The dollar lost 0.5 percent against the yen.