Week Ahead: Bulls and Bears Fight Over October 

October could bring some rock and roll back to the stock market.

"It's been a good run so far so we should expect some kind of turbulence," said J.P. Morgan chief equities strategist Thomas Lee.

Traders at the New York Stock Exchange
Traders at the New York Stock Exchange

As September winds down, many traders say the market's winning streak could end with the close of the third quarter Wednesday. Still, others say that was the consensus view at the end of August, and it was wrong. For them, the market could see a slight 3 to 5 percent dip—after which stocks could continue to consolidate gains.

Wall Street has always had its shares of bulls and bears, but the widely diverging opinions are the hall mark of the nearly seven month-old market rally.

Stocks face plenty of hurdles in the week ahead, including a very heavy data calendar highlighted by Friday's September employment report and Thursday's auto sales and ISM manufacturing survey. Fed Chairman Ben Bernanke also appears before a Congressional committee Thursday.

The Dow and S&P 500 made fresh year highs this past week, but ended the week lower. The Dow was off 1.5 percent at 9665. It is 1.8 percent higher for the month and up 14.4 percent for the quarter, its best third quarter performance since 1939. It is also 47 percent above its March lows.

From 'Fast Money':

The S&P, down 2.2 percent at 1044, is up 2.3 percent for the month, 13.6 percent for the quarter and 54.4 percent since early March. The Nasdaq lost nearly 2 percent in the past week to 2090, but is up 3.9 percent for the quarter and 64.8 percent since March.

Lee said it will be important to see how the S&P 500 finishes September and whether it can stay positive (above 1020).

"I don't know if we could do that. It would be our seventh consecutive monthly gain for the S&P 500. That's only been a feat achieved 15 times since 1928. It's very unusual, but it would bode very well for the next month and would bode very well for the next three months, which carry us into year end," Lee said. Ten of those 15 times, the market was up for an eighth month. "Your probability of being up three months later is 80 percent," and the average gain has been about 4 percent, he said.

From 'Mad Money':

"That would imply just under 1100" for the S&P at year end, said Lee, who like a number of strategists has 1100 as a year-end target. "I just think there's still a lot of money on the sidelines and a lot of skepticism about the recovery, so next week is going to be very important," he said.

Lee believes one of the drags on the market in the past week was the huge amount of new stock that had to be absorbed by the market. "It was $9.4 billion as of Thursday. This year we've been averaging $3.8 billion a week. It's ahead of the pace we've seen all year," said Lee. As of Thursday morning, there were 41 U.S. stock offerings for the week, most of them secondary offerings.

"It's the highest level of issuance since June. The difference was in June, it was all bank deals and now it's spreading through other sectors," he said. For the week, all 10 S&P sectors finished lower, led by the materials sector, off 4.8 percent and financials, off 3.6 percent.

Profit-Taking Ahead?

Stuart Freeman, chief equities strategist for Wells Fargo Advisors, said a lot of end of quarter window dressing activity has already taken place and the market could succumb to profit taking. "I think we're in that part of the turn where there could be consolidation and profit taking between now and the middle of October. I don't think it's going to last all that long," he said. Freeman has a year end target of 1015 on the S&P 500.

"Could we pull back 10 percent? I think it's possible. We lost about 30 percent of the first leg in the 1970s when we had this kind of move. Could we lose 30 percent of the move? That would be 15 percent.That's possible, but I don't think it's likely we lose that much," Freeman said. "We could have a 10 percent correction but that would be something you would buy. If it occurs it's a profit taking correction, and some people are just taking a little off the table and maybe moving it around."

"We'd have to have something change fundamentally for us to have a significant correction right now. It doesn't look like it," he said.

Freeman said investors should continue to average in to stocks even if the market does seem ready to correct. "I don't want them to miss the second leg of this," he said.

"We're just a little bit past the bottom here, and we don't think the market is discounting a full recovery. It's certainly discounting that we may be leaving a recession, but it's not discounting the full recovery. If you're thinking out five years, you need to be averaging into this market because there's still more to go," he said.

As stocks sold off in the past week, commodities tumbled.

Oil was down nearly 9 percent at $66.02 and gasoline was down 11.6 percent. The revelation of a new underground nuclear fuel plant in Iran caught the attention of the oil market but did not drive prices higher. President Obama and other world leaders called for an investigation.

"The Iran news stopped the sell-off dead in its tracks," said John Kilduff of M.F. Global. Traders say though oil could start to move higher on the Iranian situation if it gets more tense and if it seems likely there will be new sanctions against the country.

The selling in risk assets in the past week coincided with a slight strengthening in the dollar against some currencies in the past week. The dollar rose 0.2 percent against the euro to a level of $1.4670 but it fell against the yen.

Treasurys found buyers even as the government auctioned more than $100 billion in new notes in the past week. The 10-year yield slipped to 3.33 percent.


The September employment report Friday is the big economic news of the coming week, but there is plenty of other data including the closely-watched ISM survey and weekly jobless claims Thursday.

Mark Zandi, chief economist at Moody's Economy.com, said Bernanke's words before the House Finance Committee Thursday will also be watched closely after an op-ed piece and comments from Fed Gov. Kevin Warsh rattled traders Friday.

"What Warsh is telling us is the Federal Reserve is going to start to tighten policy sooner than anyone thinks," said Zandi, adding he disagrees with that view.

"I can't imagine Warsh would have this out there without Bernanke knowing about it. I wouldn't be surprised if they're not somewhat coordinated. Now Bernanke's speech will be more important," Zandi said. Bernanke testifies on regulatory reform before the House committee.

Next Week's Big Data Point

Zandi said jobs is the big data point in the next week. He expects non farm payrolls to decline 175,000 and an unemployment rate of 9.8 percent.

RBS chief U.S. economist Stephen Stanley said he expects a decline of 160,000 non-farm payrolls for September. He is also watching monthly auto sales to see what impact the end of the cash for clunkers program had on sales.

"We certainly expect continued improvement in the ISM. From our standpoint having crossed 50 was a big event," he said.

Stanley said ISM could stay in the low-to mid-50s range for awhile, as it has in past recoveries. Above 50, the manufacturing survey indicates growth and it crossed that level last month for the first time in a long time. He expects a number of 54.5 this week. "It's not until you get to 55 to 60 range until you get a strong recovery," he said.

On Tuesday consumer confidence is reported, as is the S&P/Case Shiller home price index. On Wednesday, the final look at second quarter GDP is released, as is Chicago purchasing managers data. ADP issues its employment report Wednesday.

Thursday is loaded with other reports, including pending home sales, personal income, and construction spending. Friday has factory orders, in addition to the jobs data.

There are also plenty of Fed speakers in the week ahead. Fed Vice Chairman Donald Kohn speaks and will answer questions on Central Bank exit policies at the Cato Institute Wednesday. Dallas Fed President Richard Fisher speaks on the economy Tuesday in Dallas, and Philadelphia Fed President Charles Plosser speaks on the Fed's role in the economy Tuesday evening in Easton, Pa.

Atlanta Fed President Dennis Lockhart Wednesday speaks on the economy at the University of South Alabama. Fed Gov. Daniel Tarullo testifies before a Senate Banking subcommittee on modernizing financial regulation, also Wednesday. Cleveland Fed President Snadra Pianalto speaks about current economic issues in New York Thursday, and Lockhart speaks on the economy and financial conditions in Macon, Georgia that evening. Boston Fed President Eric Rosengren speaks on inflation and financial markets Friday in Boston.

Earnings Central

There are just a few earnings reports, including Walgreen , Darden , Jabil Citcuit and Nike on Tuesday.

Constellation Brands reports Thursday, as does Accenture .

Questions? Comments? marketinsider@cnbc.com