Investors look for seams of gold after selling spree

US STOCKS are seen flat to a little higher in choppy trade this week, as investors, with little major economic data to guide them, brace for tech giant Cisco Systems earnings.

After weeks of selling, investors are looking for seams of gold. But they are also trigger-happy, wary of fresh scandals and quick to sell any rallies.

“It will continue to be volatile,” said Joe Stocke, portfolio manager with StoneRidge Investment Partners, which oversees $800 million. “Investors are nervous about corporate earnings being reported and possible restatements, and also nervous about the strength of the economy.”

After a week in which economic reports had a big effect on the market, pushing stocks downwards on fears for the recovery, economic data is relatively light in the coming week. Today,

investors sink their teeth into a report on the huge US services sector, followed by wholesale inflation data later in the week. While the market has rebounded a bit from waves of selling that had sent major indexes to new five-year lows late last month, market watchers say the best investors can hope for is a fairly narrow trading range. But any more news of global instability, or a whiff of more corporate wrongdoing following the accounting scandal at WorldCom will send investors bolting for the exit.

“We will have a mixed market and that's barring any major unforeseen news like an attack on Iraq, terrorist attacks or a new corporate scandal,” said Peter Cardillo, chief strategist at Global Partners Securities. “If a major old-line company is dragged into the corporate scandal arena, will that mean trouble for the market? You bet it will.”

In the past week, a batch of dismal data raised serious questions over the sustainability of recovery in the world's largest economy, and thus in corporate earnings. The data showed tepid growth in the economy in the April-to-June quarter, a slowdown in the vast manufacturing sector in July and a slump in construction spending in June.

As a result, the Street is now abuzz with the possibility of an ominous-sounding “Double Dip” - a second economic contraction, mainly due to a slowdown in consumer demand, after recovery from a recession.

If consumers who account for two thirds of economic activity shut their wallets and businesses continue to crimp spending, the negative implications are clear.

The Institute of Supply Management issues its index for the non-manufacturing sector for July today. On Wednesday, wholesale inventories for June will be out shortly after the start of trading. Investors get the July Producer Price Index (PPI), a key gauge of wholesale inflation, on Thursday morning, which analysts expected to be tame.

“Until the next major, major economic report ... the debate on a double dip recession will be on the front line,” Mr Cardillo said. “But the market has come down so much that even a double dip may be discounted.” On the earnings front, Cisco Systems, among the last of the big tech companies to report quarterly results, is due to issue its scorecard after the close of trading tomorrow. Inevitably, Wall Street is still guessing whether the lows reached in late July are indeed the bottom of the 28-month bear market. “The market's powerful rebound off the July lows ... is encouraging,” said Gary Tapp, director of quantitative analysis at SunTrust Robinson Humphrey, referring to recent rallies. “While we continue to look for a choppy, volatile market through year end, we do not expect the lows to be revisited.”