Will market rally stick or disappear?

NEW YORK (AP) — Investors have seen this before.

Since the bear market began in late 2007, the Dow Jones industrial average has fallen into a pattern of huge declines, big gains, and then even larger declines. Four times, the market has rallied only to dissipate.

This past week, the market made a fifth stab at recovery, logging its best performance in months after remarks from bank CEOs and economic data led investors to believe they’d gotten too pessimistic.

The Dow Jones industrial average rallied for four straight days from nearly 12-year lows, and gained 597 points, or 9 percent — its best week since November. That followed a two-and-a-half month drop in the Dow of nearly 25 percent.

But is the worst really over?

There’s no formula to figure out if this latest rally will stick. But market analysts are watching closely for signs that the worst might be behind us, and they say some good signs are starting to pop up.

“There are little subtle things that have happened that are good — good enough to see that market is trying to establish a near-term bottom,” said John Kosar, market technician and president of Asbury Research in Chicago. “But it’s way, way, way too premature to try to make an argument that this is ‘The Bottom.’”

Here are five reasons the market may have bottomed, and five reasons to still fear the bear.

Five signs the market may have bottomed:

UPumped up volume. Market analysts say two signs of a bottom are the entrance of big institutional investors, because they hold stocks for the long-term, and high trading volumes during rallies. Check, and check.

Pension funds, mutual funds, and insurance funds began snapping up bargain stocks last week after sitting things out for a while, said Stuart Frankel & Co. president Jeffrey Frankel, who works on the floor of the New York Stock Exchange.

UThe economy’s bad, but could be worse. The U.S. economy might be horrible, but it’s not the Great Depression. Unemployment is at 8.1 percent, and expected to rise above 10 percent, but that’s nowhere near the 25 percent level experienced in the 1930s. And today, when people are fired, they can collect unemployment. Conditions are a far cry from shanty towns and bread lines.

UZombie banks? Not quite. Before last week, investors were throwing around the term “zombie banks” to describe the big U.S. banks: Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co.

But last week, these three U.S. banks said they’ve actually been profitable so far this year. They’re also borrowing less from the Federal Reserve now.

UThe commodity bounce. It’s counterintuitive, but Americans should be happy oil prices aren’t falling anymore. After massive price drops alongside stocks over the past several months, crude oil has jumped 16 percent in the past three weeks.

Crude oil and copper — which has risen 17 percent in three weeks — tend to be economic barometers, Kosar said. That’s because if the cost of industrial metals and crude oil are rising, it means traders see demand trickling back. Growing demand means increasing industrial production.

UMainstreet capitulation. Everyone at cocktail parties is talking about how they’ve moved into cash. Certainly, the financial crisis proved that Wall Street bigwigs aren’t all smarter than the rest of us. But it’s usually a good time to buy when regular folks are saying they’ve cashed out.

Five signs the market has yet to find a bottom:

UChronic credit woes. The banks may not be dead, but they’re still sick. So are those giant, complicated credit markets. JPMorgan analyst Thomas J. Lee noted that the markets for securities backed by residential and commercial mortgages have recently deteriorated to their worst levels since Lehman Brothers’ bankruptcy.

UEconomic drops are jagged. Economies, like stock markets, don’t decline in a straight line. The recent spate of better-than-expected retail sales data could be merely a short-term blip.

UShorts: Not sweet. A big chunk of last week’s rally was driven by what’s known as “short-covering” — when investors buy stocks simply to offset short trades, in which an investor borrows a stock then sells it right away, hoping to buy the same shares back later at a lower price, thus profiting from the decline.

UFear of the unknown. The market fears something wildly unexpected could happen. The Sept. 11, 2001, terrorist attacks threw a wrench in the market’s recovery after the bursting of the technology bubble. And an unintended consequence of addressing the Great Depression with protectionism in the 1930s was global trade war, which hampered the U.S. market’s recovery.

UThe Bernie Madoff factor. Even if you didn’t invest in Bernard Madoff’s fund, you might still be an indirect victim. Trust in the markets took a major hit after his $65 billion Ponzi scheme was revealed last December. It took another blow when R. Allen Stanford’s $8 billion scheme came out in February. Without trust, the stock market can’t rise for long.

“A lot of people have been beaten and wounded, and it’s going to take time to recover from that. It’s more than wealth — confidence has been rattled,” Frankel said.

Before jumping in, “everyone is looking twice,” Frankel said.