After a 34% sprint since March, the market looks like it might finally be taking a breath. It traded sideways for most of last week, but still managed to post its 12th weekly gain in the last 14 weeks. In fact, after briefly pushing into positive territory for the year during a number of trading sessions over the last two weeks, the Dow finally closed in the green for the year on Friday. For the week ended June 12:

S&P 500 : Up 0.65% to 946.21

Dow: Up 0.41% to 8,799.26

Nasdaq: Up 0.51% to 1,858.80

Take stock in this
Remember how I told you to watch the Treasury auctions last week? Well, interest rates were the talk of the Street. Government bond auction results drove the markets for much of the week. Everyone seemed to freak out when an auction for the 10-year note got a tepid response, driving the yield to 4% and putting more upward pressure on mortgage rates. But then they breathed a sigh of relief when the 30-year auction went relatively well.

Aside from bonds, oil stocks continued to gush higher for most of the week, as crude oil hung in the $70 range throughout the week, settling at $72.04 a barrel on Friday. The basic materials and technology sectors have had some big movers since the market's March lows, but they didn't turn in a good performance in Friday's session. When top performers take a break, the overall market often follows suit, so I wouldn't be surprised to see the rally take a time-out until those sectors bounce back.

Are the bulls really back?
There have been some glimmers of economic hope in weeks past. But how far can "green shoots" take this rally? These green shoots are going to need a lot of sun and nursing before they flower. And we need flowers before the bull can knock down the bear for good.

Meanwhile, we're still dealing with a nasty trend right now: Businesses are cutting jobs and wages because demand is down. Jobless consumers don't have money to spend, spurring less demand; so businesses must cut spending again, and the cycle repeats. It's a self-feeding downward spiral.

To break the cycle, someone has to spend to spur recovery. It doesn't look like consumers or businesses will start spending any time soon. Even though consumer sentiment reached a nine-month high on Friday, unemployment is still rising, and wages aren't likely to see big gains anytime soon. Credit is tight, and consumers' habits are changing -- they're saving more, trying to pay down debt and getting used to sale prices.

That leaves the government. The government has already stepped up as the spender of last resort, but how long can it keep up the pace without wreaking even more havoc? Continued...