Here is a look at the volatility created this week by hedge funds, institutions, and those we call “traders”.

STOCKS FINISHED LAST WEEK ESSENTIALLY FLAT, but on Wall Street these days, flat is the new up.

The lack of losses by the market was a marvel. The market didn't come unglued despite Senate opposition to a $14 billion plan to bail out automakers. Jobless claims climbed to a 26-year high; companies from Federal Express (ticker: FDX) to Texas Instruments (TXN) cut their forecasts; and financial stocks swooned after J.P. Morgan (JPM) and U.S. Bancorp (US warned of a rocky quarter.

Yet the Standard & Poor's 500 index eked out its second gain in three weeks. Even the arrest of a prominent broker, Bernard Madoff, on massive fraud charges didn't seem to faze the market much; Knight Capital (NITE), whose wholesale and market-making operation competes with Madoff's, saw shares pop 6.5% Friday.

Such relative improvement after weeks of forced selling will encourage the hope that stocks had reached a bottom and had factored in much of today's economic deterioration. But further progress will require a more thorough thaw in the credit market and the continued, cooperative retreat in mortgage rates. Market volatility also must subside, and while economic data need not improve outright, it must at least hint at a slowing of the rot. For instance, retail sales fell last month for a fifth straight month and were down 7.4% year-over-year, but weakness was concentrated in auto- and gasoline-related pockets, and gains were glimpsed in segments like department stores, electronics and clothing.

Even skeptics who believe the S&P 500 will retest its late-November low of 752 wonder if that can occur amid December's performance-chasing and the inevitable allocation to stocks in January following this year's markdowns. "Reluctant bearish portfolio managers, whose performance has suffered along with the rest of the market, know they can't afford to miss out on a year-end rally," says one Wall Street asset manager. And performance-chasing could fuel further gains.

But what happens after that? And can anything shock the market further? China, already suffering restive labor, saw exports fall an unexpected 2.2% in November. Exports also fell 18% in Korea and 12% in India, and the trade picture bears watching. Worsening exports could lead to shuttering more of Asia's factories and laying off workers. And while nearly everyone expects Asia's growth to slow, how deep of a downturn the market has discounted remains to be seen. And it's all relative.
Some believe dividend paying stocks will shine in an era of thwarted profit growth. Still, focusing on sheer yield isn't the answer. In fact, an opulent yield can be a warning of hazard — and potential dividend cuts — ahead. The focus should instead be on dividend safety.

Dependable dividends will become scarcer in 2009. Payouts per share among S&P 500 companies ticked up 2% this year, but one Wall Street chief investment strategist expects that to fall 13% next year before recovering 1% in 2010. Financial firms, for example, cut dividends by 17% in 2008, "but the real impact will not be felt until 2009," he says. He forecasts a 52% slide in financial dividends next year, as well as declines of 16% among consumer discretionary stocks and 12% in materials (Source: Barrons On-Line).