Line drawn in US stock market battle

After setting its closing high for the year on April 29, the S&P 500 has lost 7 percent. Wall Street typically defines a drop of 10 percent or more from a recent peak as a correction.

The benchmark S&P 500 hit its lowest point right on its 200-day moving average in volatile trading on Thursday. The index then rallied 1 percent from that session low to close on Friday at 1,271.50. It also scored its first weekly gain in the last seven weeks.

At Friday's close, the S&P 500's 200-day moving average was around 1,259. If the level holds, it could be a springboard for stocks to rally.

The Nasdaq, which often leads market moves, has not fared so well, and that is a worry to investors. It has closed below its 200-day moving average and kept falling on Friday when other indexes stabilized. It ended the week down 1 percent. From its 2011 closing high on April 29, the Nasdaq has tumbled nearly 9 percent — getting close to a correction.

Bond markets remain anxious about a Greek default.

Most economists are overwhelmingly skeptical that Greece can ever repay its mountain of debt, which has reached 340 billion euros — or 150 percent of the country's annual economic output.

Reuters' calculations using 5-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting, based on a 40 percent recovery rate.

Some Say It's Time to Buy

But for now, it seems stock investors are sanguine. They believe the European Union will rescue Greece without major disruption to markets and are using the drop in equity prices as a buying opportunity.

Bob Doll, chief equity strategist at BlackRock, says he has been using the pullback to reduce his underweight in cyclical stocks such as a Alcoa Inc., Applied Materials and International Paper.

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