Mixed earnings reports and a mixed reaction to the Fed brought mixed results to the market this week:

Dow +1.2%
Nasdaq -0.8%
S&P 500 +0.3%
S&P Midcap 400 -0.6%
S&P Smallcap 600 -0.4%

On Monday, oil prices fell from last week's highs despite the continuing war in the Middle East. In fact, investors' concern over the war does not extend beyond the price of oil, and that price dropped this week. If it goes up again, the war will matter again. This week, though, it was all about the Fed and earnings.

In Monday's earnings, Citigroup (C) posted 4% profits, casting further doubt on the sustainability of double-digit growth. Mattel (MAT) turned a profit after losing money in 1Q, McDonald's (MCD) beat earnings, and Harley-Davidson (HDI) stuck to its full-year forecast. The Dow closed at +0.1% and the Nasdaq ended unchanged.

Tuesday brought the war back into focus briefly. Fighting intensified and oil rose 1.7%. Then, in the last hour of trading oil prices reversed course and previously down stocks followed. The day ended positively.

Intel (INTC), a stock I own and continue buying on weakness, received an upgrade from Caris & Company that sent it up 2% for the day.

The Labor Dept. reported the producer price index (PPI). It rose 0.5% in June, higher than expected overall but with a core rate that was in line at 0.2%. That was read as a sign that inflation is in check.

As if to back up that idea, Target (TGT) cut its July same-store sales forecast and its shares fell to their lowest level in a year. Consumers do indeed appear to be paring spending, which makes inflation less of a threat. This is one of those events that's good for stopping the Fed's interest rate increases, but bad for the economy.

The Dow finished Tuesday up 0.5% and the Nasdaq up 0.3%.

Then came Wednesday, the best market party we've seen in a while. The main catalyst was Mr. Bernanke's comments to Congress, which seemed to indicate for the first time that the Fed might be ready to pause its rate-raising campaign after two years of relentless increases.

The cheer over that was loud enough to drown out a consumer price index report that showed inflation remaining a threat. The overall figure rose 0.2% in June, following a 0.4% increase in May. The core rate rose 0.3% for the fourth time in a row, putting the year-over-year rate at 2.6%, way above the Fed's target range of 1.5% to 2%. Contrary to Tuesday's PPI, Wednesday's CPI report showed inflation pressure remaining, and increased the odds of another interest rate increase in August.

But nobody wanted to hear that when Mr. Bernanke's testimony indicated otherwise. The market rose dramatically, the Dow by 2%, the Nasdaq by 1.8%, and the S&P Smallcap 600 by 2.9%.

It wasn't universally happy, though. Yahoo (YHOO), another stock of mine that I continue buying on weakness, gave me a chance to do just that. It disappointed the street by delaying the launch of its new search advertising platform and reporting Q2 profits 80% lower than a year ago. The stock dropped 21.8% on 10 times average volume.

Wednesday's party left the market with a hangover on Thursday.

One problem was Intel's reporting a 57% decline in profits and dropping its sales forecast for next quarter. That sent its shares down 7.5%. On the flip side, Apple (AAPL) beat expectations on strong Mac sales and its shares rose 12%. Motorola (MOT) reported a 48% jump in profits from strong RAZR phone sales and projected higher revenues in the quarter ahead, sending its shares up 7%.

Then the FOMC's June minutes were released and they didn't show nearly the sanguine attitude toward rate increases that Mr. Bernanke had shown the day before. In what has become a familiar pattern, investors were sure of an end to increases one day, and unsure the next.

At the sound of Thursday's closing bell, the Dow was down 0.8%, the Nasdaq was down 2%, and the small caps were down 2.7%.

Friday brought more trouble from the already half-dead tech sector. At first, it looked like we might get a bounce from the compressed conditions. Microsoft (MSFT) beat estimates by a penny the night before and announced a $20 billion share buyback plan. Google (GOOG) doubled its profits in contrast to Yahoo's anemic report the day before. An oversold rally looked imminent.

Then Dell (DELL) stunk up the joint. It warned that it would miss forecasts and its shares fell to five-year lows, ending the day down 9.9%. Advanced Micro Devices (AMD), Intel's archrival, met estimates that had been revised downward. Despite its upbeat forecast, the market saw Intel's new chip line as a major threat and sent AMD's shares down 15% to one-year lows.

On the positive side, Caterpillar (CAT) reported a 41% year-over-year growth in earnings. Amgen (AMGN) beat estimates and raised its forecast for next year. Eli Lilly (LLY), Nucor (NUE), and Schlumberger (SLB) all beat estimates, too.

Yet, the overwhelming sentiment was negative. The Dow closed down 0.6% and the Nasdaq down 0.9%. It was the third losing week in a row for the Nasdaq.

The technology sector continues weighing heavily on the market. It was already beaten down, and it keeps getting worse.

I suggest buying into it.

Like all hard times in the past, this one will prove temporary. There are a lot of improvements slated for the medium-term. Microsoft will release its new Windows Vista operating system and Office software, Intel will roll out its line of amazing new chips, Dell will release new computer models, and Yahoo will get its new search advertising system up and running.

Those with the stomach to buy before the news turns positive will be rewarded.

Jason Kelly’s column appears every Saturday. He also writes The Kelly Letter every week with specific buy and sell guidance. For more information, please visit http://www.jasonkelly.com/letter.html.