Pullback, Correction, or Cliff Dive? Here We Go

By Lloyd Khaner  APR 10, 2012 10:25 AM

Anxiety in the markets is on the rise again following weak unemployment numbers and major uncertainty about Spain.


Looks like the major global equity move in the Dow (^DJI), S&P (SPY), Nasdaq (^IXIC) and DAX (^GDAXI) of the last three months is heading for a pause if not a break. Weak employment growth in the US, slowing BRIC economies, and Spain on the verge of a nervous breakdown seem to be reason enough for equities to retrench. All eyes and ears will be on earnings season and QE talk from the Fed to gauge just how deep this trench will be.

My Wall of Worry stands at 22 blocks this week, meaning the level of anxiety in the marketplace is moderately high. (Brave investors will consider looking for bargains.)

Click on the graphic below for a short comment about each of the issues facing investors, or scroll down for a text-only version of this column and an explanation of how it works.

Lloyd's Wall of Worry (Text only)

Bernanke’s Six-Shooter. Two shots fired, four left in the cylinder. And he may reload.
US ECONOMY: Growing or slowing? Like in spring 2010 and 2011, it’s that magical time of year again when we find out.
UNEMPLOYMENT: 120,000 net new jobs created in March, cue music: “Ahhh, freak out! Le freak, c’est chic....”

INVESTOR SENTIMENT: Just as it was about to calmly improve, Katie-bar-the-door sentiment rears back and wants outta the equity barn pronto.

HOUSING CRISIS: When less terrible is seen as very positive, we got problems.

CENTRAL BANKS: Still the only real game in town.
EUROPEAN ECONOMY: Austerity moves up, economy moves down. Austerity moves down, economy moves down. Buena suerte, buona fortuna, boa sorte, viel glück, bonne chance, or as we say outside the EU, “good luck."

THE EUROPEAN UNION: Gonna be a long wait, but the divorce lawyers worldwide are starting to line up for this split. All insisting to be paid in Chinese yuan.
SOVEREIGN DEBT: Spain, Italy, Portugal, and Greece buying up their own at a healthy clip. The plan? Pay it back with devalued currency when and if they drop out of the EU.

SPAIN: “The rain in Spain falls mainly on the…rest of the world.”
10-YEAR TREASURY YIELDS: Having yet another Wile E. Coyote moment as they head down below 2.00% -- “Not again.”
FINANCIAL INSTITUTIONS: The black cloud of regulation spreads across the globe as the outgoing Chinese Premier takes a shot at the oligopoly that is China’s financial industry.
VOLATILITY: Guess who’s back and sleeping on the living room couch for at least the next few weeks?
Lloyd: Any thoughts on the employment report?
HAL: Monthly numbers light, traders delight.
Lloyd: Impressive perversion of a historic siren call of patriotism.
HAL: What’s patriotism?
CHINA: Opening their financial market doors to more cross-border capital. Be mindful of the kindness of strangers, especially when they own the majority of your debt.
STOCK MARKET TECHNICALS: The kid in me says the charts leave some short-term room to the upside. Though the more likely outcome is that the pessimistic older kid in me is about to pummel his little brother.
IRAN: Once a trending topic, now slowly getting overshadowed by Syria. Likely temper tantrum coming.
OIL PRICES: Supply? Who knows. Demand? Hard to tell. Prices? Always too high.
INDIA: All 'n all it's just another BRIC in the wall… whose economy is slowing down.
EARNINGS SEASON:  It's the 85th earnings season of my career and that magical feeling is still there. Has anyone seen my Dramamine?
US PRESIDENTIAL ELECTION: “If you start me up, if you start me up I’ll never stop….”

GOLD: The ultimate quantitative easing junkie and trader favorite SPDR Gold Shares (GLD) had a tough March though potential April QE showers may bring golden May flowers.

What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry,” refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.


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