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Challenges Ahead for Vulnerable Market


Financials, consumers and crude make for shaky mix.


The market is at a crossroads, where I think you can feel it wants to move higher. By the same token when investors are anxious for a big move and it doesn't happen, they typically retreat. This is why technical analysis is valued, because it charts points where there could be a large supply of sellers and places where sellers should be exhausted.

The same holds true for would-be buyers, either running out of powder or running out of incentive to force the issue. Volume trends definitely underscore the fact there hasn't been any real urgency that the train is leaving the station, despite many big up days.

With that in mind, investors are watching the tape and see an upward bias but they also have been waiting for the clamoring of the bum's rush of buyers. So that has left many investors wanting to love the market, but if they can't they could just as easily hate it, too.

It´s a thin line, between love and hate.
It´s a thin line, it´s 5 o´clock in the morning, and I'm just getting in.
I knock on the door.
A voice sweet and low says, "Who is it?"

- Thin Line Between Love and Hate (The Persuaders)

With that in mind, the market was vulnerable even before trading began. As I pointed out yesterday, the initial reaction to the productivity report should have been embraced with greater enthusiasm. Last week investors should have been buoyed a lot more by the employment report that but the market eked out a hard-fought battle and NASDAQ closed down for the session.

Yesterday there were no head fakes (which were a daily occurrence in January and February, when sessions opened higher most days only to stumble mightily into the closing bell) as the market was blasé from the onset. As it turns out, that lethargic start was prescient as there was a lot of news out during the session that warranted caution and justified folks playing it close to the vest. To be honest, many investors have a long way to go before hating the market like they did a few weeks ago but it wouldn't take a lot to turn the tables.

The challenges are mounting from a practical point of view. With crude this high, there has to be a tipping point where it isn't a reflection of economic success but the logical headwind everyone says it is. The housing market is still in a lot of trouble and the powers that be seem to be stumbling along, tripping over their tongues and confused by their finger-pointing. Then there is the situation with the financials and consumers alike.

Tracing the Past Five Days

We know Friday was a worrisome session even though stocks finished higher. Yesterday there was a one-two punch that helped to pressure the market.

  • March Consumer Credit
  • SEC Disclosure Rules Change

March consumer debt swelled by $15.3 billion, driven by a surge in revolving and non-revolving debt. The Street was looking for an increase of $6.0 billion; the increase in credit card debt, +$6.3 billion was higher than that alone. This is the biggest increase since November and the $34.0 billion quarterly climb in borrowing is the largest since 1Q01 (when the nation entered its last official recession). Household spending is tumbling big time. Economists pounding the table on recession were a little taken aback by the productivity report in the morning felt totally vindicated by the end of the day.

There was also vindication in the corridors of Congress, where lawmakers got their wish as the SEC will now mandate clearer transparency from financial institutions on capital and liquidity. Christopher Cox, Chairman of the Securities and Exchange Commission, was adamant about this decision saying his organization already gathers this information but the public needs access as well. The focus:

  • Get this mandate implemented this year.
  • Offer the information in understandable terms.

It's been a rollercoaster over the past few sessions where the Dow had a chance to break out, but failed and now must hold up above 12,800.

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No positions in stocks mentioned.
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