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More Market Correction to Come? Ask Mr. PMI


Investors may be focused on earnings right now, but the flash PMI numbers are about to steal the spotlight. And so "Lloyd's Wall of Worry" continues to expand.

Well, let's chalk last week up as one of the worst in US history and try to move on -- emphasis on "try." The Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) all finally joined the broader market confirming that a correction is underway. Except, of course, in Japan where the NIKKEI (INDEXNIKKEI:NI225) is now up over 30% in anticipation of QE East fixing 20 years of economic mismanagement quickly -- emphasis on "quickly."

While the headline noise around stocks is all about earnings, waiting in the wings are the flash PMI numbers, due out Monday night and Tuesday morning. PMI stands for Purchasing Managers Index and flash lets us know that it's an estimate (and subject to change -- or in the vernacular, subject to be wrong). We care because it is an early economic indicator of business ordering and pricing collected from many different industries. We also care because when economic growth is in question, we will ingest and digest any piece of news that gives us even a whiff of insight about commerce. Let's hope the flash PMIs out of the US, Europe, and China delight our senses.

After the unfortunate yet necessary addition of terrorism to the Wall last week, we remain at twenty-six worries as commodity and deflation fears blindsided us and replaced waning concern about the UK and Argentina. Lots of deck chair movement lately. Keep your life vest on just in case.

Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version.

QE: "It's a long way to Tipperary, it's a long way to go," and when you get there, QE will likely still be going strong.

US ECONOMY: What happened in March? Some say reality set in.

UNEMPLOYMENT: If we see a move back up to an 8 rate again in the US, we got problems -- or should I say more problems.

INVESTOR SENTIMENT: Here's the market correction the sideliners have all been waiting for. Any takers?

HOUSING CRISIS: A severe market correction would certainly take the spring out of the spring selling season.

EUROPEAN ECONOMY: They are translating the QE handbook into French, Spanish, Italian, Portuguese, and German as you read this.

FRANCE: Maybe not the right stuff? "Uh, Hollande, we have a problem."

DEFLATION: Fears of it spreading from commodities to just about everything else.

SPAIN: The European Commission targets Spain and Slovenia as the most financially troubled nations in the EU. Rough when you are grouped with a country no one really knew was a country, hey, Spain?

VOLATILITY: "I'm back! Back in the New York Groove."

Lloyd: Market correction, commodity plunge, volatility jump... What more could you ask for?
HAL: Easy, 2008.

CHINA: This sudden bout of monetary and fiscal responsibility is really messing up the global asset inflation plan. Get on the same page with us, man!

ITALIAN ELECTIONS: Re-elected the 87-year-old president who is demanding a coalition government be formed to solve their problems... and a nap.

GLOBAL ECONOMY: No pressure, China, but it's all up to you.

SPENDING CUTS: Bowles-Simpson II or Simpson-Bowles II... "Any way the wind blows, doesn't really matter, to me…"

JAPAN: Getting impatient with their no-growth economy. Only took twenty years.

EARNINGS SEASON: Excluding one-time charges, stock option expense, investment spending, impact of weather and currency, it still seems kinda soft.

DRAGHI: The European Central Bank needs some European Central Bonds.

NORTH KOREA: We're waiting, unfortunately.

First impact: light delays in NYC. My experience tells me that they made that one retroactive for the last 10 years.

CYPRUS: Next time, just quietly put your gold for sale on a Web auction site. Got it?

COMMODITIES: Dr. Copper and friends have left the building.

PORTUGAL: Just waiting and waiting and waiting for a Sunday night to almost financially implode.

SLOVENIA: Welcome to the world stage! Flagging economic growth to the left, financially strapped and in need of bailout funds to the right. Please keep moving…

GOLD: Well, it's looking more and more like a real hard asset with a real soft price.

TERRORISM: Nothing really to say about this. It just is.

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.

See also:

Everything You Think You Know About the 'Big Bad Fed' Is Wrong

Why You Might Be Sharing a Cubicle With Your Windows Phone

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