Bears Repeating Litany of Reasons to Go Down

"The man who can drive himself further once the effort gets painful is the man who will win."

-- Roger Bannister (first man to run a mile in less than 4 minutes)

As we kick off a new week, the issue we are contemplating is whether this already extended market has the potential to move higher still. The bear argument is painfully obvious: Simply look at the charts and study the extent of the move we have had since the beginning of November on top of an already pretty good move that started in August. Sooner or later we are going to take a rest. There is no doubt about it.

Both bull and bear alike are likely to agree about the technical condition of the market: We are technically extended, but momentum is very strong and there is a fair amount of skepticism, which provides a "wall of worry" for the market to climb.

However, when it comes to fundamental arguments, there is no agreement. The bears have a long list of worries and concerns and the bulls say, "Yeah, yeah, we've heard it all before."

The bears' primary concern is probably the continued weakness in the dollar. Foreign investors are paying a steep price to be invested in the U.S. as the dollar deteriorates, so you can't blame them if they go elsewhere and stop supporting U.S. securities. On the other hand, a weak dollar helps U.S. companies that export goods and services because U.S. goods are comparatively cheap and that attracts foreign customers.

The other major concern of the bears is slow economic growth. The weaker-than-expected jobs report Friday and mediocre retail sales from Wal-Mart (WMT - commentary - Cramer's Take) and others are the major concerns. The steep drop in crude oil prices last week helped offset those concerns to some degree but the bears are growling loudly about the anemic pace of this economic recovery.

The recovery's slow pace does have an upside because inflationary and interest rate pressures are softened. The FOMC will not be as compelled to raise rates if we have a "Goldilocks" economy, which is not too hot and not too cold. The bulls argue that the bears are overstating economic concerns and that we are on the right track.

The bulls got a bit of a boost for their case Friday from an upbeat midquarter update from Intel (INTC - commentary - Cramer's Take). The chip business isn't as bad as many feared, and technology stocks seemed to be attracting some of the capital that was flowing out of the oil sector.

Do the bulls have enough fundamental ammunition that they can overcome the problems of technically extended charts? The bulls have momentum, seasonality and lots of underperforming beta-chasing money managers to help them out, but the inclination of investors to protect recent profits is a formidable hurdle.

We could easily struggle for a while, but the bears who think this market is going to roll over and go straight down will probably be disappointed. There are buyers who want in and they haven't had much of a chance for a very long time. Don't be too quick to count out the dip buyers; recent strong market action will make them even more determined to buy when they finally have a chance.

We have a slightly shaky start to the week. Overseas markets are pressured as companies that export to the U.S. are hurt by the falling dollar. Oil is up slightly on unrest in Saudi Arabia. The dollar is at new lows vs. the euro.

I'm looking for choppy action as we deal with the extended technical conditions. It should be a busy week.

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James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Fla. He is a member of the Michigan Bar Association and a former tax attorney and CPA. De Porre holds business and law degrees from the University of Michigan. He was formerly the host of America Online's The Shark Attack and presently operates SuperTraders.com. At the time of publication, he did not have any positions in any of the stocks mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send your comments to [e-mail].