Ebb and Flow Ends With Rising Tide

But of course, the market also couldn't go a day without obsessing about the subprime sector. The Mortgage Bankers Association's mortgage applications index did increase in the week ended March 23, but there was a corresponding gloomy analysis to go with it.

Many economists say mortgage applications data is a leading indicator and has pointed to stabilization in the housing market. Mortgage applications for purchases bottomed in October 2006, according to the MBA index.

But Goldman Sachs economist Jan Hatzius says the data might be distorted "and might have lost some of its usefulness for forecasting housing activity." For one, applications are just that -- applications. Amid tightening lending standards, applications may not turn into originations, because rejection rates are likely to increase.

Also, the index underrepresents subprime lenders, says the Goldman economist. For those failing mortgage lenders that are represented in the index, the methodology immediately ignores those that go out of business, go bankrupt or stop giving out mortgages. So increasing failures in the mortgage lending business may actually help boost the index because dropouts are not accounted for, writes Haitzus.

So while the sun did come out in the afternoon, the battle likely resumes tomorrow.