Stocks Mired in Red

Update from 12:23 p.m. EST

Stocks on Wall Street were trading in the red Thursday, as investors were offered reminders that the credit crisis continues to plague major financial firms as well as economic data that did little to bolster confidence.

The Dow Jones Industrial Average dropped 387 points to 8752, and the S&P 500 gave back 41 points to 911. The Nasdaq shed 55 points to 1626.

In rising off its Oct. 27 lows, the market went from an oversold level to overbought in a very short period, said Robert Pavlik, chief investment officer at Oaktree Asset Management. "It's working off some of that overbought condition," he said. The market has overreacted to a thawing credit market, he said. "I still think there's weakness ahead that just hasn't been factored in."

Pavlik also said that the market has been trading on low volume, meaning that buyers have not committed to making a stand. "I think what you're seeing now is the folks that did that recent buying from the lows of the 10th or the 27th on the hopes of catching something, some kind of major reversal are now getting out of it."

"We're still in an environment where you can't trust any rallies," said Chip Hanlon, president of Delta Global Advisors. He said that although the stock market should turn higher before the economy does, the broader economy is due to stagnate for as much as nine more months.

However, Hanlon also said that if the Obama administration proves disinclined to raise taxes in the face of a weak economy, that could provide an upside that the market is currently not expecting.