A Bull-Bear Battle Is Brewing on Wall Street

The market's polarized and getting ready for a showdown.
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SAN FRANCISCO -- It may not rate the drama of

High Noon or

Gunfight at the OK Corral, but there's a shootout a-brewin' on Wall Street.

It's been a long time since I've heard such dichotomy of opinions from market players. Some believe the action

Thursday is part of a great head fake, while others suspect buyers are just marshaling their forces for the next great upturn.

"Polarized," is how one market watcher described the Street's state of mind.

The pull of both arguments is so intense, some market players are having a hard time finding equilibrium (much less figuring out which way is north).

Wednesday afternoon, Sam Ginzburg, senior managing director of equity trading at


, talked about how he expected the "frenzied" buying action to return because "nobody -- including me -- is ever going to learn a lesson

except when people lose every single penny and are in huge debt."

About 24 hours later, Ginzburg was still bullish but his conviction was waning.

"This is just a jerk-around," he said of the action Thursday afternoon. "

Friday gives us something to hang our hat on. That number comes in benign ... a big chunk of buying could come in."

Yet in the same conversation, he conceded "my gut tells me we get hit a little."

Somebody pass the Maalox

By "that number," the trader referred, of course, to Friday's

employment report

for March, which some expect to galvanize sentiment.

The consensus estimate is for nonfarm payrolls to rise 375,000, the unemployment rate to dip to 4% and average hourly earnings to rise 0.3%. (For more insight, see the

Invisible Mouth.)

There was pretty clearly a "bull market" for jobs in March, as one economist described it, but just how bullish is the subject of some contention.

Mitchell Held, economist at

Salomon Smith Barney

is forecasting a whopping headline payroll figure of more than 600,000, with the unemployment rate dipping to 3.9% and average hourly earnings up 0.5%.

"Logic says the markets should have a big negative reaction

to such figures, which means it's wrong," Held quipped. "I sense they will react, I have no idea in what direction."

Numbers as strong as Held predicts would -- in the somewhat twisted logic of Wall Street -- be "bad" for financial markets, because it would suggest the

Federal Reserve

is more likely to maintain its aggressive stance.

But given that "everyone" knows there was an "extra" (fifth) week in the March report, and that both consensus hiring and the relatively tame weather last month will pad the payroll figures, there's a prime opportunity for Wall Street to put a bullish spin on the data.

If it does, that'll be as good as sign as any that Ginzburg's contention -- the original one, that is -- was correct.

If it doesn't, those holding long positions better be quick on the draw (pilgrim).

Another Thing

John Roque

, senior analyst at

Arnhold and S. Bleichroeder

(and occasional contributor to this site), offered some insight into why there's a lack of conviction among market players right now. (I assure you Ginzburg is not alone, and the public is getting skittish as well -- $1.8 billion came out of equity funds for the week ended April 5, vs. inflows of $5.1 billion the previous week, according to



Traders are "very insecure" because, in general, "breakouts are not doing what they look like they should," Roque said. "When breakouts are not working, people become price-sensitive and quick to pull the trigger."

For example,



rose 11% Wednesday and -- based on technical analysis -- "should have broken out about 50" Thursday, he observed. Instead, the stock dipped 2.6% to 47.



falling 6.7% after posting

better-than-expected results is another example of "good news unable to be embraced," he said.

The silver lining in the story (for those long) is "people have gone real quickly from being tremendously complacent to real wary," the analyst said. That should ensure the next selloff will not be as dramatic as the last.

And Finally

Thanks to all who responded to the piece about

market makers.

I intend to revisit this story, but for now, a few quick thoughts on the reaction to the article. Many retail investors expressed outrage at the sense they're still getting the shaft from the market-making community, which will sacrifice its orders to appease institutional clients.

First of all, this gets to the heart of a myth that, because of technological innovations, individuals are trading on par with Wall Street pros. If you haven't already, please disabuse yourself of that notion. No matter what

Richard Grasso


Arthur Levitt

or even

Jim Cramer

tells you -- you're not and you never were. Sorry.

"So many people are looking at Level II

Nasdaq quotes and think 'that's the market'," said one veteran market maker who spoke candidly but not for attribution (surprise!). "We make our living knowing the prices

a stock


trade at, not what the quoted market is at any given moment."

Again, I'm not out to demonize market makers or make excuses for them. They are, after all, in business to make money. As the market-making source said: "I have to be a public servant to preserve my franchise, but the object is to come in tomorrow with a badge, not a broom."

But don't feel too badly. I got as many emails from professional traders who feel they're getting ripped off. One hedge fund manager, who also requested anonymity, charged

New York Stock Exchange

specialists with "using the best bid/offer rule as a smoke screen to hide the real market."

The result is wider spreads, fewer participants, greater volatility and a higher impact cost of trading, even for purportedly stable stocks such as

Texas Instruments

(TXN) - Get Report



(MU) - Get Report

, he said.

Meanwhile, the Big Board just released its

recommendations for retooling its computer systems. Notably, NYSE

rejected the idea of a consolidated limit-order book, which would link it with alternative trading systems such as ECNs.

Either "CLOB" was too ugly an acronym, or the folks on the exchange aren't quite ready to give up the franchise just yet.