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Abhorring a News Vacuum, Market Waits in Vain for Selling Climax

A stock market grinding lower on modest volume is one of Wall Street's least favorite things, but that's just what we have now.

One of the things markets reporters are supposed to do is try to figure out the story hook for why stocks went up or down. To say stocks went down on profit-taking, for example, is something of a venial sin with our editors. To say that stocks went down because there weren't any buyers is downright cardinal.

In a market where stocks have been grinding down on low volume, we fumble for reasons for the decline. We write about worries over the bond market, even when the bond market looks like it's found its feet. We talk about how heady valuations have gotten investors nervous, as if they weren't rich on the way up.

And it is not just the writers who crave the news that makes for giant moves in stocks. The market itself is desperate for news. Not just any kind of news, but the kind of bad news that can shake out complacency.

When stocks sold off on Thursday, for example, it was in part because people were saying

Richard Medley

, a hedge fund advisor who publishes an extremely expensive newsletter, wrote that the


was going to raise rates Friday. In fact, Medley merely wrote that Fed members are considering pre-emptive action. And if he had really made that call, people would have deemed him ridiculous. But such is the market's craving for a news peg.

"No news is bad news, because it keeps people off balance rather than making them bearish," says Steve Shobin, chief technical analyst at

Lehman Brothers


Shobin would like to see a market where people are too nervous to hold stocks. Right now, they are merely too nervous to buy them.

It's a condition that started two weeks ago, when the April

Consumer Price Index

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got released. "Yep, there's fear," you might have said after seeing what the market did that day. The

Dow Jones Industrial Average

got clipped 1.8%. The


dropped 2.2%. But volume on the

New York Stock Exchange

was incredibly light that day -- just 729.8 million shares traded. Nothing cathartic about that.

Volume's been low ever since and the market keeps on grinding lower. The bad inflation news and the ensuing decision by the Fed to move to a tightening bias has raised investors' worries over the interest-rate outlook enough to make them shy from buying stocks, but not enough to make them throw in the towel.

Maybe low volume and a lack of buyers doesn't sound like such a bad thing. It is. "If it was the abundance of buyers that took the market up, a paucity of buyers will take it down," explains Stanley Nabi, chief investment officer at

DLJ Investment Management

. In fact one of the worst bear markets in the last 30 years, the long decline in 1973-74, was marked by very low volume.

By no means does the current lack of volume suggest a bear market, but it does suggest that the declines are far from over. "The correction has begun and we have more to go," says Shobin. He thinks the market will go down another 4% to 6%, with heavier losses in speculative areas like the dot-coms, before the it can go up again.

And in the latter stages of the selling, the market finds its story. Maybe it's the Fed. Maybe it's some huge earnings disappointment. Maybe it's the Dow dropping back below 10,000. Or maybe it's some completely exogenous shock. It's a good story, though, and it makes people wish they were heavy in cash.

"A correction," Shobin explains, "is the market's way of wringing out the speculative excesses from the prior cycle and getting the house back in order." It begins with fear.