Updated from 4:48 p.m. EDT

The old trader's maxim dictates "the trend is your friend." That was certainly the case for oil on Wednesday when crude hit a fresh four-month high even as the Department of Energy reported greater-than-expected supplies piling up and a decline in refinery activity. The oil surge helped wipe out a morning rally for stocks.

Crude rose almost 3% on the day as futures on the New York Mercantile Exchange closed above $53 a barrel for the first time since October. The

Dow Jones Industrial Average

hit an intraday high of 10,869.83 but finished down 18 points, or 0.2%, at 10,811.97. The

S&P 500

was virtually unchanged at 1210.08 vs. its intraday high of 1215.58 and the

Nasdaq Composite

fell 0.2% to 2067.50 after trading as high as 2084.15.

Oil wasn't the market's only challenge.

Federal Reserve

Chairman Alan Greenspan trooped up to a House Budget Committee hearing. Fears that the maestro might send a signal of more interest rate hikes than expected had stocks and bonds edgy at the open.

But the 10 a.m. release of his testimony relieved those worries as his prepared remarks barely touched on the economy at all. Instead he focused on looming financial problems in the Social Security and Medicare programs.

Reasonably Good

"The U.S. economy delivered a solid performance in 2004, and thus far this year, activity appears to be expanding at a reasonably good pace," was nearly all he said of note in the speech. "However, the positive short-term economic outlook is playing out against a backdrop of concern about the prospects for the federal budget, especially over the longer run."

In Q&A, Greenspan was asked about fears that central banks liquidating investments in Treasury bonds might cause a problem. Recall that the catalyst for last Tuesday's market drop was an indication from South Korea that it might sell dollar-denominated assets. Not surprisingly, Greenspan wasn't much worried.

"There, I must tell you however, is very little evidence that that is even going on, even though there's been some rumors in the press and the like that there's been a significant move out of U.S. dollars," Greenspan said, according to

Dow Jones

. "That may occur somewhere down the line, years ahead, nobody really knows for sure. But there's very little evidence that is what is occurring."

And even if such selling did occur, no big deal, says the Fed chief, whose sanguine attitude was cited in aiding the stock market's early rise. "Our general conclusion at this stage is we do not perceive that it is a really a significant problem for our domestic economy," he said.

Greenspan has now testified three times on Capitol Hill over the past few weeks and we still don't know if he was among those members of the Fed's Open Market Committee who were fretting in December about "potentially excessive risk-taking" in markets such as real estate, corporate bonds and initial public offerings. We do know that the writer of this column sits in that camp, at least with regards to real estate.

Rebuilding the Wall of Worry

And once again, following last fall's false alarm, the data are hinting that a slowdown is coming. If you're long homebuilders, take comfort in the fact that I was

wrong in September. The Philadelphia Stock Exchange's housing index, which gained about 7% in just two days last week, lost 1.1% on Wednesday to 502.81 as the latest pile of bad tidings about the sector continued to pile up.

MDC Holdings

(MDC) - Get M.D.C. Holdings, Inc. Report

, one of the smaller publicly traded builders, said it would miss first-quarter analysts' estimates (the news was actually in a press release issued late Tuesday night).

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"Construction and development delays resulting from adverse weather conditions have occurred in several of its markets, most notably Southern California, Nevada and Arizona," the company said. While first-quarter earnings will be less than the $1.80 per share expected, MDC said it expected the delayed homes would be built and sold, so full-year earnings and revenue forecasts "remain essentially unchanged."

MDC shares lost 3%,

Toll Brothers

(TOL) - Get Toll Brothers, Inc. Report

dropped 1.3% and

Hovnanian

(HOV) - Get Hovnanian Enterprises, Inc. Class A Report

fell 1.2%. (After the close on Wednesday, Hovnanian reported that net income rose 41% last quarter and increased its full-year EPS estimate to $6.85 from $6.50. The shares were recently up 1% in after-hours trading.)

Another small builder,

William Lyon Homes

( WLS), issued a similar warning on Tuesday morning -- in the 16th paragraph of its fourth-quarter earnings announcement. It slipped 1.4% on Wednesday.

That report followed Monday's news that new-home sales dropped 9% in January from December and 4% from the previous year. While some of the decline was no doubt weather-related, the inventory of 438,000 unsold homes exceeded even the record levels of 1973.

On Tuesday, the National Association of Realtors reported that more than one-third of homes bought last year were either investment properties or second homes, bolstering the view presented in

The New York Times

this week that a significant speculative edge has entered the real estate market. Of all homes in the U.S., 72.1 million are owner-occupied, 6.6 million are for vacations and 37.2 million are investments, the group said. NAR chief economist David Lereah was quoted in the

Chicago Tribune

saying that the data "astonished" him.

And on Wednesday, applications for new mortgages decreased for the third consecutive week as both fixed-rate and adjustable-rate mortgage rates moved up.

The situation is of course reminiscent of

Pulte Homes'

(PHM) - Get PulteGroup, Inc. Report

troubles last October when the company's overaggressive pricing in Las Vegas hurt its results, but didn't signal vastly more widespread problems.

This time, mortgage rates are more firmly on an upswing and inventories are higher across the country. Still, the Pulte experience proved that it is important to make distinctions. Toll Brothers, for example, already had in place stronger measures to deter speculative buying than did some of its peers, and it has outperformed. On the macro level, though, housing is looking increasingly vulnerable.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.