SAN FRANCISCO -- The worm turns quickly on Wall Street, and since the market's reversal last Wednesday afternoon, the bulls have become cowed and the bears emboldened.

Those trends were reinforced today as the

Dow Jones Industrial Average

and

S&P 500

closed at their lowest levels since mid-December, while the

Nasdaq Composite

closed below 2000 for the first time since Jan. 2.

But, as previewed in our

Midday Musings, the onus is on the bears to explain why concerns expressed since the market began rallying in late September will now lay stocks low, when they haven't to date. Yes, higher stock prices suggest valuations are even more extended, but the current level of conviction among many bears is eye-opening.

Conversely, many optimists who've been declaring that a "new bull market" has begun seem to have lost their faith. That's noteworthy because, relatively speaking, recent losses for the major averages haven't been horrific, today being another example.

Bears on Parade

Two catalysts for the market's weakness today are obvious. First and foremost,

Federal Reserve

chairman Alan Greenspan's

speech Friday provided investors a golden opportunity to review whether they'd been overly optimistic about prospects for economic recovery, and thus equities. Second, there was the

recommended equity allocation downgrade by Merrill Lynch's Rich Bernstein, who suggested the market has crossed the "fine line between a liquidity-driven market that rallies in anticipation of improving fundamentals and a bubble."

Bernstein said "investors are amazingly sanguine" based on his proprietary sell-side indicator, while others have noted recent lows in the Chicago Options Exchange Volatility Index (VIX) as well as the level of bears in the

Investors Intelligence

survey. (Today, the VIX rose 4.5% to 25.06, its highest close since Dec. 14.)

Beyond those issues, there are myriad

technical concerns that have some observers assured the time of reckoning is at hand.

John Roque, senior analyst at Arnhold and S. Bleichroeder (and occasional

RealMoney.com

contributor), noted that based on their respective 21- and 50-day moving averages, none of the major averages has reached technically oversold conditions. Thus, "there's still room on the downside," he suggested, forecasting the averages will fall near term to support levels at 9740 for the Dow, 1115 for the S&P and 1965 for the Comp.

Additionally, Roque noted Nasdaq volume peaked in October and is down 13.7% since, based on its 21-day moving average. "Unless

volume expands you're not going up from here," he said, given that "volume is the weapon of the bull."

Finally, he observed economically sensitive stocks such as

Burlington Northern

(BNI)

,

Dow Chemical

(DOW) - Get Report

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and

Eaton

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have broken down after recently hitting historical resistance levels; each was down again today, notably Dow Chemical. Their inability to break out augurs poorly for the economy, he surmised, echoing a point

Helene Meisler made about

3M

(MMM) - Get Report

.

Elsewhere, Rick Berry, formerly of Centennial Capital Management in Atlanta and now an independent analyst, declared "you've seen the highs for the year." Last's Wednesday's intraday reversal was significant, he said, but more important was that, on a weekly basis, major averages posted new recovery highs but closed lower.

Berry is likely unfamiliar to most readers, but those with a

Bloomberg

terminal can review and assess his forecasting prowess. He also made a well-timed bearish call

here in late August.

Today, the analyst observed that

price/earnings-to-growth ratios are egregiously high, citing a double-digit PEG ratio for

Xilinx

(XLNX) - Get Report

as an example. Valuations "are as silly now" as they were in March 2000, he said. (Merrill's Bernstein made a similar observation, noting that, at 2.4, the S&P 500's PEG is higher now than it was during the market's bubble in 1987.)

The S&P 500's recent rally above its downtrend line from the March 2000 high was a "false breakout," Berry continued, forecasting the index will soon revisit its late October lows of about 1060. Similarly, for all the excitement about the Comp's recent rally, he noted it hasn't yet approached its January 2001 lows of about 2251.

This tendency of major averages to post lower highs and lower lows fits into Berry's theory that major averages are in a "secular bear market" that is far from over.

Da Bull

Myriad observers have spied similarities between the market's post-Sept. 21 rally and the end of 1999, albeit on a smaller scale. The implication being that another smack-down (and not of the WWF variety) is in the offing.

But one astute reader notes crucial differences: In early 2000, the Fed was still in a tightening mode, while the central bank is currently in the midst of the most aggressive easing campaign in history. Additionally, earnings expectations were far more optimistic in early 2000, as even those who believe current estimates are too rosy must admit.

The salutary effect of expanding money supply is one reason why Don Hays of Hays Advisory Group remains stubbornly bullish. That, plus an expectation "those write-offs, layoffs and plant closings of yesteryear will produce a magnifying effect on the rebound in earnings."

Hays, who adopted a very aggressive stance on

Sept. 26, retains the courage of his bullish convictions, even as others eye the exits.

The 15-day moving average of the equity/put call ratio is about 58% while the 10-day moving average of the ARMS Index is above 1.3, he noted. These indicators, as well as the roundtable in the current issue of

Barron's

, suggest there is "too much bearishness and not too much bullishness," in Hays' estimation.

The strategist conceded valuations are no longer attractive and that "there is plenty of evidence to support those who expect a short-term correction." But he is going to "give the bullish evidence the benefit of the doubt until the bearish evidence becomes much more obvious" and remains "fully in the

bullish camp."

I'm certainly not pitching my tent in that camp and remain convinced what began on Sept. 21 was a bear market rally. But the bears' growing cockiness and bulls' rediscovered meekness does suggest the proverbial "wall of worry" stocks need to rally is rapidly being reconstructed.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.