What a Week: Bear Blast

The indices sulk during another week of volatility and mixed signals.
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The old saying goes that March weather comes in like a lion but goes out like a lamb. Well, in New York, the weather this week went out like a lion, and the stock market likewise went out like a bear.

Traders endured a third week of volatility and mixed economic messages, as the three major indices ended with a whimper. Market-players can't be sure if this correction is turning into a bear market or if it is just a correction. And with Friday's bad weather, many of the "decision makers" weren't on trading desks to step in and buy on the weakness.

Economically speaking, traders could take their pick and worry about slow growth as Tuesday's weak retail sales figures stirred up fear that the subprime mortgage meltdown will cause the consumer to melt down.

But the higher-than-expected inflation data this week puts the

Fed

far away from a rate cut. Certainly, next week's Federal Open Market Committee is unlikely to veer from the status quo -- moderate economic growth with a tightening bias.

"It's a very difficult call," says Michael Driscoll, director of listed trading at Bear Stearns. "There are a lot of people speculating if the market is washed out or not. There's some bargain-hunting in here, but people are unsettled when there's barely anyone putting up a fight when the market slips to the downside," as it did Friday afternoon.

The

Dow Jones Industrial Average

slipped 0.4% on the day and 1.4% on the week to close at 12,110.41. The

S&P 500

fell 0.4% Friday and 1.1% on the week to close at 1386.95. The

Nasdaq Composite

fell 0.3% Friday and 0.6% on the week.

The Treasury bond market fluctuated with the data this week, but the 10-year yield ended down slightly at 4.54% from 4.59% as of last Friday.

Stocks fought to remain in the green through half of Friday's session. There were some bright spots even in the low-volume afternoon selloff.

Starbucks

(SBUX) - Get Report

, upgraded by Goldman Sachs, gained more than 3% on the day.

Railroad company

CSX

(CSX) - Get Report

gained 6.2% -- pulling the Dow Jones Transportation Average back into positive territory. It ended the day up 0.5% but slid 1% on the week. Traders reported buyout rumors swirling in the rails sector.

Even in the subprime space, some lenders are finding ways to plug the holes. Others are now the day-trading favorites, but either way, they've bottomed for the time being.

Accredited Home Lenders

(LEND) - Get Report

sold $2.7 billion of loans to cover margin calls, and its shares gained 15.6% on the day, after being up as much as 30% Friday. Its shares are up 63.6% from Tuesday's $3.97 closing price. Shares of subprime lender

Fremont General

(FMT)

gained 20.3% on the day.

Outside the exceptions, the broad market had no trouble drifting south Friday. Even so, most traders and portfolio managers are loath to call this a bear market just yet.

Charles Biderman, CEO and publisher of Trim Tabs Investment Research, remains bullish based on several liquidity-based factors. Insider selling is down 45% from a year ago, says Biderman, while take-home pay is up and corporate buybacks topped $20 billion in seven of the last eight weeks.

"All this is, is fear about the real estate market taking down the economy," says Biderman. "I think this is a tremendous buying opportunity."

Biderman, who has been bullish even through much of last spring's correction, says he'd change his mind about the stock market if, as in early 2001, he saw corporate buybacks and wage growth hit a wall as corporate insiders ratchet up their selling. "That presaged the last recession," he says. "We see nothing like that now."

Bear Stearns' Driscoll agrees that the fundamentals in the economy have not come apart. "We have to come up with a reason for every single wiggle and jiggle in the S&P 500 futures, and sometimes there's just a change in sentiment that doesn't have that much of a reason behind it," he says.

Sentiment has changed in the stock market, and it reflects the uncertainty. According to MarketVane, which measures sentiment in futures markets, the bullish consensus for stocks is at 66% -- "no-man's land," says Rich Ishida, chief technical analyst at MarketVane.

The peak was 74% in January, and the 24-month trough was 54% last June, which corresponded with a low point in the stock market. "If it is truly a bull market, the bullish consensus should get back to neutral

or the 54% area before we feel really confident and rally once more."

So there may be more of a correction to go, particularly as the economic data continue to stream in inconsistently. This week, industrial production far outstripped expectations, while regional surveys of manufacturing activity in Philadelphia and New York were weak.

The producer and consumer price indices showed a large increase in headline inflation, but primarily due to energy- and food-price increases. Jobless claims reverted to early-February levels after a spike at the end of the month and in early March. But retail sales were markedly soft.

Some of it comes back to the weather, Joe Brusuelas told me in an interview on

TheStreet.com TV. The post-holiday season is not typically strong, and February was particularly cold this year. Likewise, the market is in a seasonally quiet time after fourth-quarter earnings season, says Margaret Patel, portfolio manager at Pioneer Investments.

"The market can ebb and flow now," she says. "Absent news, and absent any major spillover from the subprime front, you're likely to see the market trade randomly in response to news that might not have any long-term significance." Also, technicians were looking for an 8% to 10% correction, and stocks aren't there yet. The Dow and the S&P are down about 5% from their late-February highs, while the Nasdaq has slid 6%. Watch out below.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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