Much to the chagrin of my wife and baby, I was musing this weekend about whether things can get any better for the bears. I came up with the very scientific answer of "not much."

Yet for all the arguments supporting the bears' case, and as trying as the market has been of late, it's not as if major averages have collapsed. Looking up this afternoon, I see the Dow Jones Industrial Average once again trading above 10,000 this morning, while the S&P 500 is putting more distance between it and key support at 1080.

Could it be that the market has taken the bears' best shots and is climbing off the canvas? Maybe so, but the evidence seems to indicate that any flurry by the bulls will be short-lived.

Yes, recent data have shown signs the economy is on the mend; just this morning, existing home sales posted a record-setting month. But other measures such as capacity utilization continue to show an economy mired in weakness, and many of us are skeptical about getting overly excited by evidence of modest improvements. (Quick, raise your hand if you feel more secure about your job today vs. a year ago, or two years ago.)

Certainly, few CEOs are willing to make optimistic forecasts before being damn sure they aren't going to lose whatever credibility they have left by being proved wrong (again). For every General Motors ( GM), which this morning cited better-than-expected sales in raising its targets for this year, it seems there are two Williams Communications Groups ( WCG), which said it may reorganize under Chapter 11 bankruptcy.

Elsewhere, longtime skeptics such as David Tice and Bill Fleckenstein must be feeling vindicated by the ongoing revelations about corporate accounting in the wake of Enron's implosion. During the market's headiest days in the late 1990s, both short-sellers claimed the earnings growth on which the bull market was built was largely mythological, or at least grossly overstated by various balance sheet shenanigans. This morning was unique in recent times in that there weren't any new disclosures about accounting investigations or restatements of earnings.

On a separate but related note, hardcore bears are buoyed that what they've long believed are lapse lending practices by the nation's banks are coming home to roost, as best embodied by the pall hanging over J.P. Morgan Chase ( JPM).

Other issues supporting the bears' case include:

  • All but the most wildly bullish participants concede that equity valuations remain rich, even after the big declines of the past two years.

  • The global economy, particularly in Japan, remains weak.

  • The potential for peace in the Middle East seems as dreary now as at any time in the recent past. The prospects for some kind of shock on the energy front are therefore heightened, especially if other nations become actively involved in the Israeli-Palestinian unrest and/or the U.S. launches strikes against Iraq.

  • Osama bin Laden and Al Queda, while neutered, aren't dead yet.

  • Retail investors, while not giving up on stocks, have scaled back their enthusiasm; assets in equity mutual funds fell by 13.9% to $3.4 trillion in 2001, according to the Investment Company Institute. Yes, the market's losses contributed to that decline, but so did the weakest level of inflows into equity funds in several years.

  • Gold, which rightly or wrongly is perceived as a safe haven, has recently stirred echoes of its past glory, although the past week has not been kind to the yellow metal and related stocks.

    I've heard about the above, plus myriad other arguments, from the bears of late. Judging by various sentiment indicators, their ranks haven't swelled as much as the chests of those in the skeptics' camp. That's based on the admittedly anecdotal evidence of the rising number of (unsolicited) phone calls and emails I've been getting recently from folks who steadfastly believe the major averages still have at least 50% downside to go. Essentially, these folks believe the entire 1990s bull market was built on sand and that major averages have to go back to 1994-95 levels before any meaningful advance can begin.

    Although I believe stocks will likely remain a difficult place to make money for several years, I don't subscribe to this "let the punishment fit the crime" mentality. Much as I didn't agree with the extreme bullish sentiment of the bubble era, I don't support the extremely bearish view because it gives no credit to the real improvements made by U.S. businesses last decade and/or productivity enhancements generated by technology.

    Perhaps the final knockout is coming, but savvier bears, at least, seem to be aware they may have to give away a round or two to the bulls before going back on the offensive.
    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.

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