Rev Shark:
New Obstacles Keep Emerging
3/16/05 8:35 AM ET
"The battle of life is, in most cases, fought uphill; and to win it without a struggle were perhaps to win it without honor. If there were no difficulties there would be no success; if there were nothing to struggle for, there would be nothing to be achieved."
-- Samuel Smiles
The bulls are faced with a steep uphill battle as new obstacles emerge, and technical conditions continue to deteriorate. In recent weeks the bulls have done a nice job of stepping up exactly when they need to, but they are looking increasingly less energized as the struggle drags on.
The reasons for the problems are no great mystery. Oil prices are levitating, interest rates and inflation are creeping up, the dollar is weak, the economic picture mediocre, reports of anthrax at the Pentagon are in the news, and the market has no leadership or positive trends in place.
The litany of problems is long but the level of bullishness remains high, which means there is not a lot of buying power sitting on the sidelines waiting to put cash to work as bargains pop up. The market struggles of late have not been great enough to really shake the bulls and that is yet another problem for this market to deal with.
The irony of the market this year is that although it has been extremely difficult and frustrating for many, the major indices are barely off their recent highs. The S&P 500 is only 2.6% off the multi-year highs it hit just a week ago. That is hardly the sort of steep dive that scares investors and makes them bearish.
The Nasdaq is a different story. It has struggled all year and has not even come close to challenging the highs it hit late last year. The lack of leadership from the Nasdaq has left traders focusing on commodity and cyclical stocks, which have began to falter in recent weeks. As they fall and no other group emerges the clear leader, the market mood has become increasingly sour.
The major indices still have technical support and the bulls have shown a strong aptitude for buying just when they need to. They will have to do that again today or there will be some major negative technical developments.
In the early going the indices are attempting to hold steady. Oil is down a little and Research in Motion (RIMM:Nasdaq) is bolstering tech, but the dollar is weak and buyers are looking very cautious after yesterday's poor action.
Many investors badly want to be charging bulls, but until the market proves it has some upside potential they will have to rein in their enthusiasm. This is a time for caution and capital preservation.
No positions in stocks mentioned
Gary B. Smith:
