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  26.04.2006 16:30

  AloV

  The Malleable Malingerers in the Middle

  By Rev Shark
  RealMoney.com Contributor
  4/26/2006 9:22 AM EDT
   

  "As soon as you become complacent your show gets canceled."

  -- Dick Wolf

  
  Gauging the emotional state of investors is never an easy task, but it is more difficult than usual now. Although the major indices are all within a few percentage points of multiyear highs, the mood doesn't seem particularly buoyant. That leads some pundits to believe we have good conditions to scale the wall of worry.

  On the other hand, the fact that we are holding up so well as energy prices hit record highs, bonds continue to fall and interest rates rise is interpreted by many that the market is overly complacent. How can investors so blithely ignore these painfully obvious negatives? They must be overly complacent and due for a nasty fall.

  Which is it? Are investors overly negative, or just not properly worried? Has the market priced in the concerns or is it just ignoring them? There are some very strong opinions on this and neither side can provide compelling proof of its position.

  The Investors Intelligence sentiment poll of newsletter writers is out this morning and confuses the matter even more. The percentage of bulls and bears both decreased, as did the percentage of folks expecting a market correction. That means more and more folks are simply clueless about what is going to happen in the market.

  In a clueless market, many investors sit on the sidelines and wait for greater clarity. If we trade up, they chase strength. If we trade down, they do more selling. They aren't committed to any particular market view -- they just want to go along for a ride in whichever direction the train is moving.

  In the short term that leads to very choppy action. The great undecided middle keeps changing its mind as the market looks OK one day and poor the next. Hence we end up stuck in a trading range.

  As I wrote yesterday, my gut feel is that we have one good upside move to come. My thinking is that this big uncertain middle is going to be sucked into a surprise reversal and get things moving for a bit. It may not last and may eventually lead to the sort of over-optimism that signals a top, but I feel the ingredients are there for that sort of action. We may drift for a while as Fed worries percolate but a minor catalyst could easily lead to a quick upside move.

  This morning a very strong durable goods report is causing some Fed fear again. Also, Ben Bernanke is scheduled to make some comments tomorrow so the market will be obsessed with that matter. There are a lot of earnings reports out and some surprisingly strong ones such as UARM, LIFC, SCSS, WIRE, TLAB, etc. Even poor Amazon is up on a dismal report. Bonds are down this morning and we have oil inventory numbers coming so there are plenty of cross-currents to keep things tricky.