At the lows for the day. We have some problems:

1) The dollar is up, but oil will not go down;

2) President Bush was throwing rhetoric around, claiming the housing bill is a bailout of speculators, and hinting he might veto it (homebuilding stocks, along with the market, promptly dropped);

3) The CBOE Volatility Index is at its lowest level since October, indicating complacency is very high (it has come off its lows from this morning, however);

4) after advancing smartly the past couple weeks, there are parts of the market that are a big overbought;

5) Finally, Tom Hoenig, head of the Kansas City Fed, is not helping anything by commenting last night that the Fed must be ready to raise rates in a "timely" manner, given the inflation outlook.

By far the biggest problem is oil. Remember, the recent rally we have seen has been on light volume. There is only a small group of traders (maybe 10 percent of the market) who are willing to take on more risk by buying stocks, under the theory that the economy will improve in the second half and the Fed has provided a backstop with the Bear Stearns bailout.

The other 90 percent is either unconvinced of this bullish position, or outright think it is baloney. What has to happen is the mildly skeptical camp needs to be dragged into the market; the best way to do this is a slow move up which will force them in.

Here's where oil is the problem. It provides the bears--and the marginal skeptics--with continuing ammunition about why they should stay out of the market. And it's a strong argument. That's why bulls want the dollar rally to continue; it puts pressure on commodities.

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