Just when it looked like stocks were about to break through a wall, they appear to have slipped on a road covered with oil.
A recent spate of at least somewhat positive economic reports came to a halt Tuesday, with fears intensifying over inflation on data showing that wholesale prices accelerated in April. Though corporate earnings continued to show resilience, there were fresh signs of the housing slump hitting leading home improvement retailers Lowe's and Home Depot.
A week after the major indexes posted a major surge they now seem to be hitting a major wall, demonstrating that all the good news to hit Wall Street lately hasn't been good enough.
"My gut is telling me that until the oil situation finds a top plateau, we're going to be seeing very odd market reactions--tremendously good days and some not so good days," says Diane de Vries Ashley, managing partner of Zenith Capital Partners. "Oil is the basis of the whole market psychology at the moment."
Stocks tumbled Tuesday after the release of producer price index data, but Ashley says the economic news is only fuel on the oil-based fire. U.S. light, sweet crude again soared to new heights, breaking past $129, dragging the broader market down with it even as averages gained Monday while oil also rose.
There's a feeling that the markets are recoiling from the top of their 200-day moving average, and will trade in a range until oil eases and investors see more good news.
"I personally would start taking money off the table," says Dave Rovelli, managing director of US equity trading at Canaccord Adams of Boston. "I wouldn't chase the market after the move we've had with the resistance in front of you."
Rovelli watches the technological side of the market, and he sees opportunity there for investors seeking safe stock plays while Wall Street spins sideways. He likes Blackberry maker Research in Motion and iPhone and iPod manufacturer Apple as two companies carving out new niches in the market that have strong appeal.
But even with those two companies, he said he would only buy after their stock price has dropped, a play-the-dips strategy he advises with the broader market, which he doesn't see having much room to the upside.
"You would need a lot of volume and the volume isn't there," Rovelli says.
Among the most often-cited fears for the market ahead, besides oil, are potentially more trouble for financial institutions, food inflation that is weighing on consumer spending and the lingering problems in the housing market.
Federal Reserve Vice Chairman Donald Cohn warned Tuesday that housing and credit issues would continue to bedevil the economy, while investors Boone Pickensand Warren Buffettboth issued warnings about oil prices.
On the positive side, the market are surviving a busy news cycle and a strong surge up with relatively modest selloffs in between. Volatility, a hallmark of the market's slump that began last September, has all but vanished as the Chicago Board Options Exchange's Volatility Index has dropped to levels not seen since early October, though the Vix gained as stocks fell Tuesday.
And there are some who believe better times are yet to come.
"What the market has to start with is some positive psychology and some momentum on the upside, and this was a very constructive weak for that," says Charles Massimo, president of CJM Fiscal Management. "You started to see a rash of money come into the market, though not nearly as much as I'd like to see for a full turnaround."
The hesitancy of the market to creep past resistance levels has investment advisors altering their strategies.
De Vries Ashley, of Zenith Capital Partners, is advising her clients to stay true to their investing strategies and their appetite for risk.
"Those who understand that they are investing in fundamentally sound companies will continue to do so, and those who haven't taken the time to really concentrate on what they're investing in are going to be in and out," she says. "My instinct is not to have a lot of reaction to numbers here and numbers there. We're a lot longer-term. Our level of comfort is based on thematic matters rather than direct reaction to (market events). You don't need to change your asset allocation every 25 minutes."
Dennis J. Barba, managing partner at The Oxford Group, is counseling municipal bonds as a safety measure until the markets can find a clear direction. Barba sees trouble ahead for the stock market as credit issues continue to wash through and housing continues to struggle.
"People are starting to get complacent again," Barba says. "My gut's telling me that the last week or 10 days people seem to have selective amnesia, forgetting what we've been going through since last September."
Other advisers are having their clients hedge on market weakness through fixed-income instruments like structured notes.
Kathy Boyle, president of Chapin Hill Advisors, likes those types of cash positions in times like these, while also advising clients toward exchange-traded funds and mutual funds that have both long and short positions on various aspects of the market.
Among those in that category are Diamond Hill Financial Long-Short Fund and the Prudent Bear Fund. Boyle thinks the overall market is headed for a double-bottom, despite the sentiment of some bulls riding the recent surge.
"I think that everybody's hoping that this is the end, but in my opinion there's going to be another shoe to drop," she says.
Michael Cohn, of Atlantis Asset Management, shares the bullish belief that the worst is over for the stock market, but a sustained rally will be tempered by the reality that the worst hasn't passed yet for the economy.
"I think we're going to be range-bound through the summer," Cohn says.
Cohn likes some beaten-down sectors, including health care. While not advocating specific plays, Cohn identifies the leaders as Medco and Genentech.
But Cohn says oil and food costs will continue to hamper market gains, with the recent round of stimulus checks sent to American taxpayers as doing little to ease the pain.
"The lion's share of those rebate checks are going to go into people's gas tanks and people's refrigerators," he says. "That does nothing to spur the economy."