Will Stocks Break Out of Losing Streak?

Traders are watching to see if stocks can break their three-day losing streak Friday, or whether this week’s selloff is the beginning of a long-awaited pullback.

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Both the Dow and S&P 500 were lower for a third day Thursday, after disappointing Chinese and euro zone manufacturing data rattled investors. The Dow was down 78 at 13,046, and the S&P 500 was off 10 at 1392. The Nasdaq , which has been outperforming, fell 12 to 3063. The S&P 500 is up 10.8 percent year-to-date, while the Dow is up 7 percent since Jan. 1.

“I’ve felt that China was a bigger risk than Europe and they are seeing some problems. I think they’ve got some imbalances to solve,” said Jack Ablin, CIO of Harris Private Bank. “They’re not going to be able to flip a switch and solve it. They have a big reliance on capital investment and not much household consumption, and there’s not much they can do about it.”

Ablin said the market could decouple from the China concerns. “I’ve learned, particularly in the emerging markets, that the economy and markets can be very different…I think the market’s pretty cheap so it can sustain some disappointments, and of course we are getting them,” he said.

Tom Donino, co-head of equity trading at First New York Securities, said the stock market has needed to correct. “The market’s a little overbought and overextended in the short-term and seems to be in need of a correction, which will be healthy,” he said.

Traders have also said because of the market’s big gains so far this year, buyers could be drawn in ahead of the quarter end, as fund managers adjust their portfolios.

As stocks sold off Thursday, oil also fell, with Nymex crude losing 1.8 percent to $105.35 per barrel. Treasury yields fell as bonds drew in buyers. The 10-year yield finished at 2.273 percent.

“Unfortunately, we’re probably in this slippage until first quarter earnings season, and then I think we’re back on track again,” Ablin said.

Housing data has been the highlight of the week, and Friday is no different. New home sales at 10 a.m. EST is the only data.

Credit Suisse economist Jonathan Basile said the 330,000 new home sales he expects would be the best in 14 months. “Fourteen months sounds great but it would be running at half the average long term level,” he said.

FHFA home prices were reported Thursday and were unchanged for January, while existing home sales data Wednesday showed February sales fell slightly to a seasonally adjusted 4.59 million, below January’s pace but 13 percent above July.

“It’s very easy to use the phrase ‘signs of life’ but they (housing numbers) have been showing that. But we have to put it in perspective because we’re coming off such depressed levels,” Basile said. “The best that can be said is this move in the housing numbers look like it might be sustainable. It’s coming concurrently with a quickening pace of job creation and a fall in the unemployment rate.”

What Else to Watch

Fed Chairman Ben Bernanke makes opening comments at a Washington Fed conference on central banking and the financial crisis at 1:45 p.m.

Darden Restaurants report earnings.

Follow Patti Domm on Twitter: @pattidomm

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