The third down day in a row for the indices has the bears hoping that the "bear-market bounce" has finally come to an end, but selling pressure remains unconvincing. At this juncture, what we have is some much-needed consolidation after a big run.
As I've stated, markets that have been as strong as this one was off the February lows don't just suddenly fall apart. There are just too many underinvested bulls out there who will provide support. In addition, we aren't seeing any great selling pressure. It looks more like routine profit-taking more than anything else.
What really drove the downside action back in January and February were concerns that the market was losing confidence in the central banks. Coordinated action by bankers in Japan, China, Europe and the U.S. was what produced the bounce and I question whether the market is going to lose confidence in this group so quickly again.
There are plenty of good bearish arguments out there, but one bullish argument we don't hear too much about is the credit boom. There continues to be huge demand by pension plans for debt that will help them meet their return targets. Corporations are happy to issue that paper and the proceeds are used for stock buybacks. This has been one of the main driving forces in the market for some time and has been discussed in great length by former Real Money writer Brian Reynolds of New Albion Partners.
He predicted in February that buybacks and mergers funded by all this debt would drive the market back to highs sometime this spring. So far, his prediction looks pretty good. It is this debt boom, more than anything else, that is fueling the market and the debt boom is largely a product of central banker dovishness.
At this point, I'm happy to see a few days of rest as it helps some charts to develop. There are quite a few things of interest if they can consolidate for a while. Two small-caps I'm buying today are Square (SQ) and AirMedia Group (AMCN). I have a few more I like, but I don't expect the market to do much in front of the long weekend.