WSJ: Checking the Vital Signs of a Jittery Market

The housing market is weakening. Job growth is stalling. Emerging markets are teetering. And U.S. stocks are struggling.
Despite a strong rally late last week, the Dow Jones Industrial Average is down 4.7% from its all-time high, set just over a month ago on New Year's Eve.
So what has happened and what does the smart money on Wall Street think lies ahead?
The stock market shrugged off a disappointing job report on Friday.
The labor market in January registered weak gains for the second straight month, a slowdown that could heighten fears about the economic recovery and may lead some to call on the Federal Reserve to reconsider its easy-money strategy.
Also during January, housing data showed distinct softness. The government announced that ground breaking to build new homes dipped 9.8% in December versus November.
Another report showed sales of new homes fell 7% over the same period.
When these data drop investors dump shares because the future prospects for earnings growth will be lower.
All this news came on the back of increased concerns that some emerging-market economies, notably Turkey, South Africa and Argentina, were looking shaky.
Early this month the steepest drop in new-order figures for U.S. manufacturing since 1980 did little to dispel the fear.
Will the markets fall further? Or did last week's back-to-back triple-digit gains suggest the worst is over?
The trick is to watch investor sentiment, says Cody Willard, an Alto, N.M.-based money manager.
Market Vane's Bullish Consensus, which tracks the outlook of financial advisers, stands at around 58% bullish for the S&P 500.
"That's consistent with a normal correction [or a 10% pullback] within a bull market," says Rich Ishida, who runs Pasadena, Calif.-based Market Vane.
The S&P 500 is down 2.78%, so there's still room to fall.
Further out on the horizon: When the bullish sentiment reads 72%, then investors might want to start getting cautious, says Mr. Ishida.
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