The spring rally’s in trouble; how much trouble is the question

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The stock market could handle $110 oil, then $115, then $120 and even $125.

But $130 a barrel this week proved to be the breaking point, amid a rash of other bad news.

Wall Street’s loss for the week was the biggest for blue-chip indexes since the second week of February. It won’t be pleasant to look at your 401(k) statement this weekend.

The Dow Jones industrials slid 145.99 points, or 1.2%, today to 12,479.63, and were down 3.9% for the week. The Dow now has lost 4.4% from its recent high reached on May 2. That has pared its gain from the mid-March market low to 6.3%.

In other words, the Dow has given back 44% of its spring rally.

That is emboldening Wall Street bears who’ve contended all along that the market’s bounce would be short-lived, and that it was better to stay on the sidelines. ‘All this was, was a bear-market rally,’ said Bill Strazzullo, chief strategist at market research firm Bell Curve Trading in Freehold, N.J.

Others note that the 30-stock Dow is overstating the amount of damage done so far. Broader indexes have fared better: The Standard & Poor’s 500 is down 3.6% from its May high but still is up 8% since mid-March. The S&P small-stock index is down 2.5% in the recent pullback but is up 11.1% since mid-March.

Many Wall Street pros figured that the spring rally was overdue for a bout of profit-taking. ‘People got pretty complacent,’ said Phil Roth, veteran technical analyst at Miller, Tabak & Co. in New York.

That has given way to more nail-biting about the economy, as record oil prices challenge already financially strapped consumers. Crude oil ended at $132.19 a barrel today, up $1.38. The price was $101 a barrel at the beginning of April.

What’s more, the news from the housing market remains bleak. The median sales price of existing homes sank 8% in April from a year earlier, the National Assn. of Realtors said today. So much for the idea of a spring housing recovery.

‘I think recession risk is higher today than it had been,’ said David Kotok, head of Cumberland Advisors, a Vineland, N.J.-based firm that manages about $1 billion for well-heeled clients.

Goldman Sachs & Co. economists don’t agree. ‘Despite the oil price surge, we continue to expect a modest pickup in [economic] growth in the near term,’ they told clients in a report today. The government’s tax rebates, Goldman says, ‘are likely to outweigh the oil price impact for now.’

Kotok figures major stock indexes could fall back to the March lows reached amid the deepest fears of a financial-system meltdown. But Dan Sullivan, a longtime market analyst who edits the Chartist newsletter from Seal Beach -- and who went bearish on stocks on Jan. 16 -- says that although he isn’t yet willing to step in, he doesn’t expect a move all the way back to the March lows.

‘It’s so negative in the press now, yet the market is holding up pretty well,’ he said.