The saying "March comes in like a lion and goes out like a lamb" has some relevance this time around.

Winter got a second wind this past week, giving folks in this part of the world one last back strain with the snow shovel. And, after only eight trading sessions, the TSX is down more than three per cent on the month and saw its worst level since the first day of February.

Whatever complacency that existed among investors at the start of the year is starting to fade and discussion is centering on whether this is the start of something more serious.

The choices are:

1) A simple breather for the market.
2) The beginning of a correction.
3) The start of another bear market.

Indeed, those more pessimistic are arguing we never did emerge from the bear market of two years ago (what did you do to celebrate the two-year anniversary of the bottom of the market this week?).

You win some, you lose less

Here's a trade for you. You give me 10 bucks, and I give you 90. Fair trade? You bet.

Well, if this little pullback turns out to be a 10 per cent retracement of what we have achieved since March 2009, it would be a good trade for sure since we had gained 87 per cent on the TSX prior to the start of the March madness. Of course, such a move would take us a hair below 13,000 which would reverse the entire advance since the start of December.

Analysts, myself included, might view that as a normal venting of excess exuberance; but many will get unglued by it, especially if the media plays it up. After all, a 10 per cent drop would exceed the slide experienced last spring (a little more than nine per cent), so it would be rational to assume investors would begin to contemplate/fear a more protracted tumble down towards the 12,000 mark (last seen in September).

From growth to growl

The key point is there has not been a 10 per cent-plus correction in the TSX since those disappointing days in the first quarter of 2009, and then during the first phase of the market crash in June-August 2008.

To get a real bear market, however, we need to lose 20 per cent or more. What would this look like?

Well, from the intraday high on March 7, a 20 per cent correction would take the TSX down to around 11,460. Back in August of last year, this area offered up minor support, but also an eventual floor after the initial rebound from the Greece/flash crash flurry at the start of the summer.

The real floor last year though was 11,000. The intraday low in July was 11,065 and there was a brief slip to 10,990 back in February. Technically, one would expect this line to hold again should we end up down there; but this ignores the role psychology might play.

In other words, if you think folks got bent out of shape with Greece last year - and that wasn't even a 10 per cent snap back - what do you think the reaction will be to headlines confirming a bear market? Momentum could outweigh technical. But we're getting ahead of ourselves here.

Real bearish indicators versus noise

Let's take a step back and have a look at what has happened this month to cause the pullback. First, there is the situation in North Africa, which has sent oil prices higher. Chinese numbers have also created some concern, with evidence of weaker exports yet uncomfortably high inflation (the national inflation rate reached 4.9 per cent last month, once again beating the government's target).

To top it off, we were ending this week on a softer tone in terms of U.S. economic data. Jobless claims jumped unexpectedly to almost 400K, the trade deficit widened out by more than $5 billion in January and consumer sentiment appears to be weakening (the Bloomberg Consumer Comfort index fell to minus 44.5 in the first week of this month, erasing the gains since the start of February).

Out of that list, there is only one thing I am really worried about: oil. More importantly, are there conditions in place to send oil sustainably higher towards US$150 a barrel? We saw $107 at the start of this week, before equity jitters sent prices back down close to $100.

The longer prices hold above this level, and move higher, the better the odds that inflationary expectations will climb higher. As those expectations become more entrenched, a more structural inflation premium would emerge in the U.S. bond market and others (including Canada's).

And it's the continued upward trek in bond yields that represents the second true bearish indicator.

Thankfully, we're not there yet. Bond yields have fallen in recent weeks as bonds find support from fatigue in the equity market and suggestions of slower economic growth. True, we haven't gotten back to the yield lows earlier in January, but if we were to shave another five per cent off North American equity indices, we probably would.

The key assumption here is the same thing which knocks equities lower also takes oil and the other major commodities lower too. If so, we are back to the first scenario — a pause in an otherwise bullish run for stocks.

It's still possible for stocks to leave March looking less sheepish, though definitely lamb-like.

Andrew Pyle (www.andrewpyle.com) is a licensed wealth adviser and associate portfolio manager with ScotiaMcLeod.