January 20, 2005

Well the S&P closed below December's closing low and printed below the intraday low. This is an important support area going back to early November. The Philly Fed index droped by a large 12 points to 13.2. That is hardly conclusive. We have seen that movie before. In September it dropped from 29.2 to 15.9, but then bounced right back to 27.2 in October. I think the earnings so far have not been to bad, but the outlooks have been very gaurded. Tommorrow is expiration Friday, usually a very quiet day. Support around 1170 should hold. If it doesn't its worse than I thought. The nightmare scenario is that this weak guidance is followed up with weak fundamentals over the next few weeks, like the Philly Fed today.

Stocks were definetly the story today as the dollar, bonds and gold were all quiet.

We are somewhat oversold here. That can be cured by going sideways tommorrow or bouncing a little. We can then resume this slide next week if the news flow so dictates.

Personally, I'm expecting the economy to slow. I'm expecting it to slow because of the consumer. The consumer should be very close to trimming his sails. Studies have shown that the first reaction to unexpected expenses is to reduce savings, and if the increased expenses do not subside, retrenchment in spending commences. With gas prices stuck over $1.75 and winter heating bills coming due, the crunch should be coming soon. The retail index (RLX) has recently been at multi-year highs.. It now looks to me like it is rolling over. Stay tuned.