FEBRUARY 2, 2005

The range for the S&P was 1189-1195, but for most of the day more like 1190-1193. The day traders are not going to get rich on that. It was no better in bonds or gold or the dollar. Even oil was realitively subdued. It did close below 47.50 so I take that as a bullish omen for equities.

Oil has me puzzled in the short run. The chart looks like a head and shoulders, but the XLE has been making new highs and in the past it has led the commodity. Oil has been the most volatile of the markets lately and has the capacity to influence all the others. We are also in the period where we transition from the heating season to the driving season. Venezuela is rattling her sabre at us, threating to sell her U.S. assets and sell more oil to China. It has a lot of leeway. It can trade between 40-50 without breaking major support or resistance. In the long run, its a buy period. I think a great trade would be to buy the December 2008 futures contract on selloffs. It closed today at 40.02.

The markets need new catalysts. The dollar has sold off and bounced, gold has come off its highs and stabilzed. bonds have been steady, stocks sold off and have now retraced half of that. Interest rates have moved up but they are still low, growth has slowed but is still good, the budget deficit is large, but we are cutting it in half, the Iraq elections are over but the violence continues. I think a lolt of the blue chips fall into the category of having had pretty good earnings but uninspired guidance. The market reflects this. There is no crises of any kind, but nothing to get excited about either.

Tommorrow brings the retailers reports, jobless claims and factory orders. The U.S. consumer is the lynchpin of the world economy so it will be important to see how he did.

German retail sales fell sharply in December and have been falling on a YoY basis since July of 2003. German unemployment hit its highest level since December of 1998. These numbers should make for a lively debate at the G-7 finance ministers meeting this weekend. I wonder if China will criticize the EU the way they did us if pressure is brought to bear on them over their currency peg. As I have mentioned many times in the past Europe and Japan's economies are faltering. They can't seem to generate any internal demand and are totally relying on exports for the growth they have. That is why the dollar bounced and with the Fed raising rates I don't expect a renewed decline until our economy starts to serioulsy slow.