WHAT NOW?

Yesterday the S&P finished down by 2 pts, the first down day in eight trading sessions.

True nothing much has happened in most of the last eight trading sessions, with the exception of the month-end window dressing rally. The bulls are looking for a year-end rally. Their argument is:

• The uptrend from the 03 low is intact.
• The market has absorbed all the bad news and remained resilient.
• Fiscal policy will support the economy and generate corporate profitability on Katrina spending. Yesterday's ISM index, certainly supports this.
  
• The Fed is almost done.
• We've seen the worst on oil prices.
  

The bearish argument is:

• The higher oil prices of the past year are working their way through consumer and corporate pocketbooks and will hurt spending and profits for the rest of the year.
• The Fed will continue tightening until they get mortgage rates up and slow housing. Greenspan is now concerned about inflating asset prices.
• Corporate profits while good, are slowing and are on a downward path. Earnings misses will be blamed on energy and Katrina.
• Inflation is in the pipeline.
• Energy prices will stay high particularly natural gas. This will significantly slow consumer spending which accounts for 70% of GDP. Evidence of stress is starting to show up in the higher percentage of consumers who are charging their gas purchases rather than paying cash. Also the percentage of consumers who are late on their credit cards has been increasing.