Well - the DOW failed to break through the all-time high close to set a new record. It looks like we are in a trading range along that uppuer boundsin 11700-11600 range.

I am trying to think of what types of news have actually moved the market down over the past 12 months and it seems like the biggest potential impact will be not the housing statistics but instead the PPI and CPI data.

We could see some very interesting reports within a few weeks where the media is unsure of how exactly to spin the numbers. I expect big negative numbers in both the PPI and CPI due to the recent drops in energy and commodities.

This can potentially be spun to highlight the goldilocks scenario - gradually slowing economy with low inflation, however if those statistics come out low enough - I think that we risk more of the deflation scare thing again. I expect this to absolutely kill the precious metals as well as the energy markets.

Because those sectors have lead the bull market over the past three years along with the financials I expect the major drawdown in the market will occur. The question is if we can immediately turn to the financials at that point for leadership.

I don't think so - mainly due to the CPI/PPI implications for the treasuries markets. We have Fed Funds at 5.25% and the Prime Rate at 8.25% - if we are getting those negative inflation readings at potentially -0.5% on both - we are talking about 30 year treasuries at sub-4.50% yields again with the other maturities closing in on 4.25%. That is a seriously negative spread for the banks and that is the main factor I think could destroy the financials - not all of the stories of housing blowing up - because every bank is going to play pass the buck for the next 12 months - arguing that other banks have made bad loans, but their own portfolio's credit strength is pristine.

So what is there to be bullish about? I think that more benign inflation reports can delay the damage a bit longer and we will see new highs in the DOW under that scenario.

For what it is worth..........

-BG

Soulek1

The DOW may be buying the goldilocks scenario - but oil won't.

I still think a Bear call was the correct call -
but it is the last bull run - metals, energy, transports etc.. - that is in the Bear.

$XOI bounced off the bottom of one of the rising trendlines it crashed through about 3 weeks ago.

If it can't clear this I may already be a short again.

But a bounce of oil to $66 I guess could happen - and would be a definite short then IMO.

tradesman