Sunday, September 24, 2006

Weekly Look Ahead

Last week I wrote that after several bouyant weeks the market was relying on a "goldilocks" economy and would likely deflate if signs of a slowdown surfaced.

That was exactly what happened during the week as the Philadelphia Fed reported Thursday that Mid-Atlantic factory activity was actually down for the first time in about 36 months. You can read more about the report here, but it isn't good.

The report also isn't very surprising. It looks like a lot of it is also a lagging result of the high energy prices of the last year or two. This report isn't yet the indicator of incipient economic decline that would lead me to sell positions and set up for a recession, but it is likely that the market will remain negative for at least the short term.

We're also going into the end of a quarter, when earnings warnings tend to spook investors. Keep an eye on those.

Finally this week is the last week of the fiscal year, which is when mutual funds clear out their portfolios to take tax losses.

I would expect weakness for the short term but we could resume climbing in the medium term.

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