Citigroup and Merrill Lynch didn't help matters adding more fuel to the already highly flammable financial sector.  Both saw departing CEO's in the last few days, and now Merrill may be coming under investigation from the SEC. 

We know that buying when things look their worst is usually a good idea, but that is more of a longer-term play as the short-term can still produce volatile, uncertain results.  The market seems to be hanging on every news event and economic report.

This week's economic calendar is rather quiet after last week's Fed meeting, rate cut, and jobs report, and next week's CPI and PPI reports.  But we do get an important earnings report from Cisco this Wednesday.

Speaking of the jobs report, we saw a very strong number on Friday, which was much higher than estimates.  There is no "post jobs report" play as the S&P 500 didn't really make much of a move by the close.  We're normally looking to fade (go against) any 0.50% move up or down in the S&P after a jobs report surprise.

You know my feeling on the jobs report - they don't really mean too much.  They are routinely revised drastically in the coming months, but 166K vs. 80K estimates is a nice boost for economic sentiment. 

The trouble with strong economic data at this juncture is that it lessens the argument for continued rate cuts, which the market seems to need.  The current situation of the big financials is troublesome and no one is real excited about news that will decrease the Fed's desire to cut again.  Otherwise, the market would have normally acted much better after that kind of report.

On Friday I pointed out a pattern I have been watching.  There seems to be a mirror image type pattern forming - similar to a reverse head-and-shoulders pattern.  Friday's sell-off and subsequent rebound at the 1492 area kept this pattern alive. 

                                Chart provided courtesy of www.decisionpoint.com

The key levels now are 1490 on the downside, and 1550 on the upside.  If the pattern continues, we could see a move up to 1550.  If it breaks above that level, I think we'll be fine.  If 1490 (~1488) can't hold on the downside, the pattern would break and we'd probably be looking at a test of the prior lows (1375 to 1410 area). 

The TSP Talk Sentiment Survey system is back in the market (100% S fund) this week after five consecutive weeks in the G fund.  The system was able to add modest gains to it's 21% return in 2007.  Last week's poll saw a 0.91 to 1 bulls (41%)  to bears (45%) ratio which is well below the 1.25 to 1 ratio needed for a buy signal.  The lower the ratio, the more bullish it is for stocks. 

We are not seeing any reasons to make any strong bets right now in either direction.  Of our 4 systems and services, 2 are on a buy signal today, and 2 are on a sell.  That's the kind of uncertainty is out there right now.  That could all change in the next couple of days, but which direction that will be.. I wish I knew.  I could guess, but that's all it would be at the moment.  Let's see how the S&P reacts to 1490 and/or 1550 before making any big bets.

That's all for today.  See you tomorrow.

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