The Philly Fed did not come in slightly negative it actually got slightly worse then before and that certainly does not help.  We are now approaching the point where we will need some things to start improving or the likelihood of another significant move down increases.  Last week I mentioned a trend line that I expected to characterize the recovery, it has broken to the downside and it looked like the week was going to wrap kind of nasty, until some of the big boys threw a few stacks onto the table and drove the market back up at the close.  Will this relatively transparent capital infusion work to stimulate another mini rally? 

We have a lot of inflationary data coming in next week and if the trend from the CPI last week continues, then it is reasonable to expect that the market will not react favorable.  The next shoe to drop is the bond insurers and this rather nebulous story is unfolding in a rather unusual way.  The threat of major players having their credibility downgraded, is a little different then watching irresponsible lenders go out of business.  The market is very sensitive to this credit rating issue and while the bond insurers are guilty by association, their culpability in this situation is tenuous.  While they are not innocent bystanders of the poor lending practices, they were not directly able to influence those standards.  This is where we begin to cross the line of the subprime fallout from a general malaise ripple effect to more specific domino effect.

These are going to be stories to watch, and it is time to seriously consider that another move downward is in the making.  Hopefully, Friday’s infusion of money will spur a rally and an opportunity to exit the market.    However, if this becomes the expectation, then it will never materialize.  At this stage of the game the downside risks are increasing and the chance of this market breaking to the upside are slipping away.  Stagflation may be a foregone conclusion by the end of this week.