There’s a lot of speculation about what is going to happen this week and there is certainly no shortage of things to speculate about.  With everyone watching to see if the financial crisis is spilling over into the broader market, and little slips will trigger chain reactions. 

Monday – New homes sales in the morning then the State of the Union address that evening.  My feeling is that anything housing related is potentially bad and the same goes for GW.   The president simply has no credibility on any front anymore, so the more he tries to paint a rosy picture, the more people will be put off.

Tuesday – Durable goods and consumer confidence.  If Monday sells off, we could see these reports give us a positive kick.  I am looking at these reports to set us up for a bottom.  Conversely, if these come in low, then that may very well set the trend for the rest of the week.

Wednesday – We have ADP employment in the morning which should give us a clue as to what we will see on Friday when the jobs report comes in.  We also have GDP and the chain deflator.  The last two reports are expected to show inflation is not moderating since the expectation is quite high. Any rate cut by the FOMC at 2:15 could be undermined by more inflation worries.  Supposedly, recession will take care of inflation but we have yet to see that happen.  The rate cut speculation is all over the place and it is likely that no one group will be happy.  The largest group appears to be  those expecting 50 basis points.

Thursday – We get more inflation data in the form of personal spending, which is one of the hottest issues out there.

Friday – To wrap up an already big week, we have consumer sentiment, construction spending and the almighty jobs report.

This is a huge week and if all things go well, we could establish a bottom, which would be a great buying opportunity.  However, the number of things that could go wrong this week is easily a recipe for a panic driven disaster.  The market is beaten down and prospect of going lower is on everyone’s mind.  I expect the market to retest last week’s low at which point it will decide if it thinks we are in a recession.   

There is no reason to believe that we won’t see more of last week’s volatility and intraday reversals, so were looking for the true trend of this market to reveal itself and that comes down to last weeks low holding on a retest.  It’s all about 1270 on the downside and 1380 on the upside.  I expect one of these lines will be crossed late Wednesday or Thursday.

If it looks like we have a bottom and we start to rally, I may buy back in, otherwise, I will continue to hold my position in the F-fund despite the expected rate cut.  The value of bonds during a flight to safety far exceeds what will happen as a result of the Fed.