In my previous post, I expressed a lot of concern about downside market risk despite holding out hope for a decent finish during the last two days of the week. That was before the British terrorist plot was disclosed and I was really fearful that it would act as a negative catalyst to put us over the edge. Amazingly, Thursday held up and Friday was not too bad either. When I reviewed the signals this weekend, the situation had improved substantially since Wednesday’s post. I guess I should stick to my plan and avoid looking at charts midweek.

Regardless, I am still concerned about downside risk in this market. Volume has been disappointing and except for today, each rally has been met with enough selling to wipe out the gains. Three weeks ago, I was contemplating several things that could give the market a bullish impetus. I am amazed by what has happened with those forecasts and it’s not that they almost all came true (still waiting on North Korea talks and oil in the $60’s.) What is amazing (at least to me) - is that despite the Israel / Hezbollah ceasefire, FOMC rate pause, and better-than-expected earnings season, the market has not responded well to any of it. However, I am keeping my head up and if nothing else, I am impressed that the bears have only been able to negate the gains rather than accelerate losses.

It wasn’t long ago that the spin on PPI and CPI by the bulls was that they are lagging indicators and really shouldn’t be given much weight. Oh how things have changed…. today’s PPI was given a lot of weight (more than “peace and pause”) and the rally held all day. Now for the final act - the CPI tomorrow is likely to move us in a confirmed direction. If it is consistent with the PPI or at least not indicative of increased inflation risk, I expect the market to move higher and in a way that finally gives credit to the “peace and pause.” On the other hand, if the bears are given one more reason to negate today’s gains, then the downside risk that still nags me will make me wish I had changed more UP signals this week. As it was, I gave about 3 times as many new UP signals than DOWN. Keep your heads up tomorrow.